The Chinese chemical industry is growing and doing well, capturing an ever-increasing share of the domestic market.
However, that growth could be improved even more if executives rethought their long-term strategies and business focus.
That's the conclusion that jumps out of a report by Kai Pflug, longtime principal of Shanghai-based Management Consulting — Chemicals Ltd.
Pflug writes that Chinese firms focus on boosting short-term sales, often by leaping into high-demand markets without evaluating their own strengths. The resulting overcapacity forces out weaker performers, but even the survivors don't consider their own strengths.
Other companies have their toes in too many businesses, diverting their focus from the increasingly competitive global chemical industry, Pflug writes.
Despite increasingly green signals from Beijing, too many smaller chemical companies still ignore environmental regulations and enforcement, according to Pflug. He reckons that many of these companies will be compelled to close down.
A focus on sales, not profit, dovetails with a reluctance to invest in long term research and development. And too many companies focus on producing a narrow range of basic chemicals, despite low profit margins and intense competition. While ExxonMobil offers upwards of 100 varieties of polypropylene, Chinese rivals such as Sinopec offer far fewer, Pflug noted.
In response to an e-mail query, Pflug told Plastics News China his report is relevant to the plastics industry, too.
“It certainly applies to many basic plastics producers and also the big SOEs [state-owned enterprises] with their very limited [though growing] variety of very basic plastics types,” he said.
Chemical companies willing to rethink their strategies and business focus can win big, Pflug said. For example, Datang International Power Generation Ltd.'s stock jumped last year when it announced it would sell off its unprofitable coal-to-chemicals business.
The same holds true in the plastics industry, where Pflug credits some producers and compounders with rethinking their strategies — especially automotive compounders such as Shanghai Pret Composites Ltd. and Harbin-based China XD Plastics Co. Ltd.