INSIGHT: Business transformation is about making the journey

24 December 2010 15:38  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Is DSM showing, in a relatively small way perhaps, how it will be done?

Consultants, and others, believe that the great challenge for the chemical industry in the coming decade will be transformation. Companies face considerable market challenges, but also considerable opportunities related to widely recognised global megatrends.

These - which include population growth, changing demographics and hugely changed energy requirements - will require new chemicals in new places. Most (chemical) producing companies are currently far from able to tap directly into megatrend benefits, although some are trying hard to do so.

But as intellectual and, ultimately, capital resources are directed more towards megatrend-related new lines of business, so the shape of the chemicals sector and the companies operating within it will change.

Companies will still have to do what they have done for years, but they will also have to utilise all their resources more effectively and become still more efficient converters of feedstocks into chemicals and cash. Commoditisation is a challenge but is one that has been addressed successfully by some companies for years - DSM is an example.

Most chemical producers will be challenged to do things better: to adapt processes - and adopt new chemicals - to meet changing market needs.

Over the past few weeks, DSM has completed its transformation into a life sciences and materials company. Driving towards a series of visionary strategic goals its management has realigned the portfolio, first away from petrochemicals, and then away from a group of unwanted related chemical products.

The most recent divestment drive, slowed by the recession but this year back up to full speed, will eventually have realised about €1.2bn ($1.6bn). It has included DSM’s elastomers, melamine, citric acid and energy interests.

The company has high-strength fibre and materials technologies and products. Quite some time ago it fleshed out a bio-based business that has emerged as a strong base from which to pursue bio- and nutrition-related opportunities.

The company successfully took on the challenge of commoditising some of the vitamins it acquired when it bought the Roche vitamins business. It has run into problems with its pharma businesses as the pharmaceuticals sector has changed and anti-infectives have been challenged by low-cost products in large new markets, but its response has been to seek partnerships and to increase bio-based production.

On 21 December, DSM said it was making an agreed $1.09bn bid for biochemicals group Martek. A supplier to the bio-based group for many years, the acquisition would give DSM a platform in polyunsaturated fatty acids (PUFAs) used widely in infant nutrition and as food and beverage and dietary supplements.

Clearly recognising future trends, it has agreed to put its anti-infectives business into a joint venture with Sinochem. That gives China’s chemicals giant a strong foothold in biochemicals and DSM access to the fast-growing China market for these products.

The new business will be headquartered in Hong Kong.

DSM has for years pushed innovation hard but it has also sought a strategic transformation that management has pursued with vigour. The company reached most of its Vision 2010 strategic and financial goals early. It looks now to growth and to a harder drive into the emerging economies. On the innovation front, it has eyed solar and biofuels investments and sees sustainability as a clear business objective.

This year, it has been the execution of the transformation of DSM that has stood out. The company notes 26 acquisitions, investments and divestments announced in 2010 that have assisted in its transformation.

Knowing where you want to go and understanding why you want to go there are essential in business but you have to make the journey.

 ($1 = €0.76)

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By: Nigel Davis
+44 20 8652 3214

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