Forthcoming study:
Chemicals, rubber and plastics
This study by the Sectoral e-Business Watch is expected for June
2008.
Rationale
The chemical, rubber and plastics (CRP) industries are an economically
important sector, accounting for about 14% of industrial value added
and providing jobs for about 3.6 million people in the EU-25.
e-Business W@tch covered the CRP sector in its surveys of 2002 and 2003, but not in the more recent surveys of 2005 and 2006.
Several sector studies conducted in 2005 and 2006 have shown that e-business has quite dynamically developed in manufacturing industries which can – to some extent – be compared to the CRP industry in recent years. For example, the studies on machinery and equipment (2005) and on the pulp & paper industry (2006) showed that e-business has significant impact on business processes in the value chain. In these industries, improvements in supply chain management are directly linked with customer service objectives. Particularly in manufacturing sectors which produce 'commodities' with little potential for differentiation on the basis of quality (e.g. certain paper grades, basic chemicals), the level of customer service becomes the key determinant of competitiveness – next to price – in international competition. e-Business is critical in this context.
It is likely that similar developments have also occurred and gained momentum in the CRP industry since the sector was last covered by e-Business W@tch. We propose to assess the dynamics of the development and their impact on firms in a new sector study.
Research objectives
As the chemical industry is a mature sector, we expect that ICT and e-business have their main impact on business processes within and between companies in the way described above. ICT will probably not have a fundamental impact on industry structure as a whole (at least not as much as in tourism, banking and ICT services). However, an effect on business models in terms of how companies service their customers is possible.
Based on these assumptions, and on findings in earlier studies conducted on the CRP industries, the following overall research questions are proposed for guiding the work in 2007:
- Dynamics of adoption: Has there been a dynamic adoption of ICT and e-business in the period since 2003/04?
- Key applications: What are key e-business application areas in the chemical industry? Which technologies are typically used by companies? Is there a fit between demand and supply of e-business solutions in the market?
- Digital divide as a bottleneck: How pronounced is the digital divide between large players and their small suppliers and customers, in comparison to other manufacturing sectors? Does this divide slow down network effects?
- Role of e-business intermediaries: What is the role of intermediaries (such as trading platforms or connectivity hubs) in this industry? What is their impact on e-business adoption in comparison to other sectors?
- Impact on firm performance: What is the impact of ICT on employment, productivity and firm performance in this industry, in comparison to other sectors?
- Impact on international competition: Is there a link between e-business developments and international competition?
Sector definition
The "combined chemical industries" are defined for the purpose of the study as those business activities described by NACE Rev. 1.1 Divisions 24 and 25:
- The manufacture of chemicals, chemical products and man-made fibres (NACE Rev. 1.1 24) and
- the manufacture of rubber and plastic products (NACE Rev. 1.1 25).
This combined sector covers quite diverse business activities. The respective NACE Rev. 2 Groups and their correspondence in NACE Rev. 1.1 is shown in the table below. The names of business activities refer to NACE Rev. 2.
Business activities covered by the sector study
NACE
Rev. 2 |
NACE
Rev. 1.1 (Proxy) |
Business activity:
The manufacture of … |
| 20 |
DG 24 |
Chemicals, chemical products and man-made fibres |
| 20.1 |
24.1 |
Basic chemicals, fertilizers and nitrogen compounds, plastics and synthetic rubber in primary forms |
| 20.2 |
24.2 |
Pesticides and other agro-chemical products |
| 20.3 |
24.3 |
Paints, varnishes and similar coatings, printing inks and mastics |
| 20.4 |
24.5 |
Soap and detergents, cleaning and polishing preparations, perfumes and toilet preparations |
| 20.5 |
24.6 |
Other chemical products |
| 20.6 |
24.7 |
Chemical fibres |
| 22 |
DH 25 |
Rubber and plastic products |
| 22.1 |
25.1 |
Rubber products |
| 22.2 |
25.2 |
Plastic products |
This excludes the manufacture of pharmaceuticals, which used to be NACE Rev. 1.1 24.4 and has now become a distinct Division in NACE Rev. 2 (Division 21). The pharmaceutical industry was specifically covered by an e-Business W@tch sector
study in 2005; the change in the NACE classification confirms the special
characteristics of this sector within the broader cluster of the chemical
industries, for example with regard to the different customer segments
and the highly important role of R&D in pre-production phases. We
therefore propose not to include the pharmaceutical industry it in this
study.
Otherwise, there have been only minor changes in the NACE classifications from Rev. 1.1 to Rev. 2 (in some of the Groups), which are hardly relevant for the study of e-business. This demonstrates that the chemical sectors are a highly mature industry with stable product categories and players.
Data sources
The following sources will be used for collecting data and evidence on e-business adoption:
- Eurostat Community survey on ICT usage in enterprises: results of the Eurostat survey are the main source for the analysis of ICT adoption.
- Case studies: 10 case studies on e-business adoption in companies from the sectors covered will be conducted. A balance mix of cases in terms of countries, business activities (sub-sectors), and company size-bands is to be achieved. Case studies will be selected according to the topics in focus .
- Interviews: In addition to the interviews conducted with firm representatives as part of the case study work, we will conduct in-depth interviews with further company representatives and industry experts. This could include Advisory Board members from the industry and members of industry federations.
- Industry federations: Annual reports and position papers of industry federations, such as
When using results of the Eurostat Community survey on ICT usage in enterprises (2006), it must be considered that the NACE aggregation used by Eurostat deviates in two ways from the definition proposed for the study. The Eurostat NACE break-down includes the following business activities which are not covered by the study:
- NACE Rev. 1.1 23: Manufacture of coke, refined petroleum products & nuclear fuel
- NACE Rev. 1.1 24.4: Manufacture of pharmaceuticals, medicinal chemicals and botanical products
However, it can be argued that this deviation may not critically affect the validity of the data for the sector as defined for the study for two reasons: first, the two sub-sectors only represent a small percentage of enterprises from the combined chemical industry; second, there is evidence that sub-sectors are quite similar in their use of e-business.
Percentage of enterprises from sectors excluded:
- The pharmaceuticals industry accounts for about 16% of employment in the combined chemical industries (NACE Rev. 1.1 24+25), but 'only' for about 5% of all enterprises in this aggregated sector .
Since Eurostat results are weighted according to the number of enterprises in a sector, it can be assumed that the results for the pharmaceuticals industry will not have a major impact on aggregate figures.
- The same argument applies to NACE Rev. 1.1 23, (coke, refined petroleum products & nuclear fuel). There were 'only' about 550 enterprises with at least 10 employees in the EU-25 in 2003, compared to about 12,500 in NACE 24 and about 23,000 in NACE 25.
Thus, whether this industry is included or not has probably minor effects on the aggregate data.
- Similarity of e-business activity in different sub-sectors: In the e-Business W@tch sector study on the combined chemical industries of 2004, a special analysis was made whether e-business activity in the chemical industry differs from the rubber and plastics industry. The study concluded that "… the diffusion of technologies and applications is very similar in these two sectors, in spite of the structural differences outlined …" It has been confirmed by other sector studies (e.g. for the pulp and paper industry) that e-business activity in related manufacturing sectors is quite similar.
For the definition of key issues to be studied, it is possible to adopt a more focused approach, e.g. to focus on issues mainly from the perspective of the chemical industry (NACE Rev. 2 – 20).
Specific topics to be studied
The following suggestion of research topics is derived from earlier findings on the CRP industry, as well as more recent ones on 'similar' manufacturing sectors. It is a preliminary collection of ideas, for discussion with DG ENTR and industry.
- ICT as a driver of process efficiency. Improving the efficiency of production and supply chain processes is a main objective in all manufacturing sectors. However, depending on the structure and characteristics of supply chain processes, the potential for improvement will not be the same for all players involved. The study will assess the impact of ICT on business processes in the value networks of CPR companies, analyse the driving forces and conclude on the major potential for innovation (also in terms of winners vs. losers).
- ICT potential for customer service. The study of 2004 concluded that ICT presented opportunities for "innovative, better focused marketing approaches to reach new customers" (Aug. 2004, Section 3.1, p. 60.), but raised this as a question mark, arguing that the respective opportunities "… were not yet exploited" (ibid.). As argued in the introduction to this exposé, customer service has become a new focus of e-business activity in manufacturing recently. It should be investigated to what extent this trend also applies to the CPR industry. Case studies could be used to assess the impact of ICT in this area.
- Impact on international competition issues. The study will pay special attention to the international dimension of competition in the CPR industry, notably between European companies and their North American and Asian competitors. It will be assessed whether e-business developments have an impact on rivalry in the market (e.g. by increasing price transparency) and whether they facilitate market expansion.
- Use of e-standards. Chemical industries are in a preferred position to benefit from standardisation since many of the products traded can easily be categorised in e-catalogues. The study of 2004 analysed the latest Chem eStandards achievements and discussed their importance for supply chain processes. A case study on BASF showed how a large chemical company successfully used Chem eStandards as part of their strategic e-business implementation. We suggest to review and update the analysis of e-standards use in the CPR industry.
- Intermediaries: B2B connectivity hubs. The study of 2004 found that many e-marketplaces established around 1999/2000 had failed, but that a 'revised model' of marketplaces had emerged in the forms of B2B connectivity hubs, such as Elemica and ChemConnect. These service providers offer integration platforms and thus support the collaboration of companies along the supply chain. The study will assess the development since then and analyse the impact on business process efficiency in the sector. Comparisons to the situation in other manufacturing industries will be made.
- Deployment and implications of RFID technology. e-Business W@tch found that RFID solutions are increasingly used by large companies in supply chain intensive sectors. RFID was already an issue in the study on the pharmaceutical industry (2005). The deployment and impact in the CPR sector could be investigated. Links with a possible Topic Report on RFID would have to be defined to avoid redundancies.
All these specific topics are linked to the overall theme of ICT and e-business impact. It is proposed to address impacts in two ways: first, by employing analytical statistics, to the extent that this can be made on the basis of aggregated data. The model, including research questions for this work, is to be developed during the inception phase. Second, the assessment of ICT impact will be made on the basis of the research on the above issues. This assessment will link to the findings form analytical work with the data, which can then be used to confirm or challenge conclusions that are drawn from the empirical evidence of case studies and interviews.
References to the sub-sectors
