INSIGHT: India challenged to innovate in specialties

24 November 2008 17:01  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Growth of the chemicals sector in India is reliant on many things but for the burgeoning specialties business the watchword has to be innovation.

The chemical specialties market may be concentrated in the US, Europe and Japan but future growth will come from markets in Asia.

The rate of growth of the business in India could be as high as 17% a year so that the sector doubles in size by 2011 to be worth $40bn, says the Tata Strategic Management (TSM) group.

Sector companies can serve a growing domestic downstream market and are likely to grab a larger share of foreign business.

The push into Asia from producers in longer-established markets can serve two purposes: to deliver products to fast growing local customers and to provide a future production base for those much farther afield.

Much foreign direct investment has, until now, been targeted at China, but TSM reckons the trend will be altered with India establishing itself as a reliable and cost-effective supplier.

“India is establishing itself as a major hub for manufacturing and R&D [research and development], TSM said in a recent, wide reaching study of the chemicals sector.

“The erstwhile cost advantage of China with respect to India in manufacturing is becoming insignificant,” its analysts maintained.

Not only has India created a “rich pool” of knowledge workers but it provides a “robust legal and regulatory framework for research based development”.

After signing up to the TRIPS global patent agreement back in 1995, several legal cases have and are testing the system but a great many companies are patenting products in India.

It is the rapid development of downstream customer markets, alongside the national economy, and the developed legal framework that is helping lift growth in specialities.

But the sector itself is maturing fast with foreign players developing sophisticated market approaches and pursuing innovation hard.

More specialty chemical feedstocks are being produced domestically and some astute financing is helping to generate important future sector players.

TSM calls the growth of Indian agrochemicals major, United Phosphorus, for example, “spectacular”.

It has used clever cashflow management and financing to make funds available in the right place and at the right time to push growth through acquisition.

Yet, the consultants quite rightly say that India as a market for specialty chemicals needs to be viewed differently.

As anywhere else, there are demanding customers that require distinct performance requirements in end-user industries. But producers in India have the opportunity to develop more highly innovative solutions suited to local markets.

The emergence of alternative ‘green’ feedstock and changing supplier profits will necessitate a rethink of sourcing strategies, TSM adds.

Specialty chemicals producers in India, therefore, are challenged to be innovative in more ways than one. TSM believes the sector is at an inflection point which is being driven by “discontinuities in end-user markets, technology disruptions and regulatory dislocations”.

The growth potential is significant and there are numerous opportunities but the market needs to be fleshed out.

Specialty producers will need to address the changing feedstock position, more demanding customers, the need for a wider product range and the development of technical and service support, the consultants believe.

The specialty chemicals market in India demands increased supply and increased sophistication. It also requires companies that can lead from the innovative edge.

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By: Nigel Davis
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