INDUSTRY £ BUSINESS
Companies tighten squeeze on R&D budgets Adjusted for inflation, R&D spending this year in the chemical industry will drop to 1960 level Testing and hard times will likely con tinue to be the lot of research and de velopment departments in the basic chemical industry in 1971. Although a few companies see light far down the tunnel, most plan stiff control over R&D funds and goals this year. The reasons range from poor sales growth last year to management's scrutiny of both objectives and cost control in R&D. In a survey of companies that com bined spend 90% of all R&D money in the chemical industry, C&EN finds that planned R&D budgets for 1971 show no growth over funds actually spent in 1970. This is the first zero-
growth year for chemical Rod) in at least a decade. This outlook leaves R&D depart ments vulnerable to further ravages from inflation. Using rough inflation estimates supplied by Battelle Memo rial Institute in Columbus, Ohio, C&EN calculates that real (noninflated) R&D funds this year will drop to the lowest level since 1960. So could R&D employment, since there is an excellent correlation in changes in real R&D budgets and changes in scientific employment. Conservative. As in C&EN's 1970 survey (C&EN, Feb. 16, 1970, page 34), the basic chemical industry's
R&D as percent of sale
will sliD again in 197Γ
M&$*
s
Ϊ5
« * # \; ; M -:iié$ ^ ' Α ^ Μ Ε Λ-V ;v^;>4;;w^-:^ΐi^a??^ aData are for chemical companies in SIC category 281.
Few chemical companies plan to increase R&D budgets for 1971 Rank in C&EN's Top 50ι 1 2 3 4 5
ι
Company
Du Pont Union Carbide Monsanto Dow Chemical Celanese
R&D spending (millions of dollars) 1969 1970 1970 1971* (Planned)** (Actual)* $260e 75.6 101.5 87.3 49
na $80 98e 88e 53.5e 23.1 31.5e 23 12 46
6 8 9 11 12
W. R. Graced Allied Chemical Hercules FMCd American Cyanamid
19.2 30 23.2 11 44.9
16 18 21 24 26
Stauffer Rohm and Haas Ethyl Corp. Diamond Shamrock 01ind
12.2 28.6 16 10.1 7
36 40 43 49
Air Reduction Chemetron Air Products GAF
10.5 3 5 13.3
TOTAL
Source: National Science Foundation, C&EN
807
$270 78 98e 90 53
$270 78 92e 97e 49
19 30.4 23 11.5e 46
20 32e 23 11e 47
13 na na 11 na
12.7 29 16 11 7.5
13 28e 19e 12e 8.2
11.5e na 5.5 14e
11.5 3.5 5.5 13
11.5 3.5 6e 13
naf
829
833
a Ranked in terms of chemical sales in 1969 (C&EN, April 27, 1970, page 21). Companies listed are SIC 281 companies reporting R&D data, b Company estimates. cAs of Feb ruary 1970 (C&EN survey), d Chemical group only, e C&EN estimate, f Insufficient data to total. na = not available
12 C&EN JAN. 18, 1971
1 |
R&D plans for 1971 look doubly con servative compared to results of wider canvasses. Battelle's forecast for the year, pre pared by Dr. W. Haider Fisher, shows all industry R&D support rising 9% from $11 billion to $12 billion. This increase more than matches a pro jected 6% bite by added "costs of R&D inputs per professional man-year of R&D effort." The Manufactuiing Chemists Asso ciation also tends toward optimism. Its survey of 32 chemical manufac turers turns u p heftier R&D budgets this year in half its sample. However, 10 companies, or nearly a third, told MCA they would cut R&D money this year. For 1971 figures, C&EN contacted all companies in the Top 50 listing (ranked by chemical sales in 1969, C&EN, April 27, 1970, page 21) fall ing in the Security and Exchange Com mission's category of basic chemical companies, Standard Industrial Classi fication (SIC) 281. Of these 23 firms, 19 supplied R&D information for 1969, 1970, and 1971 (see table). These 19 companies combined account for about 90% of R&D expenditures and 83% of sales in the chemical industry. From the companies' estimates (sometimes qualitative) for R&D spending, virtually no net growth ap-
pears to be coming in the next 12 months. Overall, the industry will probably sink $934 million into R&D this year, barely more than the $931 million actually spent in 1970. Accuracy. The accuracy of companies' R&D estimates appears high, even in a year such as 1970, which turned out worse than expected in the market place. By year's end, chemical companies pushed up R&D budgets 3% over 1969, exactly as they had estimated the previous winter. R&D spending as a per cent of sales also held true to these companies' predictions, registering 3.4%. This is more than a full percentage point below the 4.4% of sales going to R&D in headier days of the early 1960's. In 1971 R&D's cut of sales will fall
ROCHE' Roche Chemical Division Hoffman-La Roche Inc. •Dept.-CN-1.5-. •" Nutley, New Jersey 07110
"New idea technology from Roche
Acetylenic alcohols ot a wide variety can be made available through Roche processing ^ flexibility in batch or continuous quantities.
Write J. VV. Crossin, Commercia Chemical Development/with you Ri and R2 requirements.
Current R&D dollars Inflation rate.
HOCH+R-C-R \ i
Real R&D dollars9-
ISRIf
HCsC-OR Current chemical industry research dollars
Real chemical industry research dollars3 '
a Base year 1958. Source: National Science Foundation, Battelle Memorial Institute, C&EN
JAN. 18, 1971 C&EN 13
FEDERAL AFFAIRS
By Louis A. Agnello, Assistant Managing Editor
"Zero-risk" movement poses crucial challenge The chemical community appears destined to take more than its fail* share of the lumps this year as promoters of the continuing controversy over the benefits vs. drawbacks to society of our scientific and technological progress seek out new fuel to feed the flames. Items: • The Nixon Administration is expected to ask Congress to enact legislation barring any new chemical product from the market unless and until it has been federally certified as posing no potential hazard to human health or to the environment. • Not coincidentally, the President's Science Advisory Committee has established a special panel to determine if we really have the scientific know-how and understanding to make valid judgments now as to the potential long-term human health and/or ecological threat posed by new chemicals, as well as by those already cleared for market. • The Administration also has begun to test market another legislative proposal which would place the sale and use of most pesticides on a "by-prescription-only" basis. • Congressional antipollution and consumerism standard-bearers of both parties, meanwhile, are readying their own versions of preintroductory testing requirements for new chemicals. The new offensive on chemicals is by no means restricted to the federal front. The state of Michigan, for example, now requires every business to submit a detailed report of all state-designated black-list chemicals "used in and incidental to its manufacturing processes and including by-products and waste products." The National Governor's Conference last fall adopted a resolution urging prescreening for ecological effects of all chemicals entering the environment. Meanwhile, state after state and municipality after municipality are moving to ban or drastically restrict the use of an ever-growing list of chemical products. The emergence of chemicals as the prime target of the "zerorisk, doom-and-gloom" wing of the environmentalist/consumerist movement should come as no surprise to the chemical community. The pages of C&EN have tracked the movement each milestone along a road leading inevitably to the upcoming collision. The shrill cries of the professional doomsayers in the vanguard of the assault appear to have numbed those charged with manning the chemical defenses into a false sense of security, apparently based upon the belief that, inevitably, reason will prevail. This could prove to be a disastrous mistake—not only for the industry and the profession, but for the general public as well—for the main assault force has been steadily gaining strength and credibility, as an increasing number of highly responsible scientists, political leaders, and other influential public figures are beginning to have serious misgivings about the wisdom of adding more and more chemicals to what they fear may be an already chemically overburdened environment. Surprisingly, the chemical community, as yet, has given no indication of how it plans to respond to this challenge or if it plans to respond at all. If society is to reap the vital harvest which our advancing chemical knowledge can provide, it must be made to accept the concept of finite risk. Lawmakers and regulatory officials must be made to realize that new compounds of potential value to the health and well-being of the public should not be barred from use simply because the absolute safety of such chemicals can't be fully guaranteed. It will take all the forces the chemical community can muster working in close concert to strip away the emotional overburden and focus public and political attention on the true crux of the issue at hand, which is: At what point does the current preoccupation with assuring the absolute safety of chemicals become counterproductive to society by denying the public access to new and improved products it needs?
14 C&EN JAN. 18, 1971
to a new low, 3.1%, since sales are generally seen rising about 8% by company heads and R&D budgets are seen holding even. Noninflated R&D spending is quite another matter. Battelle cautions on the approximate nature of its inflation estimates for the past decade. Still, these coefficients are no worse than the 5 to 8% inflation figures usually cited in the chemical industry. Chemical R&D figures corrected for inflation show a slow rise, since the base year of 1958, to a peak of $564 million in 1965. Since then, net inflation will have eaten away 17% more to leave $470 million by the end of this year. This is the same level of real-dollar support which chemical companies gave R&D in 1960. The rate of real R&D funding has been falling since 1963, when it was 8%. In 1971 real R&D support is heading for a fall of 6%, the worst since at least 1959. Staff. More distressing to R&D departments is the change in staff levels paralleling the change in real R&D support. The number of R&D scientists and engineers in the industrial chemical sphere has swelled and diminished in exact proportion to deflated R&D funds. From 1959 to 1965, the National Science Foundation gives a 27% rise in the population of full-time-equivalent R&D scientists and engineers in industrial chemical companies. This is precisely the per cent rise in real R&D funding in the basic chemical industry. Again, from 1965 to 1969, NSF finds a drop of 8% in the same professional category in the chemical industiy—from 25,700 to 23,600. During the period, real R&D money also dropped 8%. If this correlation continues through 1971, another 10% of R&D scientists and engineers will lose their jobs in the chemical industry. The total number would then drop to 21,200, not far from the 21,800 employed in the industry in 1960. Bounds. Of the 19 companies in this year's C&EN survey, only f o u r Dow, Allied, Ethyl, and Olin—have set definite bounds allowing R&D funds to exceed expected inflation. Two companies—Monsanto and Celanese—predict sizable cuts after years of strong growth in R&D support. The rest are holding the line. By contrast, a year ago half the companies in C&EN's survey planned to keep R&D budgets ahead of inflation. The larger size of C&EN's sample for 1971 illustrates a distinct trend among chemical companies toward fuller disclosure of R&D budgets. Some companies, including American Cyanamid and Union Carbide, make quarterly reports on R&D expenditures. However, comparisons between in-
dividual companies are still illusory, since there is no common basis of reporting budget figures. Still, given a consistent reporting basis from year to year, companies can provide meaningful estimates of changes in R&D support. The reasons behind these changes are also valid indications of changing management attitudes toward research. Formula. Perhaps the simplest formula for changing R&D spending is to keep it proportional to sales. This is Dow's plan for the current year. Hence, if sales increase as chairman Carl Gerstacker expects, R&D funds will also rise. The formula becomes complicated when managements introduce changed objectives for R&D spending. For example, Monsanto vice president James J. Kerley told security analysts in November that the company was reordering its research, engineering, development, and patent (REDP) program. The purpose is twofold—to reduce REDP's per cent of sales from more than 5% to about 4.6 to 4.9%; and to change goals to emphasize new products and profitable diversification. Celanese is breaking its historic pattern of yearly 13.5% increases in R&D budgeting this year with an 8% cut. Its reasons are changing research goals and closer attention to "technical and economic viability of projects." Both Celanese and Monsanto are making cuts in R&D personnel. Du Pont vice president Edwin A. Gee presented a frank picture of partial disappointment in R&D to security analysts also in November. Referring to creation of profitable businesses, Mr. Gee stated, "It is hardly news that lately we have not done so well." Research. Is the trouble in Du Pont's strategy of "growth through research"? Not really, says Mr. Gee, explaining that the company's R&D in the sixties was a "mixed bag." Success in short-term projects was balanced by disappointment in some of the 35 to 40 new ventures, he says. Even some successful new ventures such as a photopolymeric printing plate cost tens of millions of dollars before getting into the black. For the seventies, Mr. Gee sees light ahead. "Losses from our very large new venture program are dropping rapidly," he notes. "Perhaps more important, a large fraction of our program was a ground-breaking, pioneering kind of effort which today provides us with a very broad base from which to launch additional new businesses more quickly and at lower cost." The chemical industry may well echo Mr. Gee's view that R&D in the sixties paid the price for success in the seventies. For now, it still looks like sacrifice.
INDUSTRY THIS WEEK IN BRIEF
Corporate Akzona, Inc., Asheville, N.C., has completed acquisition of Armour Industrial Chemical Co., Armour Industrial Products Co., and Armour Leather Co., three subsidiaries of Armour and Co. (C&EN, Dec. 14, 1970, page 24). Acquisition was for $37 million cash and contingent payments, based on earnings over next five years up to about $8 million. Each company will retain present name and will operate as wholly owned subsidiary of Akzona. Wellman-Lord, Inc., process engineering company in Lakeland, Fla., will merge into Power-Gas Corp. of America, subsidiary of Davy-Ashmore, Ltd., London, U.K. New company will be headquartered in Lakeland. Power-Gas does engineering and construction for petrochemical industry. B. F. Goodrich Co., Akron, Ohio, has purchased all outstanding stock of Apache Industries Corp., Lansing, III. Goodrich will operate Apache as wholly owned subsidiary. Apache is custom extruder of transparent and opaque rigid polyvinyl chloride film and sheet materials. W. R. Grace & Co., New York City, will enter engineering consulting business by purchasing Elson T. Killam Associates, Inc., Millburne, N.J. Killam Associates, which specializes in design of waste treatment and water supply systems, will join Grace's specialty products group. Essex Chemical Corp., Clifton, N.J., has reached agreement in principle with Tremco Manufacturing Co., Cleveland, Ohio, to acquire Jamestown Finishes, Inc., subsidiary of Tremco, for undisclosed amount of cash and notes. Completion of transaction subject to final documentation. Jamestown Finishes, Jamestown, N.Y., makes industrial coatings and plastisols. PPG Industries, Pittsburgh, Pa., and Mitsubishi Rayon Co., Ltd., Tokyo, have signed licensing agreement which gives Japanese firm right to patents and technology in PPG's new coating processes. Agreement applies to PPG developments in electron beam and ultraviolet-curable industrial coatings and designs of facilities for curing both types of coatings. It also gives Mitsubishi rights to produce resins, coatings, and curing facilities in Japan.
International Friedrich Uhde, GmbH, Dortmund, West Germany, will supply cells and
engineering for cell room and brine separation unit of alkaline chlorine electrolysis plant to be built in Czechoslovakia. Plant, to be operated by Novaky Chemical Works, will have chlorine output of about 60,000 metric tons per year and will start up in late 1972. West European countries, the U.S.S.R., and Japan plan rail transportation system for containers. Containerized goods could begin traveling by train between western Europe and Japan via Siberia as early as end of 1971, according to Inter Container, trade association of West European countries. Rail shipment would mean 2 0 % savings in cost over shipment by water. Carborundum Co., Niagara Falls, N.Y., has formed wholly owned subsidiary Carborundum (Far East), Ltd., in Japan. Tokyo-based company will serve as liaison with parent firm's joint ventures, investments, and licensees in Japan and explore opportunities for expansion in other areas of the Pacific. Switzerland's Ciba-Geigy, pharmaceutical concern recently formed by merger of Ciba and J. R. Geigy, expects 16% increase in sales for 1970 to $1.67 billion. Sales of Swiss pharmaceutical firm Sandoz rose 1 1 % last year to about $640 million. Italy's Snia Viscosa will build $11.2 million plant at Crotone, Calabria, southern Italy, to make chemical paste for paper industry. 50,000 metricton-per-year plant, scheduled to start up early in 1972, will be expanded later to 120,000 metric tons per year. Lurgi Gesellschaft fur Warme und Chemotechnik, mbH, Frankfurt, West Germany, will build 100,000 metricton-per-year methanol plant at Fischamend, Austria, for Osterreichische HIAG-Werke, A.G. Plant, scheduled to start up in 1972, will use Lurgi's low-pressure process. Belgian engineering firm Coppee-Rust will build $2.5 million fatty amines plant at Oelegem, Belgium, for Lilachim, S.A., Brussels. Lilachim is joint venture of Oleochim, S.A. (subsidiary of Belgium's Petrofina and Ashland Oil Co.) and Sweden's Kemanord, A.B. (formerly Fosfatbolaget). France's Ugilor will build 675 metricton-per-day sulfuric acid plant at Saint-Avoid. Krebs & Cie., Paris, and West Germany's Chemiebau Zieren will build $9 million facility, scheduled to begin operating in mid-1972. JAN. 18, 1971 C&EN
15
