This paper provides a background and an introduction to the paper which will be presented at the conference: Business and Technology Transfer in the Modern Industrial World to be held in Kyoto, 12-13 October 2002, entitled "The international diffusion of steam technology and the management of intellectual capital: a study of Babcock & Wilcox 1860-1920."

Babcock & Wilcox (which operated extensively in Britain, France and Germany) was one of the most innovative and important engineering firms in the late 19th century. The overall aims of the investigation of this firm are to explore how processes of innovation and diffusion took place; to relate these processes to the large-scale technological changes in the late nineteenth century, and to see what light the case of Babcock & Wilcox throws on some major debates in economic and business history. The history of the firm is of much historical interest and throws light on current preoccupations in economics, innovation studies, and economic and business history. It is of interest and current relevance for the following reasons:

• The firm was the main developer of one of the core technologies of the 'scond industrial revolution' related to power generation and large-scale power plants.
• Its history raises questions about the nature of globalization in the late 19th century, since the firm had a global strategy for production and distribution.
• It involves the issue of strategic alliances among firms. The firm had a long-standing production agreement with the Singer Company, based on close technological collaboration.
• It is closely relevant to the issue of British relative economic decline and entrepreneurial failure in the late nineteenth century. The British branch of Babcock & Wilcox (which became separated off as an independent firm) in fact performed better than the American company.
• It illuminates themes such as corporate governance, problems flowing from the separation of ownership and control, principal-agent relations and conflicts of interest and responsibilities within the managerial hierarchies of firms.
• It raises issues relating to the management of intellectual property within and outside firms. Thefirm's success was based on a patented safety steam boiler, and continuous patenting is a prominent feature of the history of the firm.

The paper explores two of these aspects in particular, namely the global production and distribution of the firm's core product, and the firm's management of intellectual property in an international context.

To provide a framework for the conference presentation and discussion, an outline of some of the themes and issues involved in all this follows below.

Three contexts:

(i) The economic history context

The economic history context is that of the so-called 'second industrial revolution', the large-scale changes associated with power engineering, electricity, chemicals, vehicles and so on. From the economic history perspective, these large-scale changes are often interpreted in a Schumpeterian framework - as a Kondratiev wave, or a major paradigm shift, or as a new 'Industrial revolution'. Many interesting questions arise from this: are we right to think in terms of 'revolutions', what is the nature or character of the change involved, is this an accurate way to think about the relationships between technological change and long-term economic growth? I will suggest that this kind of approach can be very misleading. But at least we need detailed studies of the economic units or agents involved, and this means micro-level studies of companies.

(ii) The business history context

The business history context concerns issues related to the rise of big business, the managerial revolution, and the broader issues associated with Alfred Chandler's work - the separation of ownership and control, the emergence of systems of corporate governance, the development of corporate strategies and so on. There is a further issue here, which links the business history issues to wider economic history. This is the question of entrepreneurial failure and the alleged 'decline' of the British economy in the late 19th century. It is sometimes argued that British entrepreneurs and managers failed to adapt to new technological challenges at that time, and that this resulted in relative decline of the British economy. This case throws light on all these questions, and also throws light on some issue of contemporary importance, such as the role of strategic partnering and the role of knowledge management in corporate strategy.

(iii) The technological and engineering context

The technology developed by Babcock & Wilcox formed part of the main developments in engineering at the times. These included the development of standardized production, of interchangeable parts, standardized instrumentation (gauges etc.), substitution of steel for wrought iron in machinery, and new approaches to logistics (such as conveyor belts).
Babcock & Wilcox both led and exemplified this important set of technology developments.

The company and its technology:

It might be useful to provide a short overview of how the company and its product evolved. Babcock & Wilcox was founded in the US in 1856 with a patent for a new "safety" steam boiler. A partnership was established in 1867. Over the next few years a few boilers were made and an office was opened in New York. In 1872 the first contact with Singer Sewing Machine Manufacturing Company took place; this was the start of a long lasting alliance between the two companies. The firm was changed to a shareholding company in 1881, and a branch was set up in Glasgow the same year. From the 1880s it operated globally. In 1891 the company was separated into two firms: the Babcock & Wilcox Company, in the USA, and Babcock & Wilcox Limited, in the UK. They shared the world market between them, with the American firm selling to the USA and Cuba, while the British firm covered the rest of the world. Both companies still exist, and are major suppliers of power equipment. During the 20th century the British firm has moved into nuclear and defence fields, and supplied boilers to British nuclear power stations, plus marine (surface and subsea) and conventional power plants. Large parts of the company were sold off in the 1990s to the Japanese firm Mitsui, but it has retained its defence production in Scotland. The American firm is now part of McDermott International, and covers fields like energy, defence, environmental technologies, pulp and paper, rocket launchers, etc.

The Babcock & Wilcox technology was an important technological breakthrough. The basic technical problem it addressed was safety: all steam engine technologies until then had problems of boiler safety, and there were regular major boiler explosions, causing much loss of life, and having major economic impacts. (In 1862 there were 34 boiler explosions in the UK, causing 102 deaths). Rather than using riveted round or cylindrical boilers, the Babcock & Wilcox boiler used a series of inclined tubes, with headers that controlled pressure. This became the core technology for steam production in direct power supply, electrical power generation and marine applications. The technology remains a core technology of electrical power generation to this day, both conventional and nuclear, and in all marine applications. So this company is responsible for a major technological trajectory, a technology that has been developed over approximately 150 years.

Six Themes- and some results:

In studying Babcock & Wilcox six themes have emerged:

1. The evolution of the technology
2. Strategic alliances, corporate governance and ownership-control questions
3. International market seeking and the global diffusion of technology
4. Foreign agents and global technology diffusion
5. Knowledge as the key asset of the firm: appropriability, intellectual property rights and innovation
6. Entrepreneurship and national economic performance

The evolution of the technology

The company introduced a major technological innovation of considerable long-term industrial importance. Its UK patents covered five related technical fields: boilers, marine boilers, boiler parts, production machinery, engines, and auxiliary equipment. Most of the patents have one primary technical field, although some cover more than one field (such as marine boilers and engines). In the early years, patenting is heavily concentrated in boilers and boiler parts. In the 1890s, however, the emphasis shifts strongly towards production machinery, suggesting a shift from product to process innovation in the company's innovation efforts. At the same time, the aims of the patents shift also: from safety related characteristics (which were of course the primary selling point of the Babcock & Wilcox technology in the first place) towards cost-reducing technologies in later years. (This shift incidentally accords with Abernathy and Utterback's model of product-process innovation in the 20th century).

Strategic alliances, corporate governance and ownership-control questions

This company was involved in a major strategic alliance linked to the core technology of the enterprise. The basic technological competitiveness of the firm hinged on a production agreement with the Singer sewing machine manufacturing company, which was central to the ability of Babcock & Wilcox actually to solve the production problems linked to its technology. Parts of the boiler required precision engineering. Singer had this specialized engineering skill - which appear to have been difficult to transfer or replicate. Singer produced first parts, then the whole boiler, both in the USA and in Britain.

The link with Singer led to a reorganization of the Babcock & Wilcox firm with key Singer executives and managers buying shares in the company and in effect taking control of the Babcock & Wilcox operations, apparently on a private basis. At the same time there is a production agreement between the two firms. This leads to interesting questions concerning how Singer viewed the role of these executives, how the conflicts of interest were reconciled, and what types of principal-agent problems were involved. So this alliance involved serious questions about corporate governance, managerial responsibilities, and conflicts of interest.

International market seeking and the global diffusion of technology

Babcock & Wilcox operated globally from the 1880s. In the words of one of the directors: "Our territory is the world". The firm was very active in North America and Europe, and then in South America, Australia and East Asia. The rise to global influence was effected primarily after the division of the firm in 1891. The British operations were split off as an independent company, which purchased virtually all non-US rights to the American founder-company's patents. The UK firm controlled all world sales outside the USA and Cuba.

Early output went to such firms as Solvay plants in France, Belgium and Germany. In the first 10 years, the company sold and erected boilers in 44 countries. Sales were particularly large in Russia, Western Europe, Argentina, Australia, India, Ceylon etc:

Source: Babcock & Wilcox Archive; based on Job Books Glasgow and Renfrew, 1881-1890, UGD/309/3/4/311-15; and? UGD/309/3/4/311-322.

Foreign agents and global technology diffusion

Babcock & Wilcox did not simply engage in arms-length market transactions as part of its international strategy. It established a wide network of agents, who sold and erected their boilers. These agents were not simply salesmen, but were engineers who drew on Babcock & Wilcox technology and sometimes established quite substantial engineering activities themselves. The Norwegian agent, for example, moved into railway engine production and marine equipment, and became central to the engineering development of the country.

Source: Information from Job Books, Glasgow and Renfrew. B&W archive, UGD/309/3/4/311-315, and from UGD/309/1/11/2, Draft history September 1940.

Knowledge as the key asset of the firm: appropriability, intellectual property rights and innovation

A central question concerns the management of intellectual property. Babcock & Wilcox was very active in patenting, and one question which can be asked is to what extent the system of patenting was used by the firm as part of a consistent strategy of knowledge management and protection of intellectual property - at home and abroad.

The firm based most of its patenting around one core innovation, developing this cumulatively, and gradually shifted emphasis from product innovation to related processes of production. Most patents were taken out by 'key' people, but the inventors may have been more numerous. Some innovations were developed through co-operation with people external to the firm, and this too is reflected in patents. A number of innovations were developed by other firms, and acquired through buying up, or by buying the rights to patents. A large part of the innovations were developed and shared with a partner firm.

We can identify some incentives encouraging employees to innovate: some innovators were promoted to become members of the Board, and a small number of key innovators received very large salaries. Furthermore, the firm paid a certain number of workers annual bonuses, and this may have been linked to innovation. The basic policy of the firm was that rights in inventions were assigned to the company. This was an issue which caused problems at all levels.

Externally, the intellectual property of the firm was seen as a key strategic resource, and was frequently discussed at board meetings and in correspondence between directors.
Patenting was perceived by the principals as very important to the company, and the company was actively defending its patent rights in a number of countries. By early 1888 the British company owned 73 US patents and 27 foreign patents.

Entrepreneurship and national economic performance

The global success of Babcock & Wilcox was not at all the rise of an American multinational, but flowed from the decisions of a dynamic and effective British management, a process which raises interesting questions about changing industrial leadership, and the notion of 'entrepreneurial failure' in Britain at that time.

A final aspect relates to changing industrial leadership, entrepreneurship and corporate organization. It is sometimes argued that the late 19th British economy failed in creating the dynamic industries of the second industrial revolution. However Babcock & Wilcox was a major success, and deserves the place which writers such as Chandler give it when writing of the major industrial transitions of the late 19th century. But to what extent does it represent a transition to American leadership? The global success of the company occurred under a mainly British management, in which the role of the British managing director, Sir James Kemnal Rosenthal, was of prime importance. It was he, and the staff in London, who turned Babcock & Wilcox into a decisive global force, diffusing its steam technology throughout the world. In part this arose because of rather natural marketing conditions, with the British-based operation lacking the large internal market of the USA, and being forced to look for export markets. However in doing so it had to overcome considerable European competition, and the British firm went further than simply seeking exports. In fact it did exactly what Chandler has pointed to in the case of the rise of big business in the USA - it invested in major production facilities dispersed over several countries, created global marketing and after-sales services, and an organization which could manage them. It is hard to see entrepreneurial failure here.

References:

• Kristine Bruland, "trategic Business Alliances in the Second Industrial Revolution: Singer and Babcock & Wilcox c. 1860-1914", in K.Bruland and P. O'Brien (eds.) From Family Firms to Corporate Capitalism: Essays in Business and Industrial History in Honour of Peter Mathias, Oxford: Clarendon Press, 1998, pp. 1-18, 219-247.
  
• R.W.M. Clouston, "The development of the Babcock boiler in Britain up too 1939", Transactions of the Newcomen Society, Vol 58, 1986-87, pp.75-85.
  
• D. Edgerton, "Science and technology in British Business History", Business History, Vol 29, 1987, pp.84-103.