Chemical Producers Revise Their Strategies.

MENLO PARK, Calif.--(BUSINESS WIRE)--Jan. 25, 1999--In light of industry trends, leading chemical companies are restructuring their organizations and reshaping their product portfolios to meet shareholder financial performance demands, according to a recent study by SRI Consulting (SRIC). By divesting non-core assets such as basic petrochemicals and commodity first-stage derivatives-areas that are increasingly dominated by oil companies building on their feedstock positions-companies can increase capital from these divestitures and leverage it towards acquisition of additional core businesses and high value-added assets such as specialty chemicals and pharmaceuticals.

The flight from commodities is the direct result of industry cyclicality. Although good times make up for bad to an extent, shareholders are reluctant to view company profitability over a full cycle. This shareholder reluctance is providing the driving force for company restructuring. The restructuring process is many faceted but typically includes one or more of the following steps:

-- divesting non-core assets

-- exploiting or creating structural advantages, primarily through chain integration

-- focusing on businesses that are less cyclical and generally have shown superior returns (e.g., specialties, pharmaceuticals).

The results of newly adopted strategies range from mild course adjustments to complete company transformation.

Structural advantage is derived from low feedstock costs, process chain integration, and an advantageous technology position, as well as site integration. For commodity petrochemical operations the key to success is access to low-cost feedstocks, which are increasingly the domain of oil company chemical affiliates. For some large chemical companies such as Dow and BASF, process chain integration will be a key strategic element. For the specialty and pharmaceutical sectors of the chemical industry, which are less cyclical and more profitable, profitability depends more on satisfying customer needs than on business cycles.

Profitability improvement strategies range from exploiting structural advantages offered by integration to the superior returns of focusing on high value-added products. Between these two poles, SRI Consulting (SRIC) has identified three distinctive strategies which are used by some of the leading chemical companies:

-- Petrochemicals, Polymers and High Value-Added: BASF, Dow, Exxon and Union Carbide 

-- Chemicals and High Value-Added: Bayer and DuPont

-- Pure Play: Novartis, Clariant, ICI and Monsanto.

SRIC's study profiles the metamorphosis of Hoechst from a diversified producer of chemicals, polymers, specialties and pharmaceuticals to a much smaller life-sciences company. The study also reviews the past role of oil companies in chemicals and forecasts that the chemical affiliates of oil companies will increasingly dominate the commodity sector of the industry.

For further information on SRIC's PEP Review 97-5, The Changing Structure of the Chemical Industry, contact the report author, Leslie A. Carmichael, [phone]. To purchase this report or for information on subscription to the entire Process Economics Program, contact Rose Gunson, [phone]. The Process Economics Program's web site address is http://process-economics.com/.

SRI Consulting (www.sriconsulting.com), a wholly owned subsidiary of Silicon Valley-based SRI International, works with companies worldwide to identify market opportunities and develop strategies for competing in today's technology-driven marketplace. SRI Consulting combines strategic business consulting with technology expertise to help companies develop and commercialize new products and leverage new technologies into competitive advantages. These consulting services are backed by SRI International's 50-year heritage as a pioneer in developing new products and markets.