Chemical reaction

ALONG the west bank of the Rhine, south of Frankfurt, cormorants and herons frolic as barges moor at Ludwigshafen. Here the world’s largest chemical park stretches out over ten square kilometres. Streets such as Chlor-, Ammoniak- and Methanolstrasse are shaded by 2,850 kilometres of pipes that connect everything like arteries; red is for steam, yellow for gas, green for water. The saying goes that most Westerners touch at least one product from a BASF site before leaving home.

It is the world’s largest chemical company, and one of Europe’s largest manufacturers. Because it sells chemicals and chemical products to other companies, such as BMW, Nestle and Procter & Gamble, BASF is little known to consumers. It isn’t one for blowing its own trumpet. “We will try our best to remain spectacularly unspectacular for the media,” said Kurt Bock, the CEO, at last year’s 150th anniversary. But BASF repays attention for two reasons: the sheer impact of what it does, given its size, and its systematic approach to innovation.

Big and bold

The two go together. Mr Bock thinks size helps it make big bets on long-term innovation, which he calls an “increasingly lonely activity”. Last year the company spent nearly €2 billion ($2.2 billion) on R&D—its revenues last year were €70.4 billion—and devoted 10,000 employees to coming up with new ideas. It generated 1,000 patents, a typical number in any given year.

BASF’s most celebrated breakthrough was its discovery in 1913 of a way to mass-produce fertiliser, which helped eliminate mass hunger. The real innovation of this “Haber-Bosch process”, named after the two scientists who won Nobel prizes for it, was not converting nitrogen and hydrogen into ammonia, but doing so on an industrial scale. Subsequent inventions have ranged from the tape in cassettes (1935) to an aroma called citronellal (1982) to drought-tolerant corn (2013). The new Adidas Boost, a running shoe that promises extra bounce using “energy capsules”, relies on a BASF invention.

The firm’s next big bet is on electric cars. Some 200 metres from where Mr Bosch (of fertiliser fame) made his breakthrough, Marina Safont Sempere, a young chemist from Spain, is working on what could be another. Her team is working on next-generation battery materials. Today, she explains, electric cars typically contain 50 big, heavy batteries, which weigh them down, take up space and run out after 150km-200km. BASF hopes to create a powder that packs more energy into less space, weighs less and comes at a lower cost. Such investments are partly a bet on the future, partly a hedge on current revenues tied to the combustion engine.

One tested strategy for BASF is trying to anticipate exactly how future markets will develop. As the middle classes grow, for example, sales of dishwashers and dishwasher tablets are booming. But phosphate, which removes scale, will be banned in the EU from January. Scientists at BASF started thinking about this over 20 years ago and worked on Trilon M, a chemical that performs as well as phosphate but is biodegradable.

Its approach is founded on an extensive network. It works with 600 universities, research institutes and companies, and has its own venture-capital outfit. It seeks out joint ventures and makes small strategic acquisitions, such as the recent purchase of Verenium ($62m), an enzyme-research company. It also increasingly works in partnership with customers, as an inventor-for-hire, on whatever they need (non-sticky sunscreen, carbon-free packaging, lighter cars), marking an expansion to downstream and service provision.

Some of BASF’s customers increasingly request help to meet their environmental goals, although the company acknowledges that there are many clients for whom this is a much lower priority. It is a dilemma for the chemicals industry whether or not to shift more quickly to sustainable production than clients actually demand. The firm claims that by now, 27% of its products contribute in some way to “sustainability”, a figure that it wants to increase. Its Verbund principle, a system whereby it recycles waste products—for example, by selling excess carbon to the beverage industry—is good for profits. It saves some €1 billion a year from such processes.

Another feature is BASF’s habit of quickly shedding businesses when new iterations no longer pay off. This happened in the textile-chemicals business, and in parts of the paper-chemicals industry, when customers told it that there was no need for further product refinements. Similarly, it got out of fertilisers, caffeine and standard plastics because they all became too commoditised, making it hard to compete.

Steady as she goes

Discipline has some drawbacks. Stockmarket analysts like BASF’s vertically-integrated structure—it owns most of its supply chain—and its strong focus on innovation. Its share price has risen over the past decade. But the firm’s methodical approach to acquisitions could also work against it.

On September 14th Monsanto, the world’s biggest seed producer, accepted a takeover by Bayer, a German drugs and chemicals giant, worth $66 billion (€59 billion). Amid a wave of consolidation in the agribusiness industry, says Lutz Grueten of Commerzbank, BASF could be left behind because it does not possess its own seeds business and has instead relied on partnerships, including with Monsanto. It is unclear whether this contract will be renewed. BASF emphasises that it is serious about its crop-protection business, that it has €6 billion in sales and that it devotes 26% of its R&D to agribusiness. The firm will be on the lookout for anything coming onto the market as a consequence of the Bayer-Monsanto deal.

Another worry for Mr Bock is a zeal for regulation on the part of European governments. The continent’s approach to scientific testing is becoming too cautious compared to that of America, he reckons. A current debate over research on, and use of, endocrine-disrupting chemicals (substances that can have harmful effects on the body’s hormone system) is one example. But Mr Bock is optimistic about his industry’s ability to help solve mankind’s problems as a silent enabler of progress. He apologises for sounding pompous, but promises that “if you want to improve the state of the world, chemistry can really help.”