Novozymes’ business model and markets present both opportunities and risks. Opportunities must be pursued in a controlled manner so that the attendant risks are identified and known in advance and are acceptable.
Formal procedures are in place to ensure that risks are identified as early as possible and that mitigating activities are closely monitored. A detailed description of the risk management setup can be found in the Risk management section.
The most critical risks for Novozymes are those related to its overall strategy, as the company’s future growth and market position and the achievement of its long-term targets may be affected if these risks are not appropriately addressed.
Novozymes puts great effort into maintaining its position as market leader by continually launching new and improved high-quality solutions that meet customers’ needs. Our projected sales are not dependent on single large product launches, as we constantly have several new products in the pipeline. However, an inability to deliver innovation could increase the risk of a negative impact on Novozymes’ sales growth targets. This places high demands on the Group’s R&D and Business Development functions, requiring it to sustain a full and flowing pipeline. Novozymes has increased the focus on how the 13-14% of sales used for R&D are applied in order to optimize the process from idea to launch.
Our technology is the basis of our business, and we pursue an active patent strategy by protecting new discoveries as early as possible. This prevents new products, processes, etc. from being copied. With more than 7,000 patents granted or pending, Novozymes has an extensive patent portfolio that it actively safeguards to prevent and stop infringement by competitors. At the same time, competitors’ activities are constantly monitored to ensure that Novozymes’ innovation does not infringe any existing patents, whereby resources and costs for product development can be saved through early intervention.
“It is important that the innovations we launch are useful to our customers and give them a competitive advantage in their markets.”
In 2013, we worked continuously on securing patent rights in China, as we have seen an increasing risk in enforcing intellectual property rights in the Chinese legal system. In addition to securing valuable patents, Novozymes has increased surveillance of the Chinese market, in collaboration with relevant legal advisors, in order to react quickly and efficiently against patent infringement.
Internally, the process of upgrading our IT security begun in 2012 continued in 2013, and the Protect Knowledge awareness program implemented in R&D in 2013 will be transformed into a corporate program covering all Novozymes employees in 2014.
It is also important that the innovations we launch are useful to our customers and give them a competitive advantage in their markets. Failure to deliver the right products may provide openings for our competitors. As stated above, Novozymes works closely with major customers to mitigate this risk by means of joint development projects, which provide guidance on which new products should be prioritized and ensure that the products launched fit with customers’ needs.
“Our technology is the basis of our business, and we pursue an active patent strategy by protecting new discoveries as early as possible.”
Unlike most other industries in which Novozymes operates, the transportation fuel industry is politically regulated, and sales in this industry are linked to regulatory developments. In the U.S., our major market for biofuels, any changes in blend limits and/or the Renewable Fuel Standard can have a significant impact on our sales in the industry.
A major part of the biofuel industry in the U.S. was founded on a political initiative to use domestic agricultural resources to improve energy security, reduce carbon emissions and support rural economic development. The same three drivers apply globally, but political support varies due to its dependence on regional and geopolitical developments. Sales to this industry may also be affected by the ongoing debate on whether the use of agricultural resources for energy production is sustainable. However, Novozymes has tried to address this concern by developing technology that can convert biomass, not primary grain, into fermentable sugars, allowing each region of the world to utilize its own natural endowments to produce cleaner, renewable biofuels and bioplastics.
To promote this technology and inform the debate, Novozymes works with key opinion-makers in academia, NGOs and intergovernmental organizations worldwide to encourage a balanced public debate and ensure that policy is scientifically based. Our engagement in the U.N.-led Sustainable Energy for All initiative is a good example of this. Novozymes also works closely with industry partners such as Beta Renewables to demonstrate the value of the technology.