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

With which of the following generalizations regarding management structures would the author of the passage most probably agree?

  • A Hierarchical management structures are the most efficient management structures possible in a modern context.
  • B Firms that routinely have a high volume of business transactions find it necessary to adopt hierarchical management structures.
  • C Hierarchical management structures cannot be successfully implemented without modern communications and transportation.
  • D Modern multinational firms with a relatively small volume of business transactions usually do not have hierarchically organized management structures.
  • E Companies that adopt hierarchical management structures usually do so in order to facilitate expansion into foreign trade.

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