Market Intelligence: Zero growth heresy

29 November 2012 18:46  [Source: ICB]

Among many chemicals executives it is just not acceptable to plan for long-term low or zero growth. Yet clever thinking can create opportunities, even if this scenario becomes a reality


Emerging economies offer challenges and opportunities

Copyright: RexFeatures

The global chemical industry became used to healthy and steady rates of demand growth during the "Great Moderation" in the west, before the 2008 crisis.

As Paul Hodges, chairman of the UK-based chemicals consultancy International eChem wrote in January of this year: "Executives could usefully spend time debating whether ethylene growth rates might be 4.2%, or perhaps 4.5%, or only 4%. The history of the past three years teaches us that the margin of uncertainty has greatly increased."

Change "three years" to "almost four years" and this analysis has stood the test of time.

The "margin of uncertainty" hasn't gone away since January; in fact, if anything, it has increased as, for example, it has become more widely accepted that there are no longer any guarantees that China will carry on booming.

And yet some planning processes still do not adequately take into account the fundamental and deeply-rooted changes in how the world works, according to an Asia-based chemical industry executive.

"We tend to take constant growth as a given. In the annual planning process it is almost heresy to talk of zero growth, leave alone negative growth," he said.

Chemicals and polymer markets have sometimes underperformed growth in overall GDP since 2008, most notably in China, as economic complexity has increased.

And yet, he added: "The general expectation is that growth will (still) be at least in line with GDP if not a multiple of it.

"The other expectation is for growth at a rate above the average for the industry/segment. No time or effort is really spent in trying to understand or plan how this growth is going to be delivered - by grabbing market share, by substituting competing materials, by increasing penetration of the product in an application, by increased usage, etc."




"This tremendous potential is already being tapped by smart local entrepreneurs," he said.



"The reason most of them fail is that they simply acquire the franchise and the operations; they never acquire the fundamental knowledge and understanding of the behaviour of consumers, their psyche, their decision drivers and the countless other elements that govern buying decision," he said. "You then have a situation where the local entrepreneur starts anew under a new name and takes back most of the market."



"They have learnt their lessons the hard way and have benefited from it."


Many Indians are too poor to afford, for example, a full bottle of shampoo - hence, the popularity of the pouches, or sachets.


"The business mindset will need to be re-orientated in order to take into account the demographics of western markets," he said.

"A new value proposition will need to be developed for ageing populations.



This is an opportunity as much as a challenge.

"Young people in India, and other developing countries with youthful populations, now have much better access to money than used to be the case," added the North American-located industry executives.


But, as a further example of just how complex and volatile the world has become, the old certainties over India have also disappeared in 2012.




"India's statistics on health, malnutrition and infant mortality are worse than those for some countries in sub-Saharan Africa, with the nation accounting for 20% of the world's infant deaths," said a newswire report on the World Economic Forum India, which took place in Gurgaon, India, on 6-8 November.


By: John Richardson
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