Organizations and Markets

“El Pulpo”

20 August 2008 at 12:00 pm Peter G. Klein 4 comments

| Peter Klein |

A few years ago I read, and enjoyed, Stephen Schlesinger and Stephen Kinzer’s Bitter Fruit: The Story of the American Coup in Guatemala. (Kinzer also has a nice book on the CIA’s role in Iran.) So when I saw Peter Chapman’s Bananas!: How The United Fruit Company Shaped the World in a local bookstore — yes, the bright-yellow cover caught my eye — I snapped it up. United Fruit — “El Pulpo” (the Octopus) to its detractors — is a fascinating company, the history of which should be required reading for students of international business. Bananas is a disappointment, unfortunately. I wasn’t expecting a scholarly treatment but, even by journalistic standards, the book is weak, substituting breathy clichés for facts and analysis. And Chapman’s unfamiliarity with even the most basic concepts of economics doesn’t help. (Spend your money on Bananas instead — my favorite Woody Allen movie.)

Today I learned of at least one scholarly treatment of United Fruit, focusing on its Colombian operations: Bananas and Business: The United Fruit Company in Colombia, 1899-2000 by Marcelo Bucheli (New York University Press, 2005). Alan Dye makes some interesting points about knowledge transfer in his review for EH.Net:

One important contribution is the story the book tells of how United Fruit eventually decided to abandon its initial policy of creating barriers to competition and accept fair dealing with rivals to its core business. Although its early history was one of raising barriers to competition and exploiting the weakness of unstable governments to establish its monospony position, he argues that in the long run the presence of this, or another multinational, was necessary for the development of a commercial banana industry in Colombia. United Fruit had pioneered techniques for how to commercialize a fragile and highly perishable product. Regardless of unethical practices when dealing with locals in the producing countries, the importation of the marketing techniques that such pioneers in the industry developed were of substantial value to local industry.

As with many technologies, tacit knowledge was best transferred by individuals who had experience and organizational capabilities. But foreign first-comer advantages were not permanent. Local employees and managers learned the tacit knowledge by observing and doing, and eventually they formed organizations to compete with El Pulpo [the octopus]. Over time, the strengthening of nationalist government policies caused the industry to pass to local independent banana growers and local entrepreneurial banana export ventures. Bucheli’s analysis, therefore, raises the question of whether the company’s early exploitation through the creation of a banana enclave was not critical, perhaps even necessary, for the development of a banana industry that later became a nationally owned industry and an important sector for entrepreneurial opportunity in Colombia.

The book also appears to contain good material on compensation policy, vertical contractual relations, geographic diversification, and more.

Addendum: Here is Bucheli’s webpage, with links to other papers and projects. I should have mentioned before that he holds a joint appointment in history and business administration at Illinois, where he hangs with former O&M Guest Bloggers Joe Mahoney and Randy Westgren. Lucky guy!

Entry filed under: - Klein -, Business/Economic History, Entrepreneurship, Food and Agriculture, New Institutional Economics, Strategic Management.