Chemical Firms Plan - Case Study Example

The sixteen firms plan a 7.6% rise in spending for new plants and equipment in 2007 to 0.4 billion, down from 28.1% and 16.5% for 2005 and 2006 respectively. While companies surveyed in January 2006 expected to increase capital spending by 17.0, the expected increase in R&D was 4.7%, proving that priorities and spending plans can change over the course of a year. This year's group reports that it actually increased R&D by 9.0%. Of the 16 companies that provided 2007 capital spending plans, 10 expect to increase spending on new plants and equipment compared with 2006, two plan to spend the same, and four have plans to cut back.

This compares with 14 that increased spending in 2006 and two that pulled back. In some cases, firms are spending on new capacity in response to customer demands. Other firms intend to make capital improvements to enhance efficiency and productivity. Ferro, for instance, says it is increasing spending to fund productivity improvement and also to underwrite restructuring programs in its electronic materials and colors segments. The firm plans to increase capital spending by 36.4% to million in 2007.

Of the 14 firms surveyed on R&D spending plans, nine plan to increase spending in 2007, three plan spending cuts, a. The 14 firms in this group budgeted a combined 0.6 billion for research in 2007, up 5.8% over 2006. Their plans mark a slowdown compared with the collective 7.3% and 9.0% boost to research budgets in 2005 and 2006, respectively. Funds slated for R&D tend to move in a narrower range than those for capital improvements. So when capital budgets jump, a proportionately smaller share of the budget goes to fund research.

This year, the firms in C&EN's survey expect to devote 30.3% of future-oriented funds to research, compared with the decade high of 34.8% in 2004 and the decade low of 27.7% in 1997. The combined 2007 budget of the 14 firms that supplied both R&D and capital spending data is .5 billion. Despite the slowdown in the rates of increase, the figure marks a decade high. Four years ago, in 2003, the group's future-oriented spending hit a decade low of .9 billion. A significant run-up in capital expenditures gets most of the credit for the rebound.

But take inflation into account, and the funds destined for future-oriented projects won't buy nearly as much as they did 10 years ago. The .5 billion that the group plans to spend this year is only .9 billion in 1997 dollars. Because of the boost in capital spending in recent years, the ratio of investment in new equipment to investment in research has steadily increased.Inevitably, inflation whittles away at the buying power of dollars devoted to research. The .6 billion devoted to R&D by this year's group of 14 companies represents only .

1 billion based on a constant 1997 dollar. However, that .1 billion also marks the inflation-adjusted decade high. The Industrial Research Institute's "R&D Trends Forecast for 2007" notes that despite a slowing housing market and wavering consumer confidence, many