Keeping pace with global change

The pharmaceutical and chemical industry is an important economic factor for Switzerland. According to the Scienceindustries trade association, this sector employs around 70,000 people and accounts for the largest share of exports, 45 percent. Half of these exports go to the EU. Accordingly, the pharmaceutical and chemical industry is heavily exposed to developments in international trade. And these currently pose a number of challenges:

• Switzerland's framework agreement with the EU is on ice. This situation is causing uncertainty among many export-oriented companies - not only in the industry in question. Scienceindustries is in favour of the framework agreement in principle, as the industry expects it to lead to more efficient application of agreements that ensure market access for pharmaceutical and chemical products in the EU.
• Trade disputes between China and the US make access to global markets more difficult, especially since the World Trade Organization (WTO) is blocked by the unilateral interests of major economic powers. For example, the WTO arbitration court, which actually functions as an instrument for resolving trade disputes, is currently not functioning due to vacancies.
• As representatives of an innovation-driven industry, pharmaceutical and chemical companies are dependent on the protection of intellectual property - especially when it comes to opening up markets in regions of the world that have so far been little "ploughed". Although industry associations such as Scienceindustries welcome the conclusion of new free trade agreements, for example with the Mercosur countries, it is important that the agreements on the protection of intellectual property rights are explicitly enshrined in the world trade order (TRIPS protection standards).

Too strong a view of risks

In addition to the challenges in exports, the industry is also facing headwinds on other fronts. In an article in the magazine "CHEManager", Matthias Leuenberger, President of Scienceindustries, identified a "crumbling acceptance of scientific findings" in society. For an industry that contributes almost 40 percent of the expenditure on research and development in Switzerland - in 2018 this was 6 billion Swiss francs after all - this is of course a regrettable observation. Leuenberger is bothered by one point in particular: too much is said about the risks and dangers of new technologies, but less about the benefits and opportunities. "A general zero-risk attitude is the death of all progress," Leuenberger says in the aforementioned journal article. The need for research into new active substances can be seen, for example, in the area of crop protection: for several years now, environmental and consumer protection organisations have been calling for a ban on the herbicide glyphosate, as it is said to be carcinogenic. The EU has therefore granted approval only once more until 2023. Switzerland, on the other hand, has so far refrained from imposing a ban. Nevertheless, the first major distributors have removed products containing glyphosate from their ranges, and large users such as the Swiss Federal Railways (SBB) are looking for alternatives to this weedkiller, which is widely used around the world. But this search is proving difficult; alternatives with a comparable degree of effectiveness do not yet seem to exist. A great deal of research is therefore now required to ensure that gentler and more sustainable active substances can be developed in the future. However, this will take time and investment - factors which, unfortunately, are often neglected in political initiatives based on buzzwords ...

Sustainability: A big issue

In the course of the climate debate, the ecological consequences of unsustainable business are also increasingly coming into focus. And this also affects the chemical and pharmaceutical industry in particular, as it is well known that it works with raw materials and products that can pose a risk to people and the environment. The issue of sustainability is not new to the industry. The global "Responsible Care" initiative, which aims to ensure the safe handling of chemical-pharmaceutical products and raw materials, has been in existence since 1985. In Switzerland, 90 percent of the companies affiliated to the Scienceindustries industry association have signed this charter. The reduction of CO2 emissions is also a goal of the industry. But here too, this cannot be achieved without investment and further research into more environmentally friendly processes. In addition, CO2 emissions cannot be eliminated everywhere. The industry is therefore calling for emissions trading that is as flexible as possible.

Environmental policy creates economic headwind

Change and sustainability are arguably the most important buzzwords not only for the Swiss but also for the global chemical industry. This, at least, is the view of a 2019 global survey of chemical company CEOs conducted by PwC. 90 percent of the companies surveyed were extremely satisfied given their current economic situation, but their long-term forecasts were far less optimistic: The slowdown in global economic growth and strained trade relations were seen there - as mentioned at the beginning - as causes. According to PwC's assessment, more and more chemical companies see falling demand from the automotive industry in particular as a harbinger of a "hard landing". From a global perspective, "sustainability trends" are also causing additional headwinds in the industry: substitution of raw materials, which are becoming increasingly scarce, the move away from fossil raw materials and the avoidance of waste are high on the worry barometer of the global chemical industry. The latter is naturally a particular focus of the current climate debate. It will therefore be decisive how chemical companies face up to these challenges. Increased regulation is to be expected, and those who do not take measures in this area are likely to find it increasingly difficult in the market.

A departure from traditional strategies is necessary

Strategy& (formerly Booz & Company), also part of the PwC network, observes the following "classic " approach in the chemicals sector: Investing in growth by spending more on research and development, establishing a regional presence in new markets, and re-launching improvement programs aimed at portfolio streamlining, improved plant productivity, optimizing value chains, and streamlining the organization. Despite these efforts, the hoped-for result often fails to materialize, namely sustainable profitable growth of the existing business, according to an industry analysis published in 2015. "To thrive in a changed environment, chemical companies need to forge new paths. This includes rethinking business models, focusing on competitive advantages in emerging markets, redefining innovation, and harnessing the potential of digital technologies," the strategy consultants therefore recommend. To equate innovation with the development of new products probably falls short here. "Innovation success is increasingly defined by the ability to develop tailored customer solutions," they continue. In concrete terms, this means for companies:

• a rigorous focus on customer industries ("market back")
• Focus on competition and "time to market ", as many companies concentrate on the same thematic areas
• Incorporation of new business models that complement incremental product improvements
• Thinking in terms of "innovation roadmaps", linked to portfolio/lifecycle management
• Innovation networks for new offerings beyond chemistry, completely new products or value chains, etc.
• Sustainability as an innovation driver and trend-setting criterion.

Digitization as an opportunity

Last but not least, digitalization also offers new opportunities for the chemical and pharmaceutical industries. A large proportion of companies seem to have already recognized this and are clearly committed to the developments of Industry 4.0. According to Strategy&, the process industry expects the level of digitalization to increase to 77 percent in 2020 (see Figure 2). This is because production and delivery processes can be increasingly digitized, thereby increasing efficiency. The drivers of this development are not least the various manufacturers of ERP software. Rob Sinfield, Vice President Enterprise Management at the software manufacturer Sage, can be quoted as follows: "Industry 4.0 is changing the way companies work and offers enormous opportunities, but also increasing complexity. Our objective is to help our customers to consistently exploit the potential of Industry 4.0 - and to do so with software that not only has a greater range of functional options and can manage company processes more efficiently, but also maps application-specific features in detail. "Ultimately, the beneficiaries of greater efficiency are not only the companies in the pharmaceutical and chemical industry, but also their customers - and not least ourselves. After all, the chemical and pharmaceutical industry makes a major contribution to our high standard of living.