07 January 2013 16:17 [Source: ICIS news]
LONDON (ICIS)--The approaches taken by many western chemicals companies when trying to break into lucrative Asian markets such as India and China are failing to pay off, according to US-headquartered consultancy Booz & Company.
According to the firm’s industry outlook for 2013, many large chemical companies have failed to appreciate the extent of the differences between the fast-growing Asian economies and developed markets, meaning that investments in developing a presence in the region are not proving to be as lucrative as hoped.
“Western companies have discovered that the business models that have served them in developed markets – and which they’ve tried to replicate in emerging markets – have not worked in places like China and India,” said the company in its 2013 Chemicals Industry Perspective.
Even companies that now derive a substantial portion of their revenue from the region may find that the bets they made developing their footholds in Asian countries have not translated into profits, the consultancy said.
Booz said: “They entered these countries with specialty products that weren’t in demand, or at price points that end customers weren’t willing to pay, or without the scale advantages needed to succeed as high-volume producers.
“As a result, many of them will need to make substantive changes – including to their regional business models – if they are to see meaningful improvements in their Asian businesses,” the report added.
One of the problems North American and European companies have found when entering those markets is the assumption that accepted definitions – such as the labelling of specialty and basic chemicals – would also hold true in Asian markets, which is not always the case, according to the company.
The lightness of the regulatory framework in parts of Asia relative to the West also means that customers may have been unwilling to pay higher prices to cover safeguards that are not necessary in their home countries, Booz added.
The consultancy advocated exploring different methods of acquiring expertise in Asia, including pursuing joint ventures with local players that could provide greater access to those markets, but which may necessitate giving up a degree of control.
“Many Western companies may have to press the reset button in Asia and take a close, critical look at how they are positioned there,” the company concluded.
The report also expresses concern over the impact of slowing revenues in the global chemicals industry during 2012, and the possibility of that trend continuing into the new year. Chemical revenues fell by 4.4% in the first half of 2012, according to Booz.
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