GMAT Reading Comprehension

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Source: OG11th

Level: 3

The modern multinational corporation is described as having originated when the owner-managers of nineteenth-century British firms carrying on international trade were replaced by teams of salaried managers organized into hierarchies. Increases in the volume of transactions in such firms are commonly believed to have necessitated this structural change. Nineteenth-century inventions like the steamship and the telegraph, by facilitating coordination of managerial activities, are described as key factors. Sixteenth-and seventeenth—century chartered trading companies, despite the international scope of their activities, are usually considered irrelevant to this discussion：the volume of their transactions is assumed to have been too low and the communications and transport of their day too primitive to make comparisons with modern multinationals interesting.

In reality, however, early trading companies successfully purchased and outfitted ships, built and operated offices and warehouses, manufactured trade goods for use abroad, maintained trading posts and production facilities overseas, procured goods for Import, and sold those goods both at home and in other countries. The large volume of transactions associated with these activities seems to have necessitated hierarchical management structures well before the advent of modern communications and transportation. For example, in the Hudson's Bay Company, each far-flung trading outpost was managed by a salaried agent, who carried out the trade with the Native Americans, managed day-to-day operations, and oversaw the post's workers and servants. One chief agent, answerable to the Court of Directors in London through the correspondence committee, was appointed with control over all of the agents on the bay.

The early trading companies did differ strikingly from modern multinationals in many respects. They depended heavily on the national governments of their home countries and thus characteristically acted abroad to promote national interests. Their top managers were typically owners with a substantial minority share, whereas senior managers’ holdings in modern multinationals are usually insignificant.They operated in a preindustrial world, grafting a system of capitalist international trade onto a premodern system of artisan and peasant production. Despite these differences however, early trading companies organized effectively in remarkably modern ways and merit further study as analogues of more modern structures.

Question List: 1 2 3 4 5 6 7 8

The author lists the various activities of early chartered trading companies in order to

  • A analyze the various ways in which these activities contributed to changes in management structure in such companies
  • B demonstrate that the volume of business transactions of such companies exceeded that of earlier firms
  • C refute the view that the volume of business undertaken by such companies was relatively low
  • D emphasize the international scope of these companies' operations
  • E support the argument that such firms coordinated such activities by using available means of communication and transport

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