Family Firms, Innovation and Networks: the Interwar British Printed Textile Industry

This paper will consider the role of family firms, the Chandlerian ‘modern business enterprise’ and networks in the British printed textile industry during the harsh competitive and macroeconomic conditions of the interwar period. Chandler focuses on economies of scale and scope (in multiunit enterprises managed by an integrated hierarchy of professional middle managers) as the key factor in efficient, profitable production. The Cotton Industry Enquiry of the Economic Advisory Council Committee advanced a similar strategy of increasing scale in 1929-30. It recommended the industry to co-operate under the JCCTO to produce and market standard lines, reduce costs of production and increase efficiency. Lazonick (1986) also argued that the failure to reorganise the industry under vertical schemes of amalgamation, rationalisation and standardisation led to the decline of the industry. However, this paper argues that reliance on strategies for cost reduction through increasing scale was ineffective under these economic conditions – the firms with the strongest competitive advantage were those that focused on innovation to create a differentiated, lower priced product. Furthermore, those companies that were actively involved in industry networks such as the Federation of Calico Printers and Manchester Chamber of Commerce tended to be less successful than those more loosely associated with the networks, as
they concentrated on the establishment of cartel price agreements and political pressure to adjust tariff rates to gain market control, rather than establishing individual paths of innovation and strategic development. Chandler’s 7th proposition (1977) that "career managers preferred policies that favoured the long term stability and growth of their enterprises to those that maximised current profits; they were far more willing than were the owners (the stockholders) to reduce or even forgo current dividends in order to maintain the long term viability of their organisations" is undermined by textile industry family firms, in which the owners bore much of the costs of the Depression to their business personally in order to maintain the viability of the organisation, in contrast to the management policy of the CPA as a multiunit firm that closed production units. The view of family firms as inherently conservative in approach (Casson, 1993) and contributing to British industrial decline (Kindleberger, 1964; Wiener, 1981) has been challenged by Miguel A. Saez (2006), who emphasises their strategic flexibility. This is supported In the British printed textile
industry, in which family firms that had close control over strategy and financial management by owner-directors could survive the hostile competitive environment of the interwar period more effectively.