CHEMICAL INDUSTRY'S LOST STATURE
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CHEMICAL INDUSTRY'S LOST STATURE THE CHEMICAL INDUSTRY AT THE MILLENNIUM: Maturity, Restructuring, and Globalization, edited by Peter H. Spitz, Chemical Heritage Press, 2003,387pages, $45 (ISBN 0-941901-34-3)
REVIEWED BY ALEX TULLO
THE TRAVAILS OF
the global chemi-cal industry are well known to readers of C&EN:
The industry's competi-tiveness in the U.S. and most of the developed world is slipping in relation to that in the Mid-dle East and other regions with cheap hydrocarbons.
Companies rarely resist the temptation to build excess manufac-turing capacity, which preserves their mar-ket share but ruins profitability for years.
Many specialty chemical companies don't seem to know what business they're in. Their portfolios are in a state of flux, often miring them in financial problems.
Though chemical companies enjoyed high growth during the decades after World War II, the developed world is now satu-rated with chemical products and the real growth today is in Asia and Latin America.
How did the chemical industry end up like this?
"The Chemical Industry at the Millen-nium: Maturity, Restructuring, and Glob-alization" attempts to answer that question and analyze the above issuesand many others. The book is a collection of 10 es-says edited by Peter H. Spitz, who authors five of the pieces and coauthors one other.
Spitz is the founder of the consulting firm Chem Systems and the author of the 1988 John Wiley & Sons book "Petrochemicals: The Rise of an Industry" The new book is a follow-up that zeroes in on the chemical industry during the past 30 years.
Most literature on the chemical indus-try is focused on the present day, so the historical context of Spitz's book lends a welcome perspective to the major events of the past generation.
For example, in a chapter on industry restructuring, Spitz writes that the mod-ern petrochemical industry began in the early 1980s, after the Iranian revolution
r T h e C h e m t e a In d u s.t-r-,y
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led to the second oil price crisis. This made chemical companies rethink feedstock sources. Meanwhile, the replacement of traditional materials, such as glass and met-al, with plastics started to slow; the indus-try overbuilt capacity; and the U.S. econ-omy hit a recession.
These factors prompted the first petro-chemical projects in Saudi Arabia. They also influenced companies' business strate-gies. For example, DuPont bought Conoco to back-inte-grate in 1981. DuPont turned around and spun off Conoco in 1998 after the benefits of having an upstream energy business did not materialize and DuPont became more in-terested in biotechnology
Few major events of the past 30 years are omitted in the book. Spitz throws in everythingincluding the kitchen sinkor at least the McDonald's poly-styrene clamshell sandwich container. For further information, Spitz describes that the 1984 Union Carbide disaster in Bhopal, India, ultimately led to the decline of the company and helped spur creation of the industry's Responsible Care initiative.
Spitz has a tremendous ability to distill events down to their essence. When he de-scribes Dow's infamous attempt in the 1980s to build an oil refinery for the sole purpose of making petro-chemical feedstocks, Spitz explains why it failed in terms that imply Dow executives should have known it wouldn't suc-ceed. "The project was eventually written off, as Dow learned to its dismay that a refinery that does not produce gasoline will probably not be profit-able," he writes.
Spitz also does a clever job of selecting topics. He and Michael Eckstut, formerly of A. T. Kearney and now with software provider Model H, note how, at the advent of chem-ical industry cyclicality in the 1970s and '80s, business strategy in the chemical in-dustrywith the help of consultantsde-veloped beyond planning for new plants. No longer could companies assume that
"The specialty industry needs to go back to the basics that made it the darling of the investment community for 40 years."
new capacity would quickly be soaked up by new demand. If they did, they would be strapped with costly periods of low oper-ating rates. Spitz follows this with a chap-ter on the influence that reengineering and managerial tools such as Total Quality Man-agement and Six Sigma have had on the chemical industry Accenture consultant David A. Crow then provides an essay on information technology
It might seem strange to juxtapose these chapters with the other essays in the book, which focus on critical industry issues such as globalization and the environment. But business models and communications are tremendously important to the day-to-day operations of chemical companies. And there are few resources outside of this book that delve into these aspects in such de-tail. This book-within-a-book should be a feast for M.B.A. types.
John Roberts, chemical equity analyst for Buckingham Research Group, con-tributes an essay on how Wall Street views the chemical industry and why it gives the industry low stock market valuations. In fact, if all the publicly traded chemical com-panies were combined into a single com-pany, that company would only be ranked fifth on the Fortune 500 list of market cap-italization. Roberts points out, as others have, that this situation discourages in-vestments in chemical companies by mu-tual fund managers who don't like to have big investments in smaller firms.
In another critical essay Andrew Boc-cone of Kline & Co. says lack of innovation in R&D is costing the specialty chemicals industry the growth in sales it enjoyed through the 1980s. Sometimes, cosdy merg-
ers used to form mega-companies such as Ciba Specialty Chemicals and ICI, have failed to deliver the financial results origi-nally expected. "The spe-cialty industry needs to go back to the basics that made it the darling of the investment community for 40 years and apply those tools and tech-niques in the context of the new global market-place," Boccone says.
The book does have a few shortcomings. Spitz's essay on globalization is superficial, and a disclaimer at the end, which begins, "This chapter could be much longer," ad-mits as much. An entire book could be writ-ten about the globalization of the chemical industry The chapter is also approximate-ly 18 months out of date, but that's under-
H T T P : / / W W W . C E N - O N L I N E . O R G C&EN / JUNE 21 , 2004 45
standable. For example, the state of the j chemical industry in Latin America I which experiences new crises and hatches j new plans for growth every year is diffi-cult even for periodicals to pin down.
Nor is there much in the book on tech-nical innovation, outside of a single chapter on petrochemical technology developments written by Chem System's Jeffrey S. Plotkin. It is a good primer on the subject, even if it doesn't drill down quite to the level of detail needed to get the full picture. For instance, the paragraphs on propane dehydrogena-tion to propylene don't mention how de-pendent the process is on a cheap source of I
S H O R T T A K E S
The Daunting Quest
PHARMACOPOLITICS: Drug Regulation in the United States and Germany, by Arthur A. Daemmrich, University of North Carolina Press,
2004,203 pages, $34.95 (ISBN 0-
"Johnny's in the basement
Mixing up the medicine I'm on the pavement
Thinking 'bout the government" Bob Dylan
W hite Bob Dylan was no doubt commenting on America's "oth-er" drug problem in his 1965 song "Subterranean Homesick Blues," the theme of the relationship between the drugmaker, the patient, and the govern-ment is central to today's increasingly complex problem of ensuring the avail-ability of safe and affordable drugs. Arthur Daemmrich's "Pharmacopolitics: Drug Regulation in the United States and Ger-many" investigates this complex relation-ship of codependents as they face the daunting task of establishing a global in-frastructure for approving, pricing, and distributing new medicines.
As implied by the book's title, Daemm-rich contrasts developments in the U.S. and Germany in the 20th century in laying out the challenges of the current century. His comparison hinges on distinctively different definitions of the patient, as well as on differences in the relative impor-tance of physicians and government agencies in overseeing the drug approval process in the two countries.
Daemmrich, a policy analyst at the Chemical Heritage Foundation, argues
propane, an important aspect in under-standing the technology's viability
Also, the authors are rarely willing to go out on a limb with their theses. The con-clusion of Spitz's environmental essay is an example: "It therefore seems unlikely that the chemical industry will ever gain a real-ly warm place in the hearts of a certain part of the public," he writes, referring to envi-ronmental groups. That remark can be in-terpreted as ironic understatement, but in a literal reading, it leaves open the possi-bility of a social revolution where envi-ronmentalists adore chemical companies.
But giving a lot of controversial opin-
For Drug Policy that the German approach, informed in part by the dehumanizing aspects of Nazi Germany, defines the patient as an indi-vidual in need of guidance from a cadre of professional elitesthat is, physicians. The U.S., on the other hand, has tended to define the patient as a statistic in a regime of clinical testing aimed at verify-ing the safety of drugs before their re-lease to the public.
Steeped in the industrial reform senti-ments stirred by Upton Sinclair's "The Jungle," the U.S. approach was motivated by disastrous harm to patients as a result of the improper testing of a formulation of the anti-infection drug sulfanilamide in 1937, which led to hundreds of deaths. This incident and subsequent problems, including the rash of birth de-fects from use of thalidomide, resulted in the Food & Drug Administration wresting con-trol over testing from phar-maceutical companies and medical professionals.
Daemmrich argues that as the American Medical Associ-ation lost ground to govern-ment bureaucracy in the U.S., a less politicized regime was cultivated in Germany, where the medical profession has maintained certain forms of guild authority and what Daemmrich describes as "premodem" re-lationships of trust with the government, drugmakers, and the public.
In recent decades, the patient, repre-sented by advocacy groups such as the AIDS activist organization Act Up, has weighed in on the process of developing drug approval policy. The result, Daemm-rich says, has created a shifting battle-
ions and bold predictions isn't the pur-pose of the book, and Spitz writes as much in the concluding chapter: "There are no proven formulas for success, although it is hoped that this book has provided some ideas for new and creative thinking, as well as to identify outdated strategies that have not worked in the past and are even less likely to work in the future."This, indeed, "The Chemical Industry at the Millenni-um" accomplishes.
Alex Tullo is an associate editor reporting on the chemical industry from CirEN's Northeast News Bureau in Edison, N.J.
fielda kind of evolution toward the current realpolitik of "pharmacopolitics" in both countries.
In the 21st century, however, that bat-tlefield is global, and a formal process of worldwide harmonization is already under way. During the past 15 years, U.S., Euro-pean, and Japanese regulatory authori-ties and drugmakers have held a series of meetings called the International Confer-ence on Harmonization of Technical Re-quirements for Registration of Pharma-ceuticals for Human Use. The group hopes to develop a system whereby drug-makers will be able to submit a single electronic dossier on a new drug to regu-latory agencies in all three regions.
Daemmrich, however, contends that international efforts will have to progress beyond drug approval oversight to the is-sues of pricing and availability. Nowhere
is the need to do this more important than in the effort to get affordable AIDS drugs to poor countries where infec-tion has reached crisis pro-portions. And nowhere is the lack of global harmonization more evident than in the Bush Administration's hesitancy, despite its pledge of $15 bil-lion to fight AIDS in poor countries, to fund the devel-opment and distribution of
generic AIDS drugs, citing lack of ap-proval by FDA.
"Pharmacopolitics" lays out an enor-mous challenge in the need "to design working institutions for a polity of un-precedented size and diversity." Daemm-rich argues that success will require the establishment of transparent decision-making procedures that, above all, grant access to Dylan's man on the pavement the patient.-RICK MULLIN
46 C&EN / JUNE 21 , 2004 H T T P : / / W W W . C E N - O N L I N E . O R G
BOOKSCHEMICAL INDUSTRY'S LOST STATURE