Why Sustainable Innovation Needs Chemicals & Vice Versa

Strategic collaboration key to tackle societal issues
Why Sustainable Innovation Needs Chemicals & Vice Versa
Publ. date 20 Jul 2015
As a major supplier to industries including healthcare, construction, agriculture and automotive, the chemicals industry is a prime driver of sustainable innovation with an impact that spreads out widely. Chemistry is a true enabler in tackling megatrends, for instance by offering solutions that meet the growing demand for alternative energy to battle climate change, solutions that can keep cities liveable in times of rapid urbanization, solutions in the area of health and nutrition required by the world’s growing and aging population – and the list goes on.

As it would appear, a golden age has come for the chemicals industry. However, European chemicals companies in particular are challenged in maintaining the competitive edge they built up over the past decades. Commoditization is threatening a fair share of business, as base chemicals make up almost two thirds of the EU industry’s output. The sector’s environmental impact is under public scrutiny, and the industry needs to revitalize its workplace image to attract new talent in the field of chemistry.

Competing with emerging economies

Most profoundly, European chemical companies are dealing with fierce competition in the global marketplace. Emerging economies outpace industrial countries in production, and global sales growth is mainly driven by China. Costs of energy and raw materials, a driving factor in competitiveness, puts Europe in a disadvantaged position compared to resource-rich regions such as the Middle East. Lack of advanced legislation makes it easier for emerging economies to compete, and while capital spending remains flat in Europe, it is sky-rocketing in China.

Investment in innovation is a key element in securing the future of the industry. China lags behind when it comes to the intensity of investments in research and development compared to sales, which would suggest Chinese companies are growing fast – but are not necessarily equipped for long-term value creation. 

Competitive edge takes more than technological advancements

Developments that enable European chemicals companies in the process of regaining their competitive edge are for instance found in more innovative (bio-)technology, advanced manufacturing and digitization. The ability to produce more customized products on a smaller scale makes companies able to address more specific functional customer needs.

While technological innovation will help, chemical companies need to adapt more than their hardware. New business models are needed, deploying unique assets and abilities that differentiate innovative specialists from low-cost competitors. Customer relationship management and CRM tools start to playing a bigger role when companies operate more closely with their clients.

A key area for differentiation is sustainable innovation. As chemicals companies are equipped with the science to come up with solutions for highly complex issues, they are eminent drivers of products and services with a positive societal impact.

Collaboration and partnering to tackle societal issues

Most notably, strategic partnerships and value chain collaboration are valuable instruments in creating value from sustainable innovation in collaboration with customers, suppliers  and other partners. By  working together with customers, companies can get a better grasp on the problem drivers and specific requirements for solutions, allowing them develop unique applications that are more likely to succeed than a one-size-fits-all approach – and often at a higher margin. Suppliers play a key role in the delivery of the raw materials or technology of sophisticated solutions, and with the combined brainpower of other partners, synergies may lead to exceptional innovations.

One example is DSM’s collaboration with Mercedes-Benz to design an engine cover based on bio-based polyamide, resulting in a 26% fuel consumption improvement for the carmaker’s new A-class model. A second one, addressing the needs of a growing middle-class, is Novozymes. The Danish corporation is offering baking roadshows in growth markets to bring expert knowledge about enzyme technology to local bakers, but also to learn about regional market developments and customers’ wishes to be applied in the company’s near-market approach.  And in as a contribution to sustainable building in a rapidly urbanizing world, BASF collaborates with Tata Steel, NSG-Pilkington Glass and the Swansea University in Wales in the development of smart coatings that enable walls and roofs to collect, store and release renewable energy.

In short, the chemicals industry may have a bright future ahead, but companies need to adapt themselves and find opportunities for collaboration and partnerships in order to continue to demonstrate their societal relevance.

More information

Are you interested in exploring the opportunities for sustainable innovation at your company? Please contact Nikkie Vinke, at nikkie@finchandbeak.com or call +31 6 28 02 18 80.

Image source: Horia Varlan, Flickr

About Nikkie Vinke

Multidisciplinary advisor in ESG benchmarking, sustainability strategy development and execution. | nikkie@finchandbeak.com

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