Chemical sector patches revival growth prospects post crisis

Chemical sector patches revival and growth prospects post crisis

10:28 AM, 16th September 2017
Chemical sector patches revival and growth prospects post crisis
Major chemical companies based in Japan are capitalizing on their original and proprietary technologies. (File photo)

By Sonal Srivastava

Economic development in Japan thrives on growth of its manufacturing industry. Previously, the manufacturing industry of Japan was known for its competitive strength globally. Chemical sector accounts for a significant section of GDP in Japan. However, emergence of electronic companies in developing countries including South Korea and China has posed significant challenges for the manufacturing industry of Japan. Striving to maintain competitive pace with other countries, the companies in Japan significantly rely on its chemical sector for integrating technological development. Despite the slump in its electronic industry, Japan continues to offer high-tech electronic products attributed to developing chemical sector.

According to a recent news update, growth in the Japan transport sector was high as compared to the chemical sector in May. However, due to an upsurge in output of automotive engines and passenger cars in May, the chemical sector in Japan has rebounded in terms of output, registering an output of 3.4 percent in July. The news update further reveals that the manufacturers who were surveyed by the industry ministry predict a moderate growth in output of the automotive industry. This industry will represent an increase of 3.6 percent in terms of output in August. Such factors are likely to impact growth of the chemical sector in Japan over the coming years.  

In the immediate aftermath of two world wars, government in Japan was striving to recover from food crisis. In an attempt to revive from food crisis, the government imposed regulations to use chemical fertilizers for increasing agricultural production. The economic stagnation in the 1970s meant that the chemical industry had to downsize as production facilities became obsolete due to the prevailing oil crisis. Due to this, the chemical manufacturing companies started expanding and relocating the production units in developing countries to decrease costs related to labour, distribution and raw materials. Slashing down high prices enabled the chemical companies to expand their business activities, imports and investment in other countries. Despite the devastating impacts of tsunami and earthquake, the chemical sector in Japan has witnessed a dramatic growth over the years.

Government Support has been Vital to Growth

Throughout the turmoil in the Japanese economy, the chemical sector has continued to tread along, owing to government support and initiatives. The setting up of ‘Invest Japan Business Support Center (IBSCs)’ – an organization offers investment related information and support to the one-stop centers to boost investment in Japan. This support center also provides information to companies from other countries setting up business in Japan. Moreover, government agencies and ministries operate through single contact points known as ‘Invest Japan Offices’. These contact points assist and direct other companies and investors to divisions or offices that are responsible for a particular procedure. Such factors are expected to contribute significantly towards growth of the chemical sector in Japan.

At the time of crisis after wars and natural disasters, the government turned towards the chemical industry to counter the social challenges. The chemical industry was the first industry in Japan that addressed social concerns related to pollution, safety, environment and security. This industry took initiatives develop new technologies and improve existing facilities in order to deal with the oil crisis. Further, the chemical industry in Japan concentrated on constructing larger facilities that enabled them to use energy and resources in an efficiently. Constructing technologies and facilities that enable efficient use of energy and resources also catered to the problem of growing pollution. Attributed to growing support from the government, the chemical sector in Japan is projected to witness considerable growth in the upcoming years.

What is Driving Growth of the Chemical Sector?

Progressing from zero based thinking to actual implementation, the chemical industry has extended its application in the pharmaceutical and electronic industry. Surge in demand for chemical products in the agricultural and manufacturing industries has further contributed towards growth of the chemical sector in Japan.

End products as compared to other applications represents significant demand for chemical products in the Japan chemical sector. Pharmaceutical products among various end products represents major demand for chemical products. Cosmetic and toothpaste are also likely to represent considerable demand for chemical products in Japan chemical sector. 

Recent news updates reveal that Mitsubishi Chemical Holdings Corp plans to establish a base in the US in order to bag new business opportunities. The company plans to set up a base in the Silicon Valley. It will focus on mergers & acquisitions and collaborations with startups to move forward.

Major chemical companies based in Japan are capitalizing on their original and proprietary technologies. Mitsubushi Chemical is mainly focusing on production of high molecular weight and high – density polyethylene to offer ultra thin films. Other market players are trying to gain a competitive edge through strategies such as technological collaborations in the global market. Due to such factors, the chemical sector in Japan is likely to witness a steady growth over the coming years.

Gaping Holes in the Growth Road

In order to boost the agricultural production, farmers mainly use chemical fertilizers and agrochemicals. Growing use of agrochemical products and chemical fertilizers can adversely affect health of people. Due to such factors, the government has imposed various regulations that encourage farmers to use eco-friendly farming and organic techniques. These factors can influence manufacturers to update their portfolio and include more eco-friendly solutions in their offerings.

Moreover, manufacturing industries increasingly use plastic for production of electronic products and packages. Convenience stores, retail stores and supermarkets provide customers with a plastic bag for carrying purchased items in Japan. Government in Japan is taking initiatives to spread awareness regarding use of increasing use of biodegradable bags and packages. Grappling with use of plastic bags, the government plans to charge plastic shopping bag tax from the customers to encourage use of biodegradable bags. Bound to such factors, the chemical sector in Japan is likely to witness a downturn in terms of growth.

Furthermore, the imported and domestic products undergo through various procedures to check the quality and standards of the product. Products in Japan cannot be sold without certification of compliance according to the prescribed standards. Pharmaceutical products and equipment do not receive approval without the certification of compliance. These factors continue to remain a challenge for the growth of the sector in the foreseeable future.

Overall, the chemical sector in Japan continues to tread along, and it is anticipated that it will continue to offer growth opportunities to manufacturers. Further, the chemical sector in Japan will continue to contribute to the GDP of the country.

Author: Sonal Srivastava is Features Writer at Future Market Insights.

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