How will chemical companies continue developing business during the downturn?
Throughout the final months of 2008, members of the chemical industry pondered the financial crisis and how it is affecting their businesses. Chemical companies announced layoffs and plant closings. In this troubled environment, SpecialChem decided to run a survey on how to continue business development in chemicals during the downturn. The aim of this initiative was to find out how top managers involved in business development were reacting to the downturn and its effects on budget freezes. From the end of December 2008 to early January 2009, SpecialChem collected over 570 answers. This article highlights the key findings of the survey. Most respondents believe that the crisis will be relatively short (2009). As they do not want to give up growth projects (growth is still the priority for 51% of them), they will adapt to the downturn by focusing more on the most promising projects (74%) and fast-growing markets. There is a solid trend to "do more with less." Toward this goal, the respondents are looking for more innovative ways to sustain business-development projects using non-traditional approaches. About the Respondents The managers who were invited to share their thoughts in this survey were selected based on their decision-making power and involvement in business development. A majority of the respondents have marketing functions (60%) or corporate-management roles (21%). The marketing representatives' opinions tend to emphasize innovation more than cost reduction, while P&L personnel such as business-unit heads tend to focus on short-term objectives, including restoring profitability. Research and Development 15% Corporate Management 21% Marketing 60% Other 4% Note: Table made from pie chart. The respondents were from Europe (37%), NAFTA (23%), and Asia Pacific (36%); these percentages roughly correspond to the world community percentages given by the CEFIC (European Chemical Industry Council) (www.cefic.be/factsandfigures/). A Short to Mid-Term Crisis We are all aware of the impact of the financial crisis on various industries such as automotive and building & construction. Some of these sectors are directly served by the chemical industry, but who knows how deep the impact on chemical businesses will be or how long it will last? As mentioned above, most believe the crisis will be short term: 55% of the respondents are betting on a recovery in 2010. Only 5% see a long-term slow-growth period that could last over a decade, such as was observed in Japan during the 1990s. A short-term but intense crisis in 2009, with a recovery in 2010. 55% A 2009 and 2010 crisis, with progressive recovery in 2011. 40% A long-term slow-growth period has started that could last more than a decade 5% Note: Table made from pie chart. The responses from the world regions represented in the survey indicate that a faster recovery is expected in North America and Asia. This optimism is aligned with the historical ability of those regions to generate strong growth when exiting downturn periods, and with their recent track records in terms of GDP growth. Priority: Maintain Business Growth The response from the chemical industry to this point is very positive and encouraging for 2009. The majority of respondents (51%) say that business growth will still be their priority, while one would expect that restoring profitability would be the absolute objective. We clearly see here a viewpoint diverging from recent corporate announcements. People in charge of businesses are not ready to give up their growth projects. Business Growth is still our priority in 2009 51% Business Growth is somehow important in 2009, but not our priority 25% Business Growth is not our priority in 2009. We should reduce costs to restore profitability 24% Note: Table made from pie chart. Tobias Rooney from Innovaro sees this attitude as quite new: "Looking at the past crisis and industry downturn that the world had to face, it is a sign that the industry is more mature and ready to tackle today's challenges." This information should be balanced, of course, by the fact that even if business growth is the priority for 51% of the respondents, it will materialize in the long term only if profitability has been restored. Focus on the Most Promising Growth Projects At the end of Q3 last year, the largest chemical players were already announcing travel restrictions and idling of plants. Major layoffs have been announced since then, and some key players are facing bankruptcy. Reducing costs by stopping all ongoing development plans is certainly not the preferred option: only 3% of the respondents are considering it. The question is more how to best manage the existing initiatives and how to select the right projects so as to properly allocate the limited available resources. Another approach for top managers has been to focus on short-term projects with proven return on investment. The old recession playbook won't work this time around: only 23% of respondents are thinking of cutting all mid- to long-term projects and focusing on short term ROI. There is a tendency to think that focusing on the most promising growth projects, no matter what the duration, is the most sustainable way to ensure revenue growth. A large majority, 74%, is looking to support the most promising growth initiatives. We need to be selective and focus only on the most promising growth projects, no matter their term 74% We need to cut the mid to long-term projects and reallocate budgets to short term projects with proven ROI 23% We need to put on hold a[I the business development projects 3% Note: Table made from pie chart. Doing More With Less and Focusing on the Fast-Growing Markets In negative economic periods, marketing and R&D departments are being asked to do more with less in order to restore profitability. Recent years suggest that those who follow the survival techniques employed during past slowdowns might increase the risk of betting on the wrong markets, customers, promotion channels, or sales approaches. Thus it is necessary to find alternative ways to do business development: 41% of the respondents are considering exploring more effective methods to reduce risk and investment, such as Interactive Marketing or Open Innovation. Focusing on the fast-growing markets, whether they are industry segments or geographical areas, is an interesting alternative that 33% of the respondents are considering as an option. As a third approach, 26% of the respondents have a more conservative view: they want to develop new business with their existing customer base. Smaller companies, with more limited financial means, prefer to concentrate on development with their strategic customers. We need to explore new and more effective methods reducing risks and investment (Interactive Marketing, Open Innovation, Collaborative Innovation ...) 41% We need to focus on fast-growing markets (Asia, energy savings, renewable sourcing ...) 33% We need to develop new business primarily with our big and loyal customers 26% Note: Table made from pie chart. Investing in High-Potential Projects To Prepare for the Rebound Most players in the chemical industry will continue to invest despite the downturn: 43% of the participants think that they need to maintain investments in high-potential long-term projects to be ready when the upturn comes. But 33% of the respondents think that investing in areas that are less affected by the crisis seems to be the proper approach. We need to continue investing in high potential long-term projects, to be ready when the upturn comes 43% We need to invest in growth projects that are less affected by the crisis 33% It is the right time to invest more as competitors are internally focused 16% It is not the right time to invest in any new projects 8% Note: Table made from pie chart. Some managers (16%) even see the current situation as a strategic opportunity to beat the competition, supposedly by focusing on cost reduction more than on innovation and growth. Only about 8% of the respondents will not invest in 2009 in any project at all. To react to and read comments from your peers, SpecialChem invites you to join its "Marketing & Innovation group" at http://www.linkedin.com/groups?home=&gid=130667. SpecialChem's website: www.specialchem.com From its website: "Founded in April 2000, SpecialChem is an Innovation & Solutions Accelerator in the domain of Specialty Chemicals." By Christophe Cabarry CEO and Founder, SpecialChem, Paris, France |