IT'S ALL ABOUT CHEMISTRY

30.12.09

“Noses love fresh paint - An example of how BASF makes simple the complexity of its products, reaching out to the consumers. Acronal ECO makes water-based paint odour free.”

“We believe if love is a chemical reaction, chemistry has a good chance to make the world a more harmonious place…” BASF, The Chemical Company

2009 is a year with no chemistry, or rather, negative chemistry. When Lehman Brothers and other financial institutions headed for collision towards late of 2008, the reaction generated was so catastrophic that the world went into recession, unemployment and bankruptcies.

For the first 3-6 months, it didn’t look ‘harmonious’, at least to me. Factories shut down, hundreds and thousands were laid off, debt mounted, banks had to be bailed out by government (while their executives took handsome bonuses), Detroit Big 3 needed to be saved (at the same time their executives took off to some most fanciful resorts for retreat with spa thrown in and some arrived in private jets to plead for public funds).

Chemistry definitely did not produce harmony in 2009, but perhaps ‘distress’ – distressed sales, distressed companies, distress people, distressed economies…

A Look At Chemistry Companies

Plowing through piles of presentations and reports made by leading Chemical companies during Q3 investors and earnings conferences, it struck me that corporations are caught up with managing their balance sheets that the word ‘strategies’ has taken an entirely different turn. ‘Strategies’ are nothing but very tactical and inward maneuvers to these corporations.

The usual run-of-the-mill ‘strategies’ such as cash generation, working capital management, debt reduction, are ‘inward’ looking and grossly overstated. In focusing to clean up the balance sheet items, corporations have neglected the future of growth and the true meaning of ‘strategy’.

However, there are exceptions. In this last article of 2009, I shall dedicate it to one such company which I hold great admiration and respect for their forward looking strategies. I believe their ‘chemistry’ will lead to great positive sparks for themselves, their people, shareholders and customers.

BASF, The Chemical Company

No success happens by chance, it is the very deliberate effort by great leaders of great companies that leaves a legacy behind. The growth attempt of BASF is very deliberate and thorough. Amongst the highlights of their 2020 strategy, one which is worth mentioning is their detailed plan for APAC which Dr Martin Brudermuller and Dr Wolfgang Hapke articulated on 1 Oct 09.

In comparing across several companies in the Chemical sector, this stood out distinctively as while most others would say their strategy is to focus on Emerging Markets without mentioning exactly how they intend to do it, BASF has a detailed implementation plan.

The winning trait of their 2020 APAC plan can be summarized in one word ‘Focused’. From the emerging markets, BASF focuses on APAC. From diverse industries, BASF zooms into 5 Industry Target Groups (ITG). From thousands of customers, BASF has its lens on 150 key Customer Target Groups (CTG). The equation here is:

5 ITG + 150 CTG = > Euros 600m sales potential in 2012

APAC was the first region impacted by the financial crisis, but it is also the first to recover. With 20% of BASF Group’s global sales contributed by APAC, and half from Greater China, BASF’s have taken a deliberate step to stay focus on driving results from this region. This is supported by APAC GDP growth estimates from 2008 – 2020 of 4.7% (Greater China 7.6%) compared to 2.6% average of the World. The demand for Chemical in APAC in 2020 is expected to be 46%, the largest relative to other regions.

The plan is to double sales by 2020, growing at 2pp above the chemical market in APAC. To do this 5 key industries with 6% average growth rates per annum have been targeted ie. construction, auto, coatings, packaging and pharmaceutical. The strategy deployed is to move from Product-base to Solution-base focusing on industry value chain to deliver innovative solutions.

BASF has also identified top 150 strategic customers in these targeted industries and by analyzing the value chain, market position and supply channels of these customers, BASF team will prescribe an extended array of solutions from its portfolio of products and expertise to service these customers. These initiatives are further supported by investments in R&D facilities, local production, operational excellence and its dedicated team of talents.

While the strategy looks simple enough, it demonstrates a deep and clear understanding of markets, customers, the value it brings and portfolio of products. The integrated approach is also controlled and well directed, not left to chance. My pick on BASF amongst the others such as DOW, Akzo, Rockwood etc. stems from this simplicity of strategy, and yet practical, concerted, and realizable. There is no lofty plan of impractical numbers; no vague strategies of naming a high growth, high EBITDA industry or sector to focus on yet without stating its go-to-market-plan; no tired tactical focus of sorting out balance sheet items.

This simple, focused and controlled mechanism makes the revenue goals of Euros 600m believable and achievable. Followers of BASF would note its strong ability to look above from 20,000 ft and breaking its vision into simple, operational and understandable strategies. This underlines the power of BASF in delivering its goals.

Definitely if love is a chemical reaction, Chemistry would have a very good chance of making BASF successful in APAC.