European chemical companies face a more challenging environment in the future as Asian economies—and emerging- market chemical companies—grow more important to the global chemical sector.
This will force firms in the EU chemical sector to adapt, innovate, and forge new relationships with a variety of players in the chemical industry value chain—or face increasing pressure from Asian and Middle Eastern firms. Even if EU firms do adapt to the change in the operating environment, the chemical sector of 2030 will look quite different than today, with some two-thirds of global sales coming from Asia, compared to about 50% today.
These and other forecasts were developed by the chemical practices at A.T. Kearney and presented in its Chemical Industry Vision 2030 report.
3 KEY FINDINGS
- The EU chemical sector faces both opportunities and challenges from the rise of Asia.
- Asia will account for roughly two- thirds of all global chemical- industry sales in 2030.
- By 2030, Asian and Middle Eastern companies will dominate the global “top 10” of global chemical firms.
The global chemical industry will be shaped by a variety of forces, according to A.T. Kearney’s analysis, including:
- Slower global growth: The global chemical sector grew at approximately 7% per year since the 1980s, and was valued at €2.35 trillion in 2010.1 Moving forward, global growth will average 3% annually through 2030, propelled primarily by rising demand in Asia. Growth in the EU will be well below the global average at just 1% annually.
- A shift eastward in demand and value networks: The global chemical industry will undergo shifts as the economies of Asia grow, trade flows shift direction, and urbanization and consumerism in Asia drive demand for chemicals in the region. In fact, forecasts suggest that Asia will account for 66% of global chemical sales in 2030, up from 49% in 2010.
- New competitors: As the market shifts eastward, fewer and fewer of the world’s top chemical firms will call Europe—or developed markets for that matter—home. Value networks in the chemical industry are also shifting eastward—including end-customers, suppliers, and R&D capacity.
- Continued economic volatility: The shift in demand eastward—and associated rise of Asian chemical firms—are occurring within a broader economic and social context, one that will likely be associated with increasing volatility. According to A.T. Kearney, as “connectivity and interdependences among world markets and businesses [increases]… and as the world becomes more intertwined, the global economy will become more susceptible to crises embedded in the more frequent boom and bust cycles.”
3 BUSINESS IMPLICATIONS
- The anemic growth projections for the EU chemical sector’s home market—roughly 1% annually—and the possibility of losing 30% of its workforce by 2030 provide a clear wakeup call that a business-as-usual strategy will not be sufficient to sustain the industry. These forecasts also imply the need for closer coordination with EU policymakers and with academia and those educating the next generation of chemical industry professionals, as well as a need for increased end-user research to keep abreast of changing consumer/ customer needs.
- While the forecasters canvassed in this brief stop short of projecting a decline in innovation in the European chemical sector, the pressures the industry is under could lead to defensive, cost-cutting measures and result in reduced innovation capacity. This could have significant negative impacts on “downstream” industries on the continent—from automotive firms to apparel and packaging firms. Downstream industries need to develop a strategy for ensuring that they remain on the leading edge of chemical technology even if EU chemical firms find themselves increasingly squeezed. This may require that downstream firms engage in more research themselves or work more with innovative suppliers outside of Europe.
- The growth platforms proposed by A.T. Kearney provide interesting targets for chemical firms to explore. Other potential growth platforms for the chemical industry might include biomaterials (e.g., for regenerative medicine and other health-related applications), robotics (e.g., materials to support next-generation industrial and service robots and drones), and chemicals to support new kinds of interface and display technologies (e.g., flexible displays and ubiquitous, mobile, and ruggedized displays).