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Research and Development: The Know-How Pinch

By Nick Basta, editor at large

ChemicalProcessing.com

Keywords: chemical processing, chemical engineering, process engineering and process manufacturing

Research and development is a chemical company's most valuable asset. In today's climate, companies must work harder to protect intellectual capital on an international level.

(Editor's Note: there are three figures that accompany this article that can be downloaded via the "Download Now" button at the bottom of the page)

Research and development efforts have been the lifeblood of the chemical industry almost since its creation. the intellectual capital underpinning new technology and products has provided a competitive edge for companies. Now, however, many firms are rethinking the emphasis of their R&D programs and how they can capitalize on their know-how.

the resulting review often winds up with intellectual capital as a revenue-generating business unit in its own right. More and more chemical companies are looking at licenses and royalties coming from intellectual capital as a significant source of funding for their R&D. &ldquoCompanies used to look at their patent portfolio as a highly competitive, very proprietary part of their business,” says Ben DuPont, president of a technology licensing business, yet2.com, Cambridge, Mass. &ldquoBut now they are more comfortable with looking at intellectual property as a way to keep close to customers and build markets.”

Nothing more dramatically demonstrates how this new view has emerged than the current scramble to get manufacturing assets and business ventures in place in China, a country whose protection of intellectual property (IP) is mixed, at best. Even though many business managers are aware of the IP risks of doing business with China, they are steaming ahead with an ambitious slate of projects, joint ventures and alliances. A similar picture emerges in India, the Middle East and other parts of the world with spotty IP protection. the American chemical industry is fighting for markets and profits globally and will do whatever it can to keep its businesses healthy today.

Meanwhile, new ways of doing chemical R&D hold the promise of a faster pace of discoveries. the maturation of combinatorial chemistry, which combines benchtop test tubes with high-powered computation of molecular features, has resulted in some significant breakthroughs, and many more are expected.
Getting technology to market also is becoming easier thanks to the Internet. Technology licensing services like yet2.com make IP a more saleable asset by allowing prospective sellers of know-how to broadcast their offerings to a much wider market.

Sustaining R&D
Data from the American Chemistry Council (ACC), Alexandria, Va., show the important role that companies continue to see for R&D (Table 1.) Even during the severe downturn in the early years of this decade, R&D fared reasonably well. Investment shrank only slightly in 2002 and quickly began rising again. Since then, it has climbed by $1 billion or more per year. ACC projects that it will reach $24.3 billion this year and $25.7 billion in 2006. these figures include pharmaceutical R&D, which dominates chemical-sector R&D by more than twofold. In the current year, pharmaceutical R&D will amount to $17.6 billion; other chemical R&D will total $6.7 billion, about a 4% gain from 2004&rsquos estimate of $6.445 billion, according to ACC&rsquos Annual Situation and Economic Outlook.

the ACC data also show that in the past few years R&D spending for product development has increased while funding for basic research has declined. In 2004, 60% of spending went to development and only 7% for basic research (Table 2.) Broadly speaking, basic research provides the strongest measure of new IP, but it is not really possible to neatly separate it from applied research and development. &ldquothe engine of innovation is still humming. Analysis of preliminary survey results suggests that nearly 14% of basic and specialty chemical company revenues are from new products and services, those developed within the last five years,” ACC reports.

&ldquoIntellectual property is an asset that we manage,” says Bruce Story, intellectual capital director for Dow Plastics, Midland, Mich. &ldquoWe look at our patents versus our investment in them, and we look at their return on investment.” Story notes that the trend in recent years has been to focus more on efforts to support customers rather than on inventing new products, although he is quick to say that Dow does both.

Customer support was part of the reason behind Dow&rsquos late January announcement of a new R&D center in China. Although the announcement was made in Shanghai, the actual location of the center has yet to be decided. the center will be operational within three years and will also handle certain internal information technology (IT) functions for the corporation. &ldquoThis center will bring us even closer to our customers and enable us to more effectively respond and deliver on their current and future business needs, both in China and the broader Asia Pacific region,” says Rich Myers, chair of Dow&rsquos internal R&D council.

Dow, of course, is not the only one investing in R&D in China. In November, Honeywell announced the establishment of a new plastics additives R&D center in Shanghai. Dow Corning, a 50-50 joint venture between Dow and Corning, says it will expand its Songjiang Application Center near its Shanghai manufacturing plant.

DuPont is about to open a corporate R&D facility in Shanghai built to accommodate 200 scientists; the project was announced in late 2003. the company calls the facility the third of its &ldquomajor” research facilities outside the United States; the others are in Switzerland and Japan. (DuPont has a total of 75 facilities conducting research and product development around the world.)