1

GROUP ASSIGNMENT
MBA (International Business) 1
st
Semester






A
BRIEF REPORT
ON
CHEMICAL ENGINEERING INDUSTRY



Submitted to:
Dr. James Manalel
Associate Professor
School of Management Studies, CUSAT
2


Group Members

Nitish B(Roll No:36)
Neenu Kareem(Roll No:34)
Prabita P K(Roll No:38)
Preethi Ann Thomas(Roll No:40)
Reshma R(Roll No:42)
Rinoy Augustin(Roll No:44)
Sandeep Sadanandan(Roll No:46)
Sapna Ravindranath(Roll No:48)
Sree Shankar(Roll No: 50)








3

CONTENTS

Sl.No Topic Page No.
1 INTRODUCTION 4
2 HISTORY 6
3 PRESENT STATUS OF THE INDUSTRY 7
4 PROBLEMS AND ISSUES 12
4.1 INFRASTRUCTURE 13
4.2 POWER 14
4.3 AVAILABILITY AND PRICE OF INPUTS 15
4.4 ECONOMIES OF SCALE AND INTEGRATION 16
4.5 POLLUTION CONTROL MEASURES 17
4.6 THREAT FROM IMPORTS 18
4.7 TARIFF AND NON-TARIFF BARRIERS 18
5 SWOT ANALYSIS 19
6 FUTURE OUTLOOK 20
7 BIBLIOGRAPHY 21





4

INTRODUCTION:
The chemical industry comprises the companies that produce
industrial chemicals. Central to the modern world economy, it
converts raw materials (oil, natural gas, air, water, metals, and
minerals) into more than 70,000 different products. The chemical
industry includes large, medium, and small companies located
worldwide
The chemicals industry is one of the largest and internationally
most successful of European industries. Chemicals are typically
intermediate products and therefore innovation is highly
important, as it is for all downstream industries. Many chemicals
products thus require a high level of research and development.
Chemicals are also a capital-intensive industry and that has made
it appropriate for its production to be located in mature
industrialized countries. In the era of globalization and capital
mobility, however, this no longer holds for the manufacture of
commodities and, consequently, there is substantial foreign
investment in chemicals production in the booming markets of
Asia. Because commodities have a substantial share in the
product portfolio of the chemicals industry, the European industry
has to accelerate its pace of innovation to stay in the lead.
Economic policymakers currently face the challenge of providing
conditions that promote a more knowledge-driven industry with a
sound basis for production in Europe.



5

Definitions adopted for statistical economicpurposes vary from
country to country. Also the Standard International Trade
Classification, published by the United Nations, includes
explosives and pyrotechnic products as part of its chemicals
section. But the classification does not include the man-made
fibers, although the preparation of the raw materials for such
fibers is as chemical as any branch of manufacture could be.
The scope of the chemical industry is in part shaped by custom
rather than by logic. The petroleum industry is usually thought of
as separate from the chemical industry, for in the early days of the
petroleum industry in the 19th century crude oil was merely
subjected to a simple distillation treatment.
Modern petroleum industrial processes, however, bring about
chemical changes, and some of the products of a modern refinery
complex are chemicals by any definition. The term petrochemical
is used to describe these chemical operations, but, because they
are often carried out at the same plant as the primary distillation,
the distinction between petroleum industry and chemical industry
is difficult to maintain.
The boundaries of the chemical industry, then, are somewhat
confused. Its main raw materials are the fossil fuels (coal, natural
gas, and petroleum), air, water, salt, limestone, sulfur or an
equivalent, and some specialized raw materials for special
products, such as phosphates and the mineral fluorspar. The
chemical industry converts these raw materials into primary,
secondary, and tertiary products, a distinction based on the
remoteness of the product from the consumer, the primary being
remotest. The products are most often end products only as
regards the chemical industry itself; a chief characteristic of the
chemical industry is that its products nearly always require further
processing before reaching the ultimate consumer.
6

HISTORY:
History of Chemical Industry is something very important to
be discussed if one wants to get a vivid picture of world chemical
industry and its trends. Though for many years, the western
countries dominated the Global Chemical Industry, the first
chemical operations which signify the birth of chemical industry
took place in the Middle East long back in 7000 B.C. After them,
next were the Chinese people. The first large scale chemical
industry came into existence in the 19th century by a British
Entrepreneur.
Chemical Industry Evolution in India
Chemical industry is one of the oldest domestic
industries of India which started working soon after India's
independence in 1947. It was till 1991 that India was a closed
economy. However, after adoption of liberal policy in 1991
benefited most of the industries, including the chemical industry in
India. It has evolved from being a basic chemical producer to
becoming an innovative industry. Since then, the industry has
gained recognition in the global economy. Below are the first
factories of independent India.








7

PRESENT STATUS OF INDIAN
CHEMICAL INDUSTRY:
"India's chemical industry has a promising future and is expected
to see around 9-10 per cent growth annually to become 150
billion dollars market in terms of revenue by 2013.

"The main drivers propelling the growth include the lower cost
advantage, quality of talent, increasing and substantial domestic
demand, government focus in providing incentives, along with
improving infrastructure capabilities,"
The current market size of Indian chemical market is around 95
billion dollars, while the US remains the largest with revenue of
around 700 billion dollar at present.
Global chemical industry, consisting of petrochemicals, inorganic
compounds and speciality products and gases, generated around
three trillion dollar in sales in 2008.
"India has a great potential as currently the per capita
consumption of chemical products is just 1/10th of the world
average," he said.
During the period 2004-2008, the Indian chemicals market, with a
compounded annual growth rate of 16.7 per cent, was the second
fastest growing market after China, according to an earlier
Deloitte report.
The industry which boasts of corporate giants like BASF, Dow
Chemicals, Dupont among others has The Indian chemical
industry, currently valued at $ 108 billion, has been growing at a
robust rate. With manufacturing landscape shifting to Asia, India,
8

which currently accounts for only 3% share of the global chemical
market, has the potential to emerge as one of the major
destinations for chemical companies worldwide. But for this to
happen, industry will have to improve efficiency and adhere to
global environment & quality norms.

Sustainable development is critical to foster the growth of the
Indian chemical industry. It forms the central foundation for
responsible corporate governance, saidVipul Shah, Chairman,
CEO & President, Dow ChemicalInternationalPvt Ltd. He added,
Being an energy intensive industry, which touches various
aspects of human life every day, the Indian chemical industry
needs global, uniform standards in environmental administration.
For maximum impact, sustainability must be central to the
company strategy, engrained in the culture and embedded in the
reward structure. The organisation should be cognisant of where
the barriers are to delivering on the goals and where the strengths
are to build on.

As per the National Manufacturing Policy, the government aims to
increase the share of manufacturing in GDP to at least 25% by
2025 (from current 16%). To achieve this ambitious objective, the
Indian chemical industry will have to play a catalytic role.
The National Chemical Policy (NCP), which is currently under
preparation, stresses on the importance of research and
development, safety, sustainability and green chemicals.
Sustainable development - one of the mainstays of the policy -
focuses on four key areas - health, safety, quality and
environment. DrJoergStrassburger, Managing Director and
9

Country Representative, LANXESS India, Sustainability is crucial
in todays business as well as for the future and is no longer
obligatory or necessary only from a compliance point of view. It is
noticeable that the consumer is increasingly placing higher
importance on health, safety and environmental protection. This
clearly emphasises the need to build a business model centered
around sustainability.

India to emerge one of the major powerhouses in future, it will
have to optimally use the resources at hand without having
adverse effect on the environment. In such circumstances,
companies will be answerable not just to the Board of Directors,
but also to society. Reducing carbon footprint in the supply chain
will also be important mandate for the chemical manufacturers.


LanxessIndias DrStrassburger said, Companies in the chemical
industry need to be even more cautious and must behave
responsibly towards the people and environment because in
India, the industry has a negative image in this regard. Every
stage of the business right from procurement, production, storage,
distribution to disposal needs to be monitored, analysed and
audited for further improvement. This can be in terms of reducing
carbon footprint, reducing energy consumption, conserving
natural resources like water and minimising effluents and wastes
that are discharged. For achieving this, investment in technology
and focus on innovation is key. Companies could also subscribe
to global initiatives like Responsible Care (led by Indian Chemical
Council) to improve their safety, health and environmental (SHE)
aspects on an ongoing basis.

10

Taking full responsibility
While there is an agreement in the Indian chemicals industry that
manufacturers should act responsibly, experts feel that there is
the need to differentiate such responsible companies through
Responsible Care certification. The government should frame
policies to incentivise companies, who are complying and acting
responsibly, and not treat them at par with those who do not. With
sustainability as one of the focus areas of the National Chemical
Policy, it will encourage companies to seek Responsible Care
certification.

Chemicals, the growth enablers
Regulatory developments in the end-user industries are also
leading to adoption of green initiatives in the Indian chemical
industry. K Jayaraman, Executive Director (Operations
Consulting), PwC, India, said, Today, the customer awareness
on health consciousness and eco-friendly products has gone up.
Manufacturing companies are looking at specialty chemical
additives that help in improving the functionality of the product as
well as reduce the environmental load either by achieving the
same end product in minimum number of steps or consuming less
amount of chemicals than before.
In recent times, companies across the industries (such as textiles,
home & personal care, etc) are setting up their sustainability
goals. In such circumstances, specialty chemicals can play an
active role in helping them to achieve their sustainability goals.
Diane Kelly, Regional President for Dow Corning
India/ASEAN/ANZ, said, Sustainability is about more than just
11

being green on the surface. It is also about ensuring innovative
solutions are durable over the long term bringing huge
commercial gains to customers, as well as affordability to their
end consumers.

Indian chemical industry has begun the journey on the green path
and will have to pursue it with innovative solutions in future as
well to emerge winner on the global map.

The Indian chemical industry is expected to burgeon into a 150
billion dollar (about Rs 7.04 lakh crore) market by 2013, riding on
fast economic growth and strong domestic demand, global
consultancy Deloitte said.
faced tough times during the recession and the recovery is
comparatively slower in the developed countries like the US and
Europe.
In contrast, in Asia the recovery has been quite fast and stronger
than their global peers. This strong growth and huge domestic
demand is attracting global firms in expanding their presence in
the area.
Moreover, India has also got a rich source of talent and skilled
people which also makes it attractive for global firms.






12

PROBLEMS AND ISSUES IN
CHEMICAL
INDUSTRY(ISSUES&CHALLENGES):

The organic chemical industry in India faces numerous
challenges, which includes input availability and price, scale
and integration, power, and infrastructure to name a few.
The inbuilt cyclical trends observed in the industry intensify
to these challenges. Depending on the supply and demand-
side linkages, the severity of challenges differs across firms.
Given below are the challenges faced by the industry from a
collective perspective:

13


Infrastructure
Quality infrastructure is a key requisite for business and
trade, especially for manufacturing. Ports, roads, and water
supply are key for any industry. The time taken for clearing
import cargo and shipping export cargo is 21 days and 19
days in India, against 3 days and 5 days in Singapore mainly
due to stagnant capacity despite increasing traffic.
Even though India has the second-largest road network in
the world, improvement in the quality of roads has not kept
pace with growth in road traffic. The organic chemical
industry relies on tankers for transportation of bulk of its
products. Lack of good quality roads has affected
transportation of these products and has resulted in delays
and wastage of goods. Infrastructure bottlenecks in India are
holding back the average production of organic chemicals.
Thus, access to quality infrastructure is a challenge faced by
organic chemical manufacturers.
Power
Uninterrupted power supply is another key requirement for
efficient production. In case of power, supply has not
increased at the same rate as demand; hence, India is
experiencing major shortages. The crisis is aggravated by
the fact that transmission and distribution losses are much
above the accepted international average. Chemical
companies are investing in captive power plants to insulate
themselves from unplanned interruptions/stoppages in
production, due to unavailability or interrupted power
supply. Thus, ensuring adequate power for their plants is
14

also a challenge that confronts the organic chemical
industry.
Availability and Price of Inputs
There are three main inputs/feedstocks/raw materials
sources to produce chemicals, which are crude oil, natural
gas, and agricultural feedstocks. With incomes and living
standards rising across the world, the demand for food, fuel,
and energy has increased substantially in the past decade.
Moreover, limited availability of these sources has
exponentially driven up their prices. Usually, these
increases are passed down by refiners and distillers to
downstream users, which push up
their input prices.In India the government controls the
natural gas allocation for use in downstream industries.
Fertiliser units, extraction plants for production of LPG, and
power plants are the three sectors that have priority in this
regard. Usage of natural gas for the chemical industry does
not figure in this list; hence, availability of natural gas is a
challenge confronting producers of chemicals. The situation
remains the same with respect to inputs that are derived
from the agricultural sector.
Economies of Scale and Integration
In the commodity chemicals business, both size and
integration play a key role in keeping the costs of the
company minimum. Indian companies are smaller in size
and are less integrated compared to the leading global
players. Leading global players for organic chemicals are
huge and are well-integrated both ways.
Emphasis on Research and Development Research and
development (R&D) in the organic chemical industry
15

consists of process R&D and product R&D. Process R&D, in
addition to increasing the efficiency of the existing
manufacturing processes, also leads to discovery of better
and efficient processes. Product R&D in the industry
includes development of applications for the product in
order to diversify its demand. In addition, development of
new products also comes under product R&D.
Most of the patented process technologies to produce
organic chemicals are with foreign companies. Domestic
firms need to emphasis R&D on process technology on
scaling up such indigenous processes as well as other new
processes so as to achieve lower costs and larger scale.
Pollution Control Measures
Manufacturers of organic chemicals, particularly those from
the unorganised sector, to control costs do not fully adhere
to the pollution control measures, and release untreated
effluents and emissions into their surroundings. Such
effluents and emissions pollute the neighbourhood affecting
human health. With increasing environmental awareness
and activity among the general public, unorganised
manufacturers need to be better informed about pollution
control measures, as not adhering to them may put to halt
their production activities. On the other hand, treating
effluents and emissions should increase their operating
costs, which might render them uncompetitive. Thus,
adopting pollution control measures is a challenge faced by
the organic chemical industry in India.
Threat from Imports
In a scenario of lower import duties and overcapacity in the
global chemical industry, global players may prefer to
16

exploit economies of scale opportunities at their existing
facilities to serve the Indian market. Lower per unit
production cost of global players coupled with lower import
duties can make their imports competitive with respect to
domestic production. Moreover, during periods of lower
international prices, the trading community tends to see an
opportunity in importing and selling these chemicals in
India.
Tariff and Non-Tariff Barriers
India signed the WTO agreement in 1995 and completed its
commitments under the Uruguay round of talks in 2005.
India imposes anti-dumping and safeguard duties on
imports that are dumped or have consequences of serious
injury or threat to the domestic industry. India, especially in
the case of chemicals, has only tariff barrier and does not
impose any non-tariff barrier.
The EU, for example, has implemented a legislation called as
Registration, Evaluation and Authorisation of Chemicals
(REACH) that came into force from June 1, 2007. REACH
applies to all companies that do business with the EU,
located both in the Union and outside of it. Complying with
REACH will take a lot of time, effort and cost for
This will increase costs for Indian companies and improve
competitiveness of local companies in EU. Thus, REACH
has the potential to reduce organic chemical exports from
India to the EU. Companies cannot afford the option of not
complying as that would shut the European market for these
companies.
The US also has a Toxic Substances Control Act (TSCA) that
requires testing of chemicals coming into the US, if there is
17

insufficient data on the effects of all forms of contact with
the chemicals being imported. Thus, in the case of
chemicals having insufficient data, cost for exporting
companies will, as it has to furnish the necessary
information. Thus both the US and the EU impose a non-
tariff barrier on chemicals imported, which offers protection
to their domestic industry. Hence, non-tariff barriers at
market for exports from the country are a challenge faced by
the organic chemical industry.


SWOT ANALYSIS OF INDIAN
CHEMICAL INDUSTRY:
Strength:
A diversified manufacturing base
Vibrant downstream industries in different segments
Competitive core industries
Capability to produce world-class end products
Strong presence in some export market segments
Large Domestic Market
Raw Material Component Sources within the country
Good R&D base and quality human resources
Weakness:
A) General Handicaps:

Cost Of Power : Very High Cost and Poor quality of power
18

Cost Of Finance:Chemical Industry is highly capital-
intensive, cost of finace in India is very high.
Infrastructure :Infrastructure facilities are not of world
class.


Weakness:
Legacy of past policies of Industrialisation
Technology :Low Investment in R&D to be able to
sell value-added products and complete in developed
countries is absent
Cost Disadvantages :Locational disadvantages, such as
extra transport cost for raw materials as well as finished
products.
Scale of Production :Plant sizes are not comparable to
world-scale operations
Multiplicity of Taxes :Multiple levies(various taxes and
duties like sales tax, turnover tax, Octrol, service tax,
electricity duty and cross subsidies etc)
Opportunities:
Success stories in Dyes and Agro-Chemicals have boosted
the confidence to take on global competition squarely
The markets in the developed countries are opening up and
India can take advantage of this. A large number of products
are going off patent.
With the knowledge available in the country, there is a
tremendous potential to grow and increase exports in
Dyestuff and Agro-Chemicals market
19

India has the capacity for major value addition, being close
to Middle East. This is a relatively cheaper and abundant
source for petrochemicals feedstock
Threats:
Quantitative restrictions for imports have been removed
already.
Most of the chemicals are now in the Open General
List(OGL) of import.
Tariff levels in India for most chemicals are significantly
higher than in other countries manufacturing the
chemicals.
Pressure on the government to reduce these tariff levels.
Unless industry acquires competitiveness, it may face
extinction.
Competitive Advantage Of India:
Large domestic market for various sectors of chemicals
Long coast line and abundant availability of salt
Tropical region: facilitating open storage for bulk
chemicals
A developed financial market
A large English speaking population
Rapid growth in Information technology provides
competitive access to the rich European and American
Market.

20

FUTURE OUTLOOK OF THE
INDIAN CHEMICAL INDUSTRY:
The industry has initiated internal measures such as downsizing
labor force,
energy conservation, adopting of newer technology, better
management of
inventory etc. to make themselves internationally competitive. The
main reasons
for lack of new investments in this sector are uncertainty involved
in the
Government policies especially, delay in introducing VAT in all
States, reform in
power sector and rationalizing flexibility in labour laws. Other
countries enjoy
good infrastructure facilities besides permission for engaging
contract labour for
all non-core activities. Due to such factors, the Indian
entrepreneurs are
preferring to invest overseas (like Middle East, Thailand etc.) and
exporting thechemicals to India.

Efforts required on part of the industry
Indian companies also need to identify areas where they should
avoid
unnecessary undercutting on prices leading to low realization on
exports as
compared to prices offered by other countries. The following
issues are relevant
to be considered by the industry in this regard.
21

they have core competence. Industries need to create an online
information
pool to facilitate sourcing of Indian products by customers abroad
including
launching of a web site. Using the internet an exporter can get
some idea of
export markets, information regarding market potential, usage
pattern, demand,
latest prices, payment structure, etc.



BIBLIOGRAPHY:
http://chemicals.nic.in/Annual%20Report%202011-2012.pdf
https://www.google.co.in/?gws_rd=cr&ei=LsEuUrT4GoX_rAfbuYD
ABQ#q=growth+rate+of+indian+chemical+industry
http://www.india-exports.com/chemical.html
http://finance.yahoo.com/news/indian-chemical-industry-2012-
155700255.html
http://www.indianchemicalcouncil.com/images/spruce_speech_04
.jpg