Germany beat the British to dominate dyes

08-May-2008

How German industrialists managed to beat the British to dominate the synthetic dye market within a few short years

Ed Zwirn/New York

WILLIAM HENRY Perkin’s serendipitous invention of mauve, the world’s first synthetic dye, not only changed women’s fashions in Europe and America, but also helped launch an industry, dyestuffs manufacturing, that nurtured several chemical companies to a mature greatness. It also pointed the way to consumer-focused product development.

But the 19-year-old UK chemist’s 1857 discovery, which occurred when he was searching for a way to synthesize quinine, only gained him and his country a brief leg-up in the race for industrial dominance. Within a few months, Perkin’s company, based near London, had lost its monopoly. By the following year, eight companies were producing synthetic dyes, and by 1864, there were 68 firms in the business.

LOST LEAD

Even more striking was the rapidity with which the British lost the early edge Perkin had given them. Despite contemporary predictions, the British and French, who shot off to an early lead in the dye industry, soon lost ground to Germany. By 1870, the Germans, including companies such as Bayer, BASF and what would become Hoechst, had cornered about 50% of the global synthetic dye industry, a level of dominance that increased to about 85% in 1900, where it stood through World War I.

Whatever enabled this rapid industrial shift, the usual causal factors out of classic economic theory apparently had little to do with it.

“Possessing cheaper raw materials or a larger home market cannot explain why German firms left British and US firms in the dust, because both had more raw materials and a larger home market than Germany,” says Johann Peter Murmann, who is associate professor of strategic management at the Australian Graduate School of Management.

Murmann, whose influential study of the early history of the synthetic dye industry was published by Cambridge University Press in 2003, stresses the extent to which differences in national institutions, education and culture played a part in this industrial shift.

“German firms in the synthetic dye industry were much more successful in molding their institutional environment than their British and American counterparts,” Murmann says, citing Bayer as a prominent “example of how a sophisticated managerial hierarchy was created that could organize more efficient production than smaller firms.”

INSTITUTIONAL ADVANTAGES

Perhaps as important was Germany’s success, late in the 19th century and early in the 20th, at creating what Murmann refers to as an “academic-industrial knowledge network” in which scientists commonly progressed from the university to the private R&D labs of the new industrial behemoths, going from one company to the next, and sometimes back to a university position.

In the UK of the day, by contrast, note Murmann and other historians, higher education was typically more divorced from the factory.

“In Great Britain, academe was much more standoffish,” is the way Mary Ellen Bowden, consulting historian of the Chemical Heritage Foundation, puts it.

Another reason for the German dye industry’s early growth spurt was the initial lack of effective patent laws in that country, unlike the UK.

“‘Stealing’ is a very judgemental word, so I prefer to say ‘copying,'” Murmann says.

“But the fact remains that every country except for Great Britain initially started by copying the technology of more established competitors,” he continues. “That is why the British tried to stop the export of textile manufacturing equipment.”

It was not until 1877 that the German parliament, swayed by the lobbying of the country’s electrical industries and an engineering trade group, finally enacted a patent law. Even then, however, “the lobbying efforts of the dye industry were successful in obtaining a special clause for chemicals, pharmaceuticals and food products that allowed only process – not product – patents in these industries,” says Murmann.

Although the rule allowed German companies to continue copying products invented by others, it also spurred invention by prompting German dye firms to hire chemists to focus on creating new dyes and production processes, he notes. In time, the entrenched German companies came to love patent laws, engaging in “carpet patenting” to protect a range of products from competition. By 1891, they had engaged in another successful lobbying effort to make it impossible for Swiss firms to continue copying and shipping into Germany dyes patented by German companies.

LIVE BY THE SWORD

The German companies could not hold off competitors indefinitely, however, particularly when the newcomers adopted the same tactics Germany had forsaken.

Until recently, Indian companies were able to take full advantage of a patent system that likewise recognized processes only, not products. Chinese companies, too, have copied extensively, and the two countries now dominate production of synthetic dyes.

In 1995, Bayer and Hoechst responded to the increasing pressure by merging their dyestuff operations into a joint venture, Dystar, in the hope of improving the economics of the business. In 1999, BASF joined them.

Not surprisingly, DyStar has made significant investments in Chinese production facilities. “It’s a Darwinian process,” says Murmann. “When you’re a developing country, you are always trying to copy, but from the point of view of individual established companies, you want to have a patent law.”

At the end of the day, he maintains, the approach of the US and Europe and other developed countries to international intellectual property may reveal much about their ostensible goal of giving the developing world a leg up.

“We may actually not further their development by forcing them to have strong patent laws,” he says.

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