The strategies of the Spanish cotton textile companies before the Civil War: The road to longevity

Abstract

This study, based on family business theories, offers an innovative vision of the Spanish cotton industry. It proves that Spanish cotton companies – just like their European counterparts – implemented a strategy that was consistent with their nature as family businesses and went beyond the economic-institutional frames within which they developed. The article identifies this strategy as ‘conservative’, because its main objectives were longevity and family control and because it was based on a high percentage of own resources, low levels of indebtedness and organic growth, thus sacrificing profitability for the sake of security.

Keywords:

• family firms
• firms' strategies
• Spain
• cotton textile firms
• twentieth century

Acknowledgements

The author wishes to thank Paloma Fernández, Javier Vidal, Guadalupe Valera, John Wilson, Andrew Popp and Steve Toms for their helpful comments and suggestions, as well as the two anonymous referees for their detailed contributions and constructive criticism. However, nobody except the author is to be held responsible for any inaccuracies. The research has been financed by projects 2010/0041/001 (Spanish Ministry of Innovation) and SEJ 4129 (Department of Economy and Innovation, Andalusian Regional Government).

Notes

 1. Benaul, ‘La llana’; Sudrià, ‘Una societat plenament industrial’; Maluquer and Torras, ‘La formació’; Nadal, ‘La indústria cotonera’; Deu i Baigual, ‘L'esgotament’; Tafunell, ‘Banca i mercat’; Sudrià, ‘La empresa española’.

 2. Toms, ‘Windows of Opportunity’. He reported on a similar situation in British historiography.

 3. Nadal and Ribas, ‘Una empresa cotonera’; Soler, ‘Réditos algodoneros’.

 4. See, for instance, Dorel-Ferré, Les colònies industrials; Ribas Mirangels, ‘La España Industrial’; Parejo, ‘Sobre la segunda’. For the twentieth century, see Fernández-Roca, Hytasa; and ‘Beneficios e inversiones’.

 5. Nadal, ‘Los Bonaplata’; Cabana, La burguesía catalana and Cien empresarios catalanes; Dorel-Ferré, ‘Los orígenes’; Torres Villanueva, Los 100 empresarios españoles.

 6. Cabana, Fàbriques i empresaris.

 7. Ferrer, ‘El beneficio de los tejidos’.

 8. Prat, ‘Los mayoristas’, ‘Las estructuras comerciales’, ‘Between the Firm’ and ‘Textile Trade’.

 9. Toms, ‘The Finance and Growth’, 328; Colli and Rose, ‘Families and Firms’; Colli et al., ‘National Determinants’; Fernández and Hernández, ‘The Role of the State’, 9.

10. The Chandlerian conception reduced family firms to a series of negative features: medium or small size, ‘organic’ development (through reinvestment of profits), infrequent use of financial and capital markets (limited to short-term commercial financing), internal succession in management positions according to inheritance laws, lack of capacity to support modern economic growth (Chandler, Scale and Scope and The Visible Hand; Lazonick, ‘Competition, Specialization’ and ‘Industrial Organization’; Mass and Lazonick, ‘The British Cotton Industry’).

11. Nadal, ‘La indústria cotonera'. Between 1878 and 1913, the growth of the Spanish cotton industry can be measured by the growth in the number of spindles, which rose from 1.75 million to 2 millions (a maximum was reached in 1901 with 2.64 million spindles). Calvo, ‘La indústria cotonera’.

12. Calvo, ‘La indústria cotonera’.

13 ‘Practically all the mills are owned by private companies, usually composed of one or two families’ (Ralph M. Odell, US Department of Commerce and Labor, quoted by Harrison, ‘Catalan Goods and Colonial’, 169); Higgins and Toms, ‘Firm Structure’, 204.

14. Without being exhaustive: Sharma, ‘An Overview of the Field’; Handler, ‘Methodological Issues’; Westhead and Cowling, ‘Family Firm Research’; Astrachan and Shanker, ‘Family Businesses’.

15. Colli and Rose, ‘Families and Firms’, 194.

16. Casson, ‘The Economics of the Family Firm’.

17. Cabana, Fàbriques i empresaris, in his description of Spanish cotton companies, provides a catalogue of their characteristics, which coincide with those of dynastic family companies. See Fernández Roca, ‘The Adaptative Strategies’, on the second half of the twentieth century.

18 ‘One frequently finds them operating under the name of ‘The Widow of –’, ‘The Brother of –’, ‘The Nephew of –’, etc.’ (Ralph M. Odell, US Department of Commerce and Labor, quoted by Harrison, ‘Catalan Goods', 169).

19. Lloyd-Jones et al., ‘Culture as Metaphor’. The difficulties and potential conflicts associated to the intergenerational change are well analysed in specialised literature: Daunton, ‘Inheritance and Succession’; Rose, ‘Beyond Buddenbrooks’; Scranton, Proprietary Capitalism; Colli et al., ‘National Determinants’; Fernández Pérez, ‘Reinstalando la empresa familiar’.

20. Toms, ‘Windows of Opportunity’, 3.

21. Rose, ‘The Family Firm in British’.

22. Nadal, ‘La indústria cotonera’, 69–72; Sudrià, ‘La empresa española’. This situation was even more evident in the wool industry: Benaul, ‘La comercialització’; Deu i Baigual, ‘Distribución de tejidos’ and ‘La comercialización de tejidos’; Sudrià, ‘Desarrollo industrial y subdesarrollo’; Solà and Oliva, ‘Tejidos catalanes’.

23. Ferrer, ‘El beneficio de los tejidos’, 59.

24. Prat, ‘Fabricar i comerciar’, ‘Los mayoristas’, ‘Las estructuras comerciales’, ‘Between the Firm’ and ‘Textile Trade’.

25. On the commercialisation of the British cotton production, see Chapman, Merchant Enterprise.

26. Rosés, ‘La integración vertical’ and ‘The Choice of Technology’; Prat, ‘Fabricar i comerciar’ and ‘Las estructuras comerciales’.

27. Prat, ‘Between the Firm’, 191.

28. Nadal, ‘La indústria cotonera’, 45.

29. See Cabana, Fàbriques i empresaris, 97.

30. Toms (‘Integration, Innovation’, 95–6) stated that the Fieldens managed Fielden Brothers Ltd. to the benefit of the family.

31. In this sense, the difference from the Oldham companies (Osborne or Werneth) was great. The managers of those firms, either in their own interest (a part of their remuneration came from the distribution of dividends) or pushed by the shareholders, preferred to maximise the distribution of dividends even if it entailed the decapitalisation of the company (Toms, ‘Financial Constraints’).

32. This was not always so. There were companies such as, for instance, Ashworth that distributed their assets among the members of the family (Boyson, The Ashworth).

33. Toms, ‘The Finance and Growth’, 324. He stated that ‘capital growth rates were strongest where private or family control was exercised and weakest where there was a dependency on regional stock markets’.

34. Rose, ‘The Role of the Family’; Colli, The History; Colli et al., ‘National Determinants’, 35–6. A company's legal form was determined by a ‘complex array of legal, economic and cultural forces’. Rose, ‘The Family Firm in British’, 64.

35. Nadal, ‘La indústria cotonera’, 43. However, the number of limited partnerships slowly increased because this legal form allowed a significant amount of capital to be accumulated with minimum transaction costs and to easily connect capital suppliers and capital demanders. Tafunell, ‘Banca i mercat’, 418.

36. Farnie (The English Cotton Industry, 220) showed how joint-stock companies were created in Lancashire in three different phases during the last third of the nineteenth century: 1873–75, 1880–84 and 1889–92. During the nineteenth century, public limited companies were rarely constituted within the Spanish cotton industry, except between 1847 and 1855, when six of them were founded: La España Industrial (1847), La Fabril Cotonera (1852), La Cotonera (1853), La Industrial Cotonera (1853), La Igualadina Cotonera (1853), La Manufacturera de Cotó (1855). The next one, Sucesora de Fabra i Portabella S.A., was not created until 1884 (Cabana, Fàbriques i empresaris, 81).

37. Fernández and Hernández, ‘The Role of the State', 9.

38. In the case of Venzaghi, 85% of the capital was in the hands of the family (Salini, ‘La società anonima’, 181). Fielden Brothers Ltd. remained a family firm even when it became a public limited company (Law, Fieldens of Todmorden, 236–49 and 271–7; Toms, ‘Integration, Innovation’).

39. Cabana, Fàbriques i empresaris, La burguesía catalana and Cien empresarios catalanes; Fernández-Roca, ‘The Adaptative Strategies’.

40. Toms and Wilson, ‘Scale, Scope’, 11.

41. Mass and Lazonick, ‘The British Cotton Industry’; Toms and Wilson, ‘Scale, Scope’; Cabana, Fàbriques i empresaris, La burguesía catalana and Cien empresarios catalanes.

42. Cabana, Fàbriques i empresaris; Ribas Mirangels, ‘La España Industrial’.

43. Nadal and Ribas, ‘Una empresa cotonera’; Soler, ‘Réditos algodoneros’.

44. Ferrer, ‘El beneficio de los tejidos’.

45. Hilaturas Forcada: fons 199: 07.01.03.03 and 07.01.03.04; Sedó: fons 146: 05.02.07.01 to 0.02.07.10; Fabra: fons 716: 07.01.03.01; Valls: fons 195: 07.01.01.11, 07.01.01.12; 07.01.02.03 to 07.01.02.06; Viladomiu: fons 192: 07.01.03.01 to 07.01.03.13; Mata: fons 368: 07.01.03.71; Serra i Feliu: fons 358: 07.01.03.109 to 07.01.03.113; Almeda: fons 19: 07.01.03.

46. Arxiu Comarcal Baix Llobregat: Güell, fons ACBL50-103.

47. A similar list is found in Toms, ‘Windows of Opportunity’.

48. Toms (‘Windows of Opportunity’) uses an indicator which is similar to the ratio of equity capital: the capital accumulation rate (the increase in the capital employed, defined as the balance sheet total of share capital, shareholders' reserves and long-term loan capital).

49. Indebtedness is also a relevant ratio for Higgins and Toms, ‘Financial Distress'.

50. Toms (’Financial Constraints’, ‘Integration, Innovation’, ‘The Finance and Growth’ and ‘Windows of Opportunity’) and Higgins and Toms (‘Firm Structure’) use ROCE (return on capital employed) because they intend to measure the return on productive investment and aim to find the relation between business strategies, on the one side, and economic growth, technological change, productive innovation and the existence or absence of vertical integration, on the other. Although ROCE and return on equity are not at all identical, the latter is the only available ratio allowing us to compare Spanish and British companies.

51. Net distributable profits are used by Tafunell in his national series (‘Los beneficios empresariales en España’, ‘Los beneficios empresariales en España: Elaboración’ and ‘La rentabilidad financiera'). Nadal and Ribas (‘Una empresa cotonera’), Soler (‘Réditos algodoneros’), Dorel-Ferré (Les colònies Industrials), Ribas Mirangels (‘La España Industrial’), and Parejo (‘Sobre la segunda’), calculate the return on equity of the factories under study because the sources that are available only provide data on their net distributable profits.

52. On Berenguer, see Ferrer, ‘El beneficio de los tejidos’. This situation was also common at La Rambla (Soler, ‘Réditos algodoneros’).

53. Ribas Mirangels, ‘La España Industrial’, 1137.

54. Rose, ‘The Role of the Family’; Chapman and Chassagne, European Textile Printers; Law, Fieldens of Todmorden; Licini, ‘Francesco Saverio Amman’; Salini, ‘La società anonima’; Sudriá, ‘Una societat plenament industrial’, 60.

55. During the nineteenth century, Oberkampf’s equity capital oscillated between 52% and 83% (Chapman and Chassagene, European Textile Printers). Between 1865 and 1889, as Tordmorden Spinning, the Fieldens accounted for 100% of their assets (freehold property, machinery and working capital) with their capital employed. And in 1913, already as Fielden Brothers Ltd., 100% of their assets were backed by their share capital (up to 72% of them) and by retained earnings and other resources (the remaining 28%) (Law, Fieldens of Todmorden, 129, 245). Farnie‘s data (The English Cotton Industry) on the Oldham Limiteds (around 100 companies) indicate that their equity capital ranged between 45% and 60% for the period between 1877 and 1896. But although the Oldham Limiteds were public limited companies that reduced their percentage of capital employed, this did not fall below 55% between 1885 and 1913 (Toms, ‘Financial Constraints’, 372). In Italy, Venzaghi (Salini, ‘La società anonima’) and Amman (Licini, ‘Francesco Saverio Amman’) also fit into the general pattern. On the financing of clients by Spanish cotton companies see Nadal, ‘La indústria cotonera’; Sudriá, ‘La empresa española’; Ferrer, ‘El beneficio de los tejidos’; Prat, ‘Between the Firm’ and ‘Textile Trade’.

56. Prat, ‘Textile Trade’, 82–3.

57. Samuel Greg and Co. applied for long-term loans only a couple of times between 1784 and 1840 (Rose, ‘The Role of the Family’, 37). The Fielden family financed the current assets of its factories in Todmorden with its own money (Law, Fieldens of Todmorden). Peel and Oberkampf behaved in a similar way (Chapman and Chassagne, European Textile Printers). The companies used as examples by Toms (’Windows of Opportunity’) were also reluctant to ask for bank loans and resorted to their social networks to meet their financing needs. In this sense, there are no relevant differences to Amman or Venzaghi (Licini, ‘Francesco Saverio Amman’; Salini, ‘La società anonima Cotonificio’).

58. Sudrià, ‘Una societat plenament industrial’, 61.

59. Tafunell, ‘Banca i mercat’.

60. Serra's ratio of indebtedness once the partners' accounts were deducted was 0.02, while Almeda (0.3), Berenguer (0.05) and Sedó (0.34) reconfirmed the hypothesis. Appendix 2.

61. Sudrià, ‘Una societat plenament industrial’, 31, and ‘La exportación’.

62. Deu i Baigual, ‘L’esgotament’.

63. Nadal and Fontana, ‘España 1914–1970’; Deu i Baigual, ‘L'esgotament’.

64. For instance, equity capital in Forcada experienced a 41% decrease in 1918, while Sedó's was reduced by 31% and Viladomiu's by 38% in 1919. In 1920, Valls' equity capital declined by 23% and Güell's by 33%. Business balance sheets. Own elaboration.

65. Appendix 1.

66. Appendix 2.

67. On the investments made by the cotton industrial sector, see Calvo, ‘La indústria cotonera’; Sudrià, ‘Una societat plenament industrial’; Deu i Baigual, ‘L'esgotament’. For British companies, see Toms, ‘Financial Constraints’, ‘Integration, Innovation’, ‘The Finance and Growth’ and ‘Windows of Opportunity‘; Higgins and Toms, ‘Firm Structure’ and ‘Financial Distress’.

68. Nadal, ‘La indústria cotonera’, 77.

69. Ribas Mirangels, ‘La España Industrial’, 1132.

70. Ferrer, ‘El beneficio de los tejidos’.

71. That was also the case for Samuel Greg and Co. or Venzaghi, whose growth was based on the reinvestment of profits (Rose, ‘The Role of the Family’; Salini, ‘La società anonima’, 184–5).

72. Ribas Mirangels (‘La España Industrial’, 1132) concluded that, in the case of La España Industrial, investment in the cotton industry resulted in very low profitability.

73. Nadal, ‘La indústria cotonera’, 47.

74. The profits of Fielden (Law, Fieldens of Todmorden, chapters 7 and 8) or Venzaghi (Salini, ‘La società anonima’, 185) evolved quite similarly to those of the Spanish companies.

75. Maluquer and Torras, ‘La formació’, 230–1.

76. See the Ley de Relaciones Comerciales con nuestras Provincias de Ultramar (Act of Commercial Relations with the Overseas Provinces, 1882) and the Cánovas Tariff (1891) in Nadal, ‘La indústria cotonera’, 61 ff.; Harrison, ‘Catalan Goods’; Maluquer and Torras, ‘La formació’.

77. Deu i Baigual, ‘L'esgotament’, 13–14; Maluquer and Torras, ‘La formació’; Harrison, ‘Catalan Goods’.

78. Sudrià, ‘Una societat plenament industrial’, 57; Deu i Baigual, ‘L'esgotament’.

79. Profits in the wool sector behaved similarly to those in the cotton sector. Deu i Baigual, ‘L'esgotament’; Sudrià, ‘La exportación’.

80. Deu i Baigual, ‘L'esgotament’.

81. Specialised literature does not clarify the effects of the Cambó Tariff on the hegemonic Catalan textile companies. Sudrià (‘Una societat plenament industrial’) states that these companies were not particularly favoured by the tariff due to the already high level of protection. On the contrary, Deu i Baigual (‘L'esgotament’) argues that protectionism was the only way for the Catalan industry to overcome the crisis that affected the companies once the period of prosperity associated with the First World War was over. He also states that Catalan businessmen were especially active in supporting the strengthening of commercial protectionism.

82. Deu i Baigual, ‘L'esgotament’, 37.

83. Nadal and Fontana, ‘España 1914–1970’; Palafox, Atraso económico; Deu i Baigual, ‘L'esgotament’.

84. Tafunell (‘La rentabilidad financiera’) states that consumption goods industries suffered a severe crisis until the 1890s, followed by a period of prosperity at the turn of the century. The difference between some industries and others lies in their evolution during those years, as well as in the boom experienced by the Oldham Limiteds between 1904 and 1910. Toms, ‘Financial Constraints’.

85. In Japan, the accumulation of reserves after the war allowed the companies to survive the boom and slump of the 1920s. Higgins and Toms, ‘Financial Distress’, 211.

86. Toms, ‘Integration, Innovation’, ‘Windows of Opportunity’ and ‘Growth, Profits’; Law, Fieldens of Todmorden; Salini, ‘La società anonima’; Licini, ‘Francesco Saverio Amman’.

87. See the data on British companies in Higgins and Toms, ‘Firm Structure’, 209; Toms, ‘Windows of Opportunity’, 5.

88. Cabana, Fàbriques i empresaris.

89. Fielden Brothers Ltd. could be classified as a non-dynastic family firm, considering its characteristics as described by Toms, ‘Integration, Innovation’.

90. Toms, ‘Financial Constraints’, 369–71.

91. Between 1847 and 1861, La España Industrial distributed a high percentage of its profits among its shareholders – in order to maintain the value of its shares – and this brought the company to a delicate financial situation. Nadal, ‘La indústria cotonera’, 47.

92. Between 1931 and 1935 the factory at Sants was enlarged and two smaller companies, Filats Mohair and Vda. de Ricard Sada, were taken over. Cabana, Fàbriques i empresaris, 112.

93. Nadal, ‘La indústria cotonera’, 77.

94. The French army did not question the product's quality and price; it was only worried about the delivery of the material. The dialogue between the manufacturer and a general of the French army can illustrate the situation. Whenever delivery times were too short, the Sedó family raised the product's final price and justified this action by mentioning the need to speed up production: ‘Procurarem fer-li el que ens demana, pero no podem donar cap garantia sobre la qualitat del producte final’ (‘We will try to do what you require, but we cannot guarantee the quality of the final product’), said the family, and the French general's answer was ‘no es preocupin per la qualitat. El soldat que porti aquest uniforme estara mort abans que esfaci malbe la tela’ (‘Do not worry about quality. The soldier wearing that uniform will be dead long before the tissue is worn out’). Cabana, Fàbriques i empresaris, 292.

95. The behaviour of the Sedó family company was the opposite of that of the firms described by Higgins and Toms, ‘Financial Distress’.

96. Tafunell, ‘La rentabilidad’, 76.

97. Toms (‘The Finance and Growth’ and ‘Growth, Profits’) stated that he missed an international framework against which British companies could be compared. On these European companies see: Greg (Rose, ‘The Role of Family’ and The Gregs), Strutts (Fitton and Wadsworth, The Strutts), Peel (Chapman, ‘The Peels’), Peel and Oberkampf (Chapman and Chassagne, European Textile), Ashworth (Boyson, The Ashworth), Fielden (Law, Fielden of Todmorden; Toms, ‘Integration, Innovation’), Caprotti (Romano, L'industria cotoniera), Venzaghi (Salini, ‘La società anonima’), Amman (Licini, ‘Francesco Saverio Amman).