The 2009 recession period brought in the onset of emerging markets whence global chemical sales plunged due to decrease in demand. Developing countries fared far better during this period and many production companies shifted their operation to Asia. So who are these emerging market players? An emerging market does not have the level of market efficiency and regulations as a developed nation but is progressing towards advancement. It has a greater risk of political instability, infrastructure, currency volatility etc., but has higher ROI values due to quicker economic growth. Emerging markets are more open to foreign investments and thus offer MNCs much scope for expansion. There are about 44 emerging markets and the major players are China, India, Middle east, Latin America and South Africa.
Chemicals are an important part of every man made commodity. A record $5.2 trillion in global chemical sales was reported during 2013 and China alone contributed about 26%. China is a major challenge for developed countries because of its rapid growth and flexible policies. It is one of the most favoured destinations for manufacturing due to its vast infrastructure and low labor costs. Another reason for setting up chemical production units is the close proximity to feedstocks and customer markets. China is the most populated country in the world and has an emerging middle class population which means there is a higher demand for commodity consumption and an increase in the need for manufacturing facilities within the country. This has pulled many MNCs to enter into Chinese market to set up mergers or joint ventures with local manufacturers to meet the local demand. Examples of joint ventures:
- Dow-Shenhua group (coal-to-chemicals project)
- DuPont's-Chenguang Chemical Research Institute (fluoroelastomers)
- Rhodia-Feixiang chemicals (amines and surfactants)
- PPG Industries-Bairun (packaging coating) etc.
All this has led to China becoming a world player in chemical export sales and there is an availability of almost every chemical in the China market. Following traits have helped Chinese manufacturers to compete in the global arena:
- Huge scales of operations
- Broad product portfolios
- Technological advance
- Enriched quality and branding
Chinese companies are also entering into developed countries to promote their brand and setting M&As with international brands. China is one of the leading player in basic chemicals and plastics and is now eyeing specialty chemicals sector owing to increase in demand. This has benefitted existing MNCs in china that are looking to expand. China's specialty chemical sector is expected to grow substantially by 2020 as the demand for commodities increase.
Tips for sustainable growth
- China is still the largest commodity manufacturing country and companies should recognise and diversify their product portfolio whilst continuing with existing production.
- Due to the intense competition with local players it is difficult for global companies to sell their products locally. Therefore companies should focus on untapped products such as specialty chemicals where the demand is also increasing.
- Instead of directly trying to compete, small sized companies can try to sell their products via local traders or distributors who are much aware of the China chemical industry.
- Companies should also keep in mind the cost and quality of products they are offering keeping in mind the entire downstream consumer chain.
Our next blog will focus on other emerging markets viz. India, Middle East and Africa where the opportunity are in abundance due to the influx of foreign investment, flexible govt. policies, growing infrastructure, low cost labor and availability of resources. Subscribe with us for more exciting blogs.