Bayer Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Bayer AG is a German chemical and pharmaceutical company founded in Barmen, Germany, by Friedrich Bayer in 1863. Bayer has its headquarters in Leverkusen, North Rhine-Westphalia, Germany. It is currently the third largest pharmaceutical company globally. Bayer was one of the important German chemical companies of the late 19th and 20th centuries. Its signature product was aspirin made from coal tar. The company in 2008 is a considerably different corporate entity. Since a major reorganization in 2003, it has become the strategic management holding company for the Bayer Group.

Bayer AG is composed of five main divisions: Healthcare, Crops Science, Materials Science, Technology Services, and Business Services. Bayer’s Healthcare activities involve innovation and development in pharmaceutical and medical products; Bayer Crop Science deals with chemical products and services related to crop protection and nonagricultural pest control; Bayer Materials Science focuses on research and development of advanced and high-performance industrial chemical materials such as polycarbonate, polyurethane, and advanced organic polymers, advanced coatings, and such cutting-edge materials as nanotube systems and technology; Bayer Technology Services is Bayer’s process and plant development arm, and includes plant design, engineering, construction, and optimization; and Bayer Business Services is Bayer’s center for information technology (IT) design, development, and implementation in such areas as infrastructure and applications, procurement and logistics, human resources and management services, and finance and accounting.

In addition to these activities, Bayer has formed the company Currenta, a joint-venture service company with Lanxess that offers a variety of services dedicated to the chemical industry, including utility supply, waste management, infrastructure, and safety and security. As of December 2007 Currenta operates the CHEMPARK sites in Leverkusen, Dormagen, and Krefeld-Uerdingen, Germany.

Bayer AG has four major sales regions. In descending order of sales, these are Europe, North America, Asia/Pacific, and Latin America/Africa/Middle East. The year 2007 was a profitable year for the company. Sales rose by 12 percent to €32.4 billion. Between 2007 and 2008, Bayer experienced increased sales across all divisions and geographical regions.

History

As with the other major German chemical companies of the late 19th century, the company’s success was based on advanced scientific and technical research in the synthesis of coal-tar-based organics. Bayer’s first important commercial products were coal-tar dyes for use in the textile industry. Because of the chemical linkages between these compounds and pharmaceutical products, Bayer moved into bio- chemical research and innovation. By the start of World War I, Bayer, under the technical leadership of chemist Felix Hoffmann, discovered and brought to market such landmark pharmacological products as aspirin, sulfa drugs, and anesthetics.

During this period, Bayer became famous for holding tightly onto its patents to gain commercial advantage or as political leverage for German colonial interests. This policy was criticized by humanitarian groups at that time for the delays it caused in the delivery of life-saving drugs in Europe (e.g., to fight pneumonia) and less developed regions, such as Africa (e.g., to use against cases of sleeping sickness). Bayer also developed “mustard gas” that was used by the German military in World War I. As part of its reparations requirements following the war, Bayer’s assets—including patents and trademarks—were confiscated by the United States and its allies. These assets were eventually acquired and freely worked by selected chemical firms in the United States, Canada, and other countries.

In 1925, as nationalistic calls for material self-sufficiency spread, the German chemical industry combined into the conglomerate IG Farbenindustrie (IG Farben), which soon became the technical (and financial) hub of the Nazi regime. Bayer was a central part of IG Farben, which owned 42.5 percent of the company. During World War II, IG Farben in general, and Bayer in particular, became an integral part of the Nazi war machine. As such, it played an active role in Nazi atrocities. It developed the chemical Zyklon B, used in the gas chambers at Auschwitz and other German concentration camps, and made extensive use of slave labor in factories associated with the camps. In 1947, members of Bayer’s board of directors, indicted for war crimes, were convicted and sent to prison for up to eight years.

But Bayer, as did other firms of the IG Farben conglomerate, would in a short time rise from the ashes of war. In the postwar years, Bayer underwent significant change and expansion during the decades of globalization. With IG Farben ordered dismantled by the Allies, Bayer was once again an independent company. With the company allowed to continue operating its sites at Leverkusen and Elberfield, Bayer refurbished its plants, replacing outdated equipment and machinery, making full use of the newest American chemical engineering. The company developed new products, including plastics, fibers, and insecticides and, through acquisition of AGFA, entered into photographic products. Bayer proved itself resilient and grew rapidly through the 1950s. During the decade, American investors, increasing impressed with the company’s success, held up to 12 percent of the company’s stock. During the 1960s, Bayer’s domestic production grew 350 percent.

Recent Strategies

Bayer’s success in the postwar period, and especially after 1970, has depended on the adoption of three distinct but closely interrelated strategies. First, it captured competitive differentiation in the market through original R&D through which it achieved “new product development, proprietary product technology, and low manufacturing cost.” Second, Bayer has been adept at identifying and negotiating the creation of strategic merger and acquisition deals and, as critically, partnering and joint-venture arrangements. These have been primary instruments by which Bayer has been able to expand its pharmaceutical, healthcare, agrichemical, and advanced materials businesses, which the company considers the major drivers of its present and future growth. Third, and most important, the company has been successful in leveraging its first two strategies to embrace and exploit the globalization movement to maximum advantage.

The 1950s and 1960s ushered in the first wave of international expansion for the company. By the early 1960s, Bayer operated production plants in eight countries in Europe, Asia (India and Pakistan), and North America. The international expansion strategy of Bayer at this time focused on “final stage processing” by which the more expensive (“active”) chemicals were made in Germany and then shipped abroad to be mixed in Bayer facilities (or by subcontractors) with less expensive, inert materials that would be prohibitively expensive to transport over long distances. These arrangements meant that Bayer could profitably manufacture and market products such as agrichemicals and pharmaceuticals in developing countries.

The 1960s and 1970s saw rapid growth for Bayer’s presence in the U.S. market, not only exports but, even more significantly, foreign direct investments in the form of new and refurbished plants. The postwar economy was booming in the United States and, at the same time, U.S. tariffs were on the rise. Moreover, relatively high costs of labor and energy and limited markets in Europe meant that it made strategic sense for Bayer to dedicate direct investment money in the United States.

Important innovations from Bayer that were crucial for its market growth in the United States were the polyurethanes, dyestuffs, and engineering plastics. Through the 1970s, Bayer’s foreign investment in the United States increased from $300 million to over $500 million. In the 1980s as well, Bayer actively pursued the spending of foreign direct investment in South America, taking advantage of the benefits afforded to foreign business by Mercosur, which induced privatization of government-held petrochemical holdings. Overall, by the late 1980s, about three-quarters of Bayer’s total sales originated from outside Germany. By the 1990s, Bayer had advanced in Asia. Through the formation of strategic joint ventures and partnerships, Bayer has established a presence in China and Taiwan, as well as other parts of Asia. Beyond 2008, Bayer anticipates continued leveraging of its research and development work in the formation of joint ventures and strategic partnerships within its business areas over a growing number of international markets.

Bibliography:

Aftalion, A History of the International Chemical Industry, 2nd ed. (Chemical Heritage Press, 2001);
Arora, E. Landau, and N. Rosenberg, eds., Chemicals and Long-Term Economic Growth (John Wiley & Sons, 1998);
Bayer AG, Annual Report (2007);
Beer, The Emergence of the German Dye Industry (University of Illinois Press, 1959);
Findlay, A Hundred Years of Chemistry, 3rd ed. (G. Duckworth, 1965);
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Haber, The Chemical Industry, 1900–1930: International Growth and Technological Change (Oxford University Press, 1971);
Hohenberg, Chemicals in Western Europe, 1850–1914: An Economic Study of Technical Change (Rand-McNally, 1967);
Spitz, Petrochemicals: The Rise of an Industry (John Wiley & Sons, 1989);
Taylor, A History of Industrial Chemistry (Abelard-Schuman, 1957).

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