INDUSTRY INSIGHT

Evonik sees big opportunities for specialty chemicals in the Gulf region

The chemical industry in the GCC region is best known as a fast-growing producer of basic chemicals and plastics. Rapid expansion of the GCC petrochemical industry represents a major opportunity for the specialty chemicals business in the region, says Christian Kullmann, Chairman of the Executive Board at Evonik Industries AG, a leading specialty chemicals company.

“Specialty chemicals cater to various areas of the petrochemicals industry, which is pivotal not just in the Gulf region but the entire Middle East and North Africa [MENA],” Kullmann says. “We see that investments in the petrochemical sector are rising especially in UAE, Saudi Arabia, Oman, and Egypt. In my view, this will inevitably lead to a subsequent or even parallel development of closer links to the specialty chemicals sector, either as a supplier of auxiliaries or as a customer of petrochemical products. This development presents many collaboration opportunities between major players in MENA and key global industrial companies like Evonik that possess a wealth of know-how and innovation built over decades of operating in this business.”

Kullmann will make a presentation at the GPCA Annual Forum in Dubai entitled Growth and value creation through strategic portfolio development and M&A. He sees the Forum as a way to explore collaboration with GCC companies, which could boost Evonik’s business in the region.

“The GCC region has a rapidly developing petrochemicals sector that is tightly linked to the specialty chemicals industry since we can be both suppliers and customers,” he says. “Therefore, at Evonik, we are happy to look at all forms of collaboration that can foster our regional presence. Partnerships for existing businesses can also be an option. I am at the Forum because we are open for dialogue with key regional players.”

Evonik’s aspiration is to be a “best-in-class specialty chemicals company” and this requires constant portfolio management, says Kullmann. “We will actively manage our portfolio,” he says. “In fact, having a balanced portfolio is one of the three pillars of our strategy to achieve sustainable growth, with the other two being customer-centric, sustainable innovation and a results-focused corporate culture that’s based on trust. We plan to maintain a balanced portfolio, with acquisitions into more stable and higher-margin businesses and divestments of rather mature and capital-intensive businesses. All investments—organic and inorganic—will be focused on our four growth engines.”

Evonik’s focus on specialties is making the company stronger and more capable of delivering stable financial results, even in today’s challenging market environment. “Our strategy to sharpen our focus on specialty chemicals is designed to make us more resilient,” Kullmann says. “But we’re not immune to the economic environment—no chemicals company can be immune. Nevertheless, we have many businesses that are less cyclical, like our solutions for the health-care or personal-care industries. Important milestones for becoming more resilient were the acquisitions of the specialty additives business of Air Products and the silica business of Huber. The sale of the cyclical Methacrylates business to Advent in July was another major step.”

Evonik’s innovation pipeline is also making the company more robust. “In 2018, we had a €250-million sales contribution from new products that have been developed since 2015 in our six innovation growth fields—Sustainable Nutrition, Healthcare Solutions, Advanced Food Ingredients, Membranes, Cosmetic Solutions, and Additive Manufacturing—which mainly serve resilient end-markets,” Kullmann says. “These include promising projects like the production of omega-3 fatty acids for sustainable nutrition of salmon in our joint venture Veramaris together with DSM, or our PA12 powder to serve the attractive additive manufacturing market.”

Evonik recently published its vision for the future of specialty chemicals, based on scenario planning by the company’s scientists. The company plans to use the exercise to fine-tune its innovation programs in the years ahead.

“The project revolved around answering one key question: Which major forces could have a long-term impact on specialty chemicals companies? A comprehensive process of data gathering and analyses brought us to five scenarios that could develop between now and 2040,” Kullmann says. “Of course, we cannot accurately predict the future, but this study gives Evonik a realistic glimpse into it, and it presents a great tool that the company can use to build and adjust strategies in the medium- and long term.”

Evonik has already begun to use the results of the scenario project for the company’s innovation processes and strategies, by initiating discussions on the impacts of the scenarios on issues such as the innovative environment, business models, customer expectations, working conditions, and material flows. “The study offers Evonik a wealth of information and insights, and opens the door to more innovation,” Kullmann says.

Evonik is also a pace-setter in the ongoing digital transformation, having set aside a big investment budget for digitalization and announced partnerships with IT companies and academic institutions. The company is weaving digitalization into operations across the entirety of its businesses.

“Digitalization is changing business, politics, and society,” Kullmann says. “We see ourselves as a pioneer of digitalization in the chemical industry. Our holistic approach helps Evonik explore opportunities in developing new digital business models and adapting existing processes to the current digital world. This is why we use digitalization in many areas within the company including R&D, marketing, production, supply chain and administration. In terms of sales and marketing, we have definitely taken the initial steps into the world of e-commerce with three on-line platforms already rolled out in the past two years.  Moreover, we are currently developing artificial-intelligence-based approaches to enhance or even enable the remote interaction with our customers on a technical level.”

A successful digital-tranformation program represents a cultural change for any company, and Evonik sees digitalization as fundamentally altering the way the company operates. “I would stress that we don’t view digitalization as a separate program, rather an approach that is integrated within various functions in the organization,” Kullmann says. “It is an approach to doing business that helps us to be more innovative and maintain our competitive edge in the long term.”