Scaling, Adapting and Partnering: How Europe’s Chemical Sector Can Stay Competitive in a Changing World

At Chemspec Europe 2026, I joined a panel with industry leaders to discuss a question increasingly shaping the future of Europe’s chemical sector: how can the industry remain globally competitive as the foundations of industrial advantage continue to shift?

Rising energy costs, geopolitical fragmentation, supply-chain disruption and intensifying global competition are reshaping the operating environment for chemical manufacturers, CDMOs and distributors alike, yet the challenge facing Europe extends beyond short-term market pressures. Many of the forces affecting the sector now appear structural rather than cyclical, requiring companies to rethink not only where they compete, but how competitive advantage itself is built. Throughout the discussions, one message emerged consistently: scale and efficiency alone are no longer sufficient differentiators. The companies adapting most successfully are those building flexible supply networks, strengthening strategic partnerships and investing in innovation capabilities that allow them to respond quickly to changing market conditions.

For Europe’s chemical industry, this moment represents more than a period of pressure, it marks a broader transition in how industrial competitiveness is defined.

Europe’s Competitive Pressures Are Structural

Many of the challenges facing the European chemical sector should no longer be viewed as temporary disruptions, instead they reflect deeper structural shifts likely to shape the industry for years to come.

European manufacturers continue to operate under significant cost pressure, particularly in energy-intensive segments. According to Cefic’s 2025 Facts & Figures report, Europe’s share of global chemical sales has fallen to approximately 13%, while China’s share now represents around 46% (1). At the same time, European energy prices remain substantially higher than those in competing regions. FECC’s Director General, Dorothee Arns, mentioned during her Chemspec Europe 2026 keynote that European energy pricing remains approximately 3.3 times higher than US levels, creating a major structural disadvantage for European producers (2). Global trade dynamics are adding further complexity: geopolitical tensions, tariffs, wars and evolving sourcing strategies are increasing uncertainty across international supply chains, while investment in manufacturing scale-up and industrial innovation has accelerated more rapidly in competing regions. Cefic’s 2025 Chemical Trends Report indicates that EU chemical capacity utilisation remains below historical averages at around 74%, reflecting sustained weak demand and subdued business confidence (3). Over the past two years, several major European producers have also announced plant closures, reduced capacity or delayed investment decisions amid ongoing cost pressures and weaker market conditions (4). At the same time, Asian markets , particularly China and India, continue strengthening both manufacturing capability and innovation capacity across speciality chemicals, advanced materials and pharmaceutical supply chains (1, 5).

Competing on cost alone is therefore becoming increasingly difficult for European producers. The more important challenge is identifying where Europe can continue to create differentiated value in an increasingly competitive global environment.

Supply Chains Are Being Redesigned

One of the clearest operational shifts across the sector is the redesign of supply-chain strategy.

For decades, efficiency and cost optimisation dominated procurement and manufacturing decisions. Lean sourcing models and concentrated supplier networks often performed well in relatively stable market conditions. Recent global disruptions, however, exposed the vulnerabilities created by excessive dependence on single suppliers or regions. As a result, many companies are reassessing how they balance efficiency, continuity and responsiveness. Regional manufacturing partnerships and supplier diversification are increasingly being integrated into long-term planning, particularly within pharmaceutical and specialty chemical supply chains where reliability carries significant commercial value. For example, many multinational pharmaceutical companies, emerging biotechs and speciality chemical firms are now implementing “China-plus-one” sourcing strategies by adding secondary suppliers or manufacturing partners in Europe, India or Southeast Asia to reduce concentration risk and improve continuity of supply.(6) Several CDMOs are similarly strengthening regional manufacturing capabilities to improve responsiveness and reduce logistical vulnerability.(7) This shift reflects a broader reassessment of how operational resilience is measured. Five years ago, supply-chain discussions focused overwhelmingly on cost reduction. Today, reliability, visibility and flexibility increasingly carry equal strategic importance.

Unfortunately that transition does not come without trade-offs: maintaining multiple supplier relationships, qualifying additional manufacturing partners and building greater inventory buffers inevitably increase operational complexity and cost challenging companies to improving resilience without undermining competitiveness.

But customer expectations are evolving, and, in highly regulated sectors such as pharmaceuticals and speciality chemicals, continuity of supply is increasingly viewed not simply as an operational requirement, but as part of overall commercial value.

Collaboration Is Becoming Strategic

If supply chains are becoming more distributed, business relationships are becoming more integrated.

The complexity of today’s chemical market increasingly requires companies to operate through broader industrial ecosystems rather than isolated commercial models. Manufacturers, distributors, CDMOs, logistics providers and technology partners are working more closely together to improve forecasting, accelerate innovation and manage operational risk across interconnected value chains. Relationships that were once largely transactional are becoming more strategic and long-term in nature. This is particularly visible in innovation. As R&D becomes more specialised, technologically complex and capital intensive, collaborative models involving industry, academia and technology providers are playing a growing role in accelerating development while distributing technical and financial risk.(9)

Public-private initiatives are also contributing to this transition. Across Europe, organisations such as FECC continue to facilitate dialogue between industry stakeholders and policymakers around competitiveness, sustainability and industrial resilience. Programmes linked to Horizon Europe and wider industrial decarbonisation initiatives are similarly supporting innovation, advanced manufacturing and sustainability transitions across the sector.(10)

Collaboration, however, introduces its own challenges: greater integration across partnerships can raise concerns around intellectual property protection, data sharing and competitive differentiation. Companies therefore need to balance openness with the protection of proprietary expertise and commercial advantage.

Even so, the direction of travel is increasingly clear: as supply chains, technologies and regulatory requirements become more interconnected, collaboration is evolving from a supporting capability into a core strategic function.(11) The companies best positioned for long-term success may therefore be those capable of operating not only as suppliers, but as trusted strategic partners within increasingly integrated industrial ecosystems.

Europe’s Real Competitive Advantage: Capability

Despite mounting pressures, Europe retains one advantage that remains difficult to replicate at scale: deep scientific and industrial capability.

The region still holds significant expertise across advanced materials, life sciences, sustainable chemistry and precision manufacturing, supported by strong regulatory frameworks and highly specialised technical knowledge. In sectors where quality, compliance and process reliability are critical, these capabilities remain commercially valuable differentiators. The challenge now is ensuring that Europe can continue converting scientific leadership into industrial and commercial leadership.

At the same time, the sector is undergoing rapid technological change: digitalisation, AI-enabled process optimisation, automation and data-driven manufacturing are reshaping chemical operations and supply-chain management. Sustainability requirements are similarly accelerating demand for expertise in green chemistry, energy efficiency, circularity and low-carbon manufacturing technologies.

This leads to a widening of the skill gap as companies are experiencing increased difficulty recruiting experienced technical professionals, process engineers, digital specialists and advanced manufacturing talent. In some regions, ageing workforces are also creating succession challenges within highly specialised operations.(12) The future workforce will therefore require a broader combination of scientific, engineering and digital capabilities.

It is however both a challenge and an opportunity. The industry must continue attracting and developing the next generation of scientists, engineers and manufacturing specialists while also repositioning itself for younger talent by emphasising innovation, sustainability and the increasingly strategic role chemistry plays across healthcare, energy transition and advanced industrial technologies.

Europe’s innovation potential remains considerable. The key question is whether the region can continue translating scientific capability into industrial scale-up, investment and long-term competitiveness within Europe itself.

Redefining Competitiveness

Europe’s chemical sector is unlikely to regain competitiveness by competing on cost alone against larger and lower-cost regions. The more important question is whether it can lead in areas where reliability, technical sophistication, regulatory credibility and innovation increasingly matter.

That will require more than incremental adjustment and demand stronger industrial ecosystems, faster scale-up capabilities, deeper collaboration across the value chain and sustained investment in advanced manufacturing and workforce development.

The defining competitive advantage of the next decade may not be scale itself, but the ability to combine agility, scientific capability and trusted industrial partnerships at global scale.

In my view, Europe’s opportunity lies not in preserving the industry exactly as it was, but in redefining what leadership in the chemical sector looks like in a more interconnected and technologically advanced global economy.

References and notes

1. European Chemical Industry Council (Cefic) Facts & Figures Report 2025.
2. FECC is the European Association of Chemical Distributors. Dorothee Arns keynote presentation and remarks, Chemspec Europe 2026; ICIS coverage of European chemical market conditions, May 2026.
3. Cefic Chemical Trends Report Q1 2026.
4. Company reports and investor disclosures from major European chemical producers (including BASF SE, INEOS Group, LyondellBasell Industries, Yara International ASA, and SABIC), 2023EN_DASH2025; corroborated by industry analysis from Cefic (European Chemical Industry Council) and sector commentary on European chemical competitiveness, energy costs, and capacity rationalisation trends.
5. McKinsey & Company analyses on the global chemical industry and Asian chemical market expansion, 2024EN_DASH2025; and Organisation for Economic Co-operation and Development (OECD) reports on industrial innovation and advanced manufacturing trends in Asia.
6. McKinsey & Company and Deloitte analyses on “China-plus-one” sourcing and supply-chain resilience strategies, 2024EN_DASH2025.
7. PharmaSource, The Great Reshoring: How $24.86 Billion Reshaped CDMO Manufacturing in 2025, 2025; OECD (2025), OECD Supply Chain Resilience Review: Navigating Risks.; and industry analyses on regionalised pharmaceutical manufacturing and CDMO supply-chain resilience strategies.
8. FECC industry discussions and publications on European chemical value-chain resilience and diversification strategies, 2025EN_DASH2026.
9. European Commission, Horizon Europe Strategic Plan 2025EN_DASH2027; European Chemical Industry Council (Cefic) innovation and sustainability publications, 2024EN_DASH2025.
10. European Commission Horizon Europe and EU industrial resilience and decarbonisation initiatives.
11. FECC industry interviews and commentary on collaboration and supply-chain transformation, 2025EN_DASH2026.
12. World Economic Forum Future of Jobs Report, 2025; Cefic workforce and skills publications, 2024EN_DASH2025.