Extending Innovation

It has been a little more than a year since Air Liquide completed its $3.2 billion purchase of Messer Griesheim's U.S., German, and U.K. industrial gases business. Now it's time to consider how the newly acquired assets will figure into the firm's research and development strategy.

Despite the company's greater size and geographic extension, R&D efforts are still "highly concentrated in France," Benoît Potier, chairman of Air Liquide's board of management, acknowledged at a press conference in New York City earlier this month.

Air Liquide has technical service centers at locations including the U.S., India, and China. But the heavy lifting is centered at the firm's major R&D center near Versailles. Another location in France, Grenoble, is the site of advanced technology research, with smaller research centers in Tsukuba, Japan; Hamburg, Germany; and Newport, Del., and Chicago in the U.S.

Because the Messer Griesheim acquisition gave the firm greater heft in the U.S., Germany, and the U.K., it can now consider undertaking a proportionately greater share of research outside of France, Potier suggested. "We're studying options," he said.

Air Liquide plans to add to its current R&D budget of more than $180 million annually and to "reshuffle" research. That suggests an increase in the total number of research personnel, now at about 550 worldwide, as Potier said no employment reductions are planned in France.

"We are going to keep our research-to-sales ratio constant," he said. "There will be room to expand R&D in the U.S. and elsewhere." But "elsewhere" does not yet include China, where the firm is concentrating on adding production assets.

Though Air Liquide saw sales grow 40% in China last year and has decided to invest more than $100 million a year over the next five years in that country, it is taking a conservative approach to conducting R&D there. Potier said he "has no answer yet" to the question of how or when Air Liquide will establish an R&D presence in that country. For now, "Japan is a good place to be for research" in Asia.

Innovation is one of three major factors Air Liquide is counting on to help drive growth globally, Potier said. Expanding its presence in large economies such as North America and Western Europe is a second driver. And expanding in new areas such as the Middle East, Asia, Eastern Europe, and South America is the third.

But innovation is a major element in Air Liquide's expansion into both emerging and existing markets, Potier pointed out. About 60% of investment in emerging markets is based on innovations for gas-to-liquids projects in the Middle East, for example. And in the developed markets of Western Europe and Japan, Potier said, "innovation is the greatest source of growth."

That's not the case for the U.S., however, where Potier admitted that the company has to try harder. In the past two years, the firm has introduced 16 innovative technologies to U.S. customers in the steel, welding, and food-processing industries. More advances introduced to customers elsewhere are on the way to North America. "We intend to strengthen technology and research in the U.S.," the chairman promised.