Special Consideration

C&I Issue 1, 2017

Specialty chemicals are very special indeed. They enable industry and society to operate at all levels and touch almost every human activity. Unlike fine chemicals, where purity at the molecular level is crucial to their efficacy, especially for pharmaceuticals or agrochemicals, the sale of a speciality product is nearly always made on the basis of performance as much as composition.

Final product speciality chemicals are most likely to be formulations, the intellectual property of the manufacturer. The quality tests frequently focus on performance outcomes rather than scientific measurements. Chemists and engineers working in specialty chemical development and sales must therefore be problem solvers with intense knowledge of their product’s industrial applications and properties. They commonly work with customers who do not have constancy in their raw materials and process operating parameters. Sales and supply contracts of speciality chemicals are won and lost on the technical service provided to customers as much as the efficacy of the product.

Globally, specialty polymers, construction chemicals, industrial and institutional cleaners, electronic chemicals, and surfactants represent some 40% of the speciality chemical market. And the top 10 largest segments account for approximately 60%. Each of the segments are often further segmented, making this an amazingly diverse list of chemical products.

Unsurprisingly, the global speciality chemical market is huge. P&S Market Research calculates it was valued at $828.9bn in 2015, and set to grow 5%/year over the coming years driven by increasing demand particularly in the automotive sector worldwide. Asia Pacific represents 40% of the global speciality chemical market – expected to reach 50% by 2022. A shift in production into the growing Asian market has occurred alongside the relative stagnation of traditional western markets, attributed to volatile raw material prices and increasing regulatory pressures such as the REACH in Europe. In India and China, raw material availability and low employment costs are major success factors for the specialty chemicals market, though these advantages are being steadily diluted by wage inflation.

Innovation is important to the financial and business sustainability of companies working in the speciality sector. Those seeking breakthrough innovations focus on three important areas of the business: technology innovation, supply chain innovation and innovation in service support for customers.

Industry consultants PWC recently noted that over a three year period the most innovative speciality chemical companies grew 16% more than the least innovative. And in the space of only five years, these top innovators are forecast to grow three times more than the least innovative group and by twice the global average. Clearly, innovation has to be top of the agenda otherwise products and services will be overtaken by competitors in the marketplace.

Product and process innovation are the lifeblood of speciality chemicals. Looking ahead, the biggest opportunities for the sector concern the big global challenges in health and food and and water supply for the 9 billion people who will live on earth by 2050. Construction & Housing when 70% of the world’s population will live in cities by 2025 what materials will be needed especially to make energy consumption as efficient as possible. In 2030 when primary energy consumption will increase by as much as 50% what will be the energy mix and how do we maximise the use of renewable energy sources. By 2020 1.2 billion vehicles will be driven on earth how will the emissions be reduced and what will the cars be made of; renewable materials?

Speciality chemical companies have a track record in bringing to market the types of step change innovations needed to address these global challenges.

The diversity of applications precludes any one company from innovating and operating across the entire sector. This is what makes this market interesting to so many small and medium sized companies around the world. They can create their own niche, often local, markets alongside multinational players. However, to be sustainable, speciality companies need to be smart about their R&D and new product focus.

Speciality markets require a strategic approach to innovation. Successful companies will encourage their technical staff to network widely to identify potential R&D and innovation collaborators. They will recognise and pick projects by looking beyond their R&D into supply chains for practical applications. Successful companies will have defined mechanisms for industry and academic partnerships and company policies to seek and nurture talent. They will practice open innovation, rather than sending a few people on expensive training courses! In turn, customers will want to work with this company because the customer experience at all levels is enhanced. 

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