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Innovation is the key to survival

Posted 28/04/2010 by RoseS

Innovation is the key to the survival of the UK, and indeed the European, chemical sector – a belief reiterated by the chairman of the Chemical Business Association, Francis Osborn at yesterday’s annual CBA luncheon. He re-emphasised the comments in the report published earlier this year by management consultancy KPMG, The Future of the European Chemical Industry, which pointed out that the key to survival is based on innovation at three different levels.

Firstly, innovation is required to move from bulk chemical production to the speciality end of the chemical supply chain. It is pointless trying to compete with low cost producers with access to low cost feedstocks. Many might think that these low cost producers are based in the Middle East, but as Wilfried Dolkemeyer, from Germany’s TopManager Team pointed out at the recent Material Concerns Forum organised by the British Association for Chemical Specialities, even producers in that region are beginning to see limitations in the previously readily available supplies of ethane and are now turning to naphtha.

What Europe can leverage, says KPMG, is its traditional advantage in technology, and as Osborn pointed out, the UK currently sits in third place behind the US and Japan in terms of chemical papers published, although the transition between ideas and real products has often proved a stumbling block in the UK.

Finally, KPMG highlighted the importance of establishing closer customer and competitor relationships through joint development agreements, acquisitions, value-added services and other strategic initiatives.

Now while the speciality chemical sector has always had a reputation for customer relationships, this approach has constantly eluded the heavier end of the chemical sector. Although the days have passed when a chemical company produced a new substance and then tried to find a market for it, in many parts of the chemical sector this is a lesson that still has to be learned. To be competitive in this new global market, understanding one’s customers and their specific needs and desires, thereby ensuring their success, has become a necessity, as a feature in the next issue of C&I explains with regard to the automotive sector (C&I, 2010, 9, 18).

Some chemical majors have already taken that giant step of cooperating with their competitors in order to compete in the developing economies like the Middle East and China, but there is still scope even within the developed markets in the aftermath of the recent global financial upheaval.

A critical part of innovation is naturally R&D. According to management consultancy McKinsey, R&D has risen sharply on the corporate agenda in the wake of the economic climate. Some 40% of respondents in senior management roles across all industry sectors in a recent McKinsey survey reported an increase in both R&D budgets and activity levels in 2010, compared with 2009. Nearly 60% said that R&D will either be a top priority or among their top three priorities in 2010, compared with 47% a year ago.

One aspect that comes through loud and clear in the survey is that those companies that cut, reduced or eliminated their R&D in 2009 will have to live with the consequences for years to come. The likely outcomes will include reduced market shares, loss of technological ground to competitors, weaker in-house R&D talent, a loss of institutional knowledge and damage to morale.

While these observations are general, there will be examples within the global chemical community – hopefully your organisation is not amongst them.

Neil Eisberg - Editor

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