The strategies of multinational chemical companies to ensure increased profits
Take measures to ensure profit growth
As the Chinese market becomes more complex and competitive, multinational chemical companies find that the advantages they have enjoyed so far are being eroded to a certain extent, but the importance of the Chinese market to the growth strategy of most companies still exists. Here are five key areas they should focus on if they want to succeed.
1. Meet the needs of the country
Although there is a consensus on the continued growth of demand for chemicals, it is clear that the areas of opportunity are becoming more delicate and TNCs need to adjust accordingly. One way to explore is to give priority to products that meet the needs of China and those that are being promoted by the Chinese government.
China's latest five-year plan provides some guidance for chemical enterprises in such areas. The core chemical industry is regarded as a mature manufacturing industry. Although the space is limited, it is still possible for international enterprises to bring the technology that China still needs. However, chemicals are an important driver of many strategic industries in which the Chinese government hopes to cultivate global champions, especially those in which China will become a major market.
2. Actively manage stakeholders
As international chemical companies seek to expand their business in China, they need to work with many stakeholders in regulatory and business areas. The construction of new factories needs to be approved by central and local government agencies at all levels, and the introduction of new products in regulated product areas such as pesticides also needs to be widely approved by central and local governments and national research institutions.
3. Rethink the channel and market entry strategy
As the second and third tier cities will make the biggest contribution to China's growth in the next 10 years, and the wave of development is shifting from coastal areas to inland and western regions, the pattern of China's market is changing. By 2025, China's emerging urban agglomerations will account for 90% of GDP, but different cities have their own characteristics (for example, in terms of industrial structure and density). In order to meet the needs of these markets, a customized distribution mode is needed to expand the focus of multinational companies beyond the first tier cities and coastal provinces.
4. Use M & A and cooperation to build their foundation
Multinational companies should use mergers and acquisitions and joint ventures to achieve faster growth, and take greater steps than organic growth. This approach will enable them to increase market access and fill product or technology gaps. In the past decade, multinational companies have been active in about 200 transactions, but most of them are small transactions; so far, the largest foreign acquisition of Chinese chemical enterprises is Rhodia, which acquired 87.5% shares of Feixiang chemical, a surfactant manufacturer, with us $428 million in 2010.
5. Using China to expand global business
There are two important ways for China to enhance a company's global position. First of all, the establishment of manufacturing industry in China can allow manufacturers to make full use of China's lower capital investment costs and lower operating costs. This can not only enhance the international status of the company to meet local demand and avoid import tariffs on its products, but it can also strengthen the global supply base: by building a large-scale factory to serve domestic and international markets, it can achieve additional economies of scale. In fine chemicals and other products, due to the production process has multiple steps, labor costs are higher than the cost of raw materials. Despite rising wages, China will remain a leader in global costs. Many international companies have taken China as their regional production base for special products. In addition, local manufacturing enables international companies to take advantage of China's dominance in certain raw materials, including phosphate rock, fluorspar and rare earth.
