U.S. Industry in 2000 Studies in Competitive Performance (1999) / Chapter Skim
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2 The Dynamics of Long-Term Growth: Gaining and Losing Advantage in the Chemical Industry
2 The Dynamics of Long-Term Growth: Gaining and Losing Advantage in the Chemical Industry
Pages 17-44
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From page 17... ...
Nonetheless, countries can establish a more or less favorable climate for their firms to compete, helping them to gain comparative advantage for their industry and producing benefits for their home country. iThe authors are grateful for the invaluable assistance of Johann Peter Murmann and for continuing advice from Nathan Rosenberg and Paul Romer.
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From page 18... ...
We conclude that a well-functioning and growing economy depends on . a complex mix of institutions and policies that extend beyond the legal system and fiscal and monetary authorities to include entities such as national systems of higher education, industry-specific and economy-wide regulation, and trade policy; · market-based policies that support the interaction of social institutions and policies to generate higher economic growth within a relatively stable macroeconomic environment but avoid unwarranted intervention; and · the size of the market, the historical development, and the political and social environment of the country in question.
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From page 19... ...
These neoclassical models allowed little scope or significance for invention or innovation, learning by doing, technology transfer from abroad, or systematic research and development, all of which can produce new and improved products, processes, and services and greatly enhance the growth process. A1though endogenous growth theory has recognized many of these important factors, neither it nor its neoclassical predecessor takes into account historical effects, such as path dependence (Arora et al., 1998~.
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From page 20... ...
Government tax policies affect the net returns to investors for the employment of their capital, which in turn guides future investment. Government budgetary and monetary policies affect national welfare and aggregate domestic demand as well as domestic savings and the cost of capital.
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From page 21... ...
Source: National Science Foundation, Division of Science Resources Studies, "Selected Data on Research and Development in Industry: 1992" and "National Paterns of R&D Resources." FIGURE 2 The Major R&D Industries, 1991 & 1992 R&D Expenditures (billions of current dollars)
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From page 22... ...
$1332 billion $7636 billion Chemicals and allied products Industrial machines and equipment Electronic and electric equipment Food and kindred products Fabricated metal products Printing and publishing Motor vehicles and parts Paper products Instruments Other transportation Petroleum and coal Other Total $157.8 150.2 143.8 122.6 98.2 90.4 85.1 57.1 52.3 49.7 30.1 294.9 $1332.2 Source: U.S. Bureau of Economic Analysis, Survey of Current Business, November 1997.
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From page 23... ...
. Organic inputs like oil and natural gas contain hydrocarbons, which form the backbone of final organic chemical outputs.
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From page 24... ...
By 1913 German companies produced 140,000 tons of dyes, Switzerland produced 10,000 tons, and Britain produced only 4,400 tons. The American industry depended mainly on German dyestuff and other chemical imports, although it was a large producer of basic inorganic chemicals.
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From page 25... ...
THE DYNAMICS OF LONG-TERM GROWTH US o US CO CO Cal S)
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From page 26... ...
The competition among the various states contributed to the rise of many German dyestuff companies. Germany's political unification in 1871, under Chancellor Otto von Bismarck, a Prussian, not only created a common market and an investment boom
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From page 27... ...
Macroeconomic Factors: Monetary and Fiscal Policies Prevailing government and sociopolitical conditions profoundly influence macroeconmic policies, which have affected the growth pattern of our four national chemical industries in important ways. Macroeconomic policies during the period before the World War I favored British capital exports.
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From page 28... ...
The Japanese government systematically established its chemical industry through a series of government plans and decrees, developing a petrochemical industry that grew rapidly from the mid1950s onward. Another area of difference in national macroeconomic policies was the management of exchange rates in the postwar era.4 Undervaluation of the yen and the mark during the 1950s and 1960s helped Japanese and German exports and the recovery of both nations from wartime destruction.
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From page 29... ...
Germany and Britain participated in a large number of international cartels that led to fixed prices and market shares in the most important segments of the world chemical industry during the interwar period. The cartelization of the interwar German chemicals industry in I.G.
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From page 30... ...
In a certain sense the newly rising entrepreneurial chemical firms, the most prominent being BASE, Bayer, and Hoechst, were lucky because the absence of a unified patent system allowed them to copy with impunity the technologies developed abroad. Following political unification, when chemical science and the German chemical industry had advanced sufficiently to make R&D investment lucrative if its results were protected by patents, German chemical companies joined in the lobbying campaign for the creation of a unified domestic patent system.
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From page 31... ...
shows that the large American firms achieved consistently higher returns on investment than did the British and German firms during the transwar period. Since World War II, their relationship banking system has essentially insulated German firms from shareholder pressure.
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From page 32... ...
But the government also pioneered in creating a social safety net for workers, and many German chemical companies erected company housing and provided other benefits to their work force. The Communist movement in Britain touched off a long history of adversarial labor relations.
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From page 33... ...
Both before and after political unification, the governments of the various German states invested heavily in universities to increase their intellectual capital. The young German chemical companies maintained close contacts between their own chemical researchers and the universities, which enabled the German firms to develop the new technologies faster and more fully than did their British and American counterparts.
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From page 34... ...
established the first independent department of chemical engineering and developed a new engineering model called unit operations (Walker et al., 1923~. At about the same time, as a consequence of their close inspection of the German chemical industry after World War I, American universities became much more concerned with improving chemistry education.
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From page 35... ...
After the passage of the unified patent law in 1877, German firms further cemented their lead in organic chemicals by organizing systematic, large-scale efforts to create new chemical products. In contrast to British firms, German chemical firms developed strong marketing capabilities, which aided their penetration of export markets.
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From page 36... ...
Despite I.G. Farben's virtual monopoly of the domestic market, innovation in the German chemicals industry did not die out, in part because of the need for substantial exports to make up for the weak domestic market.
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From page 37... ...
The historical and expected future performance of these large chemicals firms, like industrial firms in other sectors, is reflected in their market valuation, especially for those firms whose shares are widely held and traded in liquid, efficient equities markets. This valuation also reflects investor expectations of management' s commitment to increase shareholder value, and international comparisons of the relationship between sales and market capitalization reflect national differences in the power of "mass shareholder" (as opposed to management, "main bank," or keiretsu shareholder)
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From page 38... ...
German chemicals firms now are attempting to increase shareholder value amid discussion of methods to realize the underlying values of the different businesses by various devices that will not add heavy tax burdens. Corporate governance issues have now become a major factor in establishing firm strategies.
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From page 39... ...
Nevertheless, these strategies differ from firm to firm, and the recent wave of mergers, alliances, and restructuring reflects the varying ways managements are striving to increase their profitability and shareholder values. CONCLUSIONS This historical survey of the chemicals industry yields conclusions that largely complement, rather than conflict with, the findings of other chapters in this volume.
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From page 40... ...
Expansion outside the home country to newly developing countries serves to provide competitive advantages to large profitable companies in the industrialized nations but is not enough to maintain dominance without continuing developments in technology. As capital markets have been internationalized, corporate governance issues have become a prime concern to shareholders and managements.
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From page 41... ...
In both cases, these favorable valuations reflect the firms' increased emphasis on R&D and product development in the life sciences. By contrast, Dow is more heavily committed to basic commodity chemicals and is seen as average and relatively mature, while Union Carbide's prospects are not as brilliant.
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From page 42... ...
27, 1998 $ Billion 1997 Chemical companies DuPont 1.5169,37345,079 Monsanto 4.0330,3177,514 Dow 1.0420,74820,018 UCC 0.885,7226,502 Industry average 1.6212,6677,801 Pharmaceutical companies (health care) Merck 6.48153,37423,670 Pfizer 9.15114,45312,504 Bristol-Meyers-Squibb 5.9699,61516,701 Johnson & Johnson 4.46100,81322,629 American Home Products 4.2960,86914,196 Amgen 5.8213,9832,401 Industry average 3.7627,5397,329 Financial services: Banks Citicorp 1.9860,06230,300 Chase Manhattan 1.9752,23127,365 Bank America 2.5053,32421,318 Bank of New York 4.2821,9555,124 J.P.
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From page 43... ...
The case of GE is especially interesting. A relatively old, highly diversified manufacturing company, GE has become the largest company on Wall Street in terms of its market capitalization, with a capitalization/sales ratio that is remarkable for such a giant.
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