Four turning points for the chemical industry

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Transformatie chemische industrie– The global chemical industry is considered one of the most stable sectors of the world economy. However, given the upheavals facing companies of all sizes, this sector is also undergoing change. A recent report by Arthur D. Little highlights that companies in the chemical industry are focusing on four key trends to increase their future value.

The chemical industry is experiencing strong growth due to rising global demand. Over the past decade, the number of mergers and acquisitions in this sector has remained relatively constant at 500 to 650 transactions. Although 2018 got off to a slow start, the number of transactions increased in each quarter, resulting in a slight increase in value to $72.4 billion after the sector recovered from a decline of over $150 billion between 2016 and 2017.

Securing value creation

The remarkable stability of this market is based on the impressive track record of value creation in the chemical industry. Even during the financial crisis, this sector significantly outperformed others and achieved much higher value creation. An investment of $100 in the telecommunications sector in 2000 would have yielded only $164 in 2018, while the same investment in the chemical sector would have been worth over $500.

Four points of transformation

Owning significant assets in the chemical industry is no obstacle to achieving high returns. However, even this sector is not immune to the disruptive changes currently taking place around the world. According to an analysis by Arthur D. Little researchers Michael Kolk, Koji Uchida and Marc de Pater, the chemical industry must take advantage of the convergence of four independent trends:

– Digital technologies;
– Technology transfer between industries;
– New management approaches;
– Innovative business models to exploit their disruptive potential for future growth.

Digital technology

‘Digital technology poses a threat to any company that uses innovation to differentiate itself from standard products,’ warned Michael Kolk, “unless it reacts quickly. What if companies like Amazon or Google were able to instantly calculate the optimal formula for coatings, detergents or plastics for each customer? The advantage, however, is that while digital technology is not dominated by chemical companies, its value lies in its application to the complex chemical processes that only chemical companies truly master.”

Significant advantages

Despite the challenges ahead, the benefits can be significant. Arthur D. Little argues that the success rate of innovative projects can triple with the right digital solutions. Around 90% of chemical companies consider digital innovation to be transformative, and it supports other important trends by enabling solution optimisation across all business areas.

Technology transfer

Chemistry-related industries are seeing a significant upswing in molecular technologies. According to the report, companies such as AkzoNobel are experimenting with smart materials and researching innovative functionalities such as self-cleaning and self-healing coatings.

Synthetic biology

Kolk cites synthetic biology as an example of the possibility of developing products that are close to industrial applications and offer advantages in terms of productivity, carbon footprint, resource flexibility and the replacement of hazardous processes. This was the impetus for Cargill to acquire the fermentation technology of OPX Biotechnologies.

New management approaches

In addition to technological advances, new approaches to innovation management are essential. Without this change, the potential of new technologies may be lost. A holistic innovation strategy that is guided by actual business needs rather than fear of being left behind ensures collaboration with start-ups, innovation ecosystems and the use of external incubators.

Holistic approach

Kolk notes: “We are seeing companies taking a holistic view of all possible innovation tools, such as research and development, partnerships and mergers. These tools are being used strategically to achieve business goals. At Arthur D. Little, we have developed interesting projects using the “Breakthrough Incubator” approach, a “build-operate-transfer” model that focuses on groundbreaking innovation opportunities.”

New business models

In the chemical industry, business model innovation has long been viewed primarily as a conceptual matter rather than a strategic necessity. With a few exceptions, however, this form of innovation is becoming increasingly important as Umicore recognises the benefits of years of optimising its dual revenue stream business model. Several interesting new approaches are emerging and are leading the industry.

Molecule leasing

Kolk explains: “One example of this is the concept of “molecule leasing”, whereby a chemical company retains ownership of its products as long as they are used by customers. This creates a closed-loop economy, which should become the norm rather than the exception in a low-carbon world. This model was first introduced in specific niche markets such as precious metal catalysts, but has the potential to be applied more widely through new or improved technologies.”

Source: Consultancy.uk
Also read: CEPE calls for smarter regulation to strengthen the EU industry

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