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Business Success - Learn From the World's Oldest Fortune 500 Company

Aug 27, 2008
1987 was a good year for Jardine Matheson, the Fortune 500 company, otherwise known as Jardines, JMs, the Firm or the Noble House. In his departing press conference in 1988, Simon Keswick (the great, great, great, great nephew of William Jardine, joint founder of Jardine Matheson & Co.), proudly announced the "full profit recovery of the group after its difficult years in the mid-1980s".

"We must of course temper our enthusiasm for the future with an element of caution. The world economy has still not found a new direction since the stock market crashes of October last year, and we must preserve the strength of our balance sheets and maintain tight control over overheads".

For those who don't know, the Jardine Matheson Group is one of the most legendary business stories of the nineteenth and twentieth centuries. A British firm, with dubious beginnings dating back to the Opium Wars with China in the early 19th century, it employs 60,000 workers in Hong Kong with businesses based mainly in the Asia-Pacific region and significant interests in the USA and the United Kingdom. Today, the Group employs a total of 130,000 people throughout the world and its operations span the fields of engineering, transportation, retailing, property, hotels, supermarkets and insurance broking. It's published consolidated net profits, after tax and outside interests, in the year 2000 were $HK930 million, compared to $HK207 million in 1999.

Jardines however have not always been this fortunate. After a severe economic downturn in 1982, Jardines was heading for rock bottom. In 1982, the earnings per share for the Jardine Matheson Group was $HK1.77. In 1983 they dropped to a severe $HK0.28, worsened in 1984 to $HK0.18, and rose to a paltry $HK0.42 in 1985. But by 1986, the mighty Noble House turned their worldwide operations around and in 1987 recorded their highest profit increase in the history of the organisation at that time.

THE HISTORY OF JARDINES

In Canton on 1st July 1832, Scots, Dr William Jardine, a former ship surgeon, and James Matheson, a descendant of the prestigious Mathesons of Lochalsh and Attadale in Scotland, co-founded the humble beginnings of the future illustrious trading company, Jardine Matheson & Co.

From the 1600s to 1800s, "The Honourable East India Company", as it was then called, monopolized all British trade with China and India, despite the unpopularity of monopolies in Britain according to the ideologies of the "father of economics", the great Adam Smith (1723 - 1790). As a result, the East India Company was constantly under attack and finally in 1833 an Act of British Parliament abolished its monopoly. This naturally opened the door for other smaller trading companies, of which, Jardine Matheson & Co. was one.

The Chinese government generally considered these traders from far lands 'barbarians' and trading with China was typically unfriendly and fraught with difficulties. But what England needed most from China was two things: tea and silk. Silk had always been in great demand, but the latest fashion to emerge in England was the drinking of tea (originally pronounced 'tay'). At this time, China was the only country that grew tea, which wasn't grown in India until the later part of the nineteenth century. The biggest problem for these British traders, however, was: what did China need in return for trading tea and silks?

The solution was eventually found, but not necessarily an ethical one - at least, not by today's standards. Opium! We must remember, of course, that back in those days opium was not illegal in Britain, and the trading of opium to China received the approval of both Houses of Parliament in 1831, and commonly traded to China by most western traders of that time, including Jardine Matheson & Company.

The East India Company, on the other hand, did not trade opium due to the severe disapproval of the Chinese government. Since the late 18th century, opium smoking had been prohibited by the Ch'ing government but was considered more of a moral issue than a law that was actively enforced. Nevertheless, opium trading became extremely lucrative for the western traders who persevered.

The fact that opium addiction could become particularly dangerous, however, was becoming well known even in England. In China, the government had every cause for alarm for as many as one fifth of its officials were addicted to the insidious drug.

Eventually the Chinese government took a firm stand, which resulted in the Opium Wars with Britain. William Jardine and James Matheson played a strategic part during the first Opium War (1839-1842) through their paper, The Canton Register, and petitions and private conversations with the British Foreign Office. They leased their ships to the Royal Navy and lent their own men as captains and translators. Jardines were not the only trading firm to lend a helping hand, but they were the largest and most fervent.

By August 1842, Chapu, Shanghai and Chinkiang were captured by the British, Peking was blockaded and Nanking was wide open to attack. The Chinese government surrendered and the Treaty of Nanking was signed on 29 August. This treaty allowed China to be open to foreign trade and settlement, and ceded the island of Hong Kong to British sovereignty, however nothing was included about the trading of opium.

The second Opium War occurred in the 1860s and "was the effective end of the Taiping Rebellion. It had been conducted with appalling brutality on both sides, no quarter given, no prisoners taken, men, women and children massacred.

It is claimed that over 20 million perished - more than all the deaths in the First World War." (Blake, Robert, Jardine Matheson: Traders of the Far East, Weidenfeld & Nicolson, London, 1999. Authorized history of Jardine Matheson by Chairman, Henry Keswick.)

From 1844 to this day (with the minor exception of the years during World War II), Jardines head office has remained in Hong Kong, although Simon Keswick relocated its legal domicile to Bermuda in 1984 and de-listed the Group from the Hong Kong stock exchange in 1994 and moved it to the Singapore exchange. Both William Jardine and James Matheson returned to Britain between the late 1830s and early 1840s and never saw China again.

William Jardine entered politics and won the electoral seat of Ashburton unopposed in 1841. After a long illness he died on 27 February 1843 at the age of 59. James Matheson also with political ambitions and the desire to enjoy his considerable wealth, returned to England in 1842 and was elected to fill the same seat of Ashburton, left vacant by his partner's death. He eventually became a Baron, married, but had no children.

At the age of 82, Matheson died in 1878, leaving no heirs.

JARDINES WORLDWIDE

By the 1860's Jardines expanded into shipping, banking and insurance, and began developing Hong Kong. By the turn of the century, the Firm had set up the first railroad in China, pioneered the first sugar mill and spinning and weaving factory in Hong Kong and had growing interests in China's wharves, warehouses, cotton mills, mining and engineering. The 99-year lease of Hong Kong to Britain was granted in 1898.

Jardines survived a decade of financial turmoil after the outbreak of Word War II and the conflict in China. Although Jardines were forced to close their offices in Hong Kong and China, they were one of the first companies to resume business in Hong Kong after the war and re-established business in Japan by 1947. Like all other companies, Jardines finally closed their operations in China in 1954 and their head office returned to Hong Kong.

Throughout the 1960s and 1970s, Hong Kong transformed into an international manufacturing and business centre and Jardines became a public company in 1961. Jardines pioneered merchant banking in Hong Kong in 1970 and expanded into the United Kingdom and USA.

Jardines longevity and success has been contributed to several factors. The Firm has always demonstrated a unique combination of entrepreneurial enterprise with good sense and caution. Jardines was faster than its competitors to see the value of Hong Kong and Shanghai to buy land and gained substantially from it. In addition, after the closure of the opium trade, Jardines avoided speculation in commodities, which allowed them to outlast any major world economic crises.

Another, perhaps more significant, factor is Jardines has always remained a "family firm". With only a few exceptions over the years, the Taipan, or head of the Firm has always been a descendant of the two original founders. Perhaps it is genetic or just tradition, but the entrepreneurial, whilst prudent, business acumen of this family has never failed to steer the Firm into ongoing success and expansion.

Jardine Matheson survived two centuries despite World Wars and severe depressions and recessions, whilst also expanding their organisation to include businesses throughout Asia, the Pacific, the United Kingdom and the United States of America by following the simple rule of expanding - caution. Caution in business is governed by managing your cash flow!

If your company has a tight control of its cash and eliminates debt - it will never go broke. This can only be achieved by constant internal control and monthly vigilance. It is just that most businesses don't do this in the way that is most beneficial to the organisation.

Slap-hazard accounting and taking shortcuts with your financial reporting and analysis is the reason why most businesses fail. Going into too much debt will leave you open to failure when severe economic conditions strike your business. Businesses that have succeeded through longevity and expansion always have the most cash and the least debt.

Manage your cashflows and you can look forward to a long, happy, stress-free business future.
About the Author
Ann Marosy is an accountant, consultant, and former university lecturer. She was formally a Financial Controller of a Fortune 500 Company, and Finalist of SA Executive Woman of the Year.

Ann is the author of 'The Money Program' book series, which includes managing the stages of wealth creation, formulas for budgeting, debt-free program and investment strategies. Visit: The Home of The Money Program
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