Chemicals Industry Trends

Globalization

More Automation, Less Labor

Since the technology for producing many chemicals is well-known, production facilities are located all over the world, often near raw materials sources or markets. Developing countries in Asia and Africa are growing users of chemicals. While chemicals are a large US export, increased competition is coming from Asian producers.

Productivity has steadily increased in manufacturing because of the increasing use of machines and, especially, computers. Generally, US industries that have prospered in the past decade have been those where the most automation has been possible and technological content is high. The proportion of the US labor force employed in manufacturing has been dropping steadily for many years, even though industrial production has increased most of the time.

High R&D Spending

Outsourcing, Leasing

The development of new specialty chemicals and new manufacturing processes depends heavily on research spending. R&D spending can run to 10 percent of sales for many companies, more for small companies with just a few products. Research is especially important for companies that depend on a continuous stream of new products, such as drug manufacturers.

To increase operational efficiency by concentrating resources on primary production and marketing functions, many companies in the past decade outsourced services they previously did themselves, such as parts manufacture, maintenance, computer and payroll services, and benefits management. As product life cycles get shorter, building proprietary assembly lines becomes less practical. In fact, contract manufacturers have made it possible for some companies to operate without owning any brick-and-mortar factories. Many manufacturers have also increased the efficiency of their assets by leasing, rather than owning, equipment and employees.

Electricity Cogeneration

More Service Required

Because of the large amounts of heat needed in many chemical processes, many chemical plants operate their own steam plants, which can be fitted with turbines to produce electricity as a byproduct. The electricity can be used within the plant or sold to the local utility. Cogeneration (by all industrial plants) supplies more than 10 percent of total US electricity needs.

The greater technological content of many machines and products requires more complicated support such as training, maintenance, operations, and services. Some companies, like IBM, sell more services related to their product than they do the product itself. Large-scale computer use has created the entirely new support field of IT, with legions of consultants and engineers.