BY NEIL EISBERG
Across the global chemical industry, small and medium-sized companies (SMEs) remain the backbone of the chemical sector. A few statistics illustrate the vital role that smaller businesses play in the chemicals supply chain.
Across the EU27 countries, there are around 30,000 SME chemicals businesses, making up 28% of sales and 36% of employment, according to an analysis of the Eurostat figures by the European chemical industry organisation, Cefic.
Germany is, of course, home to some of Europe’s biggest chemicals industry players, and here 91% of the 2100 chemical companies operating in 2023 were SMEs with 500 employees or less, according to German Trade & Invest, the German economic development agency. The country’s highly innovative ‘Mittelstand’ of SMEs is the backbone of the German chemical industry, generating around 40% of revenue and employing around 40% of the workforce, the agency says.
In the US, the picture is very similar: the US chemical sector, excluding the pharmaceutical component, is composed 94% of SMEs, or 7653 companies, according to data for 2022. These SMEs represented 73% of all US chemical businesses and employed 36% of the total US chemical workforce.
And SMEs are at the heart of the chemicals industry worldwide. In this special SME innovation issue, C&I looks at developments in the SME sector in Australia and New Zealand (p30) as well as how trends in innovation are driving development across innovation-forward countries like Korea, China and Switzerland (p26). In April, SCI also hosted its first SME Showcase at its headquarters in London (p24), which brought together innovators, entrepreneurs and business leaders to understand the challenges and opportunities for smaller science-based businesses in the UK – where again SMEs account for about 95% of the industry.
SMEs are the invisible underpinning of the chemicals supply chain. They can be more flexible and agile, enabling them to react faster to changing market conditions and customer demands. Focusing on niche chemicals and bespoke offerings can help an SME become a market leader even when they are small in scale. These specialised markets also require a more personal and expert customer relationship, something big companies find difficult due to their focus on quantity and volume to satisfy their large-scale manufacturing facilities.
SMEs are also a great source of innovation in the industry, something that was very clear at SCI’s SME Showcase event. By investing in everything from green chemistry to waste minimisation and energy-saving processes, SMEs also have an opportunity to attract sustainability-conscious buyers.
SCI’s own research shows us that science SMEs have big ambitions, but achieving those ambitions means raising funding, finding the right skills and finding the right support to scale up. All of these are particularly hard at the moment.
Supporting SMEs with the means to grow their idea into a business is vital, and a lot of work has been done on this in recent years. Perhaps a bigger challenge now is ensuring those small businesses then have access to a scale-up infrastructure to grow into the giants of tomorrow.
But as well as supporting new business it’s vital to make sure the SMEs we already have in the chemicals industry are able to flourish. Right now, that is looking very uncertain.
These SMEs don’t have the same deep pockets as bigger companies, which means they are more exposed in a turbulent world.
Energy costs, the high price of feedstocks and the ongoing cost of regulation have been making life tougher for these businesses for some time. There’s also now the threat of international competition, often coming from businesses that don’t have to deal with the same level of regulation and can thus offer lower prices. Then add in the disruptions to the delivery of raw materials caused by the crisis in the Middle East.
Each small firm forced out of business by any combination of the above loosens another link in the national supply chain. These companies tend to cluster as well, so losing one member of a cluster can threaten them all. These supply chain networks are built over decades and are often impossible to recreate once shattered.
And the impact goes much further than that. The chemicals sector is foundational to everything from pharmaceuticals, construction and healthcare through to clean energy - and so weakening the chemicals industry can hurt of all them too.
Many governments are now realising that domestic production capacity is vital for reducing reliance on imports and ensuring the resilience of key supply chains. Early moves have been positive, but there is so much more that needs to be done to build up the foundations of industrial success.
The strategic importance of the chemicals industry, and particularly the SMEs that form the bulk of the sector, has often been under-estimated. It’s time for that to change.
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