Long Term Competition
Regional versus Global
Welcome back to this series where I’m responding to prompts proposed by readers on Twitter. If you don’t already follow me on Twitter I am @tpolymerist, but as always if you want to get in touch please just respond to the email or leave a comment down below.
In chemicals we can split the world up into a few regions:
North America (Canada, US, Mexico) (NA)
Europe, Middle East, Central Asia (EMEA)
Asia Pacific, Australia (APAC)
Latin America (LATAM)
Africa
I’ve really only got experience in 1-3 so I’ll touch on those, and I’ll circle back to 4 and 5 afterwards.
Europe vs North America
Job Security
One defining thing about Europe in my time working in a company that had operations in both Europe and North America was that the European system seems way more stable from a job security standpoint. My German counterparts had a deal worked out where even if they got laid off the company had to pay their employees their full salary until they found a new job. This could take years and doing a layoff in Europe tends to be a big deal. Dow’s recent layoff and cost cutting plans in Europe is a prime example of how serious they are at cutting costs because these cost reductions will cost them quite a bit in the short term. Per Alex Tullo in C&EN:
Half the savings will come from structural improvements, including the job cuts. Dow will also shut plants, particularly in Europe. It says it will announce the locations set for closure later this quarter. The company says that for now the program will focus on smaller facilities.
Depending on the countries where Dow is making their cost reductions, they could be liable for quite a bit of severance pay until those employees find new jobs. The stability that these jobs represent are also part of the innovation engine that keeps the European chemical industry competitive.
In the US, I’ve written about this extensively, but we are just in more danger of being laid off by our employers after a few bad quarters. We are also free to leave our employers whenever we want. This level of freedom and “at will” employment means that the individual has more on their shoulders in terms of their responsibilities for their own careers and this pressure isn’t for everyone. I know plenty of chemists would gladly take a pay cut if it meant long term stability.
I think prior to the 1990s there was some level of stability or social contract in the US chemical industry about workers staying loyal to their employers and those employers doing their darndest to minimize layoffs and keep everyone safe, but I think maybe after 1987 and the globalization of trade in the 1990s that unofficial social contract just evaporated.
People in chemicals tend to carry quite a bit of anxiety—at least in the US.
Innovation
Once again, I’ll use my former German coworkers as examples. They enjoyed some great job stability and thus my counterparts in Germany were actually quite secure to go explore and innovate. Chemists could spend a few years working on some projects on the side with management fully aware and years of experimentation led to some big product innovations that I helped translate to the US.
I always saw it as a game of “chicken,” where an employer does the calculations of potentially paying employees to not work as opposed to paying them to work the majority of the time. Which would you choose?
People from the United States like to believe we are exceptional, but European chemical innovation has been going strong for as long if not longer. A great example would be Evonik spending 10+ years on metabolic engineering and strain development that would lead building a rhamnolipid plant in Eastern Europe. What I wrote last year:
In January of 2022 Evonik announced they were building the world’s first industrial scale fermentation facility to produce a biosurfactant called a rhamnolipid. Evonik’s partner and I suspect main customer here is Unilever, a company that has been on a mission of transformation started by its former CEO Paul Polman. The site is going to be based in Slovakia and it will seek to transform sugar into a biosurfactant that has applications anywhere a surfactant is used now.
That’s not to say that the United States, Canada, and Mexico do not innovate. We have some great startups here in the US and we are great at incremental innovation and keeping customers happy. Sometimes innovation in North America is staying one step ahead of your competition, your regulators, and figuring out how to rework the 50,000 pounds of off-spec material your plant made while you were on vacation.
Regulatory Environment
REACH or Registration, Evaluation, Authorisation and Restriction of Chemicals is the chemical regulation that is in place for the EU and it is enforced by ECHA or the European Chemicals Agency. Typically, REACH is ahead of the United States in terms of being willing to restrict the use of certain chemicals or limit their content in certain finished goods.
Regulation in the US is a bit different than Europe and often it can be a bit trickier to get new chemicals registered by the EPA, especially polymers. The rules for polymer exemption in Europe are WAY less stringent than the United States. I’ve heard of Canada being even more difficult. The two systems though are fundamentally different as described in 2007 GAO report to Congress:
TSCA places the burden of proof on EPA to demonstrate that a chemical poses a risk to human health or the environment before EPA can regulate its production or use, while REACH generally places a burden on chemical companies to ensure that chemicals do not pose such risks or that measures are identified for handling chemicals safely.
If I was going to bring a 100% new chemical or polymer to commercialization, I would probably try to do it in Europe first and follow on in the United States later.
Asia Pacific
I know less about the APAC countries with respect to regulation and job security, but I do know that their reputation around innovation is not the best. There is a stereotype that there is rampant intellectual property theft occurring in places like China and while it might be true for some industries it doesn’t mean that chemists and chemical engineers in these countries cannot innovate.
One commercial example I can point to is Covestro’s Dispercoll U 58, a waterborne polyurethane adhesive that can be used in heat sealing applications.
With respect to Dispercoll U 58 I was working on a waterborne polyurethane dispersion with my old coworker who is now at Origin Materials (Hi Vince, hope you are reading this). He was doing the synthesis and I was doing the application testing and we could not match the hydrolytic resistance of Dispercoll U 58. Do you want a quick explanation on waterborne polyurethane heat sealing adhesives? Well, too bad because you are about to get one.
A heat sealing adhesive is as you might assume. You apply heat and you get an adhesive that becomes sticky and then as it cools that bond tightens and you have now stuck something to something else. A polyurethane heat sealing adhesive works primarily by having one part of the polymer be crystalline with a low melting point (~120 F) and as it heats up those crystalline segments of the polymer “melt.” But because those crystalline segments are attached to a big polyurethane it means there is no flow and it’s just sticky now. The best bonds are when you have an adhesive sticking to another adhesive. The best types of polyols for this type of polyurethane are based on aliphtic polyesters such as 1,6 hexane diol and adipic acid, or aliphatic polyesters.
The issue with aliphatic polyesters is that they tend to get hydrolyzed by water quickly and the monomers that allow for a polyurethane to be dispersed in water, also known as an emulsion, can also help catalyze the degradation of that very same aliphatic ester. Balancing the stability of the emulsion with the long-term stability of the final adhesive is difficult and failure here might be your chip bag delaminates or maybe the outsole on your shoe starts to fall off. Dispercoll U 58 does an excellent job balancing these properties and it was invented and is produced in China or that’s what the Covestro people told me when I asked them about buying it for use in the United States a few years ago.
There is some great innovation happening in China in chemicals, but as I wrote about last week it’s tough to see new specialty chemical commercial successes because no one ever talks about them directly.
Chemicals Are Ultimately Regional
Sure, we can debate this stuff all day, but in the end the majority of production facilities for chemicals will be strategically located to be near their customers. You might save 90% on labor costs by moving your manufacturing operations to very economically underdeveloped country, but you will ultimately lose with respect to transport and lack of infrastructure.
Latin America and Africa:
I think that Latin America and Africa are the regions that have the most opportunity for growth as those economies start to develop (aside from Brasil and South Africa, which are already quite developed, e.g., Braskem and Sasol respectively). I think the key things to look for will be stable governments that will keep private investments safe from things like civil war. The light manufacturing that has defined much of China, SE Asia, and the Pacific for the last 20-30 years might start moving to lower cost of labor places. The chemicals needed to support this type of manufacturing might eventually make that move, but this is maybe 10-15+ years away provided labor costs continue to rise in places like Vietnam, India, Bangladesh, and Philippines, but who knows what’s going to happen. I would bet that China loses a significant amount of light manufacturing to their neighboring countries, but that the factories where those jobs go will be owned by Chinese companies.
To be clear, I’m just betting that it will happen eventually just not when and the magnitude of the shift. I can’t predict the future. I pay professionals for that and even they get it wrong sometimes.