VIDEO: Chem industry needs new roadmap for success - Hodges

27 April 2012 16:50  [Source: ICIS news]

By Will Beacham

LONDON (ICIS)--Chemical industry executives will need to take tough decisions and be ready to prepare a “roadmap” to move in new directions as the global economy transforms, a leading economist said on Friday.

Demographic changes mean the industry will no longer enjoy benign conditions of sustained economic growth, but instead face a “VUCA” environment of volatility, uncertainty, complexity and ambiguity, according to Paul Hodges, chairman of UK-based International eChem.

In the penultimate chapter 11 of the free ICIS/InternationaleChem New Normal ebook, Hodges describes how the transition to the New Normal of lower economic growth caused by an ageing population means CEOs will need to refocus their product portfolios and ways of doing business.

Product portfolios will need to become more demand rather than supply-driven, especially in mature economies, to serve the ageing population.

“The consumer is changing: the ageing of the western baby boomers (with nearly 300m people in the west aged over 55) is a tremendous change…We won’t find out what consumers are doing and what future demand is unless we’re out there at that end of the value chain.”

Hodges believes that there will be an increasing focus on affordability rather than luxury.

“Consumers have less money to spend, and so the highly profitable middle ground of the past couple of decades is disappearing.” Products will need to be designed around the megatrends of food, water, shelter, mobility and health.

Another game changer is “shared value”, according to Hodges. “One of the big issues people have trouble with – including myself – is that we’ve lived in a world where economics has dominated the discussion. The discussion has been around ‘Can I make a profit?’ in this market and ‘Can I be lowest cost?’”

Companies, especially in the Middle East and Asia, are now moving beyond that to adhere to other “shared values” such as social stability. Consumers, meanwhile, are concerned with sustainability and carbon footprint.

Hodges claimed exports of polyethylene (PE) have halved from the US to China over the last three years despite the US producing the second cheapest PE in the world.

“It’s the concept of shared value. China wants to keep people employed so the concept of shutting down a factory in order to import from the US makes no sense.

He added: “The rules of the game are changing. It is no longer purely about economics but also social and political factors as well, new ways of thinking. We in the chemical industry have to adapt to this. If we think it’s just about economics we’re driving ourselves up a dead end.”

Chapter 11 of “Boom, Gloom and the New Normal - How Western Baby Boomers are Changing Global Chemical Demand Patterns, Again” is now available on free download at www.icis.com/NewNormaleBook

Paul Hodges writes the Chemicals & the Economy blog for ICIS

By: Will Beacham
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