FRANKFURT European chemicals and plastics makers are cutting in-house research and instead trying to persuade industrial customers to work together on developing running shoes, cars or electronics.
Collaborating can cut millions of euros from research and development (R&D) budgets and translate into exclusive supplier contracts as chemical and plastics profits come under pressure from cheaper emerging market competition and rising fuel bills.
German chemicals group BASF (BASFn.DE) has started working with sportswear maker Adidas (ADSGn.DE) to make running shoe soles more bouncy. Solvay (SOLB.BR) is developing polymer linings for corroded pipelines with an oil major while Lanxess (LXSG.DE) is helping VW (VOWG_p.DE) unit Skoda make car parts.
"These days cooperations are much more common. It's much more beneficial than doing it all by yourself," said Werner Breuers, executive board member at German specialty chemicals group Lanxess.
Europe's 650 billion euro ($888 billion) chemicals industry relies on innovation after selling most of its bulk chemicals businesses over the past 20 year to focus on high-tech materials
for industrial customers.
But they need to make sure they stay innovative because emerging market companies are becoming more sophisticated at copying established products while U.S. rivals are getting a boost from shale gas as a cheap source of energy.
Weakening the European position further, many businesses in the region's largest chemicals-producing nation Germany are facing painful surcharges on their electricity bill to fund the country's shift to renewable energy.
Chemical industry R&D spending in the region - measured as a fraction of sales - slid to 1.6 percent in 2012, down from 1.8 percent the year earlier and 2.8 percent in 1991, the latest data available from European industry lobby Cefic shows.
Industry advisors and executives say this is not a sign of waning commitment, rather one of companies managing to get more innovation out of a euro spent on R&D, a result of linking up with and seeking input from their clients.
"At Lanxess, somebody might have an idea, and the customer will tell us immediately whether for one reason or another it is not going to work," said Lanxess's Breuers.
"You get direct feedback, which saves enormous amounts of time and money and ensures customer oriented innovation."
Lanxess worked with Volkswagen's (VOWG_p.DE) Skoda unit and French auto parts maker Faurecia (EPED.PA) to develop a component from glass-fiber reinforced plastic that holds a car's bodywork together at the front of Skoda's Octavia.
Martin Gruhlke, a project manager at business consultancy Stratley AG, said efforts to boost R&D productivity are high on boardroom agendas. He has recently helped reposition a global chemical group's research department to filter out ventures that do not serve immediate client needs.
"The creative process is clearly focused on the market, no longer primarily on what is technically possible."
RIVALS CATCH UP
Chemicals companies see little point in doing R&D without their industrial customers at their side, meaning they tussle for a limited number of joint development projects.
But industrial customers may be reluctant to stick with one supplier, who for the duration of the project is under no competitive pressure from rivals.
"Every carmaker is keen to eliminate this risk as far as possible," a spokesman for Skoda said.
However, he said the Czech VW unit was banking on its materials suppliers to soon catch up with any rival who has gained a technological edge and won an R&D contract.
"As a former manager in procurement, I know (sticking with one supplier) can be a difficult decision," said Roberto Gualdoni, the chief executive of Styrolution STYGP.UL a maker of plastics used in car front grills, medical devices and Playmobil toys.
He said it helps a supplier to win an exclusive collaboration contract if it already commands a high share of the respective niche market so there are fewer competitors.
Chemical and plastics companies are also increasingly bending and squeezing plastic parts in 3D computer models to win R&D contracts, saving months of development time compared with stress-testing in a real life lab.
The focus on immediate client needs, however, means missing out on breakthroughs in science that may take years to show commercial potential.
Germany's Merck KGaA (MRCG.DE) invented liquid crystals more than a century ago and kept developing them without a clear idea about the use. Revenues exploded in the year 2000 with the advent of flat screens that used them and the business still carries operating profit margins of well over 40 percent. ($1 = 0.7319 euros)
(Additional reporting by Frank Siebelt; editing by Anna Willard)