INSIGHT: Chems need detailed roadmap to thrive

18 June 2008 16:38  [Source: ICIS news]

By Nigel Davis

 

LONDON (ICIS news)--The global chemicals landscape is shifting and major players continue to reposition themselves for growth.

 

For some, the future is relatively clear, given their history or the opportunities gained from recent merger and acquisition (M&A) activity. But companies seek step-out growth and while M&A has been the preferred route, this has been severely curtailed by the credit crisis.

 

It is not simply a case, however, of portfolio reshaping. Developing, or acquiring, access to new technologies is still extremely important.

 

New process technologies can, over time, confer a considerable competitive advantage. Break-out technologies spawn new products and new lines of business.

 

If some of the longer-established companies in chemicals are to continue to succeed then they need a detailed roadmap. And they need to seize opportunities where they can.

 

Take the world’s two largest chemicals players, BASF and Dow. For BASF, two of the most recent major acquisitions - of catalysts maker Engelhard and the former Degussa construction chemicals - flesh out its growth profile.

 

Dow has a clear strategy to create more market-facing business platforms and is driving innovation hard. The goal is to group product lines cleverly enough to capture a real premium on growth.

 

Chemicals producers ultimately provide the raw materials and intermediates for many industries and businesses.

 

BASF produces a wide range of chemicals although the product portfolio has become more specialised in recent years, the intention being to avoid unnecessary exposure to cyclicality.

 

Without doubt, the chemicals giant takes a long-term view. The money it pours into research and development (R&D) as well as capital investment is witness to that.

 

Companies at the top of the tree cannot afford to let their focus on technology slip. Critical process improvements can save vast amounts of money as well as provide step-out growth. The right mix of blue sky research with a more focused R&D effort is vitally important.

 

Some of BASF’s recent investments in research and in specialised start-up firms are noteworthy. The BASF Advanced Research Initiative at Harvard University gives students and its own scientists access to the latest research.

 

The European, US and Japanese chemicals businesses are innovation-driven and knowledge intensive. And future battles lines are being drawn with technology as much as with capital.

 

Between 2006 and 2008 BASF will have spent some €800m on future growth clusters driving product and process innovation with expertise in chemistry, physics and biology.

 

Not surprisingly, and particularly apposite given the current global focus on food availability and cost, the chemicals giant will spend the most (€280m) on plant biotechnology.

 

It will spend €180m on nanotechnology; €150m on so-called "white" or industrial biotechnology; €100m on raw material change; and €90m on energy management.

 

These are huge sums but reflect the nature of the challenge. It is not simply a question of pouring vast amounts of money into research but more cash can give greater opportunities when it comes to feeding the engine for growth.

 

Dow’s innovation focus is on health, energy, infrastructure and transportation and on what it calls “consumerism”.

 

The work applied to these broad areas will supply products for businesses as diverse as agriculture and home and personal care.

 

The investments for growth from both companies are the result of a great deal of thought and analysis.

 

Attempting to better understand the driving forces behind the markets of the future and investing wisely in innovation now sets them up for the decades to come.

By: Nigel Davis
+44 20 8652 3214

< previous article(ICIS Chemical Business podcast November 2, 2009)

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