ORGANIZATIONAL CAPABILITY, ENTREPRENEURSHIP, AND ENVIRONMENT: CHINESE MULTINATIONALS, 1912-1949 THESIS Presented in Partial Fulfillment of the Requirements for the Degree Master of Arts in the Graduate School of The Ohio State University By Shijin Wu, B.A. * * * * * The Ohio State University 2008 Master’s Examination Committee: Approved by Professor Christopher A. Reed, Adviser Professor Mansel Blackford Professor Cynthia Brokaw Adviser History Graduate Program ABSTRACT Chinese multinationals were significant in Republican China between 1912 and 1949. A preliminary database, including forty-eight Chinese multinationals before 1949, is created. Chinese multinationals arose mainly in the late 1930s and the late 1940s. Their overseas branches were found chiefly in Southeast Asia and to a lesser extent in the United States, Japan, and Europe. Chinese multinationals clustered in light and service industries. The dynamic interaction of organizational capability, entrepreneurship and environment determined the rise and performance of Chinese multinationals. Chinese multinationals gained organizational capabilities between 1912 and 1937. Chinese entrepreneurs were ambitious in discovering opportunities in overseas markets. The key constraining factor was bad timing and environmental adversities. Chinese multinationals, when they just got started, met extremely adverse environments (WWII and the Chinese Civil War). If China’s and the world environment had been more favorable in the 1930s and the 1940s, Chinese multinationals should have been more developed. ii To my parents and Chen Juan iii ACKNOWLEDGMENTS I wish to thank my committee members in History Department at OSU. My advisor, Christopher A. Reed, has given constant encouragement and instruction on my research. His critical comments are the key to the formation of this thesis. Professor Mansel Blackford introduced me to the fantastic world of business history. The knowledge which I have learned with him in the past two years laid a foundation for this thesis. Professor Cynthia Brokaw offered quite a few constructive advices, which made this thesis more compact and consistent. I also wish to thank OSU Department of History and Harvard Business School, which founded my research. The Bradley R. Kastan Award and Tien-yi Li Prize of OSU Department of History enabled me to undertake a research trip in China in summer 2006. The Alfred D. Chandler Jr., Fellowship of Harvard Business School enabled me to assess the rich materials in Cambridge. At Harvard, I was warmly welcomed by Geoffrey Jones and Walter Friedman. They offered the most conveniences that they could give to me. I benefited a lot from the discussion with Professor Jones, Professor Friedman and Professor Elisabeth Köll. I am deeply indebted to each of them. I am grateful to Professor Mona Makhija from OSU Fisher Business School. She generously permitted me to join her international business seminar, which greatly enriched my theoretical knowledge of international business and multinational enterprises. iv I also want to thank Professors Derek Heng, Judy Wu, Mira Wilkins, Sherman Cochran, Brett Sheehan, and Kwan Man Bun, who have answered my various questions relating to Chinese multinationals through e-mails. Craig Nelson, my friend at OSU Department of History, read the whole draft of this thesis and offered many valuable comments. My greatest personal debt is to my parents and my girlfriend Chen Juan. My parents consistently cared any progress of my research. They give me the most valuable and unselfish support and encouragement. I heartily thank my girlfriend, Chen Juan. Despite majoring in science, she has been always a patient reader and an incisive reviewer of the stories I have written in this thesis. Her comments helped sharpen the arguments and improve the organization of this thesis. v VITA October 13, 1982…………………………Born – Baoding, Hebei Province, China 2005………………………………………B.A. History and Economics, Peking University, China 2005- present……………………………..Graduate Teaching Associate, The Ohio State University FIELDS OF STUDY Major Field: History vi TABLE OF CONTENTS Page Abstract……………………………………………………………………………………ii Dedication………………………………………………………………………………...iii Acknowledgments………………………………………………………………………..iv Vita……………………………………………………………………………………….vi List of Tables……………………………………………………………………………...ix List of Figures……………………………………………………………………………..x Chapters 1. Introduction………………………………………………………………………….1 2. Chinese Multinationals: Organizational Capability, Entrepreneurship, and Environment…………………………………………………………………………7 2.1 Multinational: A Missing Type of Enterprises in Chinese Business History……………………………………………………………………………8 2.2 The Meaning of Multinationals……………………………………………….13 2.3 Early Chinese Multinationals before 1912……………………………………16 2.4 Organizational Capability, Entrepreneurship and Environment.……………...21 3. Chinese Multinationals 1912-1949: a General Survey……………………………..32 3.1 Formation of Organizational Capability………………………………………33 3.2 The Role of Entrepreneurship…………………………………………………41 3.3 Internationalization……………………………………………………………49 3.4 Impediments…………………………………………………………………...58 vii 3.5 Summary………………………………………………………………………61 4. Chinese Multinationals 1912-1949: Case Studies………………………………….64 4.1 Ming Sung Industrial Company……………………………………………….68 4.2 Chinese Egg Produce Company……………………………………………….89 4.3 Mayar Silk Mills……………………………………………………………..111 4.4 Nanyang Brothers Tobacco Company……………………………………….141 4.5 Summary……………………………………………………………………..159 5. Conclusion…………………………………………………………………………163 Appendices A. A Preliminary Database of Chinese Multinationals Before 1949………………..170 B. Management Hierarchy of CEPC in 1930 and 1942…………………………….179 C. Correspondences between CEPC and OEPC, January- April 1941……………...181 D. The Statistics of Foreign Direct Investment of Chinese Multinationals…………184 Bibliography……………………………………………………………………………194 viii LIST OF TABLES Table Page 4.1 Demurrage Bargaining Process……………………………………………………83 4.2 The Levels of Regulations of Mayar……………………………………………..116 4.3 Geographical Distribution of Nanyang’s Sales Amount…………………………149 4.4 The Manufacturing Situation of the Dutch East Indies factory in 1933…………154 ix LIST OF FIGURES Figure Page 4.1 Organizational Structure of Mayar Before 1940…………………………………115 4.2 Organizational Structure Adjustments to Support Overseas Expansion…………124 x CHAPTER 1 INTRODUCTION Contemporary Chinese multinationals have been a notable force in the world. The state-owned multinationals, such as China National Petroleum Company, China National Offshore Oil Corporation, BaoSteel (Shanghai-based steel mill), the Bank of China, and Industrial and Commerce Bank have undertaken their global outreach for energy, materials and finance. In the private sector, Lenovo (a leading personal computer manufacturer based in Beijing), TCL (a leading TV manufacturer based in Guangdong), Huawei (a leading networking and telecommunications equipment supplier based in Shenzhen), Haier (a whitegoods manufacturer based in Shandong), and Galanz (a home appliance manufacturer based in Guangdong) have all established overseas branches to exploit the opportunities in overseas markets. In 1996, Haier started to manufacture in Philippines, Indonesia, Malaysia and the United States. In 1999, Haier established a manufacturing factory in South Carolina.1 Huawei and Galanz have established R&D centers in Texas and Oregon respectively. The acquisition of French Thomson SA's television unit by TCL and the takeover of IBM's laptop computer line by Lenovo have 1 Haier American manufacturing factory is established mainly for avoiding long-range shipping cost, tariff and making use of local design and technological advantages. The American factory, quoted from Haier’s official website, symbolizes “the start of Haier's policy to incorporate local resources of design, manufacture and distribution in foreign countries by the design institutes in Los Angeles, the manufacture plant in South Carolina and utilization of local finance and talents with an aim to develop Haier a world's recognizable brand.” See http://www.haier.com/AboutHaier/HaierWorldwide/introduction_usa.asp (accessed December 11, 2007). 1 been highly publicized joint ventures in the past several years. However, Chinese multinationals are not a new phenomenon in the era of Chinese economic reform since the late 1970s. Regrettably, however, we know very little about the historical predecessors of contemporary Chinese multinationals.2 To fill this void, this thesis has traced Chinese multinationals3 in Republican China between 1912 and 1949. It includes a preliminary database of forty-eight Chinese multinationals prior to 1949, giving a general biography of Chinese historical multinationals. Moreover, this thesis describes in detail the development of four Chinese multinationals in the Republican era: Ming Sung Industrial Co. (民生實業股份有限公司 minsheng shiye gufen youxian gongsi, est. 1925), Chinese Egg Produce Company (茂昌蛋業股份有限公司 maochang danye gufen youxian gongsi, est. 1923), Mayar Silk Mills, Ltd. (美亞織綢廠股份有限公司 meiya zhichouchang gufen youxian gongsi, est. 1920) and Nanyang Brothers Tobacco Company (南洋兄弟煙草公司 nanyang xiongdi yancao gongsi, est. 1905). The dynamic interaction of organizational capability, entrepreneurship and environment fundamentally determined the rise and performances of Chinese multinationals in the Republican era between 1912 and 1949. Chinese enterprises were entrepreneurial and organizationally capable for exploring overseas markets. However, the