Where is the chemical industry going?

Business Economics, Oct, 1999 by T. Kevin Swift

Life sciences will be driven by demographic pressures (e.g., aging baby boomers) and by continual technological innovation. Even under the most conservative assumptions, life sciences will, by the year 2010, approach the value of basic chemicals, and by the year 2020 should easily outstrip annual basic chemical revenues. At that time, specialty chemical revenues will rival those for basic chemicals. Cutting across all segments will be the increased diffusion of the biotechnology.

Technological Change and the Business of Chemistry

Economists such as Joseph Schumpeter and more recently Gerhard Mensch have noted the presence of long-term cycles in technological innovation. The business of chemistry has undergone two such major waves of innovation and is currently in the beginning phases of a third wave.

Prior to 1850, chemical manufacturing was small scale, fragmented, and largely focused on local and regional markets. Indeed, the original name of the Chemical Manufacturers Association, the Manufacturing Chemists Association, was indicative of the nature of the industry. The first wave, or generation, of chemical process and product innovations began around 1850 and lasted some sixty years. This period witnessed the rapid application of chemistry to industrial endeavors and the expansion of chemical knowledge. Indeed, the two would feed upon each other. Older industries such as textiles and paper were transformed by chemistry, and after the turn of the century, new industries such as aluminum and oil refining emerged because of developments in chemistry. A second wave of chemical process and product innovations began in 1930 and ended in the 1960s. Its foundations lie in innovations made in organic chemistry but can be summarized in one word: petrochemicals. Innovations in catalysis and high pressure reactions in combination with abundant resources of oil and natural gas-based hydrocarbon feedstocks (or raw material) made this wave possible.

Scientific discoveries are now leading to a third wave of chemical process and product innovations. During the next several decades, the growing importance of biosciences will engender a slow shift toward biological raw materials and processes. As a technology platform, biotechnology has already captured 15 percent of life sciences and is now beginning to diffuse into basic chemicals. This can only grow during the next two decades, and growth will be further aided as life sciences, the primary focus of these innovations, will be the fastest growing segment.

The emergence of the biosciences will lead to traditional process equipment being supplanted by equipment now employed in biotechnology. Moreover, the evolution towards a more biological-based technology platform has implications for the chemical industry as these technologies are less energy intensive and generate less pollution. It is likely that this evolution in the science and business of chemistry will only intensify in the decades to come in the third wave of innovations. Although traditional chemistry will remain the mainstay of basic chemicals, the effects of this third wave of technological innovations will be profound.