The Brexit vote, and Donald Trump’s election, confirm that we are in a New Normal world. In the interview below with Will Beacham, Deputy editor of ICIS Chemical Business, I highlight some ideas about how industry needs to adapt.
BARCELONA (ICIS)–The global chemical sector needs to stimulate demand for innovative products and services in mature economies so that the benefits of globalisation are felt by people who have been left behind, a leading consultant says.
Globalisation is a very efficient method of production, but it shifts manufacturing to low-cost areas, leaving workers in mature economies at risk of under-employment. The chemical sector should adopt more service and solution-oriented business models which will boost demand and employment in high-cost regions, says International eChem chairman.
This innovative approach is particularly important for a country like the US where the election of Donald Trump has highlighted anger among voters about falling incomes and hostility to the effects of globalisation.
On 21 November, Trump confirmed that he plans to exit the proposed Trans-Pacific Partnership as soon as he is inaugurated. This indicates he does intend to follow through with a protectionist agenda which could result in higher tariffs against US-made chemicals and polymers if a trade war develops.
Hodges says the US industry can harness unmet domestic polymer demand to help swallow up the wave of new shale-based capacity due onstream over the next 2-3 years.
“It’s highly likely that all the new capacity will come onstream at a time when the US is pushing towards protectionism. This makes it critical for the US industry to move away from wishful thinking about selling all the new PE capacity into Asia and other foreign markets. They will have to refocus on creating domestic demand.”
Hodges believes it is critical to look at new opportunities in areas such as water and food; otherwise the industry will not be able to sell these new volumes. “Companies will move towards being designers of materials and solutions. There are opportunities as well as threats for people who can revise their business models. It’s critical for people to take decisions now.”
He highlights the example of California which has been in drought for the last five years. “Why not sell more PE pipes as we know that 40% of water is lost before it reaches the consumer. Why waste capital on new reservoirs when you are going to lose 40%?”
He also suggests developing materials for intelligent packaging to tell people when food is really out of date because 35% of food is currently thrown away.
“There must be a big focus on being efficient: these are enormous markets and the industry needs to become more demand-focused. Some of the new [wave of ethane-based] plants will struggle but in principal there is a lot of new demand that could be generated by taking a demand-orientated approach.”
Looking globally, a new political and trading power block will develop as a result of China’s “One Belt One Road” policy which includes countries representing 40% of global GDP, says Hodges. This strategy aims to boost cooperation and trade between China and around 60 countries including Russia, much of eastern Europe, Asia including India and Indonesia, and parts of North Africa and the Middle East.
Hodges also believes the chemical industry should adopt the use of smaller, leaner and more efficient manufacturing systems.
“In an uncertain world the biggest risk is that you can’t sell product: this was always the risk before and it is today. We need smaller, more flexible, cheaper production with units located next to customers, as well as a greater focus on sustainability in the plastics chain.”
“We won’t return to a world of unbridled production – services and solutions are the way smart companies will make money in the future.”
The average smartphone now has “more computing power than the computers used during the Apollo era to put the first men on the moon.“ The question facing all of us, is “How will this power be used to disrupt our current business?
We can already see some of the early impacts from the transformation taking place:
□ Most people today buy music via streaming services such as iTunes, rather than buying CDs
□ Businesses such as Amazon, Alibaba and eBay are busy disrupting the retail business model
□ Google and Facebook are starting to dominate the advertising market
□ A whole range of new business models are being developed by companies in financial technology (fintech)
□ There are countless other examples such Uber, Airbnb and the development of the “sharing economy”
And this is only the start. Reliance chairman, Mukesh Ambani – India’s richest man – has just spent Rs 1,50,000 crore ($2.25bn) on the launch of the Jio network in India. As he told The Times of India yesterday:
“I believe 50 years from now when you write history, one technology that would have changed human civilization is going to be the mobile internet. In 2011 it was hazy. In 2002, it was even hazier. But today, I have no doubts, the world has no doubts, that mobile internet is a life-changing, world-changing technology of this century. Yes, it will evolve into many different things. But as a core technology it is a huge opportunity. And only the people who take some risks will reap rewards.”
As the chart above highlights, from an excellent new book titled Digital Vortex from Cisco and IMD Business school:
““Digital disruption” sounds like another business buzzword – until it happens to your company. Out of nowhere, startups and other tech-savvy disruptors attack. Customers flee and revenues stall. In months instead of years, you’ve gone from market leader to also-ran.”
The key issue is the need to make the connection between our own behaviour in our personal lives, and what this means for our businesses.
There is no rule that says new companies will succeed at the expense of existing companies. It is all a question of mindset – does everyone in your company still assume that tomorrow will always be the same as yesterday? Or are they already developing the new business models that will be needed for future success?
As the chart also suggests, digital disruption is impacting businesses in different timescales:
□ Technology, media, retail and financial services been the first to be disrupted
□ Now it is the turn of telecoms, education, travel and manufacturing
□ Next will be healthcare, utilities, oil & gas and pharmaceuticals
The encouraging aspect of the coming transition is that we already know the broad outline of how it will develop.
In manufacturing, for example, the arrival of 3D printing is going to lead to a revolution in supply chains as production takes place close to the end-user. Big money is already being spent on turning this concept into reality – only this week, US firm GE paid $1.4bn for 2 European start-ups in the 3D printing for aerospace market.
Of course, not everything will change overnight – some people still read newspapers today, even though most now receive news online via channels such as Facebook. But if we take the plastics industry as an example, it is easy to see how manufacturing processes might change. 3D printing won’t just impact the supply chain:
□ Traditional manufacturing involves taking a block of polymer, or a sheet of film, and cutting it down to size
□ This process is very inefficient, as large amounts of waste are then often left on the factory floor
□ 3D printing is “additive” in nature, however, as it simply adds new layers of polymer to create the required shape
□ This reduces waste and, therefore, overall demand for the polymers themselves
Car repairs are an obvious opportunity. If you have an accident, and need a replacement part, your local garage will be able to download the design and print it for you, whilst you have a cup of coffee. There’ll be no need to wait for it to come from the manufacturer.
This model is already operating in the aircraft industry, as I highlighted last year.
Nobody at this stage can know just how digitalisation will impact individual businesses around the world. But today, we all have the chance to shape the future, rather than having it shaped for us by others. As Unilever CEO, Paul Polman, has said:
“Individuals change course, not technology. While they may adopt technology, it will still be people and leadership that set the course of our future.”
Imagine a world where your local garage uses 3D printing to provide you with a new car bumper. You have had a bump in a car park, and just want to get it fixed.
Unlike today, there’ll be no more waiting for the part to arrive. The garage will simply download the design from the internet, and print the new bumper whilst you wait.
And this will be good news for the manufacturer as well. They won’t have stock sitting for years, tying up cash and tempting thieves to steal it.
Does this sound like a science fiction fantasy? Well it isn’t. Boeing, the aircraft manufacturer are already using 3D printing to replace 20k spare parts. And earlier this year they filed a patent application relating to the database they have developed for tracking these parts.
Of course, its more expensive per part to manufacture locally that at their HQ in Seattle. But the cost of manufacture is only a small part of the actual cost – and it is minimal compared to keeping 400 passengers waiting overnight from a grounded 747, let alone the airline’s cost in disrupted schedules.
This is the subject of my latest video interview with ICB deputy editor, Will Beacham. As he summarises the discussion:
“A supply chain revolution will take place which will create opportunities for innovative chemicals companies, according to Paul Hodges, chairman of consultancy International eChem.
“Automotive and aerospace manufacturers are already moving towards a manufacturing model where spare parts are printed locally to order rather than centrally to be held for years in warehouses.
“Chemical companies which respond to new business models like this will be the winners, according to Hodges, who also writes the Chemicals & the Economy blog for ICIS.
“Forward-thinking CEOs will also take notice of changing demand patterns caused by demographic trends such as the aging population in mature and emerging economies, he adds.
“Oil prices are in the “middle of a journey” from high to sustained low levels. Demand will falter as economies move away from reliance on fossil fuels, meaning much oil will be left in the ground. For this reason many major producing countries are ramping up production and are likely to maintain high levels. Low oil prices are good for chemicals demand because they put money in consumers’ pockets, says Hodges.”
Please click here to view the interview.
Please click here to download the full article from ICIS Chemical Business.
Innovation is the life-blood of the chemical industry. It is also a critical success factor as we transition to the New Normal. Many of today’s plants and processes are simply too old and inefficient to remain competitive in a world of slow and volatile economic growth.
Equally important is that changing demand patterns will demand the use of smaller plants, located close to the customer and able to produce smaller quantities on a continuous basis.
Yet making the case for investment in new technology is always difficult. So a key enabler can often be entry to a major innovation competition. The ICIS Innovation Awards, now in their 12th year, can thus prove an ideal springboard for future success.
I have personally seen this happen, though my other role as chairman of NiTech Solutions, now a successful spin-out company from Scotland’s Heriot Watt University
- In 2010, NiTech entered the ICIS Innovation Awards and won the SME category – its latest Mobile unit for the pharma industry is shown above
- The technology in its winning entry was installed by Sanofi and has now run successfully for 7 years with minimum maintenance
- It replaced traditional processes which required 2 x 150m3 (40,000 US gallon) pressurised reactors
Winning the Award helped to give us the credibility needed to work with major chemical and pharma companies around the world.
Winning can, of course, be equally important for large companies. Previous winners include household names such as BASF, Dow, Teijin, ExxonMobil, Solvay, DSM, Clariant, Cabot, Huntsman and Arkema.
If you are an SME moving onto the global stage, or an innovative business in a major company, I would strongly recommend that you consider entering this year. The entry process is simple, and there are full details are on a dedicated website, as well as a video.
But don’t delay – there are just 2 weeks to the 26 June deadline.