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German Industry and Global Enterprise: BASF:…
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German Industry and Global Enterprise: BASF: The History of a Company

by Werner Abelshauser

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Lords of Synthesis: BASF and the Alchemy of the Verbund
The authors of this monumental study have made BASF’s businesses and the corporate culture uniting them as transparent as possible to anyone interested in the company and the chemical industry. “German Industry and Global Enterprise”, which draws primarily on BASF archives, chronicles the rise of BASF from its unassuming beginnings in Ludwigshafen to a fateful amalgamation with its putative rivals and its reincorporation and postwar transnationalization. It will undoubtedly be of interest to those fascinated in the inner workings of IG Farbenindustrie, a much-maligned concentration of economic strength created to reestablish the global primacy of Germany’s chemical industry after the Great War. In writing about BASF, Abelshauser et al. also paint a near-complete picture of the trajectory of the German chemical industry from the Industrial Revolution to the present day. The company’s history is presented in both a chronological and thematic format, with detailed commentaries on business practices and corporate culture interspersed within the massive account. (Sadly, the book contained no timeline in its appendix, which would have helped identify at a glance what went on at what time in the company’s history.)

To read about BASF is to learn that it is an institution whose achievements are best told in terms of superlatives. It is the largest chemical company in the world, with group turnover in excess of 70 billion deutschemarks and profits of more than 2.4 billion deutschemarks in 2000; BASF is the world’s largest plastic manufacturer, and one of the main suppliers of polyethylene. BASF is also active in oil and gas, and is a major agricultural products supplier. Because of the company’s business scale and scope, BASF is often the global chemical supplier of choice, being the lowest-cost producer for many intermediate products.

This story of the birth, dominance, refounding, and resurgence of Badische Anilin- und Soda-Fabrik begins in 1865. Friedrich Engelhorn, a gas works entrepreneur and co-owner of Chemische Fabrick Dyckerhoff, Clemm & Co., a dyestuff factory, led the incorporation of BASF with 1.4 million guilders in initial capital, in response to the dyestuff concern’s failed merger with Verein Chemischer Fabriken, a manufacturer of inorganic chemicals. In many technology startups today, one of the major challenges facing the founders, who often come from academia, is to advance the transition of the team’s way of thinking from a predominantly scientifically-oriented framework into a commercial mindset. But BASF did not have to confront this challenge from the very beginning because of the unique circumstances of its birth and the strong commercial orientation of its founders. As Englehorn evidently envisioned a large-scale operation from the very beginning of BASF’s existence, what started out as an unassuming manufacturer of synthetic dyestuffs eventually became by the outbreak of the Great War a global, monolithic, research-oriented chemical firm, fully capable of significantly affecting the course of the German economy.

The key to preeminence lay in synthesis. By 1900, synthetic indigo accounted for one-fifth of BASF’s revenues, and the company was looking forward to developing capabilities in ammonia synthesis. BASF recognized “the great significance” of ammonia production, “not only in peace but also in war”, and understood that “the production of ammonia is quite likely to be the strongest foundation of the profitability of our enterprise.” Commercial synthesis of ammonia in the midst of World War 1 allowed Germany, which had been cut off from Chile’s saltpeter supplies, to continue the struggle. In addition to synthetic ammonia, BASF manufactured hitherto unconventional non-nitrate arms such as chlorine and phosgene. It also produced ethylene chlorohydrin and thiodiglycol, intermediate products which were used in the manufacture of mustard gas. By 1918, one-half of company revenues came from synthetic ammonia and nitrates, and more than three-fourths of BASF’s sales, which amounted to more than 3 billion marks at the time, were derived from trade in intermediate products which were utilized in the war effort.

The end of the war brought with it the humbling of Germany, but BASF’s dynamism continued unhindered. The company’s experience in ammonia synthesis, together with significant advances in organic chemistry (such as methanol synthesis via high-pressure catalytic hydrogenation) ensured that many avenues for advancement remained open to the firm. Such was the sanguinity for BASF’s future that Carl Bosch, 1931 Nobel Laureate for chemistry and a BASF director at the time, permitted himself to declare in 1920 that “[t]he future of the chemical industry is unlimited.” Heady with the taste of success brought by synthesis, Bosch maintained that there was an “infinite range” of natural products that the company could develop synthetically. Yet such exuberance had to give way to the realities imposed by the post-war environment. The economic burdens imposed on Germany at Versailles, the hyperinflation, the radicalization of the workforce proved to be unduly oppressive even for a concern as prominent as BASF. With the UK, French and American markets closed to the German chemical industry, and competition amongst industry participants intensifying, it was felt that an amalgamation of the chemical majors would yield the greatest economic benefits. Steered by Bosch, the process of fusing BASF, Agfa, Bayer, Hoechst, Grieshem-Elektron, and Chemische Fabriken vorm. Weiler-ter Meer into a single economic unit was completed in December 1925.

While the Ludwigshafen-based firm became merely one of the major works group (Betriebgemeinschaften) in IG Farbenindustrie AG, BASF production units, now collectively termed the Upper Rhine group, nonetheless enjoyed a level of prominence within the Farben trust commensurate with BASF’s technological attainments. Given BASF’s experience in the commercial synthesis of ammonia, the Upper Rhine group turned to fuel synthesis. Indeed, high-pressure chemistry as practiced by the Upper Rhine group became one of the pillars of the resurgent Reich’s autarky drive. The group produced gasoline, aviation fuel, diesel, lubricants, rubber (buna)—all manufactured using hydrogenation.

The Reich’s need for synthetic rubber at the onset of the Second World War prompted the IG trust to look for promising site to locate a production facility. The new factory needed to be placed at a place out of bomber range. Monowitz, a town near Auschwitz in Poland, was ultimately selected in February 1941 to serve as the site for the buna plant. Personnel from the Upper Rhine group spearheaded the design and construction of the plant, and techniques developed at BASF were utilized in the facility. A completely greenfield facility, the Monowitz project posed numerous insuperable challenges for the Upper Rhine group and the IG trust, not the least of which was a shortage of personnel. The venture failed to attract a critical mass of German volk willing to establish roots in occupied Poland, and was thus persuaded to employ inmates from the nearby Auschwitz concentration camp, marking the inauguration of one of the vilest chapters in German industrial history.

As it became progressively clear that Germany would again suffer the ignominy of defeat, IG managers began thinking about a post-war scenario for the trust. A memorandum written in 1944 by the trust’s chief legal counsel discussed the dismemberment of IG Farben into three companies: one focused on hydrogenation and fuels; another centered on pharmaceuticals and fibers; and the third concerned with dyes, plastics, and rubber. Disaggregation found no traction within the firm, however, and IG Farben remained intact until its dissolution by the Allies in 1945.

The relatively and surprisingly benign centrifugal forces released by the dissolution of the IG allowed the BASF to emerge from the upheaval in good shape. BASF’s rebirth in 1952 saw the company expand its product range significantly. Research in high molecular weight chemistry facilitated a move into polymer chemistry, which in turn allowed BASF to ride the rapidly expanding German plastics market, then growing at 20-30% during the 1950s. In 1953, the company established the first petrochemical plant on German soil, helping pave the way for a switch from coal-based chemistry. Today, BASF’s chemistry value chain, which covers more than a hundred plants throughout the world, is an interconnected ecosystem, with facilities linked through at least one product or process stage. This so-called Verbund model--the company’s integrated approach to manufacturing--ensures that BASF maintains its competitive cost structure, and facilitates innumerable production synergies.

It is evident in the book that BASF’s seemingly unbounded ability to reinvent itself continually kept the company going; from dyestuffs, the company moved to high-pressure chemistry which led to ammonia synthesis, and the post-Second World War shift to petrochemistry allowed Ludwigshafen to move into plastics and fibers in a reasonably straightforward (although not completely painless) manner. Indeed, at the occasion of the company’s refounding in 1952, this aptitude for transformation was publicly acknowledged by BASF’s chairman Carl Wurster, who addressed those attending the refounding summit as “admirers and friends of old madam BASF, who despite her more than 80 years of age is now showing again that she is constantly rejuvenating.”

With more than 650 pages of densely packed text, “German Industry and Global Enterprise” may not make for leisurely reading, but its careful exploration of the evolution of BASF as a fixture of the global chemical scene makes the book a highly pragmatic read, and will be of interest to industry observers and economic historians. ( )
  melvinsico | Apr 28, 2007 |
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