CEOs Need To Get Rid Of The “Fear Factor”

It now makes sense to reduce my number of blog posts to three a week – on Mondays, Wednesdays and Fridays – as the “argument” stage of the New Normal is much closer to being over. Far more people than was the case just 12 months ago recognise that our view of the world stacks up.

So you will find more solutions for chemicals companies in future blog posts, and these take longer to write. 

These solutions, though, will still be intermingled with other posts that re-emphasise our core arguments – when I feel that the consensus is still not on our side.




By John Richardson

I NEED you to be brutally honest: When you were making your forecasts in 2010 for what the petrochemicals world would look like in 2015, did you envisage this for China?

Hand on heart, how many of you can honestly say that you entirely, even partially, saw this coming?

The past is the past. You can’t fix that. But you can fix the future and so, as you prepare your budgets and your strategic plans for 2016 and beyond, you must:

  1. Entirely root out the old thinking that led to so many people, perhaps including yourself,getting this so badly wrong.
  2. Build framework of new thinking that will help you take advantage of all the great opportunities that will result from the new China.

This process needs to start with the CEOS, vice presidents and other very senior executives at the chemicals companies that have gone down the wrong track. They need to create an atmosphere where individuals will not be blamed for individual mistakes and made the scapegoats for what has gone wrong.

Such an atmosphere of fear would of course lead more junior colleagues to try and cover up their mistakes because they would be worried about their careers being damaged. This kind of atmosphere would get chemicals companies precisely nowhere.

So your CEO – or perhaps your prospective new CEO – needs to have the courage to stand up and say something like this:

Our senior management team got China wrong. We thought that, for example, China was becoming a “middle class” country by Western standards. What mislead us into this thinking was the chemicals demand growth levels of 2008-2013.

 In hindsight, these increases were not about China being middle class, but were instead the result of a huge misallocation of capital that had to come to an end.

Our company, along with many external analysts, missed the critical turning point in November 2013. It was at that point that we should have stopped in our tracks and said to ourselves: “China has changed for good”. If that had happened, we would be in a much-stronger position today.

But we are now in this together – all of us. We all made mistakes, from the Board of Directors down to our most junior employees. What is critical is that we identify where these mistakes were made, without attaching individual blame – and why they happened. Then we can move forward.

Idealistic nonsense? No. We need less of the cynicism and short term thinking that has got us into this mess in the first place.

I have often been accused of seeing the proverbial glass as half empty instead of half full. This is an entirely wrong reading of what I have aimed to achieve in this blog – and will continue to strive to achieve.

My central point has always been that opportunities will be different in the future in China. The affordability of chemicals and polymers will matter more than ever before now that the credit boom is over – for good.

So will sustainability. There are enormous opportunities for chemicals companies that work closely with the Chinese government to help it tackle its nothing short of existential environmental crisis.

Taking this down a level, there is one specific opportunity that chemicals companies should already be discussing in internal workshops: The growth of mobile Internet sales. China is creating both the broadband links and the rail and road networks that will enable a huge explosion in on-line sales.

But anybody who suggests during your strategy workshops that this opportunity is all about new high-end Western-made consumer goods must be told that they are wrong. Affordability is everything. So the future will, for example, be all about soaring sales of a 40-inch Xiaomi “smart TV” that retails for just $320.

More immediately, of course, everyone will need a plan to get them through the next few years as this huge transition takes place in China towards a new growth model. It is illogical and foolhardy, simply mathematically impossible, to suggest that this process will not involve a lot more economic pain.

Sure, the first reaction will be to panic when you see charts such as the one above and thus cut costs across the board. This risk will be especially high when  the consensus view finally shifts to recognising that China won’t shut lots of capacity in order to bring some of these markets rapidly back into balance. They will instead run plants harder.

But to cut costs in the wrong areas would be like shooting yourself in the foot. More money should instead be spent to seize the short-term opportunities – for example, to make use of cheap polypropylene to gain market share from other polymers.

I am here to help in this process –both for short term planning, and on how to rebuild your long-term strategies.