European Business Enterprise and its limitations | History Optional for UPSC (Notes) PDF Download

European Business Enterprises and Managing Agencies in India

• European business enterprises and managing agencies played a significant role in controlling a large part of Indian industries until the First World War.
• These agencies were responsible for mobilizing capital, setting up stock companies, and managing them.
• Three of the biggest managing agencies were:

Bird Heiglers & Co.

• Founded in 1864 by Sam and Paul Bird in Allahabad.
• Initially a contractor for the East Indian Railway (EIR) and North Western Railway (NWR).
• Expanded into a Managing Agent with interests in the mining and jute industries.
• First and most successful labor contractor at Calcutta Port.
• Supplied labor for infrastructure projects across the Indian subcontinent.
• Notable for a contract during a famine in 1873 to unload and transport rice into Calcutta.
• Awarded contracts by the Calcutta Port Commissioners’ Railway in 1880.
• Acquired F W Heilgers & Company in 1917, expanding interests in coal and jute industries.

Different Roles of Bird Heiglers & Co.

• Coal Ships: Bird Line operated two 6,000-ton coal ships, the Flamingo and the Florican.
• Contract Labour: Supplied contracted labour to East Indian Railway (EIR), East Bengal Railway (EBR), and Calcutta Port Commissioners’ Railway.
• Managing Agents: Bird and Company served as the Managing Agent for various businesses, including:
  (i) Assam Saw Mill & Timber: Opened in Sadiya in 1920, manufacturing plywood for tea chests.
  (ii) Barajamda, Gua Iron Ore Mines: Owned by Bird & Company and operating a broad gauge locomotive since 1918.
• Jute Mills: Bird & Company was the Agent for several Jute Mills in India, such as:
  (i) Dalhousie Jute Co, Champdani:A jute mill in Hooghly District, operating 704 looms in 1917.
  (ii) Northbrook Jute Mill, Champdani: Another jute mill in Hooghly District, operating 544 looms in 1917.
• Jute Mills taken over by Bird & Company: F W Heilgers & Company had previously been the agent for these mills before Bird & Company took over in 1917:
  (i) Kinnison Jute Mill, near Barrackpore, Calcutta.
  (ii) Naihati Jute Mill.

F W Heilgers & Company

• A managing agent and merchant company originally established as ‘Wattenbach, Heilgers & Co’. By 1878, it became ‘F W Heilgers & Company’ with an office in Calcutta.
• The company had interests in the coal and jute industries.
• In 1917, Bird & Company acquired F W Heilgers & Company.
• F W Heilgers & Company served as managing agent for several operations, including:
• Coal operations:
• Ondal Coal Co, where a railway was identified.
• Jute Mills: F W Heilgers & Company managed the following jute mills, which were later taken over by Bird & Company:
• Titagarh Jute Factory Co Ltd
• Kinnison Jute Mill, located near Barrackpore, Calcutta
• Naihati Jute Mill

Andrew Yule & Co.

• In 1863, Andrew Yule, a young entrepreneur from Scotland, arrived in Calcutta and founded the Company as a managing agency during the early days of railways, telegraph, and postal services in India. During the British Raj, the company became a large conglomerate.
• By 1875, the Company had established significant business interests in jute,tea, cotton, coal, and insurance.
• George Yule, Andrew's elder brother, took over the Company in 1875.
• George Yule was a proponent of liberal thought and was active in public affairs.
• He served as the Sheriff of Calcutta in 1886 and became the President of the Indian National Congress in 1888.
• After George's death, Sir David Yule assumed control of the Company.
• By 1902, the Company managed over 30 businesses, including jute mills, cotton mills, tea companies, coal companies, a railway company, a printing press, and a zamindari company in Midnapur District, West Bengal, promoting agriculture, forestry, fisheries, roads, schools, hospitals, and dispensaries.
• David Yule was knighted in 1912 for providing food and employment to over 200,000 people during a time of need.
• Under Sir David Yule, the business expanded into power, paper, engineering, shipping, and more. By 1913, Andrew Yule was the largest managing agency house in India, overseeing 37 companies.
• In 1919

Jardine, Skinner and Company

• Founded in 1825 in Bombay, India, initially focused on textiles.
• Expanded into opium, tea, timber, and petroleum.
• Early partners were Scottish, reflecting common practice in British managing agencies.
• Reformed in 1844 in Calcutta by David Jardine and Charles B. Skinner.
• Engaged in importing cotton goods and exporting indigo, silk, jute.
• Opium trade became significant due to competition in textiles.
• By 1860, dominated opium trade alongside Jardine Matheson.
• Expanded into tea, timber, and petroleum by 1860.
• Controlled six jute mill companies by 1890.
• Fourth largest jute mills operator by 1910-11.

Early Operations:

• Jardine Skinner and Company started by importing cotton goods from Manchester and Glasgow.
• They exported products like indigo, silk, and later jute.
• Agents in Glasgow included James Ewing & Co., and in Manchester, Matheson & Scott.

Opium Trade:

• To boost income amidst competition in textiles, Jardine Skinner shipped opium to Jardine Matheson in China.
• They exported opium to locations like Singapore and other parts of southeast Asia.
• By 1860, Jardine Skinner and Jardine Matheson were leaders in the opium trade.

Expansion and Prosperity:

• By 1860, Jardine Skinner was heavily involved in tea trade and later expanded into timber and petroleum.
• Entered into joint ownership of tea estates with Matheson & Co..
• During the 1880s, the company was profitable but with modest returns of 2% – 3% on capital.

Financial Challenges and Influence:

• Faced financial crises in 1848 and 1866, supported by Matheson & Co..
• Returned the favor in 1890 when Matheson faced difficulties.
• By 1890, controlled six jute mill companies and was a key player in the Bengal Chamber of Commerce.

Jute Trade and Cartel Formation:

• By 1910-11, Jardine Skinner was the fourth largest jute mills operator in India.
• Faced challenges like oversupply in the jute trade.
• Participated in discussions to form a cartel to regulate the jute trade.

 Nature & Character

• These were partnership or private limited firms with control limited to 4-5 hereditary individuals.
• They acted as promoters and financiers.
• Companies could apply to the managing agency for loans, acting as financiers.
• In the absence of capital markets, they temporarily bought shares during initial public offerings (IPOs) and later offloaded them, acting as promoters.
• They played a crucial role in mobilizing capital, setting up joint-stock companies and managing them.
• Sometimes,Indian financiers provided capital while European agencies made investment and business decisions.
• They focused on products like tea, coffee, indigo, and jute plantations, mainly for export.
• They acquired land at low rates from the colonial government to establish plantations and invested in mining, indigo and jute.
• For more details, refer to information about Bird Heiglers & Co., Andrew Yule & Co., Jardine Skinner & Co., etc.

Limitations of Managing Agencies

• Excessive Power: Managing agencies held too much power, discouraging Indian capitalists from starting their ventures using the capital they provided.
• Exclusionary Practices: These agencies had their own chambers of commerce and barred Indian businessmen from joining.
• Poor Corporate Governance: They were opaque in their operations, controlled hereditarily and shareholders had minimal influence.
• Misaligned Remuneration: Sometimes, their pay was linked to goals that conflicted with shareholders' interests, such as prioritizing sales over profits.
• Regulatory Changes: Over time, successive Companies Acts and amendments reduced and eventually eliminated their power.
• Inter-Corporate Investments: The use of inter-corporate investments as a control method was common even before the abolition of managing agencies.
• Capital and Decision-Making: Often, Indian financiers provided capital while European agencies made all investment and business decisions.
• Lack of Innovation: They were rarely pioneering firms, with many being established by speculators aiming for quick profits through offloading shares and selling mismanaged mills.
• Monopolistic Practices: The same managing agency house straddling different fields and the concentration of capital in a few European houses facilitated monopolies, which British businessmen exploited.
• Examples: Instances from firms like Bird Heiglers & Co., Andrew Yule & Co., and Jardine Skinner & Co. can further illustrate these points.

Advantages of Managing Agencies

• Managing agencies are not just about their business dominance but also their significant contributions to the socio-economic and industrial progress of the country.
• They provided capital at a time when it was scarce, especially since the banking sector was not easily accessible.
• They modernized the Indian market by introducing the concept of public capital, moving away from the traditional reliance on family capital.
• In major sectors like tea, jute, or engineering, the largest European managing agencies had such strong brand names that their involvement made it easier to raise capital through public issues.