Industry needs new strategy to spread benefits of globalisation

Chemical companies

Opportunities

The Brexit vote, and Donald Trump’s election, confirm that we are in a New Normal world.  In the interview below with Will Beacham, Deputy editor of ICIS Chemical Business, I highlight some ideas about how industry needs to adapt.

BARCELONA (ICIS)–The global chemical sector needs to stimulate demand for innovative products and services in mature economies so that the benefits of globalisation are felt by people who have been left behind, a leading consultant says.

Globalisation is a very efficient method of production, but it shifts manufacturing to low-cost areas, leaving workers in mature economies at risk of under-employment.  The chemical sector should adopt more service and solution-oriented business models which will boost demand and employment in high-cost regions, says International eChem chairman.

This innovative approach is particularly important for a country like the US where the election of Donald Trump has highlighted anger among voters about falling incomes and hostility to the effects of globalisation.

On 21 November, Trump confirmed that he plans to exit the proposed Trans-Pacific Partnership as soon as he is inaugurated. This indicates he does intend to follow through with a protectionist agenda which could result in higher tariffs against US-made chemicals and polymers if a trade war develops.

Hodges says the US industry can harness unmet domestic polymer demand to help swallow up the wave of new shale-based capacity due onstream over the next 2-3 years.

“It’s highly likely that all the new capacity will come onstream at a time when the US is pushing towards protectionism. This makes it critical for the US industry to move away from wishful thinking about selling all the new PE capacity into Asia and other foreign markets. They will have to refocus on creating domestic demand.”

Hodges believes it is critical to look at new opportunities in areas such as water and food; otherwise the industry will not be able to sell these new volumes. “Companies will move towards being designers of materials and solutions. There are opportunities as well as threats for people who can revise their business models. It’s critical for people to take decisions now.”

He highlights the example of California which has been in drought for the last five years. “Why not sell more PE pipes as we know that 40% of water is lost before it reaches the consumer. Why waste capital on new reservoirs when you are going to lose 40%?”

He also suggests developing materials for intelligent packaging to tell people when food is really out of date because 35% of food is currently thrown away.

“There must be a big focus on being efficient: these are enormous markets and the industry needs to become more demand-focused. Some of the new [wave of ethane-based] plants will struggle but in principal there is a lot of new demand that could be generated by taking a demand-orientated approach.”

Looking globally, a new political and trading power block will develop as a result of China’s “One Belt One Road” policy which includes countries representing 40% of global GDP, says Hodges. This strategy aims to boost cooperation and trade between China and around 60 countries including Russia, much of eastern Europe, Asia including India and Indonesia, and parts of North Africa and the Middle East.

Hodges also believes the chemical industry should adopt the use of smaller, leaner and more efficient manufacturing systems.

“In an uncertain world the biggest risk is that you can’t sell product: this was always the risk before and it is today. We need smaller, more flexible, cheaper production with units located next to customers, as well as a greater focus on sustainability in the plastics chain.”

“We won’t return to a world of unbridled production – services and solutions are the way smart companies will make money in the future.”

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