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Chemicals: The North America innovation imperative

Customer demands and market volatility require innovation at North American chemical companies.

After decades of offshoring, many manufacturers have been bringing operations back to North America, and this “re-shoring” of industry spells opportunity for chemical companies in the region. But not every producer will be able to take advantage of this opportunity—and the winners will typically be those with the ability to innovate.

Innovation will be increasingly important because of the nature of the manufacturers that are involved in re-shoring. To a great extent, they are relatively sophisticated companies operating in value-added, demanding industries, such as aerospace and automotive.

These sophisticated North American companies will expect chemical suppliers to bring chemical product innovations that help them improve and differentiate their own products. Innovation in business processes and the supply chain will also be important. That’s because the industry’s customers will be looking for suppliers that help them increase flexibility and responsiveness, and reduce the costs of getting their products to market.

Meanwhile, many chemical companies in North America are adding a significant amount of capacity, and more than three-quarters of those expect to use that capacity to serve North American domestic markets1. However, it is clear that several chemical segments will go into oversupply in North America. As a result, competition will be strong and we are likely to see intense market-share battles in the next several years. With more and more of the market looking for innovation, chemical companies that don’t have this focus will likely come up short in those battles. Thus, many will be forced to accept lower prices based on limited domestic demand, or export to overseas markets—which offer lower netbacks due to shipping and other factors.

The impact of innovation can be seen in market projections for improved, value-added polyethylene products in North America. Using patent citations as a measure of technology innovation, Accenture research shows that, in 2020, about two-thirds2 of the polyethylene capacity online will be held by producers that have relatively strong process and product technology positions. That is, they have the ability to innovate and will thus be in a good position to become preferred suppliers to customers in the region. The capacity held by these potential innovators will be sufficient to meet the requirements of the entire North American market. The remaining one-third3 of chemical companies—the non-innovators—will likely have to compete on price and frequently rely on export markets.

Of course, these projections are a theoretical starting point. Nevertheless, for North American producers, the overall trend seems clear: Innovation, which has always been an important element in the chemical industry, is only going to become more critical in the near future—and beyond.

1 Baker, John, and Paul Bjacek. "Special Report: Shale Boom Brings Supply Chain Issues," ICIS Chemical Business, June 6, 2014,
2 Accenture Research analysis of data from Thomson Innovation (© Thomson Reuters 2014) and ICIS Consulting (capacity data).
3 Ibid.