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China’s chemical industry: Multinational corporations

Hydrocarbon Engineering,

China is undoubtedly one of the world’s biggest economies and markets so; it is therefore, according to McKinsey, incredibly important for MNCs. Many of these have already set up local manufacturing bases and joint ventures to ensure access to the market and this has positioned them well to expand profitability as well as growth within China’s market. However, as illustrated in earlier parts of the McKinsey report, MNCs are indeed facing challenges when it comes to the Chinese market. Yet, these are not stopping MNCs from staking a claim and seeing many avenues to success.

China’s needs

There is of course continued demand growth in China’s chemical industry, but in order for MNCs to reach a high level of success, they are going to have to adapt to the needs of China’s domestic chemical market. McKinsey has said that ‘one approach to explore is prioritising products that match up with what China needs, and that the Chinese state is promoting.’ The most recent Chinese five year plan is s good place to start as it does offer indications as to what key chemicals need to be produced. Chemicals in China, McKinsey says in its report, ‘are important enablers for a wide range of strategic industries in which the Chinese government wants to nurture global champions, particularly in those industries for which China will be a major market.’

Proactive actions

Working with stakeholders across China’s regulatory and business landscape is an important factor for MNCs in China’s chemical sector, according to McKinsey. Constructing a new business, plant or outlet for a company within China requires approval from a variety of different levels and new products must pass through many different approvals. Also, McKinsey has said, that the evolution of industry standards across China need to constantly be monitored by MNCs looking to venture and currently working in the country’s chemical industry. With all the hoops that need to be jumped through, McKinsey sees opportunity for MNCs to be proactive and work together with Chinese governing ‘bodies to help shape product specifications and environmental standards,’ as these are expected to become the key drivers behind the chemical industry in China. Also, such cooperation will allow MNCs to impart much of their knowledge and expertise to Chinese authorities, building teamwork, trust and relationships.

McKinsey has also said that ‘successful international companies are putting in place dedicated government affairs teams to identify and manage relations with key stakeholders in all areas affected by their business.’ They key it appears is to respond to and understand stakeholders’ concerns and address them fully.

Market strategies

Of course, whatever industry one is in, marketing is always a key to establishing a presence in any sector, but McKinsey has pointed out that marketing in China is becoming more and more difficult and more and more companies are entering the Chinese market as it grows and increases its demands. McKinsey has advised in the report that MNCs focus on urban clusters of China as this is where the highest growth is anticipated. The company also advises that distribution partners are found and a network is established, as ‘China’s market is relationship driven.’

Thirdly, McKinsey has recommended that MNCs implement policy to ensure that there is ‘last mile’ control of projects, as they will strengthen account management within the chemical sector in particular. Finally, creative solutions need to be sought by MNCs due to the fact that ‘China’s uniquely challenging distributor landscape requires creative go to market approaches.’

Use local

The report advises MNCs to use M&A as well as joint ventures to ensure quick growth and big steps need to be taken to ensure that growth within the Chinese market is organic. McKinsy believes that this route will ‘enable them to acquire more market access and fill product or technology gaps.’ At the moment this definitely seems to be the key to success for MNCs in China’s chemical industry and industry in general as approximately 60% of petrochemical crackers in the country are joint ventures.

A global base

McKinsey has said that developing a base in China can bolster an MNC on the global market due to two things. Firstly, ‘establishing manufacturing in Chain enables a producer to take full advantage of China’s lower capital investment costs and lower operating costs.’ Secondly is the innovation opportunity that is available in the country. MNCs in the chemical industry, McKinsey reports, have already established significant R&D centres in China allowing them to gain access to the significant talent pool in the country.

China’s got talent

Furthering the above point, which highlights the Chinese talent pool, the final point McKinsey makes when looking at MNCs in China’s chemical industry is the importance of attracting and empowering China’s talent. McKinsey anticipates an increase in competition for skilled, qualified and talented employees in China’s chemical sector. This is anticipated to come from international players but particularly domestic companies who will ‘seek to improve their capabilities.’ This is possibly as the Chinese talent pyramid is often referred to as being very steep and local companies are exceedingly aware of the lack of capabilities around in the talent available to them. McKinsey has recommended in the report that ‘international companies…continue to invest in their corporate brand,’ as well as creating value propositions for prospective employees and offer ambitious career development.

Edited from a McKinsey report by Claira Lloyd

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