Business & Company Resource Center

Management International Review, April 1998 v38 n2 p95(13)

The first multinationals: Assyria circa 2000 B.C.

Karl Moore, David Lewis

Abstract: Using the eclectic paradigm as a model to analyze ancient

international trade this article presents evidence suggesting that the first

recorded multinational enterprises (MNEs) appeared in the old Assyrian

kingdom shortly after 2000 B.C. Characteristics found in modern MNEs

such as a hierarchical organization, foreign employees, common stock

ownership, resource and market-seeking behavior, were present in these

ancient firms. This article presents evidence that the first recorded

multinational enterprises appeared in the old Assyrian kingdom shortly after

2000 B.C. (Reprinted by permission of the publisher.)

Full Text: COPYRIGHT 1998 Gabler Verlag (Germany)

Introduction

In his recent massive work on MNEs Dunning states that, "... earlier

examples of embryonic MNEs can, most surely, be found in the colonizing

activities of the Phoenicians and the Romans, and before that, in the more

ancient civilisations ... However, this sort of history ... remains to be written"

(1993, p. 96). Considerable literature has recorded the evolution of MNEs in

Europe since the early Middle Ages (Rostow 1978, North 1981, Chandler

1990, Powelson 1994). There have also been a number of books and articles

written on the economic history of the ancient world (e.g. Orlin 1970, Larsen

1976, Aubet 1987). However, little has been written concerning the earliest

recorded MNEs.

In an effort to shed light on embryonic MNEs in ancient civilisations this

article brings together a modern theory of the MNE and literature on ancient

Assyria. This article uses the eclectic paradigm as a model to analyze ancient

international trade and attempts to show that the major characteristics of

MNEs were a part of the Assyrian business organizations of the time.

Characteristics of an MNE - The Eclectic Paradigm

The definition of MNE used in this article is that accepted by the

Organization for Economic Cooperation and Development (OECD) and the

United Nations Center for Transnational Corporations (UNCTC), "an

enterprize that engages in foreign direct investment (FDI) and owns or

controls value-adding activities in more than one country" (Dunning 1993, p.

3).

Though there exist competing theories with different perspectives(1)

seeking to explain international production, this article adopts the eclectic

paradigm in examining potential MNE behavior in ancient Assyria. The

eclectic theory or paradigm offers a framework for determining the extent

and pattern of foreign owned activities, it may be handily summarized by the

acronym OLI, or ownership, location and internalization advantages

(Dunning 1993). It is the configuration of these advantages, ownership,

location and internalization, which either encourage or discourage a firm to

undertake foreign activities and become an MNE.

Ownership advantages are firm-specific-advantages (FSAs) which are

owned or controlled by a firm. Country-specific advantages are ones which

are based on the location of the enterprise (Buckley/Casson 1976, Ietto-

Gillies 1992). Finally, internalization advantages are those which accrue to a

firm when it internalizes or brings inside the hierarchy of the firm activities

which could be performed by the market. The following paragraphs provide

greater detail on the eclectic paradigm. Readers familiar with the paradigm

may wish to skip this section. It is provided since this article may be of

interest to at least two groups: international business researchers and

historians, the latter group not generally being as familiar with the eclectic

paradigm.

Internalization advantages are based on the hypothesis that MNEs grow

"by replacing imperfect (or non existent) external markets by internal ones"

Buckley (1993, p.198). Several important ideas are contained in this

definition. The first is that MNEs can be the most efficient means of

international production when imperfect markets exist. The most important

imperfect market for MNEs is the pricing of proprietary information which

is generated by a firm but has many of the attributes of a public good.

Proprietary information can include knowledge developed by the firm by

R&D (both technical and marketing), managerial experience, new

production techniques, production differentiation and market knowledge

(Ietto-Gillies 1992, Dunning 1993). A public good is "a good for which

consumption by one party does not reduce the consumption of others.

Knowledge is a public good in this theoretical sense because it can be

applied by any person or organization to a specific problem without

destroying the ability to apply the knowledge to another use" (Rugman 1980,

p. 26). The price of a public good is zero: the market cannot price a public

good. Thus, in order to profit from investment in knowledge development,

the firm "internalizes", using its internal market to monitor and control the

use of the knowledge in a way the market is unable. Knowledge is an

intermediate product, and the profit to the firm accrues from the sale to a

customer of the final product or service. This use of "intermediate product"

expands the traditional definition of intermediate products as ordinary semi-

processed materials to include knowledge inputs(2) (Buckley/Casson 1976).

Other market imperfections include government regulations, taxes,

controls, tariffs, non-existent futures markets, and inequality between

buyers' and sellers' knowledge of the value and quality of the product. All of

these distort market prices and act as additional incentives to utilize internal

markets (Rugman 1980, Casson 1987, Ietto-Gillies 1992).

Rugman and Gestrin define FSAs as "the competitive strengths of the

company; they can be either production-based (cost or innovation

advantages) or marketing-based (customization advantages)" (1993, p. 19).

Dunning (1990) suggests a number of potential FSAs: those associated with

the size of the firm (e.g., economies of scale, product diversification);

management of organizational expertise; the ability to acquire and upgrade

resources; labor or mature small-scale intensive technologies; product

differentiation; marketing economies; and access to domestic markets. He

also lists the ability to foresee and take advantage of global production and

marketing opportunities; capital availability and financial expertise; access

to natural resources; and the ability to adjust to structural changes.

CSAs are defined as "the national factor endowments of a nation -

basically the variables in its aggregate production function"

(Rugman/Gestrin 1993, p. 19). Dunning (1990) suggests a number of

potential CSAs: input costs (such as labor wages and national resources);

labor productivity; the size and character of markets; transport costs; and the

psychic distance from key markets and the home country of the MNE. There

are also tariff barriers, the taxation structure, risk factors, attitudes toward

FDI, and the structure of competition. Having finished this brief introduction

of the central ideas of the eclectic paradigm this article now considers events

from almost 4000 years ago in the Assyrian empire.

Assyrian International Trade

The ancient city of Ashur, around 100 km south of the modern Iraqi city

of Mosul, was situated on the banks of the river Tigris at the intersection of a

number of important long-distance trade routes. At the beginning of the

second millennium B.C. it became self governing, following the collapse of

the so-called Third Dynasty of Ur, to which it had belonged. Early rulers,

such as Ilu-shuma and his son Erishum I (c. 1939-1900 B.C.), did much to

exploit the commercial potential offered by the geographic location of

Ashur. Inscriptions have been recovered which record the granting of tax

and other concessions to traders from the more southerly cities of

Mesopotamia.

However, the richest source of documentation comes not for Ashur itself

but from a city 1200 km. away: the ancient site of Kanesh, chief city of what

was later known as the kingdom of Cappadocia, near the modern Turkish

city of Kayseri. Nearly 20,000 clay tablets with texts in Assyrian cuneiform

have been unearthed at the site. Of the documents which have been

published from Kanesh, over 85% are of an economic nature, attesting to the

existence of a thriving trade center, active between around 1910 and 1830

B.C. (Veenhof 1995).

Not merely a way station for traders, the lower city of Kanesh was largely

given over to a permanent settlement of international businesspeople,

especially Assyrian businesspeople from Ashur (Veenhof 1995).

Archaeological evidence elsewhere from this period, states Veenhof, "at

Acemhuyuk; ancient Puruskhanda, south of the Salt Lake - reveal business

connections with Mari and Karkamish on the Euphrates as well ... [it was] a

great trading city with a network of international relations" (1995, p. 862). It

is this network of international activity to which we will return presently.

A key economic element of the region was tin, which had probably been

imported to Ashur from Afghanistan. It was wrapped in saleable textiles and

transported by donkey caravan for the five- or six-week journey to Kanesh,

where it, the textiles and the donkeys were sold for silver, copper and

finished bronze goods. The tablets record the day-to-day business

transactions of the Ashur merchants and others involved in this trade.

Assyria was chosen as the subject for this article because there is more

evidence that MNEs existed in this region than for other nations of antiquity.

The first known human system of writing was invented in Southern

Mesopotamia around 3100 B.C. (Hawkins 1979) in order to record

economic and accounting transactions. Several even more ancient sites than

Kanesh have produced an abundance of tablets (Adams/Nissen 1972).

However, the site of Kanesh provides the first detailed evidence of large-

scale multinational private enterprise, albeit with some "state assistance".(3)

This period in history is known as "The Middle Bronze Age". As

suggested by the name, a central feature of this period was the ubiquitous

use of bronze, an alloy of copper and tin, a superior metal to its predecessor,

arsenical bronze. A superior supply of tin was central to the entry of this part

of the world into the Middle Bronze Age. Historians suggest that the better

supply of tin was made available due to a "major evolution in commercial

techniques ... the startling phenomenon of the Old Assyrian commercial

expansion marks a major step in the evolution of commerce" (Larsen 1976,

p. 86). This article argues that part of this evolution was the beginning of

early MNEs.(4) Central characteristics of Old Assyrian commercial systems

were long-term partnerships or firms, permanent representation in foreign

towns and cities and formal agreements or treaties with local political

powers (Larsen 1976), characteristics which they share with modern MNEs.

Historians have suggested that, while writing does not create or cause

social complexity it does act as an enabling factor, in this case perhaps

allowing for more complex business forms to arise (Gough 1968). As noted

previously, a large number of clay tablets with texts in Assyrian cuneiform

have been uncovered at Kanesh, of the documents which have been

published from this site over 85% are of an economic nature. The result is

that, "... we know a great deal about the procedures involved in the long

distance trade conducted between the mother-city Ashur(5) and the [trade]

colonies.(6) It was trade conducted by private persons and firms" (Larsen

1976, p. 376).

For Assyria, international trade was essential. Similar to many modern

industrialized societies, "Ashur had to rely on foreign trade simply in order

to ensure its own existence" (Larsen 1976, p. 85). The city of Ashur was

situated on the fringe of a rainfall zone and lacked an extensive nearby

agricultural base to feed its population. It appears to have existed due to its

strategic position as a fortress and transit town on the network of caravan

roads which criss-crossed the ancient Near Eastern world and the main

Mesopotamian distribution center for the vital tin trade.

Following this more general introduction of Assyrian trade this article

now turns to consider the trade through the lens of the eclectic paradigm.

Location and Internalization Advantages

Firms located at this ancient city center could be considered to enjoy a

location advantage, to use the terms of the eclectic paradigm. As a fortress it

could provide security which enabled a firm to hire a long term work force.

Outside a fortress constant danger of bandits and warring parties would

effectively preclude the development of a long term and trained workforce.

An additional location advantage was the city's position on the caravan

routes, which allowed for a steady flow of potential trading partners and

over time for relationships of trust to be developed (Larsen 1976, Casson

1995) which could reduce transaction costs compared to pure market

transactions.

Reducing transaction costs is central to the internalization dimension of

the OLI model. As pointed out by Casson (1995) trust is a central issue in

the development of common ownership structures. In this case it is possible

that as trading relationships grew, trust developed and as traders grew into

old age, they were willing to settle down and act as sole agents for their

former trading partners in far flung corners of the empire, suggesting the

introduction of a hierarchy, a key tenet of the eclectic paradigm.

Considerable evidence exists of hierarchical levels within Assyrian society.

It is not a far leap to suggest that hierarchies would also been adopted in the

business sector. Larsen makes a revealing statement, "The finances and the

technical organization of the firms were highly complex" (1976, p. 368).

Ashur enjoyed a location advantage of smaller tariffs over competitors

from outside the kingdom, for example when Erishum (circa 1940-1900

B.C.) established a freer market for silver, gold, copper, tin, barley, and wool

(Veenhof 1995). One piece of evidence of tariffs and taxes in this period is

from the code of Hammurabi (1792-1759 B.c.) which shows the Babylonian

palace imposing taxes on commerce, granting credits and maintaining

mechanisms for controlling trade (Aubet 1987).

A final potential location advantage could be deduced from the Assyrians'

achievement of somehow monopolizing the importation of tin from

Mesopotamia into Anatolia. Veenhof (1995) suggests this was "through the

institution of a well-administered, efficient caravan system" (p. 865).

Ownership Advantages

Today most historians agree that Assyria's tin came from Afghanistan,

several thousand kilometers away. This argues for some type of ownership

advantage or market-seeking behavior to support the necessity of

transporting metal considerable distances both to Ashur and then again for

export from Ashur to other places. Indeed the need to acquire resources or

markets is one of the three critical factors suggested by Dunning (1993, p.

96) as central drivers for "international value-adding activity to occur."

The trade between Ashur and Anatolia consisted primarily of large

quantities of tin and textiles being shipped from Ashur to Anatolia and in

return silver, gold and bronze in the form of manufactured goods, usually

household utensils being shipped from Anatolia to Ashur (Veenhof 1972).

Here we see evidence of value being added to the tin being shipped from

Ashur and then sold back to Ashur. The skills to turn tin into bronze and

from bronze into manufactured goods were jealously guarded processes

which constituted ownership advantages. The importance of these type of

skills is highlighted by the lack of natural resources in the area. According to

Orlin (1970), "it [this region] contains no deposits of stone or metals, nor is

there good timber available for building ... from the earliest times in its

history the inhabitants ... had to import vital materials from neighboring

countries" (p. 49). The importance of these skills was recognized by the

development of special associations or guilds of workmen, one of which was

the tamkarum or professional trader (Mendelsohn 1940, Orlin 1970),

suggesting the development of early knowledge workers. As noted earlier,

ownership advantages include proprietary information which can include

knowledge developed by the firm by R&D (both technical and marketing),

managerial experience, new production techniques, production

differentiation and market knowledge (Ietto-Gillies 1992, Dunning 1993).

Market knowledge, both of the tin and bronze markets in Ashur and

Anatolia but also in other countries-another ownership advantage-was also

highly valued in these cities. Aubet (1987) indicates that market and price

fluctuations existed from at least the end of the fourth millennium B.C. With

these market fluctuations market knowledge became even more valuable.

The historical record indicates that Sumerian writing developed in response

to the need to keep business inventories, indicating the value of market

knowledge in ancient times. The textiles shipped from Ashur to Anatolia

were most probably produced in Ashur from imported wool (Larsen 1976),

suggesting the possibility that the specific skills necessary for textile

manufacture necessitated the shipment of wool to Ashur and then from

Ashur to other locales, rather than directly to these other locales, again

indicating both ownership and location advantages at Ashur.

Another potential ownership advantage is suggested by Larsen's comment

that, "since tin is a quite rare metal, it is likely that those who controlled

such mines held a powerful international position" (1976, p. 87). Though we

do not know who owned or exploited the tin mines it does nevertheless

demonstrate one of the four of Dunning's (1993) main types of foreign

production, resource-seeking behavior.

Pusu-ken, Son of Sueyya

This section focuses on the activities of one businessperson, Pusu-ken of

Ashur, and his family.(7) He appears to have lived around the time of King

Ikunum of Assyria, somewhere between approximately 1900 and 1875 B.C.

by the Middle Chronology.(8) Evidence suggests his was the first generation

to move from Ashur to take up permanent residence in Kanesh. In a parallel

with modern day life, records suggest that Pusu-ken's wife, Lamassi, spent

her married life living in the capital while her spouse spent all his time in a

foreign country. The growing importance of their foreign activities is

suggested by a change in the living arrangements of several of their four

sons, Sueyya II, Ashur-muttabbil, Buzazu and Iku-pasha, who either brought

their wives with them from Ashur or married a local from an important

family.

The importance of the family's business activities in society are evidenced

by the considerable correspondence between Pusu-ken and King Sargon I.

By having important family members move to a "foreign" location one sees

early efforts to internalize international business activities within the

hierarchy of the firm.(9) Additional evidence is presented by Veenhof

(1972) who suggests that Ashur's textile production was largely performed

by women of the merchant houses, many of whom had husbands who

worked in Anatolia. In this context the family may be seen as an early

business network. Within this family historians have found evidence of

occasional strained relationships. For example, the sons and daughter of

Pusu-ken brought a dispute over his will before the city-assembly of Ashur

(Goitein 1967). A relevant ancient Arabic saying is Tahababu wa-tahasabu,

"love each other, but make accounts with each other" (Goitein 1967).

Pusu-ken appears to have been a sedentary merchant who traveled little,

while having a large staff of employees or subordinates in Anatolia. This

hierarchy managed the day-to-day affairs of the firm, as was the case with

other firms, sending employees and other agents to cities throughout the

Anatolian region for extended periods, again demonstrating one of

Dunning's (1993) four main types of foreign production, market-seeking

behavior.

As was typical of firms in this age, non-Assyrian natives of the area, from

Pusu-ken's view foreigners, were usually limited to inferior and peripheral

jobs (Orlin 1970, Lasswell/Kaplan 1950). In contrast, Assyrians residing in

Anatolia were allowed the same rights and status as if they had resided in

Assyria proper (Orlin 1970), in a manner similar to many of today's

expatriates. Evidence is found in the cuneiform tablets of the era of

businesspeople of varied origins, including Syrian and Eblaite, suggesting

the possibility of a multi-cultural workforce.

Financing of the enterprise was most likely provided by a partnership

based on a naruqqum, essentially a capital fund invested by several investors

for a merchant active in foreign trade. The naruqqum was similar to a long-

term partnership entered into by a group of people and provided a

considerable amount of capital for the firm operated by the merchant. The

single contract which has to date been unearthed is that of Amur-Ishtar who

himself invested 4 minas of gold in the "sack" or partnership and fourteen

others who invested an additional 26 minas of gold. The agreement

stipulated he would conduct business with these 30 minas for a period of

twelve years, and also included provisions for the distribution of profits and

a penalty for early withdrawal of funds from the investment pool (Larsen

1976). This suggests an early type of stock market complete with

shareholders, shareholders rights, a long term perspective and obligations

and a "professional manager". In this case the manager, Amur-Ishtar

received one-third of the profits, a handsome reward, even by today's

standards.

In common with today's businesspeople, Pusu-ken had to deal with

governmental involvement in his business activities. The Ashur city

assembly imposed strict controls on the import of textiles from Anatolia to

Ashur. Documentary evidence shows that Pusu-ken was fined for trying to

circumvent the protectionist policies of the government (Larsen 1976).

Issues of Contemporary Relevance in Assyria

The current relevance of ancient issues inspires some reflection. For

example, Aubet (1987) discusses the role of government and private

enterprise in ninth and eighth century B.C. Phoenicia: "... this whole

scenario underwent substantial changes. Stemming from the Assyrian

expansion, we witness the massive arrival in western Asia of the private

element in the sphere of commerce, coinciding, in the opinion of some

authors with a considerable decline in the part played by the Phoenician

palace and monarchy in economics activity" (p. 95). As mentioned above,

business found itself fined by government when violating its protectionist

policies. Veenhof (1995) relates how King Ilushuma (circa 1950 B.C.) took

measures to attract foreign trades from the south (Akkad) to Ashur markets.

He points to this governmental policy as one possible explanation for the

monopoly on the tin trade enjoyed by Ashur between the mines and

Anatolia, in today's terms, providing help for infant industries.

The importance of infrastructure (Porter 1990) and government's

contribution to building an environment for international business has been

the subject of considerable debate in recent years (e.g. Porter 1991). It is

perhaps enlightening to realize that historians believe that without peace and

the ability of merchants and their governmental agencies to cooperate with

authorities in foreign countries, trade would not have grown to the degree it

did in the Assyrian Empire (Larsen 1976). The importance of industry

clusters (Porter 1990) may be seen in the tin industry in Ashur and Anatolia.

Ashur was a center of distribution for raw tin and Anatolia a center for

distribution as well as value-adding processes, such as bronze production

and manufacturing of bronze objects. The availability of early training

centers and hence a trained workforce as well as merchant's knowledge of

the tin market were important reasons for the recognition of Ashur as a

center of the tin industry (Larsen 1976).

The question of which form of capitalism is "best" remains an area of

controversy today with a consensus of many researchers and writers

suggesting a contingency model of capitalism, dependent upon the culture

and history of a country (Hofstede 1991, Hampden-Turner/Trompenaars

1993, Redding 1995). In light of the success of Chinese family style

capitalism (Redding 1995), perhaps we can view ancient Assyrian family

capitalism in a similar positive light. Our focus on family firms in the old

Assyrian Kingdom may be a result of possible bias in the archaeological

artifacts; thus far the records uncovered in Anatolia have been almost

exclusively from private homes (Larsen 1976). Given that only an estimated

third of the records have been published it is possible evidence from a more

diverse set of sources may come to light in the future.

The Assyrian treatment of foreign employees and their general assignment

to inferior and peripheral jobs (Orlin 1970, Lassweel/Kaplan 1950) echoes

today's debate on the role of the subsidiary within the MNE and especially

on the means of providing interesting strategic roles within a globalizing

MNE (Bartlett/Ghoshal 1989, Moore 1997). Today we find a considerable

literature (Graham/Sano 1989, Adler 1991, Cox 1993) to help guide

managers through the challenges of a multi-cultural workforce. As

mentioned earlier, evidence is found in the cuneiform tablets of the era of

businesspeople of varied origins, including Syria. People from Ebla are also

mentioned, suggesting the possibility of a multicultural workforce and all the

management complexities associated with such a group.

Conclusion

In an effort to fill an important gap in the literature on the history of

MNEs this article presented evidence suggesting that the first recorded

MNEs appeared in the Old Assyrian Kingdom shortly after 2000 B.C. Using

the eclectic paradigm as a model to analyze ancient international trade it

demonstrates that the major characteristics of MNEs were a part of the

Assyrian business organizations of the time. The definition of MNE

accepted by the OECD and the UNCTC, "an enterprize that engages in

foreign direct investment (FDI) and owns or controls value-adding activities

in more than one country" (Dunning 1993, p. 3), leads us to conclude that

there were MNEs in ancient Assyria around 2000 B.C. Characteristics found

in modern MNEs such as: hierarchical organization, foreign employees,

value-adding activities in multiple regions, common stock ownership,

resource and market seeking behavior, were present in these ancient firms.

These early MNEs successfully operated considerable business empires in

multiple foreign locations from their corporate headquarters in the capital of

Ashur. Undoubtedly more will be learnt about the commerce of the old

Assyrian kingdom, as records from archaeological finds continue to be

translated and new finds uncovered. Larsen (1976) estimates that only "25 %

of present excavated material is available for study" (p. 51).

Were there early MNEs or "proto-MNEs" earlier than the Assyrian

empire? There may well have been. However, practical difficulties arise due

to the lack of archaeological evidence from other nations and empires in

earlier epochs. One looks forward to the work of other scholars to shed light

on this interesting issue.

Notes

1 Two other important theories which seek to explain foreign activities of

firms are the internationalization theory of the MNE (Buckley/Casson 1976;

Hennart 1982) and the macro-economic theory of foreign direct investment

(Kojima 1973, 1990).

2 Taking a broader view of what constitutes an advantage is key to the

argument of this article: that MNEs existed in Assyria before 2000 B.C. The

evidence from these ancient times is quite fragmentary, a phenomena which

historians are typically accustomed to, this is less the experience of

international business scholars. By including knowledge inputs in our

discussion we are more apt to "allow in" the type of evidence which

archaeology is able to provide.

3 We do not believe that state assistance is something which should

preclude an organization from being considered a firm, given the state

assistance is provided in many countries today to MNEs and local firms. For

example, one just needs to consider subsidies give to some European firms

which are an issue of considerable contention in the EU today (Taylor 1996).

4 Were there early MNEs or "proto-MNEs" prior to the Assyrian empire?

There may well have been, however, practical difficulties arise due to the

lack of archaeological evidence from other nations and empires in earlier

epochs.

5 The spelling of the name of the capital is generally accepted today as

Ashur, some of the quotes used the spelling of their day.

6 Though Larsen called them trade colonies they were settlements of

Assyrian and other nationality businesspeople in foreign kingdoms in this

case Cappadocia.

7 This section on Pusu-ken and his life is adapted from Larsen (1976) who

draws on the work of various archaeologists.

8 It is difficult to accurately date events in this time period, according to

the Cambridge Ancient History (1970), "the chronology in ancient western

Asia bristles with problems" (p. 193). The chronology given is the most

popular one among historians.

9 At this juncture in history firms were on often based to a large degree on

familial relationships, making an interesting parallel with Redding's view on

Chinese capitalism (Redding 1995).

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Authors

Karl Moore, Fellow in Strategic Management and International Business,

Templeton College, Oxford University, Oxford, UK.

David Lewis, Visiting Academic, Templeton College, Oxford University,

Oxford, UK.