An Economic Theory of the Free-Standing Company

Abstract

Abstract The free-standing company flourished in the age of high imperialism, 1870-1914. It was a company typically based in London or some other European financial center which owned purely overseas operations. It was a distinctive form of international business enterprise, although, as indicated below, it evolved from antecedents elsewhere. According to the product-cycle theory of foreign direct investment, successful overseas operations hinge on the exploitation of competitive advantages developed in the home market. From this perspective the free-standing company appears paradoxical because it has no domestic operations from which it can derive competitive strength. This has suggested to some writers that the free-standing company is inherently weaker than the kind of multinational enterprise described by the product-cycle theory. The free-standing company may be just a transi-tory phenomenon, it is suggested, called into being by speculative bubbles on the stock exchange, and doomed to failure in the long run. It has been further alleged that the nineteenth-century free-standing firm was a typical product of European capitalism, in that it lacked professional management, and so failed to exploit economies of scale and scope in the way that US multinationals subsequently did. The apparent decline of the free-standing firm after 1914 is cited in support of this view.