Start-ups and Spin-offs — are Major Companies Going Extinct?

The corporate structure of our sector today is defined by a few big companies, gigantic production facilities with a high degree of specialization, and access to sources of raw materials such as oil and gas deposits and mines. The transition to cyclical raw material use and recycling processes, as well as the use of locally sourced energy and raw material components, are creating an entirely new business environment. As a result, the size and cost advantages of large facilities are disappearing. The key drivers of this development include the consumers’ increasing desire for more transparent production and supply chains, so that a product’s journey can be traced more accurately. In parallel, producers’ and suppliers’ technical capacity to create this transparency is also growing.

Until today, the strategic considerations of the chemical industry have been dominated by familiar chemical processes and product attributes. However, the decline of prices for computing and communication services is leading to increasingly affordable programs for modeling. There has been a similar decline in the prices for the analysis and synthesis of nucleic acids, and an enormous increase of the capacity of biological methods. This is opening up a multitude of new opportunities for synthetic biology. The convergence of these two developments could lead to a situation where even complex chemical products will be produced decentrally in the future. Large production facilities with long transport routes may be replaced by small decentralized units that produce specific products as needed, using local starting products. The only thing to be transported would be the information that defines the production processes. And the costs of this transportation would be practically zero. That would create a cost structure like the one that already exists in the world of the Internet and IT technology.

Chemical products will always remain important ingredients. But if the chemical industry continues to encounter new developments as passively as it has done so far, it runs the risk of losing its significance as an industry and retreating into the role of a supplier and provider of service functions. This development will be likely if other industrial sectors continue to push their way into the chemical industry’s traditional areas of business, and if the chemical industry is no longer presented in social contexts and education as an independent discipline but rather as a contributing concept that has only subordinate importance.

If that happens, chemical companies would also become less attractive employers on the labor market. Young professionals now have a multitude of opportunities to shape their future. They can choose to become employees in a large company or to take a bold step and start their own business. The obstacles to entrepreneurship are much lower than they were 20 years ago, and access to capital is easier—for example, through crowdfunding or as a spinoff from a university. The most innovative and motivated young talents are more strongly attracted to entrepreneurship than are university graduates with rather average degrees. As a result, major companies are facing the challenge of either developing attractive job offers or having to recruit employees from a shallower pool of talent. Innovative approaches for major companies might include enabling greater participation for their employees—in other words, enabling employees to more quickly become shareholders of the company they work for.

The transformation of the world of the 20th century—which was characterized by major companies, massive marketing expenditure, and long-term investment planning—into a new world that is still undefined in many areas is both challenging and exciting. This new world is one in which critical customers have considerable influence on the structure of supply chains, with network-based opinion-making and low capital costs. All of the attempts made by major companies—including companies in the established chemical industry—to maintain the status quo as long as possible are not a promising way to deal with this fundamental transformation. Instead, what we need is much more openness to new ideas and the courage to entrust entrepreneurially minded young managers with greater responsibility for shaping this future.