16 October 2007 19:52 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS news)--The larger European chemical companies seem to think that they are sitting pretty and can prosper over the next 10 years despite, or perhaps even because of, heightened competition.
Research from business school INSEAD paints what at first sight looks like a deceptively rosy picture of the sector outlook. Producers feel they can become more efficient, sophisticated even and reach new customers. They acknowledge global threats but express confidence in their ability to compete.
Yet it remains to be seen how European chemical companies burdened by excessive regulation and a far-from-uniform operating environment can thrive in a (chemicals) world driven by opportunity and cost effectiveness.
New players in the business that possess real advantage have yet to really flex their muscles but they will do so. It has been said many times before but the centre of gravity of the business is shifting.
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European firms have invested in the
The INSEAD research suggests that the largest European chemical companies see continued portfolio optimisation as the main lever for long-term profitability.
Some companies, by focusing on what management believes are core competencies, have become smaller but expect eventually to grow. The big disconnect here is that they have to persuade the capital markets and others that bigger might be better. Investors want growth but organic growth in
A degree of diversification might be necessary. The trick will be to achieve value as well as top-line growth.
Chemical businesses can grow though with the help of better innovation but INSEAD believes its research shows that innovation management is still not sufficiently efficient.
Service innovations, especially for polymers, fine and specialty chemicals, can be further leveraged, it says.
Europe can maintain a leading position in innovation but
The trend here is clear, applications-oriented development will take place closer to the customer, the research shows. The question has to be: where will that customer be located?
European companies need to become even more efficient and innovative if they are to handle effectively the cost and organisational implications of Reach, the EU’s new chemicals policy.
Reach looms large in any talk about chemicals in the region. Companies have to address the different needs of European and non-European markets as well as the requirements of the new legislation.
The INSEAD research has focused on the larger European chemicals players but important questions have to be asked about the prospects for the sector’s thousands of smaller firms.
Just how many of these can survive the body blow that Reach will deal them? Reach compliance costs are one thing but no-one can yet gauge the impact of the complexity of the legislation on already stretched small company management, and how it will play out in many different product chains.
It is widely believed that many smaller chemical companies will go to the wall because of Reach and innovation across the sector will suffer because of its burden.
Reach has implications for businesses in all sectors of the economy, the
Most chemical companies realise this but it is not yet clear that their myriad customers do. The pieces of the great REACH jigsaw puzzle will have to fit if the legislation is to work and if it is not to hit producers and consumers of chemicals alike very hard.
The first stage of Reach will come into play over the next year-and-a-half just as the sector is expected to feel the first effects of what may prove to be the next downturn.
The challenges for
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