FMCG mega trends and the all-powerful consumer

What mega trends are set to shape the global FMCG industry of the future?

I believe that the world is changing. In past centuries we saw that the producer of goods was the market leader, and this then shifted to the suppliers / shippers of goods overseas. Today we are living in an era where the consumer is the leader of the market.

Living in the information age (internet, digital and social media), acccess to FMCG products and services is availabe to consumers in seconds. Comparative data with scientific, financial, medical, utility, costing, availability, and more importantly company reputation and image analysis is readily available, allowing for easy comparison of all options on the market. Thus consumer choice remains the top factor governing the FMCG industry.

Another key factor is the pricing of FMCG products in the market, which should be in line with the buying capacity and priority choice of consumers in a particular market. This is tricky indeed, but requires a very careful analysis of consumers.

In a nut shell, the following can be classified as the mega trends for the global FMCG industry for the future:

  • The reputation management of the FMCG company (as a top priority)
  • Pricing (market level and global compatibility)
  • Sustainability for quality (both for goods and services)
  • Continuing renovation and innovation for all product lines
  • Responsible sourcing
  • Access and availability of product details to the consumer in a transparent and ethical manner (be it ingredients or scientific reasoning); compliance with regulatory or mandatory industrial law alone is not enough.
  • Strategies which prioritize volume sales for top line and bottom line achievement will lose in the long run, and companies competing for winning consumer trust and product of choice will win.

A lean business model, as excessive costs incurred in production are ultimately paid for by the consumer – and the consumer is aware of this

What role are big data and social media set to play in the future of FMCG?

As previously mentioned, the company reputation is the top priority. We live in an information age where news travels faster than can be comprehended or responded to by most organisations. Consumers will go for a good company image rather than a bad company image. My 12 year old son knows in the super market that we will not buy certain brands because they have certain ingredients in their products, which are bad for health or other reasons.

Social media is a highly interactive medium, engaging people from all walks of life and all age groups, nationalities, and gender. From Dad to Mom and from Grandpa to grand daughter, everyone has an opinion, and these opinions have a lot to be shaped by social media.
Social media is now a double-edged sword and can make or break your business with one single negative campaign by a single dissatisfied consumer (due to any reason – justified or otherwise).

Thus FMCG companies with good vision must continue to invest and engage consumers, opinion makers, and the general public to keep them informed of their product line and to provide answers to concerns regarding ingredients, scientific facts and other related factors which are frequently challenged and debated. Excessive amounts of anything is negative, but a constant and balanced presence on social media is a must.

What strategies will middle ground retailers employ in order to fight back against the current dominating trend of price discounters and high end retailers?

This is a debate in which even governments are involved, debating small and medium retailers versus mega super markets and price discounters.

I believe that this has to do with a careful analysis of the consumer shopping habits in any market. For example, in the US people are accustomed to shopping in mega malls, with discounts and time spent, whereas in India, Pakistan, Thailand or other Asian or African markets, consumer shopping habits also depend on distance and travel – thus going to a small retailer nearby is easier. Getting home delivery via the internet is becoming increasingly popular in developed nations such as the US and China, but again, in many developing or underdeveloped nations, the small and medium retailer is still in good focus for consumers (primarily for reasons of convenience to the local consumer).

Good strategies of large FMCG maufacturers or marketers do focus on both primary and secondary sales channels for price dicsounts, and have to take good account of small and medium retailers, as in most developing economies, the SMEs account for more than 75% of overall sales, a fact which cannot be overlooked.

How will increasing consumer awareness of health concerns affect the FMCG industry?

The FMCG industry has to adopt responsible sourcing and utmost compliance to health regulations, both for their employees and their consumers. The value chain (both upstream and downstream) has become a critical factor for all FMCG manufacturing companies, and it is crucial to remember that providing limited information about your product ingredients will not hide undesirable information, as there are other information mediums available to consumers.

Health concerns surrounding the ingredients in every FMCG product is a very current issue. There are debates on GMO-based versus organic products in F&B, there is debate over food colours and preservatives, levels of pesticides and insecticides, and even packaging of PET, Plastics etc., and the use of colours, batteries and so on in children’s toys.

Companies of today‘s modern times must engage the following principles:

  • Transparency in diclosure (for ingredients)
  • Scientific reasoning must support your ingredients. Companies with in-house and third party R&D validation for ingredients are better off; this is not an excess cost, rather a necessary investment into R&D for quality assurance
  • Addressing health concerns on labelling (transparently) is the need of the day, particularly for the food and beverage industry, and it is advisable to adapt to this scenario sooner rather than later.

What is the outlook for manufacturing and production within FMCG?

As the world population grows, so does the FMCG industry. The global recession has had an impact to varying degrees, with the majority turning to a “need to have“ concept versus “nice to have“.

I will summarise the outlook as follows:

Operationally: The outlook for the FMCG indstry is challenging yet positive for those who are willing to invest in sustainability, excellence, transparency in dislosure, responsible sourcing, continued renovation and innovation, lean structures, reputation management, and outward market analysis, paying attention to consumers‘ opinions and evaluating the market economy before launching new products. Moreover the dynamics of the US, European, Asian/ Afro Arab and Latin markets are entirely different from each other— balancing your product with the market economy, peoples‘ employment situations and GDP, as well as supply chain optimization and prioritizng peoples‘ needs are essential for success.

Geographically: in known human history of 10,000 years, the Greater China region (as the „middle empire“) , and India, Pakistan and Bangladesh as well as South Asian Countries, Persia (Iran) and the far east sub-continent accounted for two-thirds of the world‘s market economy for more than 9,500 years. History is now repeating itself; the FMCG companies who embrace change and adapt to and engage with the emerging markets will thrive. Resisting these changing opportunities is no longer an option.

Urban water: Crucial challenges and drivers

In light of key trends and challenges, what is the future outlook for urban water utilities?

There have been lots of changes in urban water utilities due to industrialization and consequential urbanization. Due to the water intense industries, utilization of water has increased abnormally and excessive withdrawal of water from the ground has depleted ground water in many areas due to insufficient surface water availability. Drawing water from the ground requires more energy to be used, and in turn, a lot of water is needed for generating energy. Many Government regulations have been enforced to combat this situation, such as rain water harvesting and the recycling and reuse of water in industries and common effluent treatment plants, etc. In some coastal areas, desalination plants have been installed to treat seawater in order to make it drinkable, and although the cost of treatment is high, there is no other place to go to get fresh water. Awareness of water utilization needs to be increased and the practice of conservation of water to be cultivated in people. People need to be aware of the consequences of having no water or less water in the future and thus act accordingly for optimum utilization of water. There is a need for the water authorities to brainstorm for the solutions for future urban water utilities by bringing water experts together and taking necessary precautions now to experience a better outlook in future for urban water utilities. Funds need to be allocated accordingly to balance the water utilities in urban areas.

What opportunities do innovations in nano and biotechnology present for the water sector?

A recent buzz word in various fields is nano technology, and there has been a lot of work happening in the research of nano technology within the water sector. Nano materials are being developed to remove harmful constituents from water. Most of the research in nano technology is happening in the area of water treatment rather than water conservation. Nano materials are developed and used for the removal of pesticides, Arsenic, lead, iron, etc. There is ongoing research for further advancements in this area.
There are a lot of opportunities in the field of water for biotechnology, especially for the treatment of waste water from industries and domestic applications. This will enable people to use the treated water for industrial and other applications, helping to reduce fresh water usage.
Using nano technology and biotechnology, water intense industries can treat their effluent efficiently and reuse the treated water for process and other applications. Industries should aim for Zero Liquid Discharge concept to protect the fresh water contamination, thereby reducing the disease burden on people. More and more technologies need to be developed for water treatment for the removal of total dissolved solids for drinking water applications. Presently people are using Reverse Osmosis technology, which generates a lot of waste water during the process. There is an urgent need to develop alternative technology to Reverse Osmosis where conversion should be closer to 100%. Increasing research in biotechnology to develop new crops which do not require so much water is vital, as agriculture is the major consumer of water.

The global population is expected to reach around 9.5 billion in 2050, which amounts to an estimated 90% population growth in the cities of the developing world. What challenges does rapid urbanisation pose to water utilities, and how will they adapt to manage rising demand and depleting resources?

It is very important to think of future problems regarding water availability due to increasing population. The quantity of total water remains the same and hence there is urgent need for alternate arrangements for water conservation. Increase of population leads to more demand for water for their use. This also increases the industrialization and consequential demand for more water for making more products. Industries need to optimize their utilization of water per product produced. There should be normalization on this aspect for the total water management in industries. Some countries face problems with leakage of water during distribution, a problem which needs to be addressed with new technologies and mitigative measures. Governments of every country need to plan and allocate funds and technical people to think of the solutions for the issues presented by population increase and thus higher demand for water. Resources need to be planned in advance, there should be strict regulations for the proper utilization of water, and Zero Liquid discharge needs to be implemented by regulators and strictly followed. Incentives need to be planned for the industries for their good work in the field of water conservation.

In addition to population growth, what other social, economic and environmental factors are driving the water utilities industry?

Primarily, industrialization due to urbanization is driving the water utilities industry. Agriculture is the major consumer of water and the requirement of water needs to be optimized for this purpose. New industries are evolving day by day to meet the demand of the requirements of the increasing population. Every day, new chemicals are introduced to the environment and these are entering the water bodies and contaminating the water. Most of the water then becomes unfit for drinking due to the increased industrialization and release of contaminants to the water bodies, be it surface water or ground water. Water availability per person is decreasing day by day due to population increase.
Increase in population has a tremendous impact on the water utilities industry with regards to meeting the expectations of people on water supply. Treatment of water is becoming more costly and also has a definite impact on the water utilities industry. Availability of fresh water is depleting due to industries and changing evironmental factors, and rains are decreasing over time due to increased environmental changes.

A new frontier for Pharmaceuticals

What key trends will affect pharmaceutical companies’ operations and business success in 2016?

As we have already seen over the past years, there are a lot of changes in the pharmaceutical industry environment. We have various transitions and a very dynamic process behind this area, and important points that certainly affect operations and business in the pharma market are, for example: a) less launching of “blockbusters”, which represents less big or explosive revenues, b) the risks and dangers of the ‘patent cliff’, c) much more controlling strategies through payers (for example: drugs and medicines should be not only clinically effective, but also economically successful), d) more strength reimbursement policies, and also e) the continuously and quickly growing generic market.

Which strategies are most effective in managing supply chain for new innovative pharma products?

To face the coming problems and challenges, one of the key points to keep the pharmaceutical industry and advances in healthcare viable is, for example, the increase in the number and quality of innovative (truly innovative and not only “slightly different” or reformulations), economic – that is, cost-effective – new products. For example, for niche areas (such as orphan drugs), for areas with really no alternative up to now, smaller but more frequent launches, and with as low as possible marketing costs, in order to be able to invest more in RD costs, as RD must be ideal and optimized for real innovations. Minimizing marketing costs should occur through solid and emotionally empathetic relationships with the payers, prescribers and consumers. If these 3 “actors” from the healthcare systems work together, it would be possible to achieve the ideal development strategies for the right products. For example through partnerships between pharma and health insurance services aiming to achieve bilateral education; partnerships and cooperation between health insurance services and physicians and clinics or healthcare organizations, also to promote education and clarification and the development of common projects, as well as innovative projects, which aren’t so economically heavy or marketing-focused in order to comply with codes of conduct and regulations in different countries nowadays. Another alternative is the development of common projects with patient organizations – perhaps, for example, through a group of different pharma companies – but with a similar pipeline in some areas – and this would demonstrate to the population the true aim of “helping” and not only “making money” – as many people currently perceive the pharmaceutical industry. However, these are often ignored by the “big Pharma”- instead of joining all powers together, each sees the other as the enemy! This is not constructive.

What impact is the Patent Cliff set to have on the pharmaceutical industry in coming years?

The expiration of many patents during recent decades, the higher hurdles of reimbursement, the greater difficulties for new drug approval and continuously growing generic market makes the impact of the patent cliff ever more noticeable, and this will last into the coming years. So, small companies will most likely be bought or will merge with bigger ones, and there will come a time to rethink what to produce, in order to overcome this situation. There are still alternatives and possible strategies, as previously described, for a better interrelationship between pharma, patients and healthcare organizations – such as insurance providers, for example. The development of truly innovative medicines cannot occur without the help and support of the customers. However, the traditional kind of feasibility work that has been performed in pharmaceutical companies is very often completely beyond reality or far removed from “real life”. Even the development of clinical study documents, such as protocols and IBs, are sometimes extremely customer unfriendly. This occurs because there are a lot of people in the pharmaceutical industry – especially physicians – that have never worked with a real patient in a real medical or clinical environment. Many of these employees are involved solely in the theoretical aspects, and this can lead to serious mistakes during planning and performance of the drug development programs. However these issues are also often simply disregarded.

According to Andrew Ward writing for the Financial Times, dozens of big investors have backed a campaign by British activists for more transparency in the pharmaceutical industry. Helena Viñes Fiestas, head of sustainability research at BNP Paribas, stated that “open access to clinical data was as important for investors as for doctors and patients, because trial results heavily influenced the way that drug companies were valued.”

How will rising pressures for transparency impact the pharmaceutical industry?

Is the automobile industry transparent to such an extent? Are any other innovative industries? No one shows their plans before going onto the market – and neither should the pharmaceutical industry. There is also the issue of data safety, because during studies we work with human beings – individual people whose privacy must be protected. The pharmaceutical industry, together with patient organizations and healthcare organizations, have to work in cooperation to face this issue and only accept a level of transparency that would not be dangerous for all. The pressure will rise but must not be accepted in this way.

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“Transforming Wind Power: Technological drivers and critical challenges” interview with Rod Poublon

What is the current outlook for the wind power industry?

Wind power has become the most affordable and versatile form of renewable energy, and has reached vastly diversified sites, from agricultural land to mountains, from sea to desert, from single units to gigawatt plants, from industrialised to developing countries around the globe. More than 51GW were installed in 2014 to reach 370GW in total, China having installed almost half of the new global capacity, followed by Europe with a quarter, and North America with almost a sixth. The growth has been sharp and steady over the last 15 years, and should carry on, with new dynamic areas in emerging markets such as China, Brazil, Turkey and Chile compensating for phases of regional slowdowns such as in many European countries (for example, Spain, France and Italy) due to a change of regulatory framework.

What technological innovations will transform both the installation and the physical form of wind turbines?

The transformation of the installed turbine has been related more to scale rather than to the form itself, at least in power-plant scale facilities: hybrid towers (see below) higher than 160m; blades longer than 80m thanks to new profiles, materials and moulding technologies; generators able to produce more than 8MW per unit. Nevertheless an increasing number of segments have appeared to deliver solutions with a specific blend of the core features matching special requirements such as complex topography, low or turbulent wind resource, limited accessibility, far sea, and specific regulatory or technical frameworks. In the future, the diversity of the available machines will further increase, the bar being raised in terms of size for sites that require it. The deepest physical transformation is perhaps to be seen under water, as the support structure (between the turbine and the foundation in the sea belt) is a major area of innovation and technical breakthrough, with a panel of currently available solutions ranging from monopole to tripod, lattice, gravity, and floating structures being in development.

New logistical concepts are being developed to bring ever larger turbines to increasingly difficult sites e.g. in mountains or at sea. Hybrid concrete and steel towers, typically for hub height greater than 100 meters, enable the transportation of heavy steel sheets for the upper part of the tower only, while having the bulky tower base locally produced in concrete. In offshore sites, much is done in the harbour to avoid difficult and risky works at sea. In mountains, on the contrary, parts are brought by new, smaller and more agile trucks and assembled on site. New cranes enable us to build higher, faster, and in a more mobile fashion in order to be ready sooner for the next turbine.

How will the wind power industry evolve to overcome financial obstacles and the issue of unpredictability and intermittence in power supply?

The goal of the industry is to achieve sustainability with as little financial and regulatory support as possible. This depends on the design of the power market, decided by the regulator and government of each country, pushing wind power in or out, depending on whether it honours the availability of power or the production of energy.

The integration of wind power into the current energy-driven market designs requires a power production that would be dispatchable in reasonably predictable volumes convenient for consumption and trading (like conventional power plants). Amongst the various options explored to achieve this goal, the bundling of several facilities of various technologies into virtual power plants (the flexible facilities such as hydro or biomass plants smoothening the less actionable wind power curve) and the addition of energy storage systems combined with smart grid integration, are the most promising.

What is the position of wind power in the future global energy market compared to alternative renewable energy sources?

The advantages of wind power (e.g. high installed power with reduced land use, price) make this technology very versatile and compatible with the current land use of a large number of areas close to energy needs around the planet. It will continue to play a dominant role in terms of new installed capacity, and even more in terms of produced energy. According to EIA, wind power should surpass hydro power within 25 years in terms of installed capacity, becoming the first source of clean power in the world. Solar power should grow at a higher rate but starts from a much smaller base.

 

 

“Sustainable Supermarkets: Do they really work?” interview with Mr. Antonio Vlamis

What is a “sustainable supermarket” and should competitors fear this new “eco-friendly” business model?

A sustainable supermarket, from an engineering perspective, is designed and constructed by using methods and technologies that ensure:

  • Minimum amount of electricity consumption
  • Usage of environmental refrigerants
  • Utilization of natural – renewable resources of energy

There are several KPIs that are critical for the financial sustainability of a commercial chain. One of them is the consumption of electrical power. The budget that is spent for the electricity needs of a retail chain must be less than 1.5% of the annual turnover.

The operational expenditure of a supermarket is highly affected by the energy cost, which means that an “eco-friendly” designed supermarket is more competitive and profitable. Just imagine:

  • An ECO convenience store (from 100 -350 m2 of sales area) spends 15,000 € less per year for electricity.
  • An ECO medium sized supermarket store (350-1000 m2 of sales area) spends 35,000 € less per year for electricity.
  • An ECO hyper market (over 1000 m2 of sales area) spends 50,000 € less per year for electricity.

Now, for example, imagine a commercial chain that is consisting of 100 convenience stores, 30 medium sized supermarkets and 5 hyper markets. This means that if the above mentioned commercial chain is consisted by ECO Stores, then it saves 2,800,000 € per year. This is a very serious reason for the competitors to fear this new “eco – friendly model”.

Please share examples of the environmental waste that occurs within current supermarket practices and how this created the push for more “eco-friendly” stores?

There are several types of waste that are produced by a commercial chain (like food waste that is not only an ethical and economic issue but it also depletes the environment of limited natural resources) but for the purpose of this interview I will focus on CO2 emissions which are very critical for the environment.

Global warming is caused by the emission of greenhouse gases. A total of 72% of greenhouse gases emitted are carbon dioxide (CO2).

Average Carbon emission due to electricity production of 1 kWh is 0.47kg (figure for electricity production methods that are used in the UK).

With that said, let’s imagine a commercial chain like the one described above, which is not made up of ECO stores. It operates 24 hours per day & 7 days per week. This commercial chain consumes 43,750,000 kWh/year and produces 20,562 tons of CO2 emissions.

A same sized commercial chain that is composed by ECO stores, produces 12,337 tons of CO2.

According to the Kyoto Protocol roll out plan and negotiations that were held in Lima in 2014, there was an agreement on a post-Kyoto legal framework that will obligate all major polluters to pay for CO2 emissions in future.

That means an ECO commercial chain will not only spend less on electricity, but will also pay less on environmental penalties.

One result of the Kyoto agreement is also the F-GAS Regulation that was voted by the European Parliament on 2014 (No 517/2014), which forbids the use of hydrofluorocarbons (HFC) as refrigerants because of their high GWP value. (GWP stands for the climatic warming potential of a greenhouse gas relative to that of carbon dioxide (CO2), calculated in terms of the 100-year warming potential of one kilogram of a greenhouse gas relative to one kilogram of CO2).

Due to F-gas regulation restriction, HFC refrigerants are going to disappear from the market and their price is going to be multiplied, so a possible leakage will cost to retailers a fortune.

Thus, by upgrading the refrigeration installations of a supermarket, retailers achieve two targets at once:

  • Usage of low GWP environmental refrigerants and regulation compliance
  • Lower electricity consumption

Consequently, in order to conclude in addition to energy – expenditure saving, retailers have to comply to the relevant regulations in order to avoid penalties.

Can you share an example of a supermarket that made the transition to a “sustainable” initiative and succeeded? Please share the details of the overall process, i.e. timeline, prices, etc.

I will refer to two different examples. The first is from a scratch design and construction of a supermarket and the second is the modification of an existing commercial chain.

1. Creation of new ECO Store

Around 14 months ago, I undertook the design & project management of three 700 m2 supermarkets in Greece, more specifically, Santorini, Kyparisia and Akrata. The owner was a franchisee of AB Vasilopoulos SA, which is a subsidiary company of the Belgian Delhaize Group.

When I explained to the owner the benefits of an ECO Store, he was immediately convinced to follow through with my proposal and agreed to award me the study of the stores.

In the end, these stores included several new technologies in refrigeration, lighting and air-conditioning:

Refrigeration

Usage of floating condensation technology in refrigeration (a technology where the condensation set point is dynamically adjusted according to the external environment temperature). – Saves up to 25% energy. 

Usage of a liquid sub-cooler in negative refrigeration. – Saves up to 20% energy.

Usage of CRO technology, which is a technology that is based on an algorithm in order to adjust dynamically the suction pressure, according the achievement of the set point of the temperature of the refrigerators. – Saves up to 10% energy. 

Usage of asymmetric set up of compressors rack by applying an inverter to a small compressor of the positive temperature rack and one to a small compressor of the negative compressors rack (with this method partial loads were managed accurately) – Saves up to 10% energy.

Usage of electronic expansion valves at the refrigerated self services and cabinets – Saves up to 7% energy.

Usage of “eco-friendly” refrigerant

Lighting

    Installation of T5 ECO electronic lamps for the linear lighting (lighting of the corridors) – Saves up to 40% energy.

    Installation of LED lighting for the spot lights and the parking lights. – Saves up to 50% energy.

    Movement sensors in warehouses

 Air Conditioning

  •  Installation of inverter air conditioning of high energy class.

 Automation for opening and closing of the store

Automation that permits personnel to turn on and off all the equipment of the store by using a single button (This way personnel doesn’t forget to turn off one equipment during the closing of the store, like air conditioning, boilers, lighting, etc.)

After one year of operation, the stores energy consumption statistics were astonishing and my client was very happy. Every store consumed 40% less electricity compared to the average energy consumption of similar commercial chains of AB Vasilopoulos S.A.

This was translated to a saving of 90,000 € per year for my client.

Regarding the capital expenditure, we succeeded to keep the cost down compared to standard solutions because we succeeded to assemble the refrigeration equipment and all necessary automations in a Certified Greek factory with lower costs.

2. Energy improvement of an existing commercial network.

One success story of optimizing the energy footprint of a commercial chain is the Greek Super Market Company Market in SA. Market has been a client of mine for 4 years and the owner was willing to improve the sustainability of his network.

This company owns 140 stores, so we started to study the electricity consumption statistics of the network. For every store, we prioritized our moves and began, for every store, to run the below procedure:

  • Energy audit
  • Energy improvement study
  • Feasibility study
  • Realization of the study
  • Monitoring of the results
  • By this way, we optimized 40 stores and the company was awarded by an annual 720,000 € decrease in electricity costs.

    The modifications that we implemented to the 40 stores had a cost of about 1,800,000 € and the payback of the investment was 2.5 years.

    Many consumers expect sustainability to be built into their purchase, but they also expect it not to change the price point. For example, Whole Foods was named the winner of Greenpeace’s Carting Away the Oceans report the second year in a row. But for those with lower than average income, Whole Foods is too expensive. Will this rise in prices cause sustainable supermarkets to be a luxury to only those with wealth?

    I really disagree with the opinion that creating a sustainable commercial network rises the prices for the consumer. 

    Reducing the operating costs of the network is making it more competitive and the final result equals better prices for the consumers.

    Supermarkets operate in a highly competitive market and selling more remains is the dominant driver. For many corporations, the effect on the environment is not priority. How would you persuade one of these “eco-wasters” to become sustainable when cost is their main issue?  

    I believe it is very easy for me to persuade the ECO wasters by:

    • Presenting to them success stories of my other clients and their financial savings
    • Explaining to them the upcoming directives and the new European Commission regulations and penalties for the non adopters.
    • Explaining to them that spending on sustainability is investing in their jobs by upgrading their equipment and their stores and that they will increase the market value of their companies

    If some retailers miss the train of sustainability, then this is definitely going to cause a negative effect on their sales.

     

    “Customer experience within the German automotive industry” interview with Mr. Peter Hopfinger

    How is the relationship between manufacturers/suppliers and consumers within the German automotive industry changing?

    As more OEMs compete in a stagnating market, pressure will be created across the whole value chain. The purchasing functions of the OEMs will as in the past generate much of this pressure in expectation that the suppliers of all tiers will be able to reduce cost while maintaining or even improving quality by adoption of more efficient manufacturing procedures and logistics efficiency.

    The traditional consumer base who has valued vehicles as a status symbol will gradually die out. An already apparent trend with urban millennial and post millennial generations is the negation of the motor vehicle as a status symbol. These customer sectors have a completely different approach to mobility, using an approach driven by the availability of networked offers, which include car sharing/ rental, public transport, bicycles etc. An increasing ecological awareness across all customer sectors will add to this. The trend of urbanization of populations will be a compounding factor.

    The German market, home market to the majority of premium players in the global automotive sector, will become more competitive than it already is, forcing the OEMs to optimize marketing/ sales and after sales service offerings. The approach adopted by the OEMs towards e-mobility in the after sales and service sectors will be a critical success factor. The current network for charging EVs will not be sufficient taking extrapolated growth and improvement of battery performance into account.

    Connective technology is starting to enter the automotive arena. What is the outlook for in-car connectivity in terms of consumer attitudes and satisfaction?

    Connective technology is already more widespread than many buyers of 2015 model year vehicles realize. This trend will strengthen with the launching of the first vehicles with full automated driving capability for motorway driving in around 2020. This trend will be further strengthened in the following decade to 2030. The seamless functioning of handheld devices and motor vehicles will bring about the introduction of new generations of both hardware and software to answer an increasing demand for ease of handling, intuitive driving, reliability and above all safety. This combination of hand held devices and motor vehicles will have a reverse positive effect on the reliability of hand held devices as we currently experience them with often questionable functional stability.

    A key success factor in customer experience in this new seamless world is reliability and intuitive operation. Customer attitude and satisfaction will be driven by a wider complex of factors, spread between instant satisfaction (click and immediate response), long term performance, reliability and safety.

    The first show room experience when acquiring a new vehicle will remain highly important when making a purchase/ lease decision. The overall decision process itself will be based on a combination of online and showroom impacts. In the case of vehicles, the drive which TESLA is making to market EVs solely using the internet with a low number of ‘keynote’ stores in city centers is a questionable approach to this challenge.

    “Customer loyalty to automotive brands reached a 10-year high during the first quarter of 2015, according to analysis from IHS Automotive, a global provider of critical information and insight to the automotive industry and part of IHS Inc. “Michelle Culver, Marketwatch, quoting IHS Automotive

    In your opinion, what drives customer loyalty within the automotive industry?

    One of the major factors to influence customer loyalty is often laid before the potential customer has reached the age to acquire a new car. Marketing targeted at a generation who learn to operate hand held devices in early infancy but who are not yet in a position to acquire a new vehicle will become more important. Once a customer buys/ leases a vehicle it will be the traditional factors of design, performance and reliability that will keep the customer tied to the brand. A further factor will be seamless compliance between vehicles, the environment and interfaced devices. Not only the millennials and post millennials will appreciate this; an increasing number of ‘digital immigrants’ or ‘silver surfers’ will be equally influenced by these factors.

    With the increase of players in both premium and non-premium sectors, marketing and sales activities will need further refinement to reflect this expansion of complexity.

    What challenges does the German automotive industry face in keeping the consumer of tomorrow satisfied?

    The entry of new OEMs together with the introduction and acceptance of e-mobility will cause considerable changes and increase overall competition in the German market. The new OEMs in the German market will be focused mainly on e-mobility. The changes in attitude to ownership and use of motor vehicles will demand diverse paradigm shifts in marketing, sales and after sales. The prevalence of automated and networked vehicles will place strong demand on functionality, reliability and safety.

    This trend is, in effect, an extension of a trend which began at the beginning of the millennium, when OEMs began to offer wide ranges of derivatives or niche models based on common and modular architecture. All these changes, above all the blending of functionality between handheld devices and vehicles, will expand and change factors on which satisfaction in the motor industry has depended on for decades. Functionality and reliability will be supplemented by the demand for immediate and flexible satisfaction of demands on functionality, much in the fashion that ‘apps’ are now changing the way we access information and functions. The more traditional OEMs will be forced by a pincer action of changing client base and new competition to ‘think outside the box’ to find new ways of satisfying the demand of both the urban millennial and the customers who live in more widespread rural areas.

    “Fourth Industrial Revolution” interview with Tamas Horvath

    In the next few years, how does the future of Industry 4.0 look?

    Based on current estimation 10.9 billion Euro will be invested in the Industry 4.0. This significant investment clearly shows that we have reached another milestone in the evolution of industry.
    The vision behind the 4.0 concept is based on two major pillars, namely the smart factory – where the manufacturing factories are going to change from centralized control to flexible, self-operating plants – and the so-called global factory – where production networks are going to be established without geological borders.

    Personally I think that in case of Industry 4.0 we are talking about a step-by-step transformation, rather than a sudden change. This transformation impacts the whole value chain – communication, planning, production and logistics. In the upcoming few years the major focus is still on M2M communication and softwares.

    Relevant industry players allocate significant resources in industrial software developments. To give one example, an industrial giant like Siemens spends 50% of R&D budget on softwares. Roughly 17.000 out of the total 30.000 R&D staffing are SW developers.

    Besides internal developments, companies make alliances and joint projects, and, moreover, clusters have been established for Industry 4.0 to gather resources, expertise and knowledge.

    Still, there are challenges that we will continue to face until we reach the state of the total integration. Security of the system, data management, safety and communication platforms are the biggest barriers that the key players of the industry have been working on in order to be able to take the next steps towards full integration of cyber-physical systems within and across factories.

    What are the three main driving forces of change behind Industry 4.0?

    In the industry of the future, the product will become an information carrier and steer its own way through the production process, thus creating intelligent production.

    I see the following main driving forces:

    Flexible production, customization and cost efficiency even for small series, thus enabling them to combine the individual-tailored product with the benefits of scaled mass production. This means that the future factory is capable of meeting specific customer requirements within a short period of time and without without any significant losses.

    Effective logistics: Impressive development and big scale automatization can be foreseen in logistics as well. Connecting the logistics systems among the manufacturing factories and their suppliers provides major synchronization potential, huge cost saving and better capacity-to-demand ratios. Looking at longer horizon autonomous transport, automatized inventory systems will further improve the efficiency of the supply chain.

    Predictive maintenance: Whoever worked in manufacturing knows how painful the impact an unplanned down time has on business. It is not only the shut-down time, but indirectly such loss can lead to losing a customer or even market share.

    In the concept of 4.0 all manufacturing components have an individual IP address. With the support of sensors and intelligent softwares, a safety network can be created. Such monitoring systems detect the changes of parameters and inform the operators about the necessity of maintenance or even advise preventive repairing work. This leads to higher reliability and output.

    All the above mentioned items lead to one major goal, namely to enhance competitiveness.

    Many in the industry are turning to technological advancements such as artificial intelligence, 3D printing and smart factory manufacturing, to propel their aggressive business goals. How will these digital tools transform consumer demand as we move forward?

    Digital tools at the end of the day have one ultimate goal, namely to satisfy the user. All connected solutions have to focus on the users and their problems. The above mentioned digital tools take the customers’ wishes as the base during the development phase.

    Developing specific algorithms, huge data bases and the possibility to process them or the availability of powerful IT systems make the artificial intelligence a focus sector for the industry players with an estimated 20% annual growth rate in upcoming years. Out of the broad category of AI, I would highlight the autonomous robots as key, offering more flexibility, adaptability and mobility.

    The other technological advancement, which was mentioned in the question, is the 3D printing.

    In my point of view, the transformation – even the pace of the transformation – of the business objective of 3D printing is a key factor in understanding how the latest innovations will shape consumer demand. 3D printing had been designed and used to make prototypes, to shorten product development cycles and support the work of R&D. Currently, it has shifted towards mass production, offering lower material waste, production time and eliminating molds.

    In the end, all the functions and solutions provided by the above mentioned technological advancements need to aim to serve the users in a way, which makes the users’ life safer and more convenient.

    From the consumer perspective I would highlight the usability. Due to productivity and efficiency in our current environment, users need to have comprehensive understanding and broad responsibility. The users main expectation would be visualized, easy-to-use, intelligent tools, which make their daily work efficient.

    “Industry 4.0 Future Outlook – Promises and Challenges” with Mr. Willem Bulthuis

    There is much talk about Industry 4.0 in Germany. Why is this?

    The manufacturing industry is a key driver for the German economy. Therefore, any debate of the future competitiveness of this sector deserves and receives much attention. Discussions about highly automated factories trigger concerns about employment, while on the other hand reports about 3-D Printing and other new technologies ignite speculations about the future of manufacturing and logistics as we know it.

    The concept of Industry 4.0 has been promoted in Germany since 2012 by Professor Kagermann and others, as a wake-up call to the well-established German manufacturing industry.  A key element of this vision is the strongly increasing (digital) networking between machines, between factories and between companies in the value chain. Also, the vision of more intelligent, possibly autonomous, manufacturing processes, in which the unfinished product itself ultimately steers the production process, has been part of the concept. The latter element has been often described as the “batch-size 1” promise of Industry 4.0, enabling really individual products to be produced in a factory.

    In the meantime, it is broadly accepted that not only the production industry, but practically every business sector will be heavily impacted by what is now generally called “Digitization of Industries”.  The digitization of the Media Industry, which started already in the 1980´s with the music CD and, later, the Internet, was relatively straightforward as the “product” itself can be digitized (think MP3 music).

    The digitization of the manufacturing industry, however, can only address the monitoring and steering of processes – the product itself remains physical in the end, even when considering 3D Printing. Although we can learn much from understanding what happened to the media industry, the digitization of manufacturing will have its own characteristics.

    In the next few years, how does the impact of Industry 4.0 look within the German market?

    Much is happening already in a less-observed production industry – agriculture. “Precision agriculture”, levering satellite or drone-based sensors, Big Data analytics, autonomous machines and supply chain integration, is already used to reduce cost and environmental impact while increasing yield.

    In regards to manufacturing, we are seeing brand-new pilot or demonstration factories that give us a glimpse of the future factory floor. However, as the machines in existing manufacturing plants have a very long lifespan, new digital steering technologies have to work together with existing machines. Therefore, much of Industry 4.0 will happen as a rather evolutionary process.

    We will probably see more revolutionary change in business models and value chains. Digitalization, including the deployment of “Big Data” and ubiquitous sensors, can substantially impact topics like logistics, remote servicing and the tracking of products and their usage through their life cycle. Also in supply chain management and outsourcing, we might see more short-term impact of digitalization.

    If we consider the impact of internet-based “platforms” like Uber and Airbnb for matching supply and demand in their respective markets, we can imagine what might happen in industrial ecosystems. Such internet brokerage platforms tend to become rather powerful, due to their scale and networking effect. They therefore can take over part of the value that traditionally was allocated to the owners of physical assets like cars and spare beds – or, in our industry, factories or machines.

    It might take a while before there is an “Uber for the steel industry”, an “Airbnb for spare manufacturing capacity” or an “iTunes for 3D-Printable spare parts”.  But it they arrive, they will move fast and most likely not stem from traditional German manufacturing companies.

    Let´s also consider which trends that affected the media industry, in conjunction with societal changes, could also impact the manufacturing industry. An example is the shift from product ownership to service: consumers don´t buy music but subscribe to an online music library, young city dwellers don´t buy cars but use a car sharing service. In the B2B world, we see similar trends: building management companies don´t buy (LED) lightbulbs but subscribe to a lighting service, mechanics workshops don´t buy compressors but “hot air” on a pay-per-use basis.

    When Industry 4.0 allows us to produce “smarter” products, this raises the question whether products produced in our factories are still relevant after leaving the factory. If they are part of a subscription service rather than bought by the end-user, they can and should be tracked and re-collected at the end-of-life for recycling, especially of rare materials. If they can be remotely monitored, serviced and updated, a substantial part of the lifetime value is created after production. Thus the relationship of the manufacturer with their products can expand substantially.

    What advantage does Industry 4.0 have for small and medium companies in Germany?

    Generally speaking, Industry 4.0 promises to allow for optimization between cost and flexibility. In order to reap the full benefits, we have to consider “integral cost”, as especially aspects like logistics, maintenance and service during the product lifespan, as well as recycling, should be included.

    Flexibility can manifest itself in many ways, like being able to adapt production lines to rapidly changing demand and small batch sizes. In this context the notion of “batch-size 1” can be realized at different levels: from configuring standard building blocks (like when ordering a car) and personalizing software functions (like some PC manufacturers offer) to a fully individualized piece of hardware (as 3D-Printing enables). To what extent customers are willing to pay for individualization is, however, an open question.

    When increased flexibility is combined with better digital interfaces between players in the manufacturing ecosystem, it can become easier to outsource activities or to fill free capacity with small batches. This could help smaller manufacturers. However, if big internet platforms bring supply and demand together efficiently, this might create substantial price pressure, as has happened in other market sectors already.

    Whether Industry 4.0 will help smaller companies in Germany to deal with the expected shortage of qualified works, is also an open question. In general, digitization reduces the need for knowledge workers more than for factory workers. Robots could reduce the need for factory workers, but outside of heavy, dangerous, or monotonous tasks, human workers are often still more suitable and especially more flexible. Finally, the monitoring and steering of smart factories will require specialized staff – which is scarce.

    How can German manufacturers get ready for Industry 4.0?

    Established manufacturers should actively think “out-of-the-box” about how business models in their industry might change, what key assets they own and what their sustainable added value in the new business models could be – likely something different than what has made them successful until now. It is important to consider all functions and business processes integrally, as new business models are likely to impact several.

    It can be helpful to start by focusing on the changing expectations of end-users and understanding what happened to totally unrelated industries that are already “digitized”. We should keep in mind that paradigm shifts often come from outside industry – so looking at what competitors and partners are doing is not sufficient.

    As Industry 4.0 is largely based on smart usage of data, it is often said that “data is the new currency” – data can be highly valuable. Therefore, each company should consider what data it has or could collect, from its machines, business processes, products (in the field), customers and partners, and for whom it could be valuable. Such data should be actively collected and protected, and business models for monetization are to be developed.

    Legal and regulatory aspects must be considered, also their international differences. Unlike common belief, there is no concept like legal “data ownership”. Especially when establishing digital communication with value chain partners or machine suppliers, it must be clearly defined who has what access and what rights to use certain data, also taking privacy (of factory workers) into account.

    Last but not least, any Industry 4.0 implementation should be based on a solid IT-Security concept. The risks of industrial espionage and sabotage through cyberattacks are substantially increasing with digitalization of business processes. With the proper technical and organizational measures in place, this can be managed. However, this must be planned in advance, as is described in the White Paper “Managing security, safety and privacy in Smart Factories” edited by Dr. Florian von Baum and Willem Bulthuis and available on www.munichnetwork.com/2nd-smart-factory-innovation-forum/pressemeldung.html.

    Industry 4.0 is clearly a broad and complex topic, and there are no “one-size-fits-all” answers to the many questions manufacturers are facing. For many companies that want to take the digital future in their own hands, it is not realistic to develop in-house expertise and insights sufficiently fast.  External experts or Digital Advisory Boards therefore can be a good first step to develop a solid understanding of what the future might bring. The tough decisions, though, can´t be outsourced.

    Automotive Finance Industry – Highlights and Top Trends from Dr. Olaf Neitzsch

    Dr. Neitzsch, for the start and in a “nutshell”, could you please give us a short general overview on the Automotive Finance Industry?

    Yes, sure! Automotive Finance is on the one hand a global industry but at the same time has to adapt to legislation and business environments in specific local markets.
    Main players in that industry are the Financial Services Divisions / “AFC” (1) of Global Automotive Groups / “OEM” (2) as well as “independent” universal banks / finance companies which could serve numerous OEM / brands / dealers in specific markets.

    In general, the large Global OEMs have a very integrative approach with their AFC, and that concerns ownership, strategy and tactical actions. Here we could mention especially Toyota Motor Corporation, VW Group, Renault – Nissan Group and Ford Motor Company as well as the two premium groups Daimler and BMW – all of them covering their numerous Automotive Brands. General Motors is somewhat specific: although one of the “Top 3” OEM in car sales and having had their own AFC named “GMAC” for a long time – in the last few years they have changed  ownership and strategy several times – so it remains to be seen how that plays out for them long-term. Also, Hyundai – Kia Group has only entered a few markets so far with its own AFC; in many others they work with external providers, so there is still some potential to be captured. Usually, all these AFC go into “larger” (3) markets and support their OEM there.

    In “smaller” Automotive Markets, those AFC which focus on the brands of their own OEM could find it challenging to achieve the necessary scale for a Business Case. So, especially in smaller markets, local Universal Banks / Finance Companies often cover Automotive Finance and work directly with OEM and / or the car dealers.

    It is important to note that “Automotive Finance” means not only Retail Finance but also includes Corporate / Dealer Finance as well as related services such as Leasing, Fleet Finance and Insurance “packaged” with Finance products.

    In Developed Markets, what financial support is expected by both OEM and Dealers?

    In Developed Markets both OEM and Dealers expect an “integrated” approach by the Automotive Finance supplier and that means:

    • Delivering both Retail and Corporate Finance products
    • Support not only during “good” times but also during “bad” times, such as market depression and financial difficulties in the Dealer Network
    • Cooperating very closely with OEM and Dealer Network regarding mid and long-term strategies but also a flexible and “sense of urgency” approach on short-term tactical actions

    As the OEM is their Shareholder, the AFC has these three above mentioned priorities in their “DNA”. However, even in smaller Markets where OEMs cooperate with “independent” providers, OEMs expect no less – so either the Universal Bank delivers or the OEM considers changing the partner or  somewhat “adjusting” KPI due to the local market environment.

    How is that in Emerging Markets?

    In general, clients in Emerging Markets expect the same level of service, if not even higher, at least in the mid-term. So, especially in the larger Emerging Markets, the leading OEMs already have their AFC there and they deliver the same kind of services to the Dealer Network and to their Retail Customers.

    However, when a new market is entered, usually not everything can be done at once with a “Big Bang”, but rather a staged step-by-step approach is deployed, setting priorities. That being said, if in Developed Markets it took 50 years to come to today’s levels, in New Markets it should be done not in 10 or 20 years but in 5 – provided the local market environment allows for a Developed Market level of efficiency (4).

    Tata Motors of India acquired Jaguar Land Rover and Zhejiang Geely of China took over Volvo Cars. How do players from Emerging Markets drive changes in the Automotive Industry in general and how does this affect Automotive Banking?

    That’s an interesting one! Let’s first recap: Jaguar and Land Rover, both beacons of the British Motor Industry for a long time now, at some point run into problems and were acquired by Ford Motor Company at a time when FMC was the most profitable company globally – not just in the car industry, but of all. However, later on Ford also had problems and that US Motor Giant had to sell … and sold to an Indian Company. It was a similar situation with Volvo Cars, that synonym of Swedish Steel and toughness, so it became part of FMC but in 2010 was sold to Geely.

    So, coming back to your question: although Jaguar Land Rover and Volvo Cars are not large manufacturers but rather fit into special niches, the fact that a Giant and founder of the Global Automotive Industry – Ford – had to sell to Indian and Chinese companies shows that the world is changing! Both Tata and Geely are far from being Global players yet, but they could use JLR and Volvo as a test in Global Markets and, if successful, and if building up a sufficient “war chest”, they could repeat such acquisitions in the future with a larger OEM, establishing a real global footprint.

    In Automotive Banking however, that has no impact as yet. On one hand, both Tata and Geely have no global AFC as they are not a global player themselves yet. On the other hand, both JLR and Volvo Cars have a very diverse structure to support their Finance needs, differing from market to market: in some large markets they established their own AFC, in some smaller markets their long time existing AFC was closed after ownership change, in some they are served by independent external banks and finance companies. But as I said above, if Tata and Geely really were to go Global, all that could change and they could also become a player in Automotive Finance.

    According to a PwC Study, there is a backdrop of Macroeconomic uncertainty and major transitions are under way that will transform Auto Manufacturing over the next 10 years. With this transformation approaching, how will OEMs build Market Share and Profitability in the short-term and how should they position themselves for long-term success?

    First let me say that I will focus on the Automotive Industry in general without going into technical details of Manufacturing.

    Let’s first address Macroeconomic uncertainty. During my 25 years in the Industry, I have seen many ups and downs, booms and recessions, sometimes on a global scale and sometimes limited to specific regions. In general I think today we have no more or less uncertainty than 10 or 20 years ago. And if 10 years ago someone was too certain, then something unexpected hit and all the plans fell through like a house of cards – see the “Firestone” problem which hit Ford very hard in 2000 or the 2008 Global Finance Crisis hitting all OEMs brutally! Of course, OEMs cannot really influence the Global Economy, but they must prepare. How? Global Reach and Flexible Structures are key! Global Reach means that an OEM plays in all global key markets, not only with sales but also with (local) production, so they are better “buffered” if in one region recession hits, leading to a falling Car Market, because such an OEM can accelerate in other regions instead. The same applies if that recession region were to come back to growth, the OEM could increase production and sales there again. OEM with a strong global reach are, for example, Toyota Motor Corporation and VW Group; rather weak examples in this area are PSA Peugeot Citroen and FCA Fiat Chrysler, and level of global reach is one reason why these 4 OEM are either at the top of the automotive league or just average.  Flexible Structures come into play when there is a global downturn and it is necessary to adjust capacities for a certain time and to ramp up production afterwards once again. That flexibility is required in production (e.g. using external Assemble Capacities in peak times instead of opening a new plant or increasing / decreasing number of shifts) but it is also necessary in sales (e.g. having some flexibility to increase / decrease Car Stock in the Dealer Network (5) or directly at the OEM; or increasing / decreasing tactical Sales Support (6) depending on how Supply and Demand balance or not).

    Major Transitions: besides the importance of new Production Systems and sharing Platforms, Powertrains, Engines and Modules between Brands and Car Models within the Group, I would just mention a few points (there could be a full article on each of them) which are crucial to being successful:

    • Products & Innovation
      • Needs strong CORE Brands (Client must desire it, not just buy because of pricing)
      • Needs to LEAD in future SUCCESS Technologies (e.g. Hybrid, Hybrid Plug-in, Electric Cars) AND still make a profit with these products mid-term
    • Local production & local content purchasing
    • Group’s Integration of Manufacturing, Sales and Financial Services

    Having spoken about points for long-term success and being prepared for the future, these are heavy investments which do not pay off immediately. To fund them, the OEM needs some present Profit Generators and today, whether we consider that “progressive” or not, these are still gas guzzling pick-ups, SUV and large Limousines.

    Let me give you two iconic examples: Toyota started to develop the Hybrid Technology very early on, at a time when nobody could be certain if that would become the next big thing – today they start reaping the rewards of that courageous decision! Ford has already had  an absolute profit machine in their portfolio for decades – and that is the gas thirsty “F-150” pick-up which does not really seem to be the “transitional thing” but has already saved Ford through several crises!

    So to summarize my answer to your question: a successful OEM must master the fine balance between generating cash and profit today and investing into the future – not easy but that distinguishes the leaders from the average!

    Many Automotive Industry studies discuss the changing face of Retail based on evolving consumer demand. Can you explain this change and how it plays out for all participants?

    Yes, there are changes. It’s important to put them into context to the whole Industry, to their weight and to either their regional or global relevance, so let’s take a “balanced” view.

    E-commerce: Of course, today automotive consumers have a complete and easy way to access information. They can compare brands, dealerships, car models, specs, pricing and special actions. So, before they even hit the Dealer Showroom, they are very well informed and can negotiate as empowered partners. As that is the case for all OEMs and brands, it does not really shift the balance between them, unless somebody had in the past tried to “play with closed cards” – he would now lose to the players who value long-term customer satisfaction over short-term gains. Now looking at Direct Sales via the web: cars are not books or shoes, so Automotive Sales work somewhat differently, and  the after-sales process is even more important,  for example regular inspections, warranty repairs and servicing. During the last decade some OEM already looked deeply into the possibility of Web-based Direct Retail Sales, but did not go ahead with it for a number of logistical, organizational and “political” reasons (it’s not possible to go into all details here). Tesla Motors is an exception, but they are a small niche player and they are new, without Dealer Network “asset & liability”. So, I cannot predict what will be in 2045, but for the next decade I do not foresee dramatic shifts away from retailing via the Dealer Network.

    Ownership: Especially in Western European urban areas, we have recently seen that “desire” and “convenience” of owning a car is somewhat fading. For example, in London, Paris and Berlin one has to deal with traffic jams and shortage of parking facilities, so it’s faster and more convenient to go by public transportation, to take a Taxi or, when you really need a car, to take a “rent-as-you-go” vehicle. And during their holidays, they fly to the south anyway. So, if not everyone who could afford a car wants to own one,  that means, of course, less Retail Sales. On the other hand it means more Fleet Sales, but taking into account that these “rent-as-you-go” vehicles are often rather small and E-powered vehicles. So, overall, less Retail but a bit more Fleet still means less Total Sales. However, at the moment that is a development seen mainly in Western Europe, not in China, USA or other Regions. As “old” Europe does not rule the automotive world anymore, (as we will see in the next paragraph), I would call the global impact “limited” so far.

    New Technologies: Of course consumer demand will go even more into Hybrid, Hybrid Plug-in, Electric Cars and other new evolving Technologies, but so far I don’t see how that would really change the way Cars are sold and serviced in Retail and Fleet, at least not over the next decade.

    Impact on Automotive Finance: As Finance is closely related to Car Sales, even “bundled”, the trends described above also have an impact on the AFC. So, the Client considering Finance will also collect information on that before entering the Dealer Showroom. If in Western Europe less people intend to own a car, this would mean less Retail Finance but on the other hand increased Fleet Finance for all these “as-you-go” Fleets. As for New Technology Cars, they are also bought with credit or leasing, so it does not change the total picture … even more … sometimes OEM and AFC jointly launch special programs to attract consumers to these vehicles which often are more expensive than the same models with conventional engines.

    By 2030, what three Countries do you predict will be on Top of the Global Automotive arena and why?

    First let me say that we should look at Sales, at Production and also at the Global Players regardless of their country of origin. When predicting what will be in 15 years from now, we should take into account strengths and weaknesses (present) as well as opportunities and threats (future development).

    Sales (7): It is not difficult to foresee that China will be No. 1 and the USA No. 2 – China is already “THE Giant” and is still growing; the US is “a Giant” but already saturated (just the usual ups and downs depending on how the US economy is going). As No. 3 in 2030 I would not pick a country but a group of countries having some market similarities. Today that would be the EU, but as they are saturated as well, I think the “B-R-I” (Brazil-Russia-India) have the long-term potential, even if facing some specific challenges presently.

    Production (8): Of course China as No.1; their production is almost in parallel with their sales. As the US is losing capacities to Mexico, I would see them at No. 3 and “B-R-I” would go up to the No. 2 spot, also overtaking Japan and Germany.

    Balance of Sales and Production – Importers and Exporters: China is almost the only country with a real balance and should stay so. “B-R-I” as a group is almost balanced today, and by 2030 could even be exporting. The US is an Importer today and will be even more so by 2030. In general, the OEMs increasingly shift production from their countries to Emerging Markets, often within a region, so by 2030 we will see that: Mexico supplies the US; Thailand, Vietnam and Indonesia also produce for Japan; and Czech Republic, Slovakia, Romania and Turkey supply the German, UK and French markets!

    Players (9): As with China, here we have two “easy” predictions at the top: VW Group and Toyota Motor Corporation will make No. 1 and No. 2 between them, just trading places several times during the next 15 years. They are the two giants today, each of them having some weaker and some stronger spots, but clearly the leaders in the industry. At No. 3 there could be a “Dark Horse” emerging, for example a Chinese Player teaming up with an “old” OEM. If not, than we have four potential candidates: GM, Renault – Nissan Group, Hyundai – Kia Group as well as Ford. I would bet on Hyundai – Kia, as during the last decade they got up a great momentum: in Developed Countries they increased reputation and market share steadily and in Emerging Markets they grew aggressively. So, I think Hyundai – Kia could make it to No. 3 … and last but not least … recently Pope Francis started to drive around in a new Hyundai “Papamobile” – what else could be  better support!?!

    ———-

    1. AFC: “Captive” Automotive Finance Company owned by Global Automotive Groups
    2. OEM: “Original Equipment Manufacturer”, in this case Global Automotive Groups which produce, export-import and distribute Cars and Light Commercial Vehicles
    3. Each AFC / OEM has to define what is sufficient “large” for them, for example 500 Thousands New Car Sales / year in the Market could be the point to go in for some, whilst others would look for 1 Million at least
    4. For example, do Credit Bureaus exist and hold sufficient data to allow for a fast Underwriting Process? Also, can Client and Bank close their Contract remotely via the Dealer based Point of Sales or does the local Bank Legislation still require the Client’s Identity to be checked by a Bank employee (“KYC” / “Face-control”)?
    5. Importance of AFC provided Dealer Finance!
    6. Importance of Special Interest Rate programs jointly offered by OEM and AFC / Finance Provider!
    7. Sales 2014 (Mills.): China 23.6, USA 16.5, JAP 5.5, BRA 3.3, GER 3.2, IND 3.0, UK 2.8, RUS 2.5, FRA 2.2, CAN 1.9, S-KOR 1.7, ITA 1.5
    8. Production 2014 (Mills.): China 23.7, USA 11.7, JAP 9.8, GER 5.9, S-KOR 4.5, IND 3.8, MEX 3.4, BRA 3.1, ESP 2.4, CAN 2.4, THAI 1.9, RUS 1.9
    9. OEM Sales 2014 (Mills.): VW 9.9, TOY 9.8, GM 8.0, R-N 8.0, H-K 7.6, Ford 5.9, FCA 4.6, HON 4.4

    What are they key trends that will impact the chemical market in 2015?

    In 2015, the principal trends will include (1) growth within emerging markets outside the Western region – where local players are ahead of the competition thanks to lower manufacturing costs, (2) tailored innovative solutions to both end users and supply chain players, (3) business and operational strategies driven by market demand, competitive landscape, regulations to increase revenue and the desire to win a better market share. In order for global companies to succeed they will need to take all these factors into consideration and be ready to dramatically adjust their overall business models to new market demands. But more importantly, green chemistry/sustainability and the elimination of the commerce of chemistries with unfavorable environmental characteristics is another important trend that offers boundless opportunities for companies to create new products through advanced manufacturing biotechnologies using biomass and new agricultural materials. These trends will play a major part in the year(s) to come, but there tends to be one overarching tenant in this discussion which I will focus on and that is increased regulatory burdens on chemical manufacturers to demonstrate environmental safety of their processes and products.

    As a practicing ecotoxicologist, environmental exposure analyst and environmental risk assessor for major chemical companies for the past 25+ years I will focus my remarks regarding the key trends in the chemical industry in 2015 toward the environmental safety perspective. As I note above, the overarching tenant in this discussion is the certainty of increased regulatory pressures regarding environmental issues that chemical companies will face in 2015 and beyond and the increasing time and resources required to address these regulatory requirements.

    Specific key topics that I wish to address include TSCA reform within the US, risk assessment in emerging markets, sustainability/green chemistry, endocrine disruption and finally, Persistent/Bioaccumulative/Toxic [PBT] chemicals and Persistent Organic Pollutants [POPs].

    The Toxic Substances Control Act [TSCA] was passed in 1976 and is the principal legislation within the US for ensuring the safety of chemicals used in commerce. At the time of this writing a modernized bill [Senate S.697] has been amended and approved by the Environment and Public Works Committee to be presented to the full Senate for review. Importantly, the amended bill has provisions for, among other items, a requirement that USEPA make an affirmative determination that a new chemical does not present an unreasonable risk of injury under its intended conditions of use before it can be manufactured, imported or processed in the US. The bill would also require EPA to designate existing chemicals (i.e., those on EPA’s TSCA Inventory) as “high” or “low” priority through a risk­based prioritization process and then conduct safety assessments of and make safety determinations about the high-priority chemicals. Clearly, this initiative while beneficial with regard to environmental health will increase regulatory costs as a function of increased toxicity testing and risk assessment activities for chemical registrants.

    China and Latin America [LATAM] are emerging markets for chemical companies. In addition to the nascent nature of these markets on the business side of the equation, the environmental safety assessment approaches of these emerging markets are in the developmental stages as well. In general, the assessment of chemical safety in these markets are conservative and reflect a Tier I level of analysis.  Tier I risk assessment are maximally conservative in terms of toxicity and exposure. In some instances these conservative assessments are based not on the risk assessment paradigm, i.e., toxicity versus exposure but on a hazard based approach. The hazard based approach evaluates chemical safety as a function of inherent toxicity of the chemical entity and lacks the scientific rigor of the risk based approach. The industry as a whole must educate the regulatory authorities in these emerging markets with regard to the state of the art of the risk assessment process and to the downside of chemical safety assessment based solely on hazard.

    Sustainability/Green Chemistry initiatives are growing significantly in today’s market place. The sustainability/green chemistry initiatives encompass sourcing and selection of precursor chemistries to chemical use practices. With regard to sourcing and selection of chemical precursors, consideration is of course given to cost but also and perhaps more importantly to the environmental profile of a particular chemistry in terms of characteristics such as, persistence, bioaccumulation potential and toxicity. Concerning sustainability and end product use, 2015 will see increased insistence of the market place for materials with low precursor and end product use volume, low environmental impact and relatively superior performance/safety profiles.

    Endocrine disruption issues have been at the forefront of the science of chemical safety assessments for 50+ years beginning with the publication of Rachael Carson’s Silent Spring in 1962. At issue is the activity of exogenous chemicals that mimic endogenous hormonal substances. Adverse effects in humans can include reproductive impairment, potential increased hormonal based cancer incidences, e.g., testicular, breast and prostate and premature puberty. In wildlife, causal links of chemicals to endocrine disruption have been established for aquatic invertebrates [imposex in whelks], egg shell thinning in birds [DDT], reproductive impairment in fish evidenced by changes in reproductive organ structure and function, and in terrestrial mammalian species [PCBs]. With regard to the potential environmental effects, it is noteworthy that most of the occurrences of these effects were found to occur in heavily contaminated areas. USEPA has developed an endocrine testing program and should be commended for their efforts.  However, while the breadth of the testing program is broad and comprehensive, it lacks a clearly defined risk assessment paradigm. Testing may provide toxicity endpoints in dose concentrations of sufficient magnitude to induce a toxic response in test organisms. However, how these endpoint concentrations relate to exogenous environmental chemical concentrations orders of magnitude lower, with less activity than the endogenous hormones remains to be established. Hormesis, the notion of chemical activity at very low concentrations with regard to the cellular mechanisms of the endocrine system is under significant debate. However, the consensus appears to be that hormesis in this regard is NOT a plausible mechanism for endocrine activity. Chemical mixture toxicity may a play a role in allowing low levels of exogenous chemicals to affect the endocrine system. Testing paradigms do not currently capture the mechanisms of the toxicological effects induced by chemical mixtures.

    PBT chemicals are persistent in the environment, toxic and by their lipophilic nature accumulate within the food chain. As such PBTs effect human and ecosystem health. Persistent Organic Pollutants [POPs], codified by the 2001 Stockholm Convention, are chemical entities that like PBT materials persist in the environment, bioaccumulate through the food chain and pose a risk of adverse effects to human health and the environment.  POPs have been identified under the auspices of the Stockholm Convention and slated for elimination from commerce with few exceptions e.g., DDT for malaria abatement in developing countries. The criteria for PBT and POPs are defined nationally/geographically dependent upon half lives in soil, water and air, octanol water partition coefficient (Log P) or Bioaccumulation Factors (BCF) and species specific toxicity levels. For chemical manufacturers the challenge is to eliminate potential PBT or POPs from their synthesis routes and /or product portfolios.  Substitutions of PBT chemicals from marketed formulations can be costly and can alter the efficacy of the formulated product. The key then is to define potential PBT materials during the initial stages of product research and development and to eliminate them from process/products prior to commercialization where replacement may become problematic.

    These key trends will continue to influence the chemical market place in 2015. Increased regulatory burdens will lengthen product development cycle time and increase costs of developing new chemical active ingredients. The use of state of the art risk assessment science at the product concept inception phase through sales and marketing will reduce development costs, support appropriate product stewardship and reduce potential product liability costs. Finally, awareness of the key trends in the chemical market space and forward looking risk assessment strategies with regard to environmental health and safety can be employed as a value added component of a chemical manufacturer’s product portfolio.