The size and maturity of China’s chemical industry makes megacities in the country attractive destinations for companies to invest in research and development (R&D) activities.
The city of Guangzhou ranked first in fDi’s latest assessment of the world’s 100 most competitive locations to set up an R&D lab in the chemicals industry, followed by China’s commercial centre Shanghai; Japan’s Tokyo; and South Korea’s Seoul.
In short, the study reveals the best cities to open a modelled 22-person R&D centre occupying 600 square metres of office space, working in areas such as speciality chemicals, gases, dyes and pigments. The model used was weighted more towards quality factors (75%) than cost (25%) to improve comparability between countries.
Kai Pflug, a Shanghai-based management consultant in the chemicals industry, says that China’s “large pool of chemists and other scientists” and proximity to target markets makes it attractive for chemical R&D labs. Guangzhou had by far the largest number of estimated researchers working in R&D of all the cities assessed in the fDi study, followed by Tokyo, Shanghai and Seoul.
Tokyo placed third overall due to having the highest number of estimated chemical-related patents, followed by Seoul, which came fourth in the overall ranking.
R&D helps chemical companies gain a competitive advantage as it can optimise processes, reduce production costs of basic chemicals and develop customised specialist chemicals.
Four Indian cities made it into the top 10 of the overall ranking, including Mumbai in fifth, due in large part to their relative cost advantages. In Hyderabad, which placed seventh overall, the average costs to operate a chemicals R&D lab are estimated at about $400,000 — 71% below the average among the assessed locations.
While the Indian chemicals market is less than one-tenth the size of China’s, Mr Pflug says companies may be drawn to India for its future potential, “lower concerns about intellectual property compared to China and the desire to not get too dependent on China”.
But the sheer size of China’s domestic market, which data from the European Chemical Industry Council shows accounted for almost half (44.6%) of global chemical industry sales in 2020, is a draw for companies to set up R&D activities and productive assets, according to Mr Pflug.
Shanghai, which placed second in the overall ranking, attracted by far the most (112) foreign direct investment projects in chemicals R&D of any city included in fDi’s analysis between 2003 and 2021, followed by Singapore (60) and Mumbai (21). In October 2021, US-based Dupont Mobility & Materials unveiled plans to open a centre in Shanghai for developing and testing new applications for automotive electrification.
The only European city to make it into the top 10 was the Turkey’s largest city Istanbul, which placed sixth overall. In November 2021, Belgian speciality chemical supplier Azelis opened a new coatings, adhesives, sealants and elastomers lab in the city.
The Belgian port city of Antwerp, which is home to one of Europe’s largest chemical clusters, had the highest score for infrastructure and accessibility among the assessed locations. Its overall ranking was hampered by having fewer available researchers for potential chemicals R&D labs.
Houston, Texas, which is the US’s largest chemical-producing state, placed 17th in the overall ranking, marking the highest position of any North American location. Its relatively high annual operating costs — estimated at $2.5m for a 22-person chemicals lab — made it less competitive than its Chinese counterparts.
This article first appeared in the August/September 2022 print edition of fDi Intelligence. View a digital edition of the magazine here.