The 30 Day MBA (33 page)

Family business: Kongo Gumi:
578
to date

According to an 8th-century chronicle considered to be Japan's oldest written history, the first Kongo came to Japan from what is now South Korea and remained in the country at the request of Emperor Yomei. The first Kongo built Shitennoji, one of Japan's first Buddhist temples, in Osaka and the company still serves as its ‘chief carpenter', handling repairs and construction of new buildings almost exclusively.

Just as it did in 578, the firm specializes in building traditional Buddhist temples and Shinto shrines, although it has branched out somewhat into general contracting. There are no textbooks to teach
miyadaiku
(specialists in the construction of shrines and temples) how to construct their complex wooden frameworks. The skills are passed down through an apprenticeship-like system, where younger carpenters ‘learn and steal' the trade from the master. The skills are considered an intangible cultural asset, for which they feel a great responsibility and a need to pass it on to younger generations.

The firm has been in profit for as long as employees can remember, racking up sales of 9.4 billion yen (RM304m) in the last business year. It hasn't all been smooth sailing, though. In the late 19th century, business nearly came to a halt owing to an anti-Buddhist movement that led to the destruction of some temples. During the last war, the company managed to survive by building wooden boxes for military use.

Masakazu Kongo, the firm's current boss, has some enduring advice for businesses: ‘Everybody may be fretting about the recession, how tough times are, but you shouldn't be overwhelmed by all the gloom. Believe in your business and stick to it.'

Mediaeval merchants (
1000–1700
)

The next half millennium saw as much development in the business world as had occurred in the whole of recorded history up to that date. The first business advisers hit the road with a message very similar to the one espoused by
The Economist
magazine (9–15 March 2002) nearly a thousand years later: ‘Be honest, be frugal, be prepared.' A network of international banks straddled Europe; city and family conglomerates were established, some that survive to this day.

The first ‘management consultants'

This is one of the earliest business gurus, an anonymous Norwegian author, offering advice to the international businessmen of the day in a treatise entitled ‘The King's Mirror' (circa
AD
1260). The treatise is wide ranging, with only part of it dealing with merchants of the day. From this we can see that written expert advice for business people is by no means a recent innovation. We can also deduce that long before Stanford and Harvard launched their MBA programmes, numeracy, networking and corporate responsibility were high on the list of skills needed for success in business. The tips about how to behave on foreign business trips and on forging partnerships are as valid now as they were 800 years ago:

• He should be ‘polite and agreeable' but should examine goods before he buys them and in the presence of witnesses. If by chance he has purchased inferior goods, let him resell them for what they are and, taking his losses, deceive no one, as he has been deceived.
  
• When abroad, the merchant should live well but carefully and with restraint of speech and passion.
  
• He should study especially the local law books, when he has time. He should master the customs of the place he is trading in.
  
• He should shun drinking, chess, harlots, quarrelling, and gambling.
  
• He should study the sky, directions, and the sea so as to be able to navigate. All merchants have great need of arithmetic.
  
• Let him cultivate the friendship of the officials of the country in which he trades and pay the dues that are required. Let him see to it that none of the government's property gets into his cargo.
  
• He should sell quickly if he can get suitable prices and then be off, for a quick turnover is the life of trade.
  
• He should always buy shares in a good ship or in none at all.
  
• If he acquires wealth rapidly, then he should invest part of his wealth in a partnership trade with others doing the travelling, but he should be cautious in selecting partners.
  
• If he acquires a great deal of wealth in trade, let him divide it into three parts. Let him invest one-third in partnership with experienced and reliable men who are permanently located in towns. The other two-thirds may then be invested in various business ventures for the sake of the safety that lies in diversity.
  

Banking and the Knights Templar

Despite being remembered mostly for their military prowess during the crusades, this order of knights became, in part by accident, the first major international banking institution. Their specific forte was in keeping the highways open to allow pilgrims to come to the Holy Land unmolested. This goal inevitably meant that the Templars owned some of the mightiest castles, and because of their awesome reputation as fighting men, their castles served as ideal places to deposit money and other valuables. A French knight, for example, could deposit money or mortgage his chateau through the Templars in Paris and pick up gold coins along the route to Jerusalem, and back again if he survived! The Templars charged a fee both for the transaction and for converting the money into various currencies along the route.

Over the years the business grew and eventually the Templars ran a network of full-service banks stretching across Europe from England to Jerusalem. At their maximum strength the Templars employed about 7,000 people, owned 870 castles and fortified houses and were the principal banker to popes and kings.

Free trade and the Hanseatic League

Following the ravages of the Black Death in Europe, cities began to grow and prosper as trade increased and small-scale manufacturing revived. In the northern German seaports, merchants and traders sought protection for their business transactions and the transport of their goods. The city of Lubeck had made a treaty with the city of Hamburg in 1230, which established free trade between the two and guaranteed that the road linking the North Sea and the Baltic Sea would be guarded. The absence of a strong central government in Germany allowed the cities to make such treaties, and soon other communities asked to join the arrangement. Riga, Danzig, a trade centre in London in 1266, and Novgorod in Russia all became part of the League's network of 85 cities.

At its peak the League maintained an army and a navy, guarded roads from city to city, kept a fortress and a storehouse in each city, waged war and enforced the merchant's laws at the various fairs.

Hansa businessmen created partnerships for single ventures only, sending a ship from one port to another and then dissolving the organization. Their bookkeeping techniques were crude, and they constantly fought over the division of profits and the calculation of losses.

As powerful rulers created nation states in England, France, Russia and Sweden, this loose federation of merchants simply could not succeed as modern nation states emerged. Its last general assembly is said to have been held about 1669, but its power had long since evaporated.

The House of Fugger

Fugger's business was a bridge between the Mediaeval and modern worlds. The dynasty began in 1367 when Hans Fugger moved his family to Augsburg, Bavaria, and started a business weaving fustian, a strong cotton-and-linen fabric. His sons Andreas and Jacob I developed the family textile trade before severing their partnership in 1454. On their own, both branches continued to expand their reach. Andreas and his sons moved into finance, in Antwerp and Venice as well as Augsburg. Jacob's sons evolved from trade in textile goods to cotton and spice, and ultimately into mining and processing silver and copper. The family developed a network of trading posts under Jacob's nephew and successor Anton that by 1525 extended from the Mediterranean to the Baltic.

When Anton's nephew Hans Jacob (1516–75) took over, he kept control of their holdings through regular reports from their worldwide network of agents. These reports were consolidated into ‘Fugger Newsletters' and circulated among their associates. This was one of the first uses of the word ‘news' to refer to deliberate attempts to gather the latest intelligence. Three branches of descendants survive today; one of them – Prince Carl Fugger-Baben-hausen – re-established the Fugger bank in 1954.

The era of ventures (
1700–1900
)

Throughout history until the 18th century most businesses were small, self-financed and usually short-lived affairs. True, there were exceptions; The East India Company was a monopoly that all but ran India and the Far East, even having its own military and governmental functions. The Peruzzi Company, one of the largest Florentine business ventures, was 60 per cent financed by seven family members and 40 per cent by ten outsiders as far back as 1300. It was organized as quasi-permanent multiple partnerships. Pacioli's double-entry bookkeeping system (see
Chapter 1
) had made long-term ventures possible for the Venetian merchant adventurers. But the general rule was that business was either a one-man band or family affair, using their own limited financial resources, and any collaboration with other business people was on a venture-by-venture basis. The Industrial Revolution was about to change all that, but three other trading innovations, though less well recognized, were set to have an equally profound effect on business life.

Intellectual property rights

A patent gives the owner of an invention the right to take legal action against others to prevent the unlicensed manufacture, use, importation or sale of the patented invention. Its purpose is to give inventors the breathing space to develop a business based on the invention, or to license it to someone who can. A patent is in essence a bargain between the state and the inventor. The state offers a short-term monopoly of around 20 years, in return for the inventor making a full description of the invention – known as a specification – public through the Patent Office. In this way, other inventors can readily have access to the latest thinking in practically every area of technology and build on that to make further inventions. That in turn creates wealth and opportunities for the country concerned. The speed with which information now flows and the global nature of enterprise mean that any benefit is more to the general good rather than to any country, but the principle remains.

The origins of patents for invention are obscure and no one country can claim to have been the first in the field with a patent system. In about 1200 Venice granted 10-year monopolies to inventors of silk-making devices, and in 1444 published the text of the oldest patent law in the world, officially announced as ‘Inventor Bylaws'. However, Britain can claim to have the longest continuous patent tradition in the world. Its origins can be traced back to the 15th century, when the Crown started making specific grants of privilege to manufacturers and traders.

Such grants were signified by Letters Patent, open letters marked with the king's Great Seal. Henry VI granted the earliest known English patent for invention to Flemish-born John of Utynam in 1449. The patent gave John a 20-year monopoly for a method of making stained glass, required for the windows of Eton College, that had not been previously known in England.

Two important legal conditions were established that apply today:

• The famous patent of Arkwright for spinning machines was not allowed for the lack of an adequate specification in 1785, after it had been in existence for 10 years.
  
• Watt's 1796 patent for steam engines established the important principles that valid patents could be granted for improvements to an existing patented device.
  

The Japanese took an interesting approach to the subject. Because at the time there was a tendency to abhor new things, a ‘Law for New Items' was proclaimed in year 6 of the Kyoho Era (1721). It was not until 1885 that the Japanese Patent Office was up and running. The first patent applied for was a patent for ‘Hotta's Method for Rust Stopping Paint and Painting Method', applied for by Zuishou Hotta. The Chinese Patent Office opened in 1985. The late opening of the communist and former communist patent offices was due to their philosophical reluctance to accede private property rights.

Stock markets

The need for stock exchanges developed out of early trading activities in agricultural and other commodities. During the Middle Ages, traders found it easier to use credit that required supporting documentation of drafts, notes and bills of exchange. The history of the earliest stock exchange, the French stock exchange, goes back to the 12th century when transactions occurred in commercial bills of exchange. To control this budding market, Phillip the Fair of France (1268–1314) created the profession of
couratier de change
, which was the predecessor of the French stockbroker. At about the same time, in Bruges, merchants began gathering in front of the house of the Van Der Buerse family to engage in trading. Soon the name of the family became identified with trading and in time a ‘bourse' came to signify a stock exchange. At the same time, stock exchanges began to materialize in other trading centres like the Netherlands (Amsterdam Bourse) and Frankfurt (the Deutsche Stock Exchange, formerly the Börse).

In 1698, when one John Castaing in ‘Jonathan's Coffee-house' in Exchange Alley in the City of London began publishing a list of stock and commodity prices called ‘The Course of the Exchange and other things', the business of stock exchanges really got under way. By 1761 a group of 150 stockbrokers and jobbers had formed a club at Jonathan's to buy and sell shares. In 1773 the brokers erected their own building in Sweeting's Alley, with a dealing room on the ground floor and a coffee room above. Briefly known as ‘New Jonathan's', members soon altered the name to ‘The Stock Exchange'.