Core companies 292 chemical industry

However, new sustainability issues require R D to be put back at the core of chemical industry. The first element to move in this direction is the development of a longer term vision for the chemical industry, which contrasts the very short term view (few years) planning of several companies and the continuous restructuring of the chemical industry in the last one-two decades. One of the positive signals in this direction is the cited European Technology Platform on Sustainable Chemistry and the related prepared document [6], which plans to define the scenario for R D for the next 20 years. 

In the last decades, the chemical industry and its customers have had to cope with a massive expansion of their reach and scale as globalization took effect, coupled with a need to comply with ever more stringent and varied QSHE regulations. To improve operational efficiency in this vast and complex environment, these companies have turned more and more to outsourcing so that they can concentrate on their core competences. The changing market environment offers major opportunities to the distribution companies ... 

A simple example, which illustrates this approach in the chemical industry, was the one adopted a few years ago by the nuclear fuel company, BNFL (British Nuclear Fuels) in the UK in the early 1990s. This company had as one of its core technologies from within nuclear power context, the ability to handle fluorine on the bulk scale. It used this expertise to diversify into the manufacture of flu-orochemicals. One use for these organic chemicals was as intermediates in the production of biologically active chemicals and related materials. This fine chemicals business was a very different one to that of nuclear fuel. 

Most furfural is produced from corncobs and oat and rice hulls, primarily by the Quaker Oats Company. The product is used in the chemical industry as a solvent and in wood rosin refining. A large amount of furfural is treated further to give furfuryl alcohol. The furfuryl alcohol is added to urea-formaldehyde resins in applications for adhesives and foundry core binders. 

E-trading platforms. Because of the neutrality they offer to suppliers and custom-rs, the natural owners of the e-trading platforms will be independent companies. However, any intermediary wiU depend on the support of major industry players on the suppHer or customer side. The independent entity could, like Enron, also provide special financial skills outside the core competence of chemical companies. Chemical companies would be well advised to apply the same equity-holding approach to e-trading platforms as described above for e-exchanges. 

However, in the last two to three decades of the twentieth century the innovative force of the chemical industry slowed down. Far fewer reaUy new molecules were developed and the change in properties compared with those of existing materials became incremental. In addition, key markets have become saturated and production costs are getting closer to core costs. In this environment, many chemical companies are in desperate need of iimovation to generate the profitable growth which is a major driver of their stock value (see Chapter 3). 

What many executives fail to understand is that a fundamental change has occurred in the last decade. The environment today is inseparable from biological systems health (including human) and economic growth. This perception remains at odds with conventional understanding. The chemical industry, long under the environmental regulatory microscope, has been more attuned to environmental issues as traditionally defined (compliance), but the fundamental approach of most companies in their core businesses has stayed relatively constant, and narrowly conventional. The environment was understood as out there, with human impacts... 

U.S. subsidiaries of foreign industrial chemical core companies (10) ... 

Table 1.1 lists the American and European companies whose evolution is reviewed in Part Two (Chapters 3-6). These core companies created the modern chemical industry at the turn into the twentieth century and continued to dominate it through the period covered by this study. 

Thus by the end of the twentieth century, the American chemical industry consisted of two multisectored core companies, Du Pont and Dow, as well as a number of specialty chemicals manufacturers still focused on products commercialized in the 1920s or in the 1940s and 1950s. The oil and gas companies produced feedstocks, basic petrochemicals, and commodity chemicals. Except for the German and Swiss companies, which from the start had commercialized pharmaceuticals, the European multisectored chemical companies had also become producers of specialty chemicals. For example, Britain s ICI, after spinning off in 1993 its most profitable division (pharmaceuticals) as a separate enterprise (Zeneca), used the funds generated to acquire Unilever s specialty chemical division. 

This chapter treats what two historians of the chemical industry, Ashish Arora and Alfonso Gambardella, call all-around companies that compete in multiple sectors (SIC codes) of the industry A very small number of the American and European enterprises, six American all-around core companies and a somewhat larger number of European companies, were responsible for commercializing the initial wave of chemical products flowing from the new science-based technologies at the end of the nineteenth and the beginning of the twentieth century. These companies, along with most of the petroleum companies listed in Table 1.1, were also responsible for the polymer/petrochemical revolution in the middle decades of the past century. 

I conclude this chapter by considering how the three basic themes of this book—barriers to entry, strategic boundaries, and limits to growth—relate to the evolution of the six multisectored core chemical companies that created the U.S. chemical industry in the first decades of the twentieth century. 

In the meantime, Hercules s alliance with Hoechst began to pay off in another area. In 1966 the two firms formed a 50-50 joint venture, Hystron Fibers, for the production of dimethylterephthalate (DMT), a critical intermediate for polyester fibers that was sold to Du Pont and Imperial Chemical Industries (ICI). The joint venture s South Carolina plant came on-stream in 1968 and was highly successful. Hoechst pressed for expansion but Hercules s management decided it could not make the investment on the scale Hoechst desired and so sold its 50 percent share to Hoechst in 1970. This was a critical component in the failure of Hercules to become a major core chemical company the investments simply were deemed too risky for a company of its size. As the company s historians note, the Hystron episode illustrates its unwillingness and inability to commit the resources necessary to break into a major new field. 5... 

At the onset of the twenty-first century, Europe s multisectored chemical enterprises still dominated world markets, just as they had done for more than a century, but they were fewer in number. As in the United States, where only Du Pont and Dow remained of the six multisectored companies that had created the American chemical industry, the ten European producers listed in Table 1.1 in 1993 had dwindled to five Bayer, BASF, ICI, Solvay, and Akzo. Four companies had merged and abandoned chemicals for pharmaceuticals, including Ciba-Geigy and Sandoz, constituents of Novartis, and Hoechst and Rhone-Poulenc, partners (among others) in Aventis. Henkel, meanwhile, sold off its chemical operations to concentrate on its core business in branded consumer products. 

The evolution of the American pharmaceutical industry obviously differed from that of its sister, the American chemical industry, in that its technology increasingly drew on a different science—biology and related disciplines—its manufacturing on a different process, and its market for an entirely different use—healthcare. Therefore, its core companies required remarkably different technical and functional capabilities. 

In the area of engineering in the chemical industry there is a general trend towards outsourcing, as this is no longer regarded as a key function and can be purchased on the open market. However, this only applies where the core competencies of a company are not affected. Particularly with regard to so-called front-end engineering,... 

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