Confront the challenge of “deglobalization”
Call it economic nationalism or trade protectionism, it amounts to the same thing: Around the world, political movements are forcing at least some retrenchment in open borders, trade, and shared ventures. For the chemicals industry, this development is particularly problematic because much of the sector’s R&D activities are centralized near headquarters but the results of this research are distributed through global networks for developing new products and services relevant to local markets. In addition, partnerships with regional companies have helped chemicals firms take on heated competition from startups and entrepreneurs in developing countries. Simply put, the free flow of money, information, and skilled workers has been a critical element of chemicals companies’ growth strategies.
Given these industry practices, nationalist proclivities threaten the traditional approaches to markets. In response, chemicals players must begin to implement more flexible supply chains that are able to deliver parts and feedstock regionally and globally. In addition, they must play an active role in enhancing the skill sets of local suppliers in developing countries so the suppliers can meet the required high standards for order fulfillment.
Choices will have to be made about the markets in which to participate. Smart companies will find that new geographic footprints may offer unexpected opportunities, especially as developing countries begin to take control of industrial growth within their borders, singling out certain sectors and companies for most-favored status. For instance, Saudi Arabia’s well-known economic growth program, called Vision 2030, includes among its many goals expanding the revitalization of the country’s chemicals sector. Emphasized in this effort are downstream applications such as water management, which covers desalination, filtering, and water treatment. With an abundance of petrochemical feedstock and significant financing streams available through the industrial investment agency Dussur, Saudi Arabia could be a lucrative market for chemicals companies that have the capabilities to provide added value in a local, decentralized framework.
In considering opportunities like these, chemicals companies will likely need to beef up regional R&D centers because they will be pivotal in future chemicals design and development. Putting resources aside to invest in these facilities is essential, as is a strategy for staffing these more autonomous R&D centers, especially if global movement of labor is impeded.
And internal digitization will probably become more significant. Chemicals companies with far-flung networks of, by necessity, more independent outposts must consider the state of their digital collaboration tools. Maintaining global communications among facilities, remote collaboration among geographically dispersed employees, and operational cooperation from one factory and market to the next are technological challenges that cannot be ignored. The efficacy of these internal networks will ultimately, in a more protectionist world, determine top-line costs and bottom-line profits.
Clearly, the chemicals industry has its work cut out for it. And even though we believe there is a slow but steady movement toward the kind of change that addresses the most crucial obstacles to success, not all signs are positive: PwC’s 21st Annual CEO Survey found that 75 percent of chemicals companies’ executives still viewed cost-cutting as their primary activity for driving profitability, and only 9 percent said that they want to strengthen digital and technological capabilities in order to capitalize on new opportunities.
In other words, the vast majority of executives responding to our CEO survey are adopting strategies that will make it harder to compete in the long run. Their lagging posture can perhaps be chalked up to the complexity of the issues facing their industry, and the fact that some executives have yet to be directly affected by the transformation occurring in the industry.