VCI Is On A Roll | September 1, 2008 Issue - Vol. 86 Issue 35 | Chemical & Engineering News
Volume 86 Issue 35 | pp. 31-34
Issue Date: September 1, 2008

VCI Is On A Roll

Germany's chemical industry association revels in the good times and is working to keep them going
Department: Business
Credit: VCI
Credit: VCI

AS THE GERMAN Chemical Industry Association (VCI) sees it, its constituency has worked for and achieved a clear competitive global advantage. But under the leadership of recently appointed Director General Utz Tillmann, VCI is concerned about the chemical industry in Germany remaining competitive in the future.

At VCI's annual summer press conference, Ulrich Lehner, VCI president, pointed out that since the start of an upswing for the industry in 2003, the German chemical industry has seen average annual growth above 4%—more than the counterpart industries of the U.S., Japan, or other European Union countries.

And although that growth has tapered off slightly—it was 3% for the first half of 2008 compared with 6% for the first half of 2007—it still was remarkably good, Lehner said. In fact, VCI expects the growth for 2008 to be about 2.5%, half a percentage point above the European Chemical Industry Council's (CEFIC) 2% forecast for the EU's chemical industry as a whole.

New Director General Tillmann, 54, says he wants to keep the momentum going. In June, he took over the reins of VCI from Wilfried Sahm, who retired from the post he had held since 1992.

Tillmann is a Ph.D. biologist whose background includes positions at Henkel, the University of Darmstadt, and BASF, as well as a three-year posting to CEFIC in Brussels. He is taking over at a time when the German industry has been on a roll.

He is now in the middle of a consultation process with the industry's stakeholders, including companies and employees, to see how best to continue that roll. But he recently took time to talk with C&EN about what he sees as the major opportunities and challenges for the German chemical industry in the next few years.

Macroeconomic challenges already loom large. For example, economists currently predict a downturn in Europe, particularly in the "eurozone"—the 15 countries in the EU that use the euro as a common currency—leading some to warn of a long period of very low growth. And statisticians in Germany say the country's economic picture is deteriorating, with a decline in manufacturing orders and retail sales.

2020 Vision
Currently outsold by China, Germany sees its chemical industry rejoining the top three in a little more than a decade
NOTE: Data for 1991 through 2007 are from ChemDATA International, a database compiled by VCI, CEFIC, and the American Chemistry Council. Projections for 2008 to 2020 are from VCI. Projected growth rates are for production, excluding price and currency exchange effects.
2020 Vision
Currently outsold by China, Germany sees its chemical industry rejoining the top three in a little more than a decade
NOTE: Data for 1991 through 2007 are from ChemDATA International, a database compiled by VCI, CEFIC, and the American Chemistry Council. Projections for 2008 to 2020 are from VCI. Projected growth rates are for production, excluding price and currency exchange effects.

Tillmann concedes that although the German chemical industry still has a positive growth rate, "the dynamism is slower." To maintain robust health, he says, the industry must continue its drive toward efficiency—a drive that has already led to its current strong showing.

"Companies must try day by day to be more efficient," Tillmann says. The industry has achieved efficiency in part as companies have restructured to become leaner organizations.

RADICAL RESTRUCTURING, for example, marked the integration of the chemical industry of the former East Germany into that of West Germany. When the Berlin Wall came down in 1989, East Germany had chemical sales of roughly $16.9 billion and 193,000 employees in its chemical industry. Four years later, those figures had fallen to $8.1 billion and 65,100 employees.

The region's chemical employment reached its nadir in 1999, at 40,400, although by that time, chemical sales had begun to climb, reaching $11.7 billion. Last year, chemical industry sales in eastern Germany totaled $26.7 billion, and the industry had 50,300 employees.

Such restructuring efforts, Tillmann says, have helped German companies increase their competitiveness in the global marketplace. But maintaining competitiveness, he points out, depends on several major factors: innovation, talented workers, and freedom from costly and inappropriate regulation.

Competitive Intelligence

German Chemical Industry Aims To Regain Ranking In World's Top Three

When Ulrich Lehner, president of Germany's Chemical Industry Association (VCI), gave his report on the first half of 2008 at the group's annual summer press conference, he clearly was pleased with the industry's robust health.

In the face of worldwide economic turbulence, the German chemical industry "is better positioned today than it was in the 1990s," he said. Moreover, he predicted, "our industry will firmly continue on this path," benefiting from further export opportunities, increasing efficiency through corporate restructuring, and continuing innovation.

In the 1990s, the German chemical industry grew by 2% per year on average. "Now, we think that more growth is possible," he said. "We believe we can achieve an average output growth of 3% per year up to the year 2020."

As nice as that growth will be, however, it also represents the way to redress a development that has hurt the German chemical industry's self-esteem: It is no longer among the top three chemical-producing nations in the world.

Ever since the beginning of the modern chemical industry, Germany has rested comfortably in the top three, along with the U.S. and Japan. In 2005, however, China elbowed its way into the number three slot, pushing Germany into fourth place. And in 2006, China leapfrogged past Japan into the number two spot, according to VCI statistics.

In fact, German chemical producers see their strong annual growth of 3.0% per year, compared with the 1.8% per year average annual growth projected for their Japanese counterparts, as a way to bring their chemical industry's size even with the Japanese industry in 2018. And Germany's chemical industry will overtake Japan's in the following year, according to VCI's projections. The result, Lehner says, will be that Germany "is again number three in the world."

The German chemical industry, he insists, has been improving its record of innovation. "We must come up with better products than anybody else," Tillmann says. "We've already done it and will continue to do so in the future."

Companies have to decide on the best location for their R&D, Tillmann says. And that is a particular challenge in Germany. For example, he notes that German companies can't easily do good research in Germany in plant biotechnology. "It is difficult to do a field trial because people destroy it," he observes, referring to antibiotechnology activists. "If this trend continues, we have to do this kind of research outside this country."

One of the German chemical industry's R&D strengths, points out Henrik Meincke, senior economist at VCI, is that much of its R&D is done in cooperation with customers such as the German auto industry. "We are the engine of innovation for the other sectors," he says.

On the other hand, when an industry such as textiles or leather moves to India or China, "then we have a problem," Meincke concedes. "We follow with marketing, and often with production," he says, but relocating R&D activities is more difficult.

A looming issue is maintaining the supply of good employees.

"We must increase the percentage of people studying the sciences," Tillmann frets. "The problem starts in kindergarten," he notes, adding that throughout their school career, students receive limited science education. As a result, companies have begun devising programs for young children such as "kids' labs," where youngsters do fun things like mix colors, thereby hopefully discovering the thrill of chemistry at an early age.

Tillmann cites other initiatives as well, some with the science ministers of German states and with German employers' associations. The initiatives include grants for school partnerships and fellowship programs to support young researchers.

And in an important new effort, VCI's chemical industry fund has set up a program to boost the supply of highly qualified toxicologists and ecotoxicologists. Specialists such as these will be essential for helping industry meet the assessment demands of the EU's new chemicals legislation package, REACH, to register, evaluate, and authorize chemicals produced and used in the region.

On another front, the industry sees serious problems with the EU's emissions trading plan that is now in a formative stage. Tillmann says the issue comes down to how to reduce carbon dioxide and other greenhouse gases. The EU wants to establish a trading system of allowances for carbon dioxide emissions, but it would be better off relying on technology and energy-efficiency programs to reduce emissions, he says.

One cost that has been suggested for an allowance certificate is 30 euros, or roughly $45, per metric ton of CO2. Just for the chemical industry, Tillmann says, that would increase costs by $1.5 billion in 2013 and $3 billion in 2020.

CUSTOMERS can get chemicals from other companies outside the EU. "So we cannot pass on the CO2 allowance costs to our customers," Tillmann says. "We would lose our market." Hence, the chemical industry has petitioned the EU for free allowances.

Industry managers argue that an emissions trading system would be counterproductive, Tillmann says. "We clearly see that, if this law comes and we have to buy the certificates for allowances and we cannot pass on the costs, we will have 'carbon leakage,' " he says. Those industries emitting measurable amounts of CO2 will leave Europe, he suggests.

And that, in turn, would have two negative effects, according to managers at VCI, its counterparts in other European countries, and at CEFIC. First, because energy efficiency often is not as high in other regions as in Europe, more CO2 will be emitted. And second, European manufacturers will then have to buy their basic products from the rest of the world. That would lead to a de-industrialization of Europe with a consequent focus on services, Tillmann asserts.

"The situation is very complex," he says. "Chemistry involves energy-intensive production. But we use the energy in the first step on behalf of all the rest of the chain. That saves more energy over the entire life cycle of a product.

"The emissions trading plan does not take into account the substantial increase in energy efficiency that the industry has already gained," Tillmann grumbles.

"It's not very smart of the politicians," he charges. "Our strength is industry, and we should stick with that. You cannot buy everything outside Europe. It's not a sustainable situation."

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