Diversify and prosper
This article has been taken from The Gen newsletter - Summer 2009.
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The DACH region, like other developed Western economies, has not been immune from the economic slowdown. However, even though we’ve seen GDP drop by 6 per cent, the prevalent view currently is that we’ve probably hit bottom and by 2010 should see a modest return to growth.
DACH’s hugely important chemical, materials and energy (CME) sector – an area in which Sagentia GmbH has been traditionally strong – has had mixed fortunes. Overall, sector sales are down 30 per cent. But this top line figure hides a story of mixed fortunes.
The dramatic reduction in output by the German automotive industry – 50 per cent in 2008 – has had a direct knock-on effect on CME suppliers, 20 per cent of whose output has traditionally been used by car makers. The auto sector is suffering so badly partly because of inherent overcapacity, but also because many German marques are considered luxury brands, representing the type of discretionary spend few can now afford.
In contrast, agricultural products and crop protection are experiencing increased demand, as are health and personal care products, and food additives such as vitamins. Many CME companies who supply into the ‘alternative’ energy market are also buoyed presently through demand for silicon for photovoltaic cells and glass and carbon fibre composites for wind turbines.Diversification is a must
The current economic situation has simply focused a previously held view within the CME sector, namely that as a predominantly ‘mature’ industrial sector, the only sure guarantee of long term prosperity is through innovation and diversification.
In the chemicals industry especially, the need for diversification was recognised several years ago with leading world class companies like BASF, Bayer and Solvay setting up organisations whose specific remit was diversification. In the current climate that need is even more keenly felt. Put simply, CME management is under pressure to identify the product and service needs of new markets, establish how those needs fit with their existing capabilities, determine the gap between need and capability and develop a strategic plan to close the gap. A successful outcome to this process is regarded as a given. What has changed is that the time frame has shrunk. Companies are under real pressure to diversify and do it quickly.
Companies which previously focused on core expertise are now actively seeking new markets in which to sell their capabilities, or develop new products in order to exploit new market opportunities. Many of these new opportunities lie within the alternative energy sector, and we are seeing development work focused on battery technology, photovoltaics, thermal, solar and wind energy, biofuels, and new, energy saving construction materials.
It’s not easy to move beyond core expertise. However there are many examples in the DACH region of companies that have done just that. Evonik’s development of a ceramic membrane technology and its subsequent successful joint venture development of a lithium ion battery with Daimler is just one well known example.
When it comes to diversification, we are finding that companies are coming to us because they want an independent assessment of potential new markets, especially those of which they have no direct experience.
We have used our technology scouting service to find existing technologies that can be used to catalyse clients own developments. Of equal interest has been functional analysis where we start with a specific technology capability or capabilities and look to apply these for new applications in new markets. Finally, in the alternative energy sector especially, we have seen a marked increase in the use of market need driven opportunity discovery where we translate a specific market need into a technology solution delivered by CME.
Across all these service offers, the watch word from clients is focus. The economic climate forces us all to identify and back technology winners only. It also demands that value can be extracted swiftly.