10 February 2012 17:04 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS)--What keeps chemical company CEOs awake at night? Not surprisingly it’s the volatile global economic climate, data from professional services firm PwC suggested this week.
The lack of stability on the world’s financial markets and fluctuating exchange rates are also causes for deep concern.
Each make business and planning extremely difficult for companies whose existence relies on the movement of capital and goods around the world.
But particularly today it is their geographical reach that is proving to be the driving force for most producers.
Companies increasingly, no matter where they are from, are focused on growth in Asia, and in China in particular.
BP, for instance, on Tuesday stressed that in petrochemicals its “volume growth” focus is on Asia where currently it has 10 joint ventures. Its most recent is with Indian Oil and plans to gasify petroleum coke to generate hydrogen for the IOC refinery and 1m tonnes/year of acetic acid.
Time and again, chemical company CEOs highlight the importance of Asia markets and China growth to the growth of their own businesses. The shift in sales to the region demonstrates that, as has the financial outturn, at least in recent quarters.
“As 2012 starts, the outlook is more uncertain than ever,” PwC says in its annual survey of chemical company CEOs – the survey of the opinions of 88 chemical company chiefs is part of a poll of 1,258 executives worldwide.
Only 10% of CEOs in chemicals believe that the global economy will improve in 2012 but 39% are “very confident” that their companies can increase revenues within the same time frame – 51% are confident that sales can be lifted over the next three years.
Most of that confidence comes from the opportunities seen in developing economies – principally China but also in Brazil, India and elsewhere.
This increasing sales and operating presence in emerging economies – and, indeed, reliance on them for volume growth that is lacking elsewhere – is broadening the challenge for all CEOs. Their companies have to operate in multiple jurisdictions. Competition for customers and market share is increasing almost day by day.
PwC believes that chemical company CEOs are focusing on the upside and balancing what it calls “global capacities and local opportunities”. But they have been doing the latter for more than a decade. Indeed, the mantra in the 1990s was ‘think global, act local’. In many respects, little has changed.
Chemical producers were some of the first to really grasp the opportunities presented by globalisation and so have broad experience to build on in what is widely-expected to be an extended period of slow average global economic growth.
Fifty one per cent of the chemical company CEOs surveyed said they had a major corporate presence in Asia compared with 41% of the larger sample. The chemical company presence in Latin America was 43% versus 32%.
And growth in new geographic markets remains on the agenda for the next 12 months, with 35% targeting China, 24% Brazil and 23% the US.
The desire to tap into higher-growth markets in developing economies is helping drive sector merger and acquisition (M&A) activity. More than 40% of the 60 deals in the sector worth more than $50m involved targets based in the BRIC (Brazil, Russia, India, China) economies, according to PwC.
Having committed the capital, however, companies have to make it work. Companies have to be as close to the customer in distant markets as they are in their own. It is not simply a question of making chemicals cheaply in one part of the world and selling them in another.
Chemical companies have found that to fully capitalise on what the newer markets have to offer they do need to become what PwC calls “multi-local”. And to do that they need local as well as international talent.
The talent challenge in chemicals has not gone away and in some respects has become worse.
Only 43% of chemical companies say they have experienced “significant problems” in recruiting high-flying middle managers compared with 53% of the total survey sample.
Yet 36% of chemical company CEOs say that hiring people has become harder and 42% in chemicals (compared with 31% overall) say that not attracting the right talent has restricted their ability to innovate over the past 12 months.
“The industry’s appeal to young high flyers is currently limited,” PwC says, pointing to a survey which showed not one chemical company among the top 100 most sought after employers by recent US MBAs.
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