Issue Date: January 30, 2006
Making One Out Of Many In England
When people think about Britain's northeast region, they tend to think in terms of traditional industries that mostly collapsed in the 1970s and 1980s, such as shipbuilding, steelmaking, and coal mining.
Few people give much thought to the region's chemical industry, and if they do, the perception tends to be of petrochemical operations belching toxic smoke into the air. That's the image the North East Process Industry Cluster (NEPIC) has set out to change. Given the importance of the industry to the region's economy, there is urgency to the task.
NEPIC was formed last year by the 200 pharmaceutical, biotechnology, specialty, commodity, and petrochemical companies in the region. They combine with another 150 companies in the supply chain to make up the total process industry cluster.
The cluster itself represents more than $14 billion of annual gross domestic product (GDP) and more than 25% of the region's industrial base. Its members directly employ 34,000 people, and a further 200,000 jobs indirectly depend upon the industry-a significant number for a region of just over 2.5 million citizens.
The region as a whole is one of the poorest in England. Hence, the process industries, a broadly defined swath of chemistry-using companies and ancillary service firms, are important.
Within the region, two geographic foci for the process industries have developed.
Newcastle-upon-Tyne-270 miles north of London, about a three-hour train trip-and its surroundings host pharmaceutical, biotechnology, and specialty chemical companies. These include pharmaceutical giants GlaxoSmithKline, Sanofi-Aventis, and Merck; biotech start-up Angel Biotechnology; and specialty chemical manufacturer Rohm and Haas.
Farther south is the other center, in the area surrounding Wilton on the River Tees. It's a massive sprawl that once was dominated by the petrochemical and downstream operations of ICI, formerly known as Imperial Chemical Industries. But that was before ICI decided in the mid-1990s to transform itself by selling off its commodity chemical businesses and acquiring specialty chemical operations in their place.
ICI is still there but is only a sliver of its former imperial self. For example, the Wilton Centre houses the worldwide technical center of ICI's Uniqema division, an amalgam of the surfactants operations of the old ICI and the oleochemicals business acquired from Unilever in 1997.
Regardless of who owns what, NEPIC executives say, almost all the needs of a modern lifestyle are supplied by the process industries in the region. "Our concept of process industry stretches from biotechnology to specialty chemicals to active pharmaceutical ingredients to packaging, delivery, and logistics. That's all part of the process industry supply chain," says Stan Higgins, chief executive officer of NEPIC.
NEPIC itself was formed by the merger of two similar, but more limited, groups that had operated in the region for some time: the Pharmaceuticals & Specialties (P&S) Cluster and the Teesside Chemical Initiative (TCI).
That the merger came together at all was remarkable. Specialty and pharmaceutical producers, for example, were leery of being overwhelmed by the "big boys" of the basic chemicals sector, and commodity and petrochemical producers feared that any merger would be dominated by the higher profile pharmaceutical and specialties firms. But the industry was under some pressure-not least from the British government, frustrated by having to deal with a profusion of industry groups-to pull together a single, coherent voice.
NEPIC executives say their group provides that one voice. It also pulls together and focuses the contributions of a variety of other agencies serving the industry. And it maintains strong ties to funding and development agencies that promote the region both in the U.K. and outside.
NEPIC's programs and activities are budgeted at just under $4 million per year, collected from government agencies and the companies themselves. With that budget, the industry "is going to be able to leverage more resources and have more impact," according to Robert Coxon, chairman of NEPIC and senior adviser on chemicals for the private equity firm Carlyle Group.
The region "had TCI and the P&S Cluster," Coxon recalls. "But we knew that this region isn't big enough to be effective when it is fragmented. So we thought, let's pull them together."
For Higgins, the key to the successful development of NEPIC is involving executives throughout the industry. NEPIC has done that by forming teams to address six strategic themes: marketing and networking, skills and education, trade and investment, research and technology, manufacturing and productivity, and closure of the GDP gap with other U.K. regions.
The teams tackling these issues, Coxon says, "are really engaged. We give the executives something to do. If you just ask them to show up to meetings, they become bored.
"The thing we need to keep testing is that the government continues to see the industry as an industry of the future," Coxon emphasizes. Between some plant closings in the northeast and growing investment in Asia, the government thought that the industry was going to disappear from the U.K., he points out. That perception changed fundamentally when Huntsman Corp. decided in 2004 to invest roughly $360 million in a new 400,000-metric-ton-per-year polyethylene plant in the Wilton area; it is scheduled to open in third-quarter 2007.
"The NEPIC story is trying to portray a region that supports the complete chemical enterprise. There is a depth and breadth, ranging from building blocks to pharmaceuticals and biotechnology companies," agrees Ian Shott, chairman of Newcastle-based pharmaceutical services company Excelsyn and former vice chairman of NEPIC. "We all are focusing on fewer, bigger things, not a plethora of projects. It's not theoretical," he adds, but practical.
That practicality, in turn, is appreciated by the British government, says Ashok Kumar, a member of Parliament whose constituency is in the northeast region. "I'm very happy with the progress and the setting up of NEPIC," he says. "It is vital not only that it was set up but that it is prosperous." NEPIC will provide a link, he says, between industry, universities, and schools, to support the government's aims of remaining a major player in the global marketplace.
Kumar adds, "It's not government's job to pick winners. That's for industry to do. Our job is to facilitate, to create a climate where business can flourish."
It is only through formation of links and working together, argues John O'Neill, vice president of Huntsman's European base chemicals and polymers business, that the region will ever close its GDP gap with the rest of the U.K.
O'Neill, who chairs NEPIC's GDP growth and investment team, explains that on a per capita basis, the northeast is short by some $16 billion in annual GDP when compared with other U.K. regions. If the process industry is 25% of the northeast economy, the thinking in the U.K. government goes, it ought to contribute enough additional GDP over the next 10 years to close up at least a quarter of that gap.
O'Neill's team has put together an analysis of how the region could meet that goal through organic growth or through new investments.
In biotechnology, for example, the team predicts sales growth from nearly $1.3 billion today to $2.2 billion in 10 years. In pharmaceuticals, the team sees sales growth from $2.2 billion to $3.1 billion. The NEPIC team predicts that specialties as a sector will grow from $3.6 billion to $4.5 billion over the period. And base chemicals will grow from $7.7 billion to nearly $13 billion in the 10 years.
In the basic chemicals sector, at least, O'Neill says, "I've worked all over, and I don't know of any location that is better. ICI was not stupid when it came here in 1947 and built this site." One major advantage to the site, he points out, is its geography. "The northeast has very good logistics for getting products to [the rest of] Europe and particularly to 'new' Europe. Through our seaports to the Baltic, it's easier and cheaper to get product from the northeast to the hinterlands of Europe than it is going through Rotterdam."
The biotechnology sector should get a boost from the National Industrial Biotechnology Facility to be built at the Centre for Process Innovation (CPI) in Wilton. The multi-million-dollar facility is scheduled for completion at the end of the year.
New enzymes produced by one of CPI's partners, the Manchester-based Centre of Excellence in Biocatalysis, Biotransformations & Biocatalytic Manufacture, will be used at the facility, which is being funded by a consortium of agencies. GlaxoSmithKline is making "a substantial donation" to the infrastructure of the facility, the firm says.
Because of NEPIC and the projects it is supporting, "industry for the first time is taking a lead in how to support development in the U.K.," O'Neill observes. "It is not government pushing industry development but industry pulling: 'Here is what we want to do, and here's what we need to do it.'"
From his office in the Wilton Centre, Colin R. Harrison, technical and operations director for Uniqema, concedes that, at first, "everyone was figuring that clusters are for little companies. 'Why should companies like us bother?' "
After all, he points out, Uniqema is doing well with its operations in the region. The company in 2003 closed its personal care and applications center in Belgium and consolidated its technical operations in Wilton. But the notion of sharing is already part of Uniqema's life: The Wilton Centre, once solely occupied by ICI, is now home to more than 40 companies and is one of the largest multicompany research locations around the world.
"It is extremely important to have a critical mass of like-minded people," Harrison says. For scientists and engineers of all companies, "being here is very important. That is one reason CPI is here-to take advantage of this scientific community."
Harrison chairs NEPIC's innovation team. From his vantage point, he sees "some of the best measurement science in the U.K. and probably in Europe. We want to make a way to enable small companies to use this too," he stresses. It is gratifying that innovation-supporting groups have come together, he says, "There are similar sets of priorities, and there is joined-up thinking actually emerging."
For Graham Cleland, that joined-up thinking must include education and community relations. Cleland, manager of Rohm and Haas's plant near Newcastle, chairs NEPIC's science, education, and industrial engagement subgroup.
Jarrow was Rohm and Haas's first site in England, beginning production in 1955. "We used to have a very bad reputation in the community," Cleland says. But in 1988, with the industry's launch of Responsible Care, "we really began working hard on our reputation, cleaning up our act. That's why we are so interested in education; the public does not understand the chemical industry. Only through work at the local level will we influence the numbers in schools."
One initiative that NEPIC is supporting, for example, is the Children Challenging Industry program, launched in 1998 by Thomas Swan, chairman of the eponymous specialty chemical producer based in Durham, between Newcastle and Wilton. In this program, a specially designed curriculum links primary-school science lessons with appropriate plant visits. Other NEPIC programs target secondary education, higher education, and training.
One of the long-term aims of these educational efforts, industry executives agree, is to address the issue of a sustainable supply of employees.
As Ian Mains, development manager for NEPIC, notes: "The average age of an employee in the chemical industry in the northeast is 52. We are not getting enough young people in." Not that no one is addressing the issue. At last count, he says, there were some 420 educational initiatives run by the U.K.'s Department of Education. "Companies are confused. Where do they start?" Mains asks.
"Nationally, the numbers of engineering craftsmen and technicians are reducing each year by about 750," notes Tony Birch, site director of BASF's facility near Wilton. Meanwhile, plant construction has increased and will continue to do so over the next five years, he adds. The result, says Birch, who chairs NEPIC's skills and education group, is very worrisome.
"You have to be able to look outside and commit time and effort to look at this," he says. "I don't care if you can get 200 people into a training course, I care about how many people come through. If they all drop out midway through, that does me no good." Among the efforts the team is developing is e-training on the Internet to reach employees who find that their shift work disrupts the usual class schedules.
"I don't see us producing anything that is purely northeast-based," Birch adds. "We will be delivering what will be a model for the rest of the U.K."
For Paul J. Londesborough, vice president and site director of GlaxoSmithKline's facility in the region, the interconnectedness of the region came as a surprise when he transferred to the site. The site is one of Glaxo's major formulation and packaging sites worldwide.
"I was with Glaxo for 25 years before I came here three years ago," he says. "It was a real eye-opener. Virtually every area of the supply chain is represented-pharmaceutical actives, excipients, raw materials, packaging components, engineering, et cetera-as well as the infrastructure." Even legal specialists, he points out, complement the industry.
In late December, Londesborough's manufacturing and productivity team sent NEPIC members a questionnaire covering a variety of operational practices. He is insisting on 100% response and aims to publish the results by March.
Higgins says the questionnaire results will provide guidance from within the industry on good operational practices. He says smaller companies in the region will certainly benefit. "If companies are not even measuring delivery time for customers, they are layers away from Six Sigma. They shouldn't even be thinking about that, let alone spending hundreds of thousands of pounds" with consultants on fashionable but overly complex quality programs.
"We are networking across a whole host of industries to ensure best practice and develop people," points out Subhash C. Chaudhary, head of biologics operations for Avecia. "We all need more people skills, like quality assurance, for instance."
Chaudhary is a fan of NEPIC's networking events, which facilitate the sharing of best practices. Such networking comes down to even "little things like filters. You can confer with other companies: 'How do you validate these filters?' "
Networking can also build up sufficient numbers to support efforts to address common needs. For example, adds Chaudhary's colleague Stephen C. Taylor, "We might send two people to a skills course that needs 14 to be viable. If other companies are also sending people, it will work."
Chaudhary says other companies in the region have used Avecia's biologics facilities to show customers what is available. The $130 million facility, dedicated in late 2003, "was the biggest biotechnology investment in the world" in 2003-04, he says. It was a vote of confidence for the site, where the company-or its ICI-related predecessors-has been since 1970.
Avecia may also be taking part in a novel form of biological treatment being developed on the River Tees outside Wilton. Chaudhary, who next month is chairing a biodisposal meeting at the IBC BioProcess International conference in Prague, says his company is considering feeding effluent to reed beds as part of a major biological treatment project in the region.
For start-up company Angel Biotechnology, NEPIC facilitates networking and partnering, says Gordon Sherriff, business development director. "In the biotech industry, there is an acceptance of partnering. There usually is not a full in-house solution," he says. "If a company is doing a clinical trial, it may be working with five different companies. Geography has a lot to do with it, too; partnering tends to run more smoothly if it is local."
Huntsman's O'Neill acknowledges that his company could get away without such partnering. "We are the largest company in the sector in the region, so why do we bother with the cluster? You could say, we could do everything ourselves. But success relies heavily on deep integration and relations with customers close to us. So we want to see as many customers and components of the supply chain as close as possible.
"Most of us can see the power of working together. People do this voluntarily because we get something back," O'Neill says. Evoking his company's founder, Jon M. Huntsman, he adds: "My chairman may be a philanthropist; I'm not. I do this because it's good for my company."
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