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Global markets.

The plastics industry, in one of the most active transition periods in its history, is undergoing major changes in its basic infrastructure. As global markets become more competitive, polymer producers, knowing they must be sharper, swifter, and more determined, are refocusing their thinking. For the remainder of the 1990s and beyond, strategic planning, backed up by geographically tuned production muscle, technological capability, and lean costs, will filter out the winners and the losers in the overall quest for portions of the global business pie.

Elements of survival

According to Edward F. Gambrell, vice president, Packaging, Polyolefins and Elastomers Group, Dow Plastics, the following "truths" are rapidly becoming elements of survival in the inevitable global competition:

* The spread of polymer production beyond North America and Western Europe into the developing countries will continue to force a decline of the share of global production and the influence over market behavior by the North American and Western European producers. The availability of competitive technology via licensing will allow emerging producers in the developing countries to effectively compete in both their domestic and export markets.

* Declining growth rates of many polymers in the developed world, along with more global competition and fewer export opportunities for North American and Western European polymer producers, represent profound changes in the overall plastics business from the way it has evolved until the recent past.

* The environmental issue will greatly influence future polymer growth rates and will add a new cost structure to the whole plastics industry.

* The maturity of numerous polymer markets will reduce many growth rates from accustomed levels and will put a greater focus on cost, within the entire supply chain, to preserve some level of financial stability. This will drive producers to serve markets where price is the primary purchase criterion.

* More aggressive joint ventures, or combining of assets into jointly owned companies, will aim at achieving resource critical mass and providing competitive advantages via market strengths and technical capabilities on cost positions.

* Producers will emphasize strategies in which product/market focus can gain a competitive advantage. Where only a parity competitive position is possible, producers, even with long-term positions in certain polymer markets, will exit via sale or shutdown, or will reduce support; or, as an interim strategy, they will confine their activity to specific, limited geographical areas.

* The focus will also be on the delivery of a differentiated product line for markets or customers where unique functionality is valued.

As Gambrell points out, these are but a few of the major factors now affecting the plastics industry. Intricately enmeshed in the industry's future is the evolution during the 1990s of numerous societal/environmental/design elements that will influence the usage and growth of plastics.

Utopian globality

Offering a utopian picture of globality, Peter Lyon, director of sales and application development, Durables, Dow North America, describes "a stateless global business with stateless global companies with operations, shareholders, and organization structure all over the world largely indifferent to location, except as regards customer needs and economic efficiency." For Lyon, "statelessness" is the conceptual means of surmounting the major hurdles resulting from tariffs, tax rates, and government/business partnerships that retard the globalization process.

"As an industry, we are clearly not there yet, but evolution is occurring," Lyon continues. "In addition to having the advantage of critical mass and economies of scale, global companies of the future will have the best perspective on industry trends, customer needs, technology evolution (involving process, product, service), global and regional issues, and competitive capabilities." Intelligently structured global companies, he adds, should have a significant advantage of vision over even the strongest regional companies.

Lyon is mindful that it is still incumbent upon these global giants to develop capabilities to match both worldwide and regional specialized needs, and that, with speed of development so important today, learning and implementation will have to be done in parallel. Also, the regional perspective alone will be too narrow. He emphasizes that those who will win the differentiation contest among the emerging global companies group are those that organize themselves globally, as against simply being located globally, and who develop the right capabilities to administer to regional and global needs. Again, joint ventures will build on existing regional superiorities to create an optimal combination of competencies.

Lyon plays down the idea that any of the global players has any special "magic" or uniqueness. "Each is searching for the right balance of capabilities to accomplish the optimum positioning," he says. "Surely, from a supplier's perspective, there will be consolidation in the plastics industry and, with the many anticipated changes in Dow Plastics, we expect to be one of the winners."

Small but global

A global marketing outlook and strategy, however, is not solely the province of the mega suppliers. For example, Advanced Elastomer Systems, L.P., with about $150 million in annual sales volume, has a relatively narrow market focus--the replacement of thermoset rubbers with engineered thermoplastic elastomers. But, as Zev Gurion, director of sales, North American Automotive, AES, says, "We are a young company and have been building globality into our worldwide operations from the beginning, including the structuring of operating procedures, the development of new products, and the provision for marketing and technical support; and the worldwide consistency of AES's TPE product line allows us to provide technical support despite our relatively small size. The company also leverages a worldwide computer network."

Often a company will develop a new product in its region of major focus, irrespective of the location of the real demand. Only after it is commercialized in that region will the company then tailor the product for other world areas. By contrast, according to Dale Emge, director, Growth and Planning, AES's philosophy is to react first to the strongest regional opportunity and greatest demand. As an example, AES's long-term effort, to ensure that its thermoplastic elastomer would meet Europe's Thames Water Board regulations for potable drinking water applications, paid off on a broader scale when the NSF recently announced that it would soon implement similar standards in the U.S. "If we were too focused on North America," Emge says, "we would be scrambling right now to make sure we complied with the NSF regulations in time, and we wouldn't be serving any of the European potable water market. But there was a strong demand in Europe for suitable material, and we addressed it. Now, we are prepared for the new U.S. regulations as well."

Gurion underscores the advantage of global product consistency, adding that AES is the first TPE company with worldwide approvals from Ford. "We can supply Ford from North America as well as Europe, and that's one of the reasons our TPEs are on the Mondeo 'World Car.'"

Teamwork is crucial

For BASF Corp.'s Plastic Materials Group, in working with global customers, the ability to adapt to local market conditions and customer requirements is what determines success. Apart from multinational manufacturing capabilities, BASF emphasizes that it is extremely important to understand the basic business of the customer locations. The company's multicultural approach makes use of Customer Project Teams, each focused on a global customer, and consisting of assigned account representatives located in each region where the customer manufacturers products using BASF resins. The account representatives' goal on the regional front is to support customers in the local requirements and to communicate these requirements to other team members responsible for that customer in other countries. In this way each team becomes an integral part of strategic operations and activities that directly contribute to the customer's growth and profitability.

Long-term prospects

The long-term prospects during the 1990s, based on recent trends and likely future developments in global resin manufacturing capacity, are for slower growth, according to a recent report from Business Communications Co., Inc. (BCC). The report's author, Peter J. Mooney (now president of Plastics Custom Research Services), indicates that, as of 1970, U.S. resin exports represented 25% of the world total; by 1980 that share had declined to 15%, and by 1990 it had declined further to 13.7%.

Mooney foresees a continuation of these trends in the 1990s, as a result of the proliferation of plastics around the world as vital materials for the economic progress of both developed and developing nations. By the year 2000, he sees foreign sales of U.S.-produced resins constituting only 10.7% of the global resin export total. For example, he predicts that "two to three years into the next decade, the world will be 'awash' in LDPE and polypropylene capacity." However, he still sees opportunities in the 1990s in commodity thermoplastics, notably for cost-effective upgrades of LDPE and polypropylene, and for linear low-density polyethylene, random copolymers, and elastomers based on polypropylene, and for thermosets and higher-performance thermoplastics. With Latin America, Japan, and the Pacific Rim countries continuing to have an excess of demand over domestic supply of HDPE, the U.S., with innovative and competitively priced products, should be able to maintain its global export market share of this resin.

The BCC report also projects that the two commodity resins for which U.S. resin producers may have the best opportunities for export sales are polyvinyl chloride and polystyrene, in Eastern Europe, Africa, and the Middle East, and in the vast potential market of China.

Engineering thermoplastics and thermosets are cited as providing probably the greatest U.S. resin export sales prospects, in terms of dollar value, although stiff competition is expected from Japan and Western European countries, where consumption of these resins has traditionally been concentrated.

"In the 1990s, the booming and ever-more-sophisticated plastics industries in the Pacific Rim countries," the report adds, "will generate tremendous new demands for these resins for their nascent automotive industries and for their global electrical/electronic equipment and medical device businesses. Through the further development of new higher-performance resins, new alloys and blends, and basically new compounds tailored precisely to evolving plastic part requirements, the U.S. has every opportunity to maintain its current technological edge."

Also, Mooney cautions that " it would be myopic in the extreme" not to see beyond the raw U.S. resin export data to the vast opportunities open to all global plastics industry players as more countries move towards economic growth and development. Whereas steel was the primary engine-of-growth material in the past, plastics surely will play that role in the future. The less developed countries, with their growing populations and anticipated steadily growing per capita consumption rates of plastic products, will have thriving plastics manufacturing and processing industries. For North American plastics participants, the potential for shifting of shares of the plastics pie, in Mooney's view, dictates that they must locate plants, sales/distribution forces, and R&D/technical laboratories around the world to participate in this second revolution in plastics.

The acid test

"The real differentiation strategy that will separate the winners from everyone else in the global marketplace is how a company interprets and acts upon its stated positions and beliefs," notes DuPont's Henry B. Voigt, business director, Engineering Polymers Americas. Indicating that DuPont's manufacturing, technical, and sales operations support all its engineering polymer products in the Americas, Europe, and Asia Pacific, Voigt holds that there is no surprise strategy for those suppliers wanting to compete globally. "A winning global strategy," he maintains, "means having the technology to understand and respond to customer needs; a seamless global network to support those needs; and large-scale operations and capabilities to supply high-quality products with the lowest cost and the greatest speed." The key, he adds, is in having local deployment to determine and act upon the customer's requirements and to be able to tailor products specifically for each of the regions.

DuPont believes it will continue to stay on top of the competition because it acts on this total strategy. "It's fine to say that you have a seamless organization, with global facilities to make, service, and sell high-quality products at low cost and with fast response," Voigt notes. "But it's quite another thing to be actually doing it. Setting up a seamless organization around the globe is a tough job requiring a substantial monetary commitment. But the key is understanding what is required of all the people in the organization. From every part of the globe and representing every function at every level, these people must act together to make it work. What ultimately makes the difference is who executes against this strategy and works to improve on the execution every day."

Competitive edge

As GE Plastics puts it, the critical question for this decade is "What do customers really want?" Noting that product line, quality, and service are now givens--basic requirements to do business in the plastics industry today--the company reflects on what will separate winners and losers in the thermoplastic resins business, or, what is the competitive edge that will make the difference? GE Plastics' answer is that the successful companies of the future will only be those that can help their customers reduce costs. The company stresses that customers want new ideas for productivity and exposure to best practices. "Nothing else counts, nothing else matters," the company asserts.

This straightforward conviction is driving the future shape, structure, and direction of the company. What it amounts to is a basic change in its relationship to customers, from simply a "supplier of value" to a "productivity consultant." GE contends that this is a strong element of differentiation from competitors.

David Dobson, leader of the company's productivity team, says "it's really a whole new ball game in the field. In the 1980s, customers were satisfied with quality, service, and good cost. A high level of quality, consistency, and delivery is still critical, but these are only the tickets to get into the game today. They are not differentiators in the marketplace. In the 1990s, customers expect quality, service, and low cost; the market winners will add value by subtracting costs."

Dobson claims a competitive edge through the company's broad-based manufacturing capabilities beyond chemicals, such as the ability to provide extra value by helping customers to get costs out of business processes (beyond those that are exclusively plastics-based), including manufacturing, engineering, purchasing, finance, environmental issues, and human resources. "If we focus on the right customers and help them win in their marketplace, then we will win with them," he says.

Among programs initiated by GE Plastics' productivity group that have helped customers are inventory reduction, establishment of lower health-care cost controls, and reduction of environmental health and safety expenses.

To ensure consistent product quality, GE Plastics has registered a majority of its worldwide manufacturing facilities to ISO 9002 and plans to have all manufacturing sites registered. All the company's resin manufacturing sites in North America and Europe have been registered, as well as the materials characterization laboratory and Polymer Processing Development Center in Pittsfield, Mass.

A goal of GE Plastics is to raise the performance flexibility of its products, emphasizing fewer products for more applications, as a way to improve productivity for both the resin supplier and its customers. "In the future," says Jean Heuschen, vice president and general manager of technology, "we will want one product to do the job that is being done today by many products. Future products will have to be more robust, more adaptable to a wider variety of end-use performance criteria, more forgiving in processing, and certainly more consistent lot-to-lot. With products based on only a few platforms, customers will still derive the benefits of seemingly tailored products; and global use of standardized pigments and other additives will facilitate improved purchasing productivity."

ISO conversion

Hoechst Celanese recently announced that it will complete conversion by January 1995 from ASTM (American Society for Testing and Materials) materials testing standards to ISO (International Standards Organization) testing protocols in the production of quality data, technical literature, and promotional information for virtually its entire line of engineering and high-performance plastics. "The new protocols will facilitate resin consistency and help improve the quality of end-use products throughout the world," says Edward Munoz, president, Advanced Materials Group. "They are expected to be the international standard under which major companies seeking to participate in global markets will sell their products by the end of the decade." The ISO test protocols, reported only in metric units, constitute an improved analytical method for determining mechanical and rheological properties, especially where tests involve molding plastics and preparing ISO test specimens.

The protocols differ from ISO 9000 registration, which reflects quality management procedures in producing and delivering products, rather than test methods. Some key differences in methodology from ASTM are that the ISO procedures more narrowly specify mold design and gating, process parameters, part geometry, testing procedures, test sample conditioning, and moisture content. A more comprehensive approach to data generation is intended to reduce variables in testing and reporting, so that all resins will be tested under identical, reproducible conditions. The new protocols are expected to assure customers that they can buy the same resin with the same specifications anywhere in the world.

Global strength

Miles Inc. links its global strength to its parent, Bayer AG, which manufactures plastics on three continents and has technical support and sales offices in 120 countries. The company says that extensive and continuing efforts maintain production standards and specification targets at all facilities, so that international firms have access to virtually identical products and engineering and chemical expertise at all locations. Regular personnel exchanges, for minimum terms of three years, encourage the creation of team approaches between specialists on both sides of the Atlantic. The team approach goes beyond just Miles and Bayer AG. As Miles design engineers provide technical assistance to a U.S.-based OEM, the Bayer AG specialists may work with a moldmaker in Taiwan. Miles says the cooperation extends to work together on industry-specific and global issues, such as recycling technologies for both thermoplastics and thermosets.

Multiple impacts

The global recession; the added capacity for many resins that far exceeded the probable level of demand in the early 1990s (spurred by the heady growth of the 1980s); the maturation of the plastics industry, particularly in the developed regions of the world; and increasing environmental concerns and regulations that have resulted in higher costs for resin producers have all combined to create a difficult period for the global plastics industry over the last few years. Add to these elements the fall in prices that has made it hard for resin manufacturers to maintain R&D efforts at the typically high levels of the past, forcing resin manufacturers to re-evaluate how they do business. The larger companies, especially, have had to look closely at how to position their organizations globally.

Thomas E. Galvanek, general manager, Phillip Townsend Associates, Inc., offers some perspective on the positive side for the 1990s. For starters, Galvanek sees plastics continuing to be a material of choice, with demand continuing to rise, probably at rates one to two times the gross domestic product (GDP) in the developed regions of the world, but at double digit growth rates in the developing regions. "Industry will continue to globalize," he says, "and it will become increasingly important for the leading resin suppliers to further develop a global manufacturing base to replace their long-standing export business. The greatest success will come to those companies that produce high-quality products the most cost-effectively, who understand their customers, and who can provide the technical service and design support necessary to develop their customers' business and, thus, their own business."

One of the myriad ways to categorize the plastics industry is by the major types of materials. For example, the four broad types of thermoplastic resins--basic, intermediate, engineering (including blends and alloys), and performance resins--each require different approaches to the global marketplace. For basic resins like HDPE and LLDPE, Galvanek points out, world-scale plants are considerably larger and capital requirements relatively high. Success then depends on an efficient cost base from a favorable raw materials position, with unique and efficient processes or scale economies, and the financial resources to "hang on" during economic down-turns.

Demand for these basic resins is large enough in most regions of the world to justify local production. Licensable technology is relatively simple and efficient, and the selling price of the resin is low enough to discourage long-distance shipment, particularly between continents. Galvanek agrees that "successful suppliers must continue to build market share globally through grass-roots development, acquisitions, and joint ventures, and must focus on process evolution and product development by modifying base polymers."

With engineering and performance resins, however, where the regional markets may not be large enough to justify world-scale production units, Galvanek says that success is more dependent on developing the markets. Growth stimulation requires a strong local presence in global regions, thorough understanding of the customers and their end-uses for the resins, and providing extensive technical service and support. Since these resins are more expensive than basic resins, supply to the developing regions can be effectively handled by exporting resin from larger-scale production facilities. "In either case," Galvanek concludes, "it is imperative that successful resin suppliers think and act globally."
COPYRIGHT 1993 Society of Plastics Engineers, Inc.
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Wigotsky, Victor
Publication:Plastics Engineering
Article Type:Cover Story
Date:Sep 1, 1993
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