Knowledge and Competitive Advantage: The Coevolution of Firms, Technology, and National Institutions (review)

A significant part of Johann Peter Murmann's book retells the story of the synthetic dyes industry between 1857 and 1914. As is well-known, William Henry Perkin discovered the first coal-tar dye in England in 1857. Despite its early leadership, though, the British synthetic dye industry fell behind its thriving German counterpart, which was bolstered by excellent academic programs in chemistry, investment in dedicated research-and-development laboratories by major firms, and patent legislation that fostered innovation. By 1913, the German industry accounted for nearly 90 percent of world trade in organic chemicals. Meanwhile, the United States, despite rapid industrial development, languished far behind even the British in this area, a situation that did not change until after World War I.

Murmann makes no pretense to adding much in the way of empirical detail to this story. Instead, he uses it as a vehicle to elaborate a theory of "coevolution" among chemical firms, chemical technology, and national institutions. According to his own definition, "Two evolving populations coevolve if and only if they both have a significant causal impact on each other's ability to persist" (p. 210, emphasis in original). In other words, development of each of the points of Murmann's triangle affected, and was affected by, development of the others. Only by exploring this complex and dynamic set of relationships, Murmann argues, can we explain not just how and why Germany emerged as the dominant force in this industry despite Britain's first-mover and resource advantages, but also how and why particular firms came to dominate the German industry.

It is an ambitious argument, and Murmann should be given credit for his masterful synthesis both of scholarship on the emergence of the organic chemicals industry and of a wide array of—frequently theoretical—literature from management studies, economics, and business, economic, and technological history. He also effectively links examination of macroeconomic and firm-level developments, and considers not just the firms that emerged as "winners," but also those that were unsuccessful. Finally, despite the book's limited ambitions in extending the empirical basis of its subject area (no archival sources and very few primary printed works are cited), the database of dye firms compiled by Murmann and Ernst Homburg from the University of Maastricht yields a significant new dimension to the story of the emergence of the organic chemicals industry. Not only were there more startups in Germany than in its Anglo-Saxon rivals, there were also far more firms that went out of business or were acquired by other firms. This seems to support the idea that failure of many firms is an essential precondition for the success of a few.

Despite its achievements, Murmann's book has its weaker points. The author accepts that many of the "facts" he presents are not new. But some of his "findings" are well established also, and aspects of the methodology are not as novel as Murmann makes them out to be. Few would dispute that Germany's main advantages over its competitors in the development of this industry were its educational and training system, its research capability (in both universities and eventually also in industrial laboratories), and its patent legislation. Similarly, it is well-known that investment in industrial laboratories and the cultivation of close relationships with university scientists were major factors in the growing dominance of German firms. And, though it may be rare, "looking first at the industry as a whole and then zooming in on a carefully chosen set of individual firms" is certainly not "a novel research design" (p. 96).

Moreover, to the extent that Murmann is successful in developing a new theory of coevolution for business and economic history, the history of technology, and management studies, he faces problems integrating human agency into the equation, especially at the level of the firm. If much of what firms do is shaped by national institutions and...