The Chemical Industry at the Millenium: Maturity, Restructuring, and Globalization (review)

Peter Spitz's new book is a continuation of his earlier work, Petrochemicals: The Rise of an Industry (1988), which detailed the development of the modern chemical industry beginning in the 1930s. The Chemical Industry at the Millennium picks up the story at the end of the 1970s and examines the momentous changes that have taken place in the last twenty-five years. Subtitled Maturity, Restructuring, and Globalization, this is an excellent collection of essays by industry practitioners, and as such it offers valuable insights into the state of the international industry at the start of the third millennium.

The twentieth century was the chemical century, but even as it reached its final decades the extraordinary dynamic of chemical invention began to slow, a process that was also reflected in the changing fortunes of the chemical industry. Despite its vast size—in 2001 it had a U.S. market capitalization of $215 billion—it is an industry facing enormous problems. Spitz, founder of the consulting firm Chem Systems, outlines some of these difficulties: more intensive competition, globalization, and environmental issues, the last being an area where the industry has traditionally had a poor public reputation. The paradox is that the chemical industry is best placed to be at the forefront of environmental protection, provided it has the will.

Each article concentrates on a different aspect or sector of the industry, with useful work on speciality chemicals by Andrew Boconne (Kline & Co.) and on the changing role of information technology in the chemical industry's organization by David Crow (head of the global chemicals division at Accenture). There are good chapters on "Strategy Development" by Michael Eckstut and "Petrochemical Technology" by Jeffery Plotkin. There is an informative section on the role of finance, especially the leveraged buy out (LBO) and the use of stock options to increase managers' loyalty, by John Roberts, formerly of Merrill Lynch. Spitz himself writes powerfully on the prospects for the industry's relationship with the environment; while he notes its many positive initiatives such as the "Responsible Care Program," he also recognizes that the industry will never be beloved by some sections of the community. Moreover, he points out a key aspect of environmental concern that often is lost on observers: Each society has very different cultural, economic, and political perspectives, which militate against achieving consensus on any issue. The Kyoto Protocol is an obvious case where these differences, even including different perceptions of the science itself, play out in a public arena confused by radically conflicting agendas.

Spitz also reviews the relentless consolidation and cyclicality that has beset the industry since the end of the 1970s. He sees that, in contrast to the sustained growth of the 1950s and 1960s, today's market environment is harsher, with booms shorter and busts longer. Spitz clearly is exasperated by the industry's habit of continuously building excess capacity in periods of prosperity only to see it become idle and wasted when the inevitable downturn comes. It is, he says, "a feature of the industry's somewhat ambiguous maturity," where executives are too quick to rely on nostalgia for yesterday's robust demand and unwilling to grasp current market realities. Spitz also spells out in no uncertain terms the key feature of the last two decades: "what was once largely a regional trade with some global participation by multinationals has now become a truly global industry."

What then are these developments? Spitz identifies four main areas of rapid change. Each is closely interrelated and suggests an irreversible dynamic, which companies must master if they are to survive in a more complex commercial environment. First, while demand in newly industrializing countries has increased, it has declined relatively in the industrial world. Second, countries with low-cost feedstocks, particularly the Middle East, have economic advantages in overall production costs. This was especially true in the mid-1990s, when crude oil prices...