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Domestic R&D activities are the base of future chemical plants in Europe

Open innovation is a key driver for innovation as is drawing from talent worldwide. Most European global companies have research facilities in Asia and the Americas, also the chemical industry. With the chance of getting more ideas flowing into Europe, there comes a risk. If steps of the innovation value chain are transferred abroad, Europe might not be the place where the money will be earned in the end, as the production plants will be built elsewhere.

by Michael Dröscher
Professor at the University of Muenster, Germany
Manager of the cluster CHEMIE.NRW

January 31st, 2012

Open innovation and global talent drive innovation

There is a wide agreement that one of the major drivers of innovation is open innovation and cooperation. One reason is that innovation happens mostly across industries, today. This is often called hybrid innovation, where one industry alone is not capable to perform the innovation and overcome all hurdles. It is also widely agreed that more minds have more ideas and different cultural back grounds and diversity at large are drivers for innovation. Therefore, most companies, even some SMEs, seek talent on a global base.

R&D in the markets abroad

In most cases it is of economical and cultural advantage, to keep the global talent in their local environment. Often the costs are lower, and the talents make better use of their networks and link to even more talent and knowledge. Thus, the companies create Research & Development (R&D) centres in the market countries. A good example for the chemical industry is China, where you find most of the R&D centres of European companies in Shanghai. I myself was in charge for Degussa (now Evonik) to build the first of our laboratories in Shanghai in 2003. Two more lab buildings followed since. In 2003 the activity was more in the field of D rather than in R, which means we developed our portfolio for the local market but left the research part in Germany. Today, also R is moved abroad, for Evonik e.g. to Taiwan

Markets abroad turn in to production fields

More and more new chemical production plants are built in the market countries like China. This is economically a necessary move and does not interfere with domestic production as long as the market growth absorbs the products from the new production facility. Mostly, the new plants are either direct copies of existing technology or a new generation of the same technology. This all is strengthening the company at home in Europe. But what happens with new technology?

Advantage of a complete value chain

The innovation value chain starts with ideas which become projects, often with partners on a bilateral base or even in a precompetitive cooperative project with other players in the field. From this basic research topics for applied research projects arise. When the invention is made and the intellectual property is protected by patents or sometimes kept as a company secret, prototypes are built and tested in the market. Next the pilot plant is built and market penetration starts. The innovation chain is complete when the market accepts the product and the production facilities are covering the market need.

Now let us discuss a new technology for a new product. In the chemical industry it often takes about 10 years or more to develop the new production process, starting from the lab results. There is always a close link from the lab, where the first reactions are run in small scale, to the pilot plant, where the process is developed. Often lab researchers are part of the project team for the scale up. And then, members of the scale up team will be part of the planning and construction team for the new plant. From my knowledge there is a good chance to have the pilot plant near to the research facilities. And the first plant is often built here in Europe, also. New technologies which are brought into existing plants are often introduced first in the domestic pants and only later abroad. This holds especially for technologies with a high degree of proprietary knowledge. Even then, in some cases the first plant is built abroad and never comes back.

But what happens when the scale up and the pilot plant is built abroad already? The chance that the first production facility is built in Europe is very small. So a full innovation chain gives a higher chance to keep the production facilities in Europe.

Overall, it will be a difficult task to keep the level of production facilities in Europe. It will be even more difficult, if the innovation chain is incomplete.