How should multinational chemical manufacturer reposition themselves

How should multinational chemical manufacturer reposition themselves

The major changes that are taking place in China’s economy may help multinational chemical manufacturer as they try to enter China’s specialty chemicals market in new ways – especially if they can learn from past mistakes. As China’s economy becomes more consumption driven and environmental standards become stricter, the demand pattern for specialty chemicals may change decisively.

Demand is likely to increase in many industries. Take coatings as an example: by 2020, the demand for water-free coatings with volatile organic components is expected to grow at an annual rate of 16%, while the demand for other coatings, such as traditional solvent based coatings, will grow at a rate of 1% to 2%. Most of the increase in demand is in high-tech areas, where multinational chemical manufacturers have a good track record. China’s increasingly complex demand may eventually catch up with the quality of products offered by international specialty chemicals companies.

International specialty chemicals companies should adopt a new way to position their growth in China in the next 10 years. This new approach is essential to cope with the necessary changes, and we believe that the following steps must be part of this approach:

Continue to invest in China, but learn from the past: make your commitment to the Chinese market a core part of your growth strategy and investment plan, and reflect it in your company’s top management structure. Successful models include senior management team members in charge of China or China executives reporting directly to the CEO. Recognize and learn from the imperfect performance records of international companies in the past 10 years, and set long-term goals to ensure the future of your China business. Don’t expect your profitability in developed markets, and don’t expect you to grow at the same rate as your Chinese competitors.

Build market and segment level insights: assess the growth potential of specific segments, carefully consider China’s economic trajectory, emerging local competition, and any possible end market stimulus, such as government plans. For example, improving water quality is expected to become a policy goal, so special products that can achieve this goal, such as membranes for water filtration, should have a higher growth. In the evaluation of special chemicals, a fine-grained method considering regional differences is adopted. The method should also recognize that there are a large number of participants in some market segments, as well as the significant diversity of profitability and growth prospects in the market segments. It should also include a careful assessment of second – and third tier cities, which are likely to offer higher growth potential in the next 10 years.

Use this insight to develop products and services suitable for the Chinese market: to provide products for specific markets that meet the current needs of Chinese customers at competitive prices. At the same time, while developing new technology and new products for Chinese customers, your enterprise will be positioned to provide them with more complex products. Provide comprehensive authority and resource support for local team to develop and launch products suitable for Chinese market. The number of multinational chemical manufacturers taking this route has increased significantly. For example, a company focused on developing local Chinese cuisine opened a new plant in 2015, doubling its capacity. In 2016, it established a new application laboratory to support investment; the new plant was designed to double or more production. Similarly, sales of another international company that specializes in developing skin care products for the Chinese market (including efficacy trials with Chinese volunteers) also increased significantly.

To establish an operation mode suitable for China’s national conditions:

Develop a Chinese local organization with good business ability. These should include financial, business development and market intelligence to be able to support business needs, match faster local rhythms, and plan for continuous improvement. It is important to have processes that support rapid, localized decision-making and, where appropriate, can operate independently from the company’s overseas headquarters.

Invest and empower local talent. Don’t let a group of foreigners with a career in the west manage your business in China. Instead, your company needs a local management team with real decision-making power. You have to be prepared to invest a lot of money in local recruitment and focus on developing the capabilities of Chinese employees with management potential who can also work in Western companies and then bring that knowledge back to China.