Q: What about the impression that, because of their size, companies like Bayer, BASF, DuPont and Dow aren't well-positioned to meet some specific requests from customers?
A: We're working to get to a situation where we offer a tailored service approach to the market. We want to understand what customers need and what they value. The big [material] players are all very credible, very capable companies. We have to understand if customers are willing to pay a premium for services or if they're willing to give us a larger share of their business in return. An hourly rate from us can be cheaper than if a customer went to an independent third party.
We have facilities to do weather testing and all sorts of things and we wonder if we should be doing that. We should only be doing it if the market says it wants it, not because we think it might be nice to have.
Q: How does a company of Bayer's size approach product differentiation? It's not like you can stick your head out the window and yell out to the plant to get them to change a production run.
A: We define our business through three channels to the marketplace: solutions, materials and systems. Each customer has been mapped into one of those three. Those three align with end-use industries and processes as well. Injection molding falls into systems, for example. Within injection molding, we've mapped all of our customers and potential customers.
Q: Has Bayer's customer turnover rate been affected by the economy?
A: It's fair to say there's a lot of stability in those situations in this industry. Most suppliers and processors are in business for the medium term and long term, not the short term. There's some quarterly change, but not much. That hasn't changed.
Q: What about keeping a focus on R&D? It must be tempting to look at R&D costs and wonder if that's an area you can cut.
A: One of the key issues we have is to just stay focused on R&D. Focus is a word I use a heck of a lot. You have to look at what the market wants, look at what we can afford to do and make sure your budget is very focused on getting the returns you want in the market. It's fair to say that in the past we did a lot of research that was being done just because it was being done. To be honest, maybe too large a portion of what was being spent was in very speculative areas.
We have essentially a ``Stargate'' process in place, where we define a project in the beginning and say, ``This is our expected time scale, these are the results needed and this is the expected output.'' What we try to do now is really monitor that. Every three to six months we sit down and look at projects and ask if we're on scale to reach our objective. Are we overspending or not? We have to be quite brutal and say if something's not going to happen.
But you have to realize some R&D projects run five, eight, 10 years. Some projects you still have to go ahead with. But we're trying to be less carefree about it. We still maintain some special areas that are seed for future ``blue-sky'' research. But we were also doing too much research in areas we'd never get payback from.
Q: Has there been a change in direction in Bayer's R&D as far as moving back toward more replacement of metal and other materials, instead of intermaterial competition with other plastics?
A: Resin makers need to grow the total size of the business. Some of our products are going to see market growth at [gross domestic product] or less and that's never been the case in polymers. Some products are pretty mature. If that's the case, we have two possibilities: We can squabble amongst ourselves, or we can grow out and be more positive. If the cake gets bigger and goes beyond GDP growth, it's better for all of us.
In metal substitution, with our semicrystalline materials and nylon, there's a lot of hybrid activity. We've seen a lot of success with these in automotive. We have a dozen programs running in North America right now, when two years ago we had none.
Everyone is very focused on the auto industry, but there are [material replacement] possibilities in other areas like aerospace and garden equipment. There are a lot of tractors out there. Look at domestic durable goods, appliances, any place where there's something made out of metal we have to ask if there's a way to replace it with plastic or a combination of plastic and metal. Customers see the advantage either where there's lighter weight or where they can do fancy things with coloring like Fantasia or where they can show actual physical benefits. A combination of plastic and metal may be better than the products individually.
Q: How does Bayer view the changing role of North America in the global economy?
A: We'd all like to know what the answer to that is. What we're seeing and hearing from talking to customers is that more and more products are being made offshore, increasingly in China. The situation we had was one where production went from the U.S. to north and south of the border and then maybe eventually to China. But now we seem to be missing that middle step and people are taking production straight from the states to China. That trend should continue and accelerate.
The move to Asia is primarily about labor costs, but there's some raw material cost factor involved. That's why we've put so much investment into Asia. Most of our new capital investment over the next two to three years is into Asia. If you look at China and India, they've both got more than a billion people. They're industrializing quickly and demand is growing.
The only counterbalance that we see is in some consumer electronics where fashion plays a larger role. I'm probably the only person left in the world with a standard Motorola mobile phone. Everyone else wants to change theirs, and if you want things done with some fashion element, time is very important. You have to get things to market very quickly, and if you have an extensive supply chain over to Asia, you're looking at having to do things nine to 12 months in advance. But the life cycle of some of these products is six months. There are certain niches like that where people are supplying demand direct from [North America].
The vast majority of auto parts don't ship. Not many people are going to import a Saturn. A lot of businesses will stay quite regional, where local production keeps local demand. That's why l think there will continue to be a strong auto industry here.