Swire Pacific Ltd.

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Swire Pacific Ltd.

Swire House
9 Connaught Roady
Central
Hong Kong
5-230011

Public Company
Incorporated: 1866 as Butterfield and Swire
Employees: 16,000
Sales: HK$ 13.96 billion (US$ 1.753 billion)
Market Value: HK$ 9.681 billion (US$ 1.240 billion)
Stock Index: Hong Kong

Swire Pacific is one of the most influential companies in Asia. It is an example of the growing significance of Asian industrial conglomerates which will play a major role in advancing the nations of the Pacific Rim to positions of economic prosperity and leadership in the 21st century. As part of the larger London-based Swire Group, Swire Pacific remains located in the British colony of Hong Kong, where the company’s predominance was first established.

In Britain during the early 1800’s a canal was built which 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 which 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 whose primary commodities were 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 and William Hudson Swire.

The John Swire & Sons 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 due to 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 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.

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 of 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.

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 1950’s. Shipping officers 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 operates a virtual monopoly on aircraft maintenance in the colony.

During the 1950’s and 1960’s the company’s expansion was well-planned and largely uneventful, and its name was changed from Butterfield & Swire to Swire Pacific. On occasion, however, profits became depressed when regional or international economic recessions lowered demand for shipping services. Due to 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 CocaCola and its allied brands.

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% (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. However, Hong Kong, where the dynamic Swire Pacific subsidiary was located, became the subject of an international debate.

After a series of negotiations the governments of Great Britain and the People’s Republic of China agreed 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. When Swire Pacific, which is 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 purchased 12.5%. The Chinese investment in Cathay Pacific was regarded as evidence of China’s sincerity in maintaining the prosperity of Hong Kong.

John Swire & Sons maintains substantial holdings in Britain, Australia, Japan, the United States, South Korea, Papua New Guinea, and Mauritius, in addition to Hong Kong. By remaining in Hong Kong it has demonstrated a willingness to work with the Chinese for the future of Hong Kong. The Swires have survived the Boxer Rebellion, two world wars and a civil war, and it is unlikely that they are worried about a negotiated settlement which has the full support of the British government. Swire has established an excellent relationship with the Chinese which promises to be advantageous when the Chinese economy develops and selected foreign companies such as Swire Pacific are invited to participate.

Principal Subsidiaries

Cathay Pacific Airways (50.23%); Hong Kong Aircraft Engineering Company, Ltd. (42.6%); Swire Air Caterers, Ltd. (52.5%); Taikoo Royal Insurance (44%); Hong Kong United Dockyards (50%); Swire Insurance; Swire Properties. The company also has additional subsidiaries which include 91 with majority interest and 19 with minority interest.