20 September 1999 00:00 [Source: ICB Americas]Over the years, the changing face of the chemical industry has led to strategic shifts in the direction of both commodity and specialty chemical manufacturers, according to Peter H. Spitz and Kline & Co. president Andrew A. Boccone. Last week, both analysts outlined their views on changing industry dynamics. They spoke in New York, at the SociÄtÄ de Chimie Industrielle's first meeting of the season.
Coming out of a difficult operating environment in the 1990s, which saw one price runup (1994 to 1995) and two downturns (1991 to 1993, and 1997 to 1999) in addition to a severe economic crisis in Asia, the petrochemical industry has adapted in numerous ways, Mr. Spitz noted.
Consolidation, fueled in part by severe competition from Asia, has reduced the number of players in the industry. In addition, many basic chemical companies have transformed themselves into specialties manufacturers (ICI, Rohm and Haas), while others have restructured to become life science firms (Hoechst, DuPont and Monsanto).
"The 1990s witnessed the growing influence of the financial community on company strategies," Mr. Spitz told the meeting. He added that this is driving companies to deliver shareholder value by withdrawing from businesses that do not earn their cost of capital. Companies are also employing EVA-type concepts to align management actions with shareholders' interests and maximize the productivity of assets.
Consolidation is in full swing, led by large mergers and acquisitions, such as the recent deal between Dow and Union Carbide. The surviving companies are increasingly focusing on back-integration, access to low-cost feedstocks and geographic expansion.
"Over the next decade, companies will execute strategies that will help them to be flexible and efficient while resuming growth," Mr. Spitz predicted. He noted that ERP systems will become effective with experience, emphasis will shift to global supply chain management, supplier-managed inventory will be standard, new business models will be developed as e-commerce gains ground, and multinationals will increasingly partner with regional firms in emerging markets.
In the specialty chemical industry, globalization, consolidation of the customer base, market maturation and a lack of product innovation leading to lower growth have forced companies to consolidate and develop new business models, Kline's Mr. Boccone said.
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