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Abstract
The British Oxygen Company (BOC) had a virtual monopoly on the supply of industrial gases (e.g. oxygen and acetylene) on the British market through the 1950s, when it was finally challenged by an American-based company, Air Products. Air Products Limited (APL) was able to undercut BOC's position, overcoming high barriers to entry to gain significant market share in this sector, which shares some features of network industries. Factors in this success included conditions imposed by the Board of Trade, APL's innovations, BOC's slow response, and favourable market conditions. APL's success had implications for the internationalisation of the industrial gases industry.
Acknowledgement
Research for this article was supported by Linde AG, although the authors alone are responsible for its content.
Notes
1. Economides (2006) notes that ‘virtual network’ industries share features with physical network ones, with some of the same implications for competition policy. See especially p. 96 (see also Shapiro & Varian, 1999, pp. 116–130) for a useful classification of ‘switching costs’ and sources of lock-in for information networks, which also apply to other networks, whether physical or virtual. On monopoly and regulation generally, see Gómez-Ibáñez (2003, especially pp. 4–11).
2. Unpublished report commissioned by BOC and carried out by Stirling, Gadsby & Chown: ‘Growth potential set against the background of its markets’, August 1968, p. 32, in Linde Unternehmensarchiv Munich, BOC-Windlesham collection (hereinafter BOC LUM), Box 535. Please see the appendix for a note on BOC archival sources.
3. UK Monopolies and Restrictive Practices Commission (1956), p. 7; BOC International Ltd, ‘Air Products and Chemicals Incorporated – a review’ (1979), in BOC-Windelsham/Wales collection (hereinafter BOCW), Box 20. Please see the appendix for a note on BOC archival sources.
4. On development of oxygen steel generally, see Landes (2003, p. 517), although he does not consider the role of the industrial gases industry in this innovation. See also Kipping, Raineri, and Dankers (2001, p. 87) for continental European developments, although again industrial gases are not mentioned. On BOC's entry into the tonnage business: Notes of interviews with a number of Directors and Seniors, here interview with R.C. Hesketh-Jones from 5 and 24 January 1983, as well as the overview of ‘BOC History 1945–1975’. Additional detail is in interviews with John B. Gardner from 14 December 1982, David R. Harris from 15 February 1983, and Sir Leslie Smith from 21 and 26 July 1983. All sources in BOC LUM Box 488.
5. This was the phrase used in jest to characterise the young but successful management team of Air Products in Britain under the leadership of Dexter Baker because of its cooperation for a time with the Butterley concern, which, among other things operated a brickyard. On this, see the Air Products Ltd company magazine, CryoGen, especially the edition CryoGen looks at 25 Years of Air Products (1982). Insofar as other sources are not mentioned, the following account is based on either this source; on Butrica (1990, especially pp. 74–76, 105, 161–164, 177–179); or on interview with Dexter Baker, 28 October 2008, Allentown, Pennsylvania.
6. Butrica (1990, pp. 75–76, 105–161, 163–164); CryoGen looks at 25 years of Air Products, pp. 2–3. Cf. short reports on the joint venture with Butterley and the first contracts for construction of air separation units or parts thereof in The Times of 9 July 1951 (‘The Butterley Company Limited’, p. 11) and 1 July 1952 (‘Butterley Company Limited’, p. 11).
7. Butrica (1990, pp. 98–101); CryoGen looks at 25 years of Air products, p. 1; BOC-Report on Air Products for staff college, 1964, BOCW Box 536; Verbal Notes Board meetings 1958, BOCW Box 478.
8. The piggyback concept allowed delivery to the baseload, or primary, customer per pipeline; any gas beyond that customer's requirements could then be diverted to the merchant market (Harvard Business School, 1975, pp. 7–8).
9. BOC, Report on Air Products for staff college, 1964, BOCW Box 536; Verbal Notes Board meetings 1958, BOCW Box 478.
10. The Times, 20 May 1954 (‘Butterley and Oxygen’, p. 4 [advertisement]), 1 July 1954 (‘Butterley Company Limited’, p. 14), and 8 July 1957 (‘The Butterley Company Limited’, p. 15).
11. BOC, Report on Air Products for staff college, 1964, esp. p. I-4, BOCW Box 536.
12. Interview T.E. Potts, 30 November and 7 December 1982, as well as 19 January 1983, interview John Strong, 13 May 1983, in Notes of interviews with a number of Directors and Seniors, BOC History 1945–75, BOC LUM Box 488.
13. Interview with Dexter Baker, 28 October 2008, Allentown, Pennsylvania. BOC also believed that Butterley was not a suitable supplier of tonnage plants: BOC, ‘Air Products and Chemicals Incorporated – a review’, 1979, p. 3, BOCW Box 20.
14. Stirling, Gadsby & Chown, ‘Growth potential’, August 1968, BOC LUM Box 535; and ‘Tonnage Oxygen Steel Plant for Italy’, The Times, 10 December 1962, p. 18. On the contracts from 1957 to 1960 see CryoGen looks at 25 years of Air Products, p. 4; email communication from Dexter Baker, 9 October 2009.
15. Figures for Air Products from Butrica (1990, p. 50). Figures on profits for BOC from ‘The British Oxygen Company Ltd’, reprint from The Financial Times, 26 April 1958, in BOC LUM, Box 425; and on sales from a report in a box labelled ‘Reports and accounts 1908–80’ in BOC LUM. The prevailing exchange rate in 1957 was £2.8 to the dollar. See Pacific Exchange Rate Service, ‘Foreign currency units per one British pound, 1948–2007’, retrieved 9 February 2010 from http://fx.sauder.ubc.ca/etc/GBPpages.pdf
16. BOC, ‘Air Products and Chemicals Incorporated – a review’, 1979, p. 5, in BOCW Box 20.
17. Stirling, Gadsby & Chown, ‘Growth potential …’, August 1968, BOC LUM Box 535, and in BOC, Report on Air Products for staff college, 1964, p. I-6, BOCW Box 536.
18. BOC History 1945–75, BOC LUM Box 488. For public discussion about the Monopoly Commission and the BOC case, see also: Robinson (1957, pp. 459–460, 475); Guénault and Jackson (1974, pp. 75–76, 81–84, 110, 132); Jewkes (1958, in particular, pp. 14, 16–18); Broadberry and Crafts (2001).
19. Internally, BOC repeatedly emphasised the advantages that Air Products received on the basis of these restrictions. E.g. interview with Sir Leslie Smith, 2 and 26 July1983, Notes of interviews with a number of Directors and Seniors, BOC History 1945–75, BOC LUM Box 488.
20. BOC, Report on Air Products for staff college, 1964, BOCW Box 536.
21. Letter from BOC to the Board of Trade, 4 June 1962, in BOC History 1886–1979 in BOC LUM Box 488. In 1966, all remaining restrictions were lifted. See ‘British Oxygen freed’, The Times, 14 June 1966, p. 19.
22. Market study on ‘The industrial gases industry’ commissioned by BOC and carried out by William Blair & Company, September 1976, BOCW Box 1143.
23. BOC, Report on Air Products for staff college, BOCW Box 536. For innovation and the emerging market for chilled and frozen foods, see for instance Cox, Mowatt, and Prevezer (2003) and Josephson (2008), although only the former mentions the gases industry at all, and only in a footnote referring to BOC Transhield, which was a subsidiary of BOC set up to deliver chilled foods to Marks and Spencer. See Cox et al. (2003), p. 211, note 18.
24. Demand from the food processing industry for nitrogen had the added advantage for gas companies in that it was hardly cyclical at all, which made demand for liquid nitrogen more resistant to recession than for instance that for liquid oxygen (LO) for the steel industry. ‘The industrial gases industry’, William Blair & Company, September 1976, BOCW Box 1143.
25. BOC, Report on Air Products for staff college, 1964, p. I-7, BOCW Box 536.
26. Stirling, Gadsby & Chown put it this way in their study commissioned by BOC in 1968: ‘When APL [Air Products Ltd] came into the business rationalization of distribution was one of its fundamental commercial contributions. In those days cylinders had round bottoms and were transported lying on their side; APL used only flat bottomed cylinders, thus enabling it to ship more cylinders per lorry load. Man-handling of cylinders was a problem, and so APL introduced as many mechanical handling techniques as possible; mechanical “tail-lift” [sic] loading on commercial vehicles was one. The reduction in the number of physical handling operations which APL was able to make enabled it to sell cylinder gases such as oxygen (where technical specification is relatively unimportant) at prices lower than those of BOC.’ Stirling, Gadsby & Chown, ‘Growth potential …’, August 1968, p. 31, BOC LUM Box 535. Dexter Baker noted that one additional problem with the round-bottomed cylinders was that they could only be unloaded by pushing them off the end of the truck, often breaking the concrete on the customer's loading dock. Interview with Dexter Baker, 28 October 2008, Allentown, Pennsylvania.
27. BOC, ‘Air Products and Chemicals Incorporated – a review’, 1979, p. 7, BOCW Box 20; ‘The industrial gases industry’, William Blair & Company, September 1976, BOCW Box 1143; BOC History 1945–75, BOC LUM Box 488.
28. BOC-Aide Memoire Air products, 1963, BOC LUM Box 535.
29. ‘The industrial gases industry’, William Blair & Company, September 1976, BOCW Box 1143.
30. Interview R.C. Hesketh-Jones, 5 and 24 January 1983, as well as interview with Sir Leslie Smith, 21 and 26 July 1983, in Notes of interviews with a number of Directors and Seniors, BOC History 1945–75, BOC LUM Box 488.
31. Memo from F. Lewin-Harris and R.C. Hesketh-Jones, ‘Competition, BOC advertising and P.R.’, 4 January 1963, BOC History 1945-1975, BOC LUM Box 488. This position was later confirmed in the market study ‘Growth potential set against the background of its markets’, carried out by Stirling, Gadsby & Chown for BOC in August 1968: ‘[BOC's] approach to its business was similar to that of many national monopolies; unenterprising, self-satisfied and old-fashioned.’ Citation from p. 26. BOC LUM Box 535.
32. Interview with T.E. Potts, 30 November, 7 December 1982, and 19 January 1983, as well as with Sir Leslie Smith, 21 and 26 July 1983, in Notes of interviews with a number of Directors and Seniors, BOC History 1945–75, BOC LUM Box 488.
33. Stirling, Gadsby & Chown, ‘Growth potential …’, August 1968, pp. 26–27, BOC LUM Box 535.
34. Verbal Notes of Board meeting 23 September 1958, p. 3/33, BOCW Box 478.
35. Memo from F. Lewin-Harris and R.C. Hesketh-Jones, ‘Competition, BOC advertising and P.R.’, 4 January 1963, BOC History 1945–75, BOC LUM Box 488.
36. Verbal Notes Board meetings 23 September 1958, Verbal Notes Board meetings 1958, BOCW Box 478.
37. BOC, ‘Air Products and Chemicals Incorporated – a review, 1979, pp. 3–4, in BOCW Box 20.
38. BOC History 1886–1979 in BOC LUM Box 488.
39. BOC not only introduced numerous labour-saving innovations that had been pioneered by Air Products into its distribution system, but also tried – like Air Products – to carry out applications research for nitrogen to attract potential customers. BOC History 1886–1979 in BOC LUM Box 488; BOC, Report on Air Products for staff college, 1964, BOCW Box 536.
40. BOC, Report on Air Products for staff college, 1964, BOCW Box 536.
41. BOC Chairman's Committee Minutes, Regional Management Meeting from 16 June 1965, BOCW Box 478.
42. Stirling, Gadsby & Chown, ‘Growth potential …’, August 1968, pp. 31–32, quotation p. 32, BOC LUM Box 535.
43. Stirling, Gadsby & Chown, ‘Growth potential …’, August 1968, p. 30, BOC LUM Box 535.
44. BOC History 1945–75, BOC LUM Box 488; Stirling, Gadsby & Chown, ‘Growth potential …’, August 1968, p. 30, BOC LUM Box 535.
45. On the development of the so-called ‘tonnage debenture concept’ at BOC, interview with Sir Leslie Smith from 21 and 26 July 1983, Notes of interviews with a number of Directors and Seniors, BOC History 1945–75, BOC LUM Box 488.
46. BOC, ‘Air Products and Chemicals Incorporated – a review’, 1979, p. 4, BOCW Box 20; BOC History 1945–75, BOC LUM Box 488.
47. Interview with R.C. Hesketh-Jones, 5 and 24 January 1983, in Notes of interviews with a number of Directors and Seniors, BOC History 1945–75, BOC LUM Box 488.
48. The full citation is: ‘The Trauma of Competition has been faced. The company recognizes that, on balance, the effect upon it of APL's competition has been beneficial. It is, now, probably rather easier for BOC to penetrate APL's market than it is for APL to erode still further BOC's position.’ Stirling, Gadsby & Chown, ‘Growth potential …’, August 1968, p. 27, BOC LUM Box 535.
49. BOC, ‘Air Products and Chemicals Incorporated – a review’, 1979, p. 7, in BOCW Box 20.
50. CryoGen looks at 25 years of Air Products, p. 9; ‘Air Products £2.5 m. Belgian plant’, 1964; BOC, Market observation of Air Products 1980–88, BOCW Box 874.
51. Information kindly provided by the Thyssen-Krupp Concern Archives, Duisburg. Griesheim and Messer became Messer-Griesheim in 1965, which meant that two rather than three German firms now dominated the West German market.
52. BOC, Market observation of Air Products, 1980–88, BOCW Box 874.
53. BOC, ‘Air Products and Chemicals Incorporated – a review’, 1979, pp. 5–6, BOCW Box 20; BOC, Market observation of Air Products, 1980–88, BOCW Box 874.
54. Comparison of APL Performance versus BOC Gases Division from 24 March 1980 (JM/AL); Press report: Interview with Senior Air Products financial executives, June 1977; both in BOC, Market observation of Air Products 1980–88, BOCW Box 874. On the more intensive competition on continental Europe, ‘The industrial gases industry’, William Blair & Company für BOC, September 1976, BOCW Box 1143.
56. BOC, ‘Air Products and Chemicals Incorporated – a review’, 1979, p. 5, BOCW Box 20.
57. Memo from F. Lewin-Harris and R.C. Hesketh-Jones, ‘Competition, BOC Advertising and P.R.’, 4 January 1963, BOC History 1945–75, BOC LUM Box 488.
58. Stirling, Gadsby & Chown, ‘Growth potential …’, August 1968, p. 29, BOC LUM Box 535.
59. Interview with David R. Harris on 15 February 1983, Notes of interviews with a number of Directors and Seniors, BOC History 1945–75, BOC LUM Box 488.
60. In 1972, BOC, Messer-Griesheim, and Linde had agreed in principle to initial negotiations to establish a joint venture for the European markets (Belgium, Denmark, Finland, France, Holland, Italy, Luxemburg, Norway, Portugal, Sweden, and perhaps later also Spain and Greece) for industrial and medical gases outside each of the firms' domestic markets (West Germany, Austria, Switzerland, Great Britain, and Ireland). However, the company, which was to be named ‘Eurogas’, never came to fruition. BOC History 1886–1979, BOC LUM Box 488.
60. The BOC participation in Air Reduction, with which the British firm had an agreement on cooperation for plant construction on the American market already in 1968, is detailed in Stirling, Gadsby & Chown, ‘Growth potential …’, August 1968, p. 24, BOC LUM Box 535; BOC History 1886–1979, BOC LUM Box 488.
61. The Swedish industrial gases company AGA also considered becoming active on the British market and to invest heavily to this end. The Times commented in its business section: ‘There is not only room for a third force in the gas market in this country. It can be argued that there is a positive need for one.’ ‘Gas move by AGA’, 1970.
62. Thus, already in 1968 BOC was expecting an expansion of Union Carbide into the European market for industrial gases: Stirling, Gadsby & Chown, ‘Growth potential …’, August 1968, pp. 28–29, BOC LUM Box 535.
63. ‘The industrial gases industry’, William Blair & Company, September 1976, BOCW Box 1143.
64. Stirling, Gadsby & Chown, ‘Growth potential …’, August 1968, p. 28, BOC LUM Box 535.
65. Ibid.
66. BOC, ‘Air Products and Chemicals Incorporated – a review’, 1979, p. 8, BOCW Box 20.