Comparing Mechanisms for Knowledge Transfer in United States and Britain

Comparing Mechanisms for Knowledge Transfer in United States and Britain by JP

Maastricht University SBE International Business History Individual Assignment 2

The relationship between how knowledge is spread in a country and its existing type of capitalism is not explicitly mentioned in Chandler’s book, Scale and Scope: The dynamics of industrial capitalism. Nonetheless, this relationship is made apparent with the comparison of two countries Untied States and Britain. Knowledge is the key in the evolution of industry and in mankind history, thus efficiency of knowledge transfer (in this case, technological know-how) can determine how fast the industry and subsequently the country progress. Effective knowledge transfer allows industries to adapt faster to changes in the business environment. In this paper, we will show how making use of firm consolidation helped the United States, which adopted the managerial capitalism ideal, to achieve a superior mode of facilitating knowledge transfer within the industries as compared to Britain, whose firms remained separated due to the personal capitalism ideal.

United States – Knowledge transfer through merger and acquisitions

The method of knowledge transfer in the United States was through merger and acquisitions (hence after termed as M&A;). This is not surprising, given that the type of capitalism present in the United States was managerial capitalism. Managerial capitalism signified the importance of the working class as the driving force of the economy. The separation of ownership and managerial decisions allowed for ease of transfer of ownership of the company, which created a positive environment for M&A.;

Thus, given that managers were the facilitator of change, it was not surprising that they were also the agents through which knowledge spread in the industry. A manager learnt the technical knowledge in the company, and then this knowledge spread as he left the company. As new managers join and leave the company, there were more avenues in which knowledge was transferred from company to company. When the knowledge was industry specific, then the knowledge was transferred to the next industry. In the areas where it was not, then knowledge can be transferred at a wide-scale to the other industries. The more the agents, the faster the knowledge spread.

A good example would be the Standard Oil Trust. The mergers of the various oil companies allowed centralization of administration. At the same time, knowledge from all the firms was combined. By the 1880s, Standard Oil trust had the world’s largest managerial hierarchy which allowed consolidation of information in the cooperation. (Chandler, 1990, p. 74). A good example of how the trust incorporated new information is through the Tide Water’s innovation, which as the long-distance oil pipeline. Standard Oil cleverly took over Tide Water, and at the same time, its technological knowledge (Chandler, 1990, p. 95). The same method of eliminating competition and gaining knowledge was seen again in the United States Rubber and Goodrich, which both aggressively acquired other smaller companies.

Britain – Knowledge transfer through contractual cooperation

At the extreme end was Britain’s mode of capitalism- the personal capitalism. The British’s preference for small scale operations and personal management gave rise to the contractual cooperation mechanism of knowledge transfer. Unlike the Americans, the British did not evolve into the administrative centralization and the businesses remained as family businesses. Thus, the sharing of information occurred at a much smaller scale and the representatives from each company only made decisions occasionally for the combined research. (Chandler, 1990, p. 288).

This can be seen by the example of Imperial Tobacco. The federation formed had 17 firms in total in the 1900s. Each firm had independent research and production. This federation too aimed to have knowledge exchange. However, the knowledge exchange only involved a small number of the Executive Committee and was usually made up of the controlling family. (Chandler, 1990, p. 247). It should also be noted that the Exective Committee was also more focused on price settings than standardizing administration and knowledge transfer. Another good example can be seen in the cooperation between Cadbury and J.S. Fry & Sons of the chocolate industry. Although a few family members were asked to learn about each other’s operations, they remained largely separated in operation (Chandler, 1990, p. 246). Thus, although knowledge transfer did take place through contractual cooperation, it occurred at a much smaller scale.

United States Vs Britain

It appears that the knowledge transfer occurred at greater speed in United States than Britain during the Second Industrial Revolution. This is because firstly, there were more agents of interaction for knowledge transfer in United States than Britain. The M&A; mode of knowledge transfer also allowed adoption of best practices and in creating synergy for the firms. This is contrasted with the slower British firms that mostly work independently.

However, a potential weakness of the knowledge transfer through the managers is that companies cannot effectively keep vital knowledge within the company. As managers learnt more about the trade, they could “sell” this information to competitors, join another company, or start their own companies with the technological knowledge. This would result in a loss of advantage for the firms that acquired the knowledge in the first place. In comparison, in the personal capitalism system, firms can control the spread of knowledge better.

On the other hand, the disadvantages of uncontrolled knowledge transfer can be minimised by stringent patent laws, which was probably the reason why patent laws was first started in the United States.

Conclusion

In all, we see that there is indeed a link between the mode of capitalism and the chosen mechanism for knowledge transfer within each country. Thus, this showed the importance of a good business culture in supporting firms within each country. Government bodies can do a lot to encourage the culture too, through law and administration, so as to facilitate knowledge transfer. This paper concludes that the American way of knowledge transfer appears to be superior to its British counterparts, and it is proven so as seen by America’s position as a world leader today.