Europe touts the benefits of chemical clusters

10 September 2007 00:00  [Source: ICB]

Pulling together

How can relocating to become part of a cluster help Europe's chemical industry become more competitive? By combining forces and sharing resources

Rachel Uctas/London

WHY NOT work together if you have enough in common - it can make you stronger and more cost-efficient. This is the theory behind the cluster concept - if synergies between companies that are located reasonably close together exist, it makes financial sense for them to work together.

"The rationale is that synergies are available [within the cluster] which have a big impact on the bottom line," says Peter Anderton, President of the ECSPP (European Chemical Site Promotion Platform). Companies can reap the rewards of joining forces instead of operating in isolation, in order to achieve better business practice.

Essential to a cluster's success are modern manufacturing assets, efficient infrastructure and good logistical services, as well as an "active willingness between members to cooperate to achieve bilateral or multilateral business synergies," says Anderton. "Companies need to look beyond their own site perimeter for the cluster to work."

Types of clusters vary

There are many different types of clusters operating in Europe today. Some are based at one specific site, others are spread over a wide area encompassing a number of sites. "There is not a one-fits-all definition of a cluster," says Anderton, "it can differ in terms of scale and type of activity."

Some clusters are owned by a single company that has lots of different activities on one site, such as BASF at Ludwigshafen, which is open to outside investment should the conditions be right. Other industry heavy weights like Bayer and Dow, operate large sites where other companies can take advantage of existing facilities and locate synergies.

Multicompany clusters exist where a number of different companies share a degree of synergy. Also, the larger chemical clusters tend to be multisite clusters that link companies based at different locations within the perimeter of the cluster, such as Chemsite, and CeChemnet in Germany, and NEPIC in the UK.

"Although clusters may differ in size, size is not relevant to success. What companies get out of being able to work together, to generate extra value, can be just as effective in a small cluster," says Anderton.

A cluster generally comes into being where a group of producers, products and service companies are situated reasonably close together with a common link. In many cases chemical clusters have resulted almost organically from the sales and acquisitions of various companies, and joint ventures which changed the set up at sites which were previously occupied by one company.

Share and share alike

Companies occupying a cluster site will have the opportunity to share aspects such as safety, fire prevention, service operations and logistics and make use of shared treatment and disposal facilities for waste products, and waste water, resulting in reduced land use and energy efficiency.

BASF can be seen as one of the forerunners of the cluster concept as practiced at its own sites and termed the verbund concept. The first verbund was implemented at its Ludwigshafen site, linking production plants to save resources and energy, and this site remains the world's largest integrated chemical complex.

By linking production plants, value-adding chains are formed with plants both using and providing raw materials at the same time. "In Ludwigshafen, the verbund concept was optimized before it was applied to other sites around the world," says a BASF spokesman. Clearly the cost savings to BASF are significant, amounting to an estimated €500m ($477m) per year at Ludwigshafen. The network of pipelines also provides a cost-efficient means of transporting chemicals at the site.

"The original idea behind the verbund concept is that we link production plants intelligently to save resources and energy. This concept has been applied to other areas such as research units, the customers and the site community. In addition, the verbund concept can be applied to other areas such as R&D and infrastructure," the spokesman adds.

A different type of cluster is typified by Germany's ChemSite, located in the Ruhr region, which spreads across seven sites, including Marl and Gelsenkirchen, with each site connected together by means of pipelines, as well as rail and road links.

ChemSite started up 10 years ago as a public/private partnership with the aim of attracting renewed investment into the region. Partners include the government and community development agencies alongside the chemical industry. ChemSite's president, Margarete Gersemann, points out that each site is within itself a minicluster, creating a cost-effective proposition for investors to profit from "a highly sophisticated infrastructure" as well as the raw materials produced on site.

For a company looking to set up a new production site, it is clearly a very attractive proposition to have an existing industrial infrastructure and logistics network already set up. "It makes no sense to build a plant on a greenfield site where there is nothing," says Gersemann. "A cluster site is both cost and time efficient."

Like other similar clusters, ChemSite operates on a plug-and-play basis, where companies can easily slot into the existing infrastructure, leaving them free to focus on their core business. ChemSite supports new entrants, and the whole cluster is based on a spirit of cooperation. "All partners have to sign a contract to do their best to develop the best conditions for the chemical industry to attract new investment," says Gersemann. This speeds up the process of realizing new projects, and winning approval for new investments. "We can realize projects quickly and efficiently because of our excellent networks," says Gersemann. ChemSite's management team deals with everything from safety and environmental protection to marketing and PR.

Clearly the location of a cluster is of paramount importance, explaining the success of clusters like Antwerp, Rotterdam, ChemSite and NEPIC which are all based in key locations close to logistical hubs.

An example of a newer cluster is the UK's largest integrated chemical complex, which is located in the northeast of England. Two years ago an organization called NEPIC (North East Process Industry Cluster) was set up with the aim of linking together a wide range of industries. It defines itself as "those organizations involved in chemicals, pharmaceuticals and biotechnology, together with the support sector essential for the survival and growth of the industry." Prior to this there were two separate clusters in the northeast, one called the Teesside Chemical Initiative, which was made up of the various companies that had taken over parts of the site, and the second, the pharmaceutical and specialty cluster set up in 2003.

In 2005, the clusters merged to form NEPIC, and since then growth has been rapid, with the cluster accommodating more than 200 chemical companies ranging from bulk petrochemical producers to niche producers of specialties and biotechnology. "Without the umbrella of an organization like NEPIC, this cluster would not exist, because there would be nothing joining the geographically diverse operations together," says Ian Mains, NEPIC's business manager.

NEPIC's task was to find ways to improve use of the facilities and services on site, as well as finding synergies between companies. The cooperation between sites led to the creation of the second-largest chemical complex in Europe.

Supply chain benefits

Some of the real value generated by the cluster effect is in terms of the supply chain. "The various subsectors are connected by the supply chain," says Mains, this links different companies in varying sectors together.

The cluster represents about £9bn ($18.2bn, €13.3bn) of the northeast's £36bn economy. Although the area had suffered the decline of its once-thriving steel and coal industry, its chemical industry is now the fastest growing in the whole of the UK, according to Mains.

The government has set a target for the cluster to increase its contribution to the economy by £2bn-4bn over the next eight or so years.

To achieve this, NEPIC wants to attract inward investment from overseas, through promotional activities. Once the major chemical producers are present on a site, this is in itself attractive to other companies.

Anderton concurs that chemical cluster sites in Europe need to ensure that they remain competitive by reinvesting continually in their infrastructure and operations.

It follows that cluster sites spend a lot of time and effort on attracting investors on site. Gersemann stresses the importance of sites working together "to convince foreign investors that Europe is still an excellent place to invest."

The ECSPP was set up in 2005 to promote awareness of Europe as a chemical investment location. Many of its members had been concerned that investment was moving to other parts of the world like Asia and the Middle East, and were anxious that the advantages which Europe has to offer as an investment location were being bypassed and overlooked by investors.

"We are proactively committed to promoting awareness of Europe as a chemical investment," says ECSPP's Anderton. The group works hard to help potential investors look at Europe and what individual clusters have to offer, after which they are better informed in their ultimate decision about where to invest.

Chemical clusters cooperate on an international level, with links established between the different sites. "It is of mutual benefit to promote inward investment," says the NEPIC's Mains.

An example of this cooperation took the form of a project, ChemSME, partially funded by the EU, which was set up to compare three European clusters, with a view to "defining and benchmarking best practices for mutual benefit in improving cluster development, particularly amongst SMEs." The three clusters in question were Saxony-Anhalt in Germany, Limburg in the Netherlands, and the northeast of England. The project also aimed to provide a platform which would promote commercial links and international activities between SMEs within the three regions.

But this does not detract from the fact that each site is keen to attract the same outward investors. Competition is strong, "We are all trying to attract big investment from Asia and the US," says Mains.

Clearly there are many areas in which companies can benefit mutually from joining together and sharing facilities, where a common aim exists.

ChemSite is actively trying to put together SMEs based within the cluster which could benefit from working together on innovative projects. It is also trying to create synergies with local universities which could potentially work together with SMEs on new projects, which can also benefit from government subsidies.

The future for clusters in Europe looks bright. New clusters may well develop in suitable areas like Eastern Europe or even Russia. "Wherever you apply it, the concept is a good one," says Anderton. The ­challenge is for each site to promote itself in terms of its unique advantages, which in turn will help to raise the profile of Europe as an attractive location for future ­investment.

WHAT IS A CLUSTER?

A cluster can be defined as a network of companies specializing in a particular field, such as petrochemicals, which make use of synergies and shared infrastructure to increase competitiveness and encourage innovation. Joining forces with various companies makes for economies of scale and significant cost savings.

By working together, companies can find ways of combining their activities resulting in increased integration. Industries find benefits in forming a cluster which can give them access to raw materials, skilled labor force and specialized services within a strong framework which can add a competitive advantage. The cluster concept has grown in importance as a means of strengthening regional economies, and providing an environment for innovation which supports new entrants.

For more information on the ECSPP, visit its website at http://www.ecspp.org

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