The Chemical Industry: A Global Perspective

By Freeman, Richard D. | Business Economics, October 1999 | Go to article overview

The Chemical Industry: A Global Perspective


Freeman, Richard D., Business Economics


A SHIFTING INDUSTRY EVER SEARCHING FOR NEW MARKETS

Although chemicals were traded internationally well before the 1870s, products were generally crude, and trade was on a relatively small scale. All that was to change in the last thirty years of the nineteenth century as new technologies emerged and the multinational firm evolved to become a force in international commerce. The era of globalization of the chemical industry began in earnest.

Synthetic dyes, soda ash and explosives were at the heart of the technological revolution that enabled the industry to develop globally. Powerful firms sprang up in all three sectors and soon dominated world markets. In this they were powerfully aided by new forms of company structures that enabled them for the first time to integrate their total operations and exploit economies of scale. The advent of limited liability in the early part of the twentieth century, by reducing financial risks substantially, greatly increased the scope to expand outside domestic markets.(1)

German companies opened up and dominated the world's synthetic dyes markets. IG Farben, which merged in 1904 with the other major dye makers in Germany, pioneered the new technology that enabled them to develop a formidable network of companies in all regions of the world. By 1914, German companies had 88 percent of the world synthetic dyes market. Although adversely affected by World War I, the global network built by the Germans was so strong that by 1926 they had recovered their prewar share of the world market.

While of great importance in the global spread of the industry, synthetic dyes were probably less important than soda ash and explosives, whose technological innovations played crucial parts in determining the shape of the industry for the next fifty years or more.

The Solvay process, which enabled the manufacture of pure soda ash for the first time, gave rise to an international group of associated companies that very quickly dominated world alkali markets. By the 1880s, the network was spread throughout Europe and was moving into other regions. Brunner Mond (BM), one of the four companies that would later form ICI, licensed the process from Solvay in 1873, and by 1893 it had become the world's largest soda ash producer. As the market developed, the companies started to divide the world between them. Solvay was given sole rights in continental Europe. and it shared the British Empire markets with BM, but BM had the responsibility of setting prices. BM was also given the sole rights to the United States' export market. After 1900, BM established a large trading network in China and the Indian subcontinent. It also set up a trading company in Japan.(2)

The international network of companies that grew from Alfred Nobel's invention of a safe detonator for nitroglycerine and the inventions that followed were equally as important as the Solvay process in shaping the global nature of the chemical industry. By the 1890s, Nobel companies operated throughout Europe and the United States and had started to set up throughout the British Empire. Over time Britain's Nobel Industries emerged as the largest producer and trader but was content, nevertheless. to share international markets with its main competitors, particularly DuPont. Nobel Industries had the sole right to trade in the British Empire or, if not, to set prices, while DuPont had jurisdiction in the Americas.

In addition to cartels in alkalis and explosives, the large companies also cooperated to divide international markets for a number of other important chemicals or chemical products generally. Hoechst, Bayer, BASE ICI and its founding companies, DuPont, and Solvay were all active in dividing up world markets for more than fifty years up to the outbreak of World War II in 1939. The last cartels ended in 1952.

But in spite of the cartels, the leading companies were concerned to ensure that their rivals did not get ahead in international markets. …

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