Swire Pacific Ltd. - Company Profile, Information, Business Description, History, Background Information on Swire Pacific Ltd.

Swire House
9 Connaught Road
Hong Kong

History of Swire Pacific Ltd.

Swire Pacific Ltd., which came to prominence as one of the 19th-century British-owned trading houses based in Hong Kong, is today a diversified firm with interests in aviation, real estate, beverage bottling and foods, and insurance, as well as the traditional shipping and trading operations. Part of the larger London-based Swire Group, Swire Pacific also remains located in Hong Kong despite the prospect of Chinese rule. In fact, in the years leading up to 1997, the company has strengthened its ties to Hong Kong and expanded in a major way into China itself.

Early History in the 19th Century

In Britain during the early 1800s a canal was built that linked the seaport of Liverpool to Halifax, a city in the northeastern county of Yorkshire. The canal introduced international trade to Halifax and in the process seriously damaged local industries that could not compete with cheaper imports. John Swire, the patriarch of the Swire family, moved from Yorkshire to Liverpool, where in 1816 he established a general trading house with primary commodities being American cotton from New Orleans and cheese, pork, and wine from Boston and New York. John Swire died in 1847, leaving the business to his two sons, John Samuel Swire and William Hudson Swire.

The John Swire & Sons, Ltd. trading company grew steadily during the next decade. It established interests in a number of Liverpool shipping companies and opened a branch office in Manchester. In 1855 John Samuel Swire traveled to the former British penal colony of Australia. He opened an office in Melbourne to handle Australian imports of his company's cotton. As soon as the business was operating successfully, he turned it over to a local agent and returned to England. His brother William was forced to retire from the company because of persistent ill health. From that time onward, John Samuel Swire was left to run the operation alone.

In 1861 the American Civil War destroyed Swire's cotton trade. Determined to reassert its position in the textile market, the company turned to the more stable markets of the Far East, where it was already engaged in the trade of tea. Swire became displeased with the performance of his agents in the Far East and decided that the company should run its own affairs there. He traveled to Shanghai in 1866 and later formed a partnership with Richard Shackleton Butterfield of the Butterfield Brothers firm in Bradford, Yorkshire. In 1867 they opened an office together in Shanghai under the name of Butterfield & Swire. The company adopted a Chinese name, Taikoo, meaning "great and ancient." Although the partnership was dissolved within two years, the Shanghai office continued to be called Butterfield & Swire.

The company's business in Asia benefited greatly from Japan's restoration of the Meiji leadership in 1868. Under the Meiji, Japan became a modern industrial state. Butterfield & Swire, which had opened an office near Tokyo in Yokohama the previous year, was ideally situated to take advantage of the growing strength of the Japanese economy.

By 1871 Swire's headquarters had been moved from Liverpool to London, and a third Far East office was opened in the British Colony of Hong Kong. The company expanded its interest in shipping when it became the Shanghai agent for the Blue Funnel Line. In 1872 Swire created its own shipping concern, the China Navigation Company, which served ports on the Yangtze River and along the Chinese coast. China Navigation's primary competitor on the waterways was another Hong Kong firm called Jardine Matheson & Company. In 1873 Swire established an office in New York, where the company had already been handling American imports of tea from Yokohama for several years.

Swire further diversified its business in 1884 when it created the Taikoo Sugar Refinery in Hong Kong with the intention of breaking Jardine Matheson's monopoly on sugar. The two companies competed in a fierce but gentlemanly manner for many years. According to John Samuel Swire, "Don't fight. But if you do fight, go in sharp and win."

In 1866 the Yokohama office, which for years had been dependent on the textile trade, began importing large quantities of sugar from Hong Kong and Taiwan in addition to soya beancake from China. Swire also handled Japanese exports of rice to Australia. In 1887 the company opened a second Japanese office in Kobe. In 1900 Butterfield & Swire founded the Taikoo Dockyard Company in Hong Kong. With expanded commercial interests in China, the company also opened a paint factory in Shanghai and a tugboat and barge company in Tianjin. The red, white, and blue Swire flag was seen flying over China Navigation ships plying waterways across China and throughout East Asia.

Early 20th Century

John Samuel Swire died in 1898. His company passed to a third generation of Swires under the direction of his son John. Despite some disruptions of business in China during the Boxer Rebellion in 1900 and the Republican Revolution in 1911, Swire's interests in China, Japan, Australia, and Southeast Asia continued to prosper and expand. John Kidston Swire, grandson of John Samuel Swire, succeeded his father as director of the company in 1920.

Swire's operations were paralyzed in 1937 when Japan launched its war of expansion against China. The company's interests in northern China and Shanghai were closed. Japanese landings on either side of the Hongkong peninsula isolated the colony from the nearby Chinese city of Guangzhou (Canton), forcing Swire to curtail virtually all of its trading operations with the mainland. On December 1, 1941, six days before the attack on Pearl Harbor, Japanese troops invaded Hong Kong. During the Japanese occupation all of Swire's Far Eastern activities were suspended. By the time of the Japanese surrender in September 1945 more than half of Swire's ships, the sugar refinery, and dockyard had been destroyed.

As soon as World War II ended a civil war erupted in China between the Communists and the Nationalists. The war was won in 1949 by the Communists, who renounced all agreements concluded by the Nationalist government. This included Swire's business arrangements with Chinese partners and the Chinese government. In addition, Swire's extensive properties in China were nationalized without compensation. In only a few short years Swire's financial empire had nearly been ruined.

Post-World War II Rebuilding and Diversification

Butterfield & Swire focused attention on rebuilding its operations in Hong Kong. The shipping facilities were rebuilt and new ships were ordered. John Kidston Swire became interested in diversifying his company's transportation interests in the Far East. In 1948 Butterfield & Swire purchased a controlling interest in Cathay Pacific Airways, a small Hong Kong-based airline company with a fleet of two DC-3s.

The company's shipping and airline activities grew rapidly during the 1950s. Shipping offices in Japan were reopened, and new connections in Papua New Guinea, Australia, and Korea were established. Cathay Pacific absorbed its local competitor, Hong Kong Airways, purchased newer aircraft, and opened new routes to Singapore, Manila, Bangkok, and Saigon. Butterfield & Swire's involvement in Cathay Pacific led it to invest in a number of other businesses related to aviation, including the Hong Kong Aircraft Engineering Company, which operated a virtual monopoly on aircraft maintenance in the colony.

During the 1950s and 1960s the company's expansion was well planned and largely uneventful, and its name was changed from Butterfield & Swire to Swire Pacific Ltd., with the company going public in 1959. On occasion, however, profits became depressed when regional or international economic recessions lowered demand for shipping services. Because of the fact that the shipping business was so closely linked to the volatile economic cycles of Pacific nations, Swire Pacific began to diversify its operations. It became interested in property ownership in Hong Kong, where the supply of land was limited and demand was becoming acute. In 1965 Swire Bottlers Limited became the franchised bottler of Coca-Cola and its allied brands in Hong Kong.

Additional diversification occurred in the areas of shipping and warehousing services, agriculture, trucking, canning, magnetic tape, and high technology components. Cathay Pacific was continuing to grow at an annual rate of 22 percent (doubling its size every four years) and began handling air freight. As a result, Cathay Pacific became Swire's most popular subsidiary and was quickly gaining a reputation as "Hong Kong's airline."

John Kidston Swire retired as director of John Swire & Sons in 1968, leaving the company in the care of his two sons, named John and Adrian. The fifth generation of Swires oversaw most of the company's diversification and growth, especially in Hong Kong. When John Kidston Swire died in 1983, the parent company of the Swire financial empire, John Swire & Sons, Ltd., remained a privately owned family concern based in London. Meanwhile, Hong Kong, where the dynamic Swire Pacific subsidiary was located, became the subject of an international debate.

Transition to Hong Kong's Integration into China

After a series of negotiations the governments of Great Britain and the People's Republic of China agreed in 1984 to end British colonial authority over Hong Kong on July 1, 1997. This placed into doubt the future of all capitalist enterprises operating in Hong Kong, including Swire Pacific. Jardine Matheson promptly responded by relocating its legal address and much of its business to Bermuda. In an effort to forestall the exit of more companies, the Chinese promised to preserve the unique economic character of Hong Kong after they take control of the territory. In 1987, when Swire Pacific, which was the only publicly traded Swire company, announced that it was reducing its share of ownership in Cathay Pacific, a Chinese government investment company in Hong Kong, Citic Pacific, purchased 12.5 percent. The Chinese investment in Cathay Pacific was regarded as evidence of China's sincerity in maintaining the prosperity of Hong Kong.

For its part, Swire Pacific determined early on to cast its future with China, although its vast property holdings in Hong Kong and its dependence on Cathay Pacific for most of its profits (70 percent in 1990) gave it little choice (Cathay's route rights were nontransferable, so the airline could not be moved out of Hong Kong). Even so, Swire Pacific did not have as much reason for alarm as its rivals, given that it had already established an excellent relationship with the Chinese, which promised to be advantageous when the Chinese economy developed further and selected foreign companies were invited to participate. Although the Tianamen Square massacre of June 4, 1989 gave cause for further alarm, Swire stayed on its course, committed to Hong Kong's (and its own) future. Symbolic proof of its commitment came when Cathay Pacific painted over the Union Jack on its planes.

In fact, Swire Pacific was able to profit from others' fears in the late 1980s and early 1990s by picking up numerous additional Hong Kong real estate properties at bargain prices. Real estate subsequently recovered after the peak period of fear passed, leaving Swire with an even more lucrative portfolio.

In the early 1990s the company and Cathay Pacific strengthened their relationships and position within China itself. In 1990 Swire and Cathay bought Dragon Airlines (or Dragonair), the foreign airline with the most routes to mainland China and preferred by most business travelers over China's domestic airlines because of its superior safety record. To bolster Dragonair, Cathay transferred its routes to Shanghai and Beijing to Dragonair. Swire Pacific also tied Dragonair's future to China's by selling a majority interest in the airline to Citic Pacific.

Further forays into China came in late 1993. In November, John Swire & Sons returned to China after a more than 30-year absence by reopening its Shanghai office. Also that month, Swire Pacific purchased a 25 percent stake in Shekou Container Terminals, located near Hong Kong in the Chinese city of Shekou, for HK $308 million (US $40 million). Most important, in another alliance with Citic Pacific, in December Swire bought 55 percent of BC Development, a major Coca-Cola bottler in China. Swire's partnerships with Citic Pacific were seen as particularly strategic--win-win deals where Swire gained influence in China at the same time China (through Citic Pacific) acquired a greater and greater stake in Hong Kong's future.

Although Cathay Pacific ran into trouble in the early 1990s because of increasing competition, delays in the construction of a new Hong Kong airport, and a 1993 flight attendants strike, Swire Pacific had managed to lessen its dependence on the airline and thus weathered Cathay's difficulties. By 1993, only 51 percent of operating income was derived from aviation, with real estate coming in a close second at 41 percent. Swire had begun to leverage its vast Hong Kong real estate holdings into lucrative rental properties. The most impressive development was Pacific Place, transformed by Swire from the army barracks it purchased in 1984 into a glittering complex of three fully occupied skyscrapers with 400 apartments, three first-class hotels, nearly 200 stores and restaurants, four theaters, and hundreds of thousands of square feet of office space. The company estimated that three other major projects would bring in more than US $1 billion in profits annually starting in 1996.

Without a doubt, Hong Kong in the late 1990s was a risky place to stake one's future, but the Swire family had survived the Boxer Rebellion, two world wars, and a civil war. Their three-pronged Hong Kong/China strategy focusing on aviation, real estate, and bottling operations not only was diversified but also featured prime franchises in each case. With the still largely untapped Chinese market literally waiting at the door, Swire Pacific hoped the huge risks it was taking would be paid off in a likewise huge fashion.

Principal Subsidiaries: Carol Reed International Ltd. (70%); Cathay Pacific Airways Ltd. (51.8%); German Hotel Experts Ltd. (90%); Guangmei Foods Co. Ltd. (China; 51%); Reebok Hong Kong Ltd. (70%); Swire & MacLaine Ltd.; Swire Aviation Ltd. (66.7%); Swire Bottler Holdings Ltd.; Swire Insurance Holdings Ltd.; Swire Loxley Ltd. (66.7%); Swire Pacific Offshore Maritime Ltd.; Swire Pacific Ship Management Ltd.; Swire Properties Ltd.; Swire Properties Management Ltd.

Principal Divisions: Aviation Division; Property Division; Industries Division; Trading Division; Marine Services Division; Insurance Division.

Additional Details

Further Reference

Clifford, Mark, "Back to China," Far Eastern Economic Review, January 27, 1994, pp. 38-40.------, "Cathay Pacific: It's Time To Buckle Up," Business Week, October 9, 1995, p. 146L."The Dragon's Embrace," Economist, August 26, 1989, pp. 51-52.Edelstein, Michael, Overseas Investment in the Age of High Imperialism: The United Kingdom 1850-1914, New York: Columbia University Press, 1982.Kennedy, Carol, "Can Two Hongs Get It Right?," Director, February 1996, pp. 34-40.Marriner, Sheila, and Hyde, Francis E., The Senior John Samuel Swire, 1825-98: Management in Far Eastern Shipping Trades, Liverpool: Liverpool University Press, 1967.Meyer, Richard, "Hostage: Why the Taipan at Hong Kong's Biggest Public Company Is Chained to His Post," Financial World, September 18, 1990, pp. 22, 25-27.Morris, Kathleen, "There's No Place Like Home: Jardine Matheson's Grip on Hong Kong Has Been Slipping, But Swire Pacific Is Doing Just Fine," Financial World, August 2, 1994, pp. 36-38."The Noble Houses Look Forward," Economist, October 1, 1994, pp. 77-78.Sender, Henny, "Fixed Assets: British Hongs Still Tied to the Colony," Far Eastern Economic Review, July 8, 1993, p. 22.Silverman, Gary, "Hong Kong: Look British, Think Chinese," Far Eastern Economic Review, December 28, 1995/January 4, 1996, pp. 64-65."Thin Ice?," Economist, September 23, 1995, p. 58.

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