INSIGHT: BASF seeks out the customer for Asia growth

29 September 2009 15:57  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--BASF’s updated Asia-Pacific strategy targets an increasingly sophisticated regional market and the push for growth deeper into China.

The chemicals giant has its large cracker complex investment with Sinopec in Nanjing and is planning to boost MDI (methyl di-p-phenylene isocyanate) production in Chongqing. These are the big ticket items but the company clearly wants to make headway with smaller regional investments in the increasingly expanding China regions, in India and South Korea.

It also has it eyes on the consolidating downstream chemicals industry in Japan.

The 2020 strategy update targets ambitious 6% to 7%/year sales growth and a doubling of regional sales. Last year BASF sales in Asia-Pacific amounted to €9.3bn. The financial crisis has hit hard with local plants in China and elsewhere closed or running at much reduced rates. But a lot of China capacity is back up and running, feeding demand lifted by the government’s stimulus package and credit easing. In the first half of 2009, Asia-Pacific sales for the group were €3.8bn.

BASF has had an aggressive Asia and China strategy for years and was among the first group of western companies to secure a grassroots cracker joint venture in the world’s fastest growing chemicals markets. Sales growth between 2003 and 2008 averaged 15% a year.

Over the next 10 years it wants to make more products in Asia adapted for Asian needs, according to the board member with Asia-Pacific regional responsibility, Martin Brudermuller. There are a first flush of target markets: automotive, construction, packaging, paint and coatings, and pharmaceuticals.

The company says it is looking at value chains in these key industries. Its understanding of those value chains will drive business decsions that help to raise organic growth and prompt acquisitions.

The plan is to increase employee numbers in the region by a third and add more research and development capability in China and India to develop more sophisticated market growth.

BASF’s growth plans are underpinned by clear demographic trends. The Asia-Pacific region will remain a net importer of chemicals even though there is already local overcapacity in some products. The company believes that its needs to react to the migration of industries within Asia-Pacific itself to ensure that it has its chemicals production in the right place.

“In the next 10 years, half of the two billion potential customers of chemicals will be in Asia,” Brudermuller says. BASF forecasts that Asia-Pacific gross domestic product will grow at 4.7% a year between 2008 and 2020 against average global growth of 2.6%.

Greater China accounted for 38% of Asia-Pacific chemicals demand last year and is expected to continue to grow fast as a market for chemicals.

BASF estimates that by 2020 Asia-Pacific will account for 46% of the $1,150bn worth of regional demand.

Its focus on China, however, will develop to tap into what it sees as an upside potential of more than €200m in sales through increased penetration of emerging provinces. It says it will target inland cities and provinces in a “phased approach”; most of the Asia-Pacific investment budget is likely to be earmarked for China.

Underlying BASF’s plans are a more customer-driven approach to project and market development. BASF has worked closely with the Tata Group, for instance, in its development in India of the revolutionary Tata Nano. The chemical maker’s market development in India, in China, Japan and elsewhere in the region is more likely than not to be underpinned by product development with key customers.

“Local innovation and local production are driving business growth in this region. We therefore want to develop new applications, products and solutions together with our customers in Asia, adapted for Asian needs, and then serve local markets primarily through our sites and our talent in the region,” Brudermuller says.

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By: Nigel Davis
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