3.1 Comparison of the chemical industry in different countries
A compact comparison of the chemical industry in 13 countries is tabulated in Table 9. East-European countries were not included since the fluctuation of the production rates in recent years were influenced more by political changes (sometimes unpredictable) than by the economy.
The parameters of the comparisons are:
- The chemical sales for 1991-2.
- The production growth rate for 1991-2.
- The mean production growth rate for 1987-92.
- The chemical added value for 1991.
- The ratio of the chemical added value to the chemical sales for 1991.
| Country | Sales 1991 ($MMM) | Sales 1992 ($MMM) | Prod growth rate 92/91 (%) | Prod growth rate 91/90 (%) | Mean prod growth rate 87/92 (%) | Added Value 1991 ($MMM) | Ratio of Added Value to sales 1991 (%) |
|---|---|---|---|---|---|---|---|
| USA | 289.0 | 297.0 | 2 | -2 | 1.3 | 156 | 54 |
| UK | 51.1 | 52.8 | 2 | 3 | 2.5 | 22 | 43 |
| Germany | 106.3 | 105.6 | 1 | 2 | 2.5 | 56 | 53 |
| Japan | 180.0 | 0 | 2 | 2.5 | 87 | 48 | |
| Italy | 51.3 | 52.0 | 0 | -1 | 0.8 | 17 | 33 |
| France | 68.5 | 68.4 | 6 | 2 | 4 | 22 | 33 |
| China | 39.6 | 43.6 | 10 | -1 | 4.8 | 14 | 35 |
| Switzerland | 15.8 | 17.0 | 4 | 1 | 3.0 | 9 | 56 |
| S. Korea | 20.0 | 12 | 12 | 14 | 6 | 30 | |
| Spain | 39.4 | 39.9 | 2 | -1 | 2.5 | 9 | 23 |
| Belgium | 29.6 | 29.6 | 2 | 0 | 2.5 | 6 | 21 |
| Netherlands | 25.0 | 24.6 | 2 | 0 | 2.5 | 7 | 28 |
| Israel | 3.8 | 4.0 | 9.5 | 5.1 | 4.9 | 1 | 26 |
The outstanding performance of South Korea should be noted. South Korea has maintained a high mean production growth rate for the 1987-92, with a high ratio of chemical added value to chemical shipments.
China has shown a good performance in 1992 and 1993. It is too early to estimate if this trend is a stable one, as some signs of inflation appear there.
Israel, with almost 5% of mean annual growth rate shows a better performance than most Western countries, but is lagging behind Korea (and other East-Asian countries, not shown), and was overtaken by China in 1992.
3.3 USA
3.3.1 Growth trends
The US chemical industry is aware that the recent and current slumps are complex. The recipes for change that have been tried have not been effective in most cases. Since the publication of “Made in America” (144) the chemical industry has been urged to divest commodities and to look for specialties with added value. However, non-critical favoring of specialties has not turned out to be a panacea (156), and downsizing turned out many times to be outright detrimental (146).
FIGURE 2: US commodities and chemical production indices, 1971 – 1992 (138)
Figure 2 shows the US production indices over the past 22 years, the yearly changes and a 10-year averaged running change, for all commodities and for chemical products. The last shows three drops: in 1973 and in 1982 and a smaller drop in 1989. The 10 year index for chemical products has lost its advantage over the 10 year commodities index. The 10-year running index grew by 9-9.5% for many years till 1973, about 2.5 to 3.5% higher than the all-commodities rise. After the 1973 crisis there was a drop of about 3% in both indices. After the end of the high inflation period in the US, after 1982, both indices converged to rises of abound 2 to 3% per year.
FIGURE 3: US chemical segments production indices, 1971 – 1992 (138)
Figure 3 shows the Chemical production index (1989=100) expanded by segments, over the past 22 years. At different years, different segments of the industry rose at different rates. However, over the whole period the greatest rise was for drugs and pesticides.
FIGURE 4: US commodities and chemicals price indices, 1971 – 1992 (138)
Figure 4 shows the price behavior of the all US commodities, chemicals and industrial chemicals. The chemicals price index reflects the sharp rise after the 1973 oil crisis, and the 1976 – 1982 inflation, and the “good” years of 1988 to 1991. The chemicals price index was in most years higher than the commodities price index by a small margin. The price index of industrial chemicals, rose faster, with the surge of demand at the end of the high inflation period.
3.3.2 The large companies
A general overview of the recent performance of the larger US companies is shown in Table 10:
| company | Sales ($MM) | Employees | Sales / Employee ($M) | EBIT margin (%) | ||||
|---|---|---|---|---|---|---|---|---|
| 1991 | 1993 | 1991 | 1993 | 1991 | 1993 | 1991 | 1993 | |
| DuPont | 38,965 | 37,325 | 74,611 | 66,627 | 522.2 | 560.1 | 8.2 | 8.7 |
| W.R. Grace | 2,544 | 3,008 | 32,433 | 25,411 | 78.4 | 118.4 | 15.9 | 12.7 |
| Dow Chemical | 18,807 | 18,525 | 24,193 | 21,300 | 777.4 | 869.7 | 8.9 | 9.5 |
| American Cyanamid | 4,986 | 5,817 | 17,145 | 18,298 | 290.8 | 317.9 | 16.0 | 15.5 |
| Eastman Chemical | 3,614 | 4,125 | 16,915 | 17,926 | 213.7 | 230.1 | 14.8 | 12.8 |
| Hercules | 2,929 | 2,826 | 17,324 | 15,419 | 169.1 | 183.3 | 8.7 | 10.8 |
| Monsanto | 8,864 | 7,955 | 12,200 | 11,100 | 726.6 | 716.7 | 11.5 | 10.0 |
| Union Carbide | 4,877 | 7,725 | 13,184 | 11,025 | 369.9 | 428.6 | 5.2 | 7.1 |
| Air Products | 2,931 | 3,300 | 10,292 | 10,184 | 284.8 | 324.0 | 14.0 | 14.3 |
| Quantum Chemical | 2,532 | 2,443 | 8,930 | 8,730 | 283.6 | 179.8 | 3.5 | 4.5 |
| Rohm and Haas | 2,763 | 3,360 | 8,400 | 8,000 | 328.9 | 420.0 | 9.0 | 11.3 |
| Ethyl | 1,535 | 1,795 | 5,228 | 4,196 | 293.6 | 427.8 | 15.8 | 15.2 |
| Dexter | 938 | 892 | 3,350 | 3,424 | 279.9 | 260.4 | 10.5 | 13.0 |
| Lubrizol | 1,476 | 1,536 | 2,907 | 2,937 | 507.7 | 523.0 | 10.8 | 10.3 |
| Lyndell | 5,729 | 4,288 | 2,270 | 2,407 | 2523.8 | 1781.5 | 7.0 | 12.5 |
| Ferro | 1,057 | 1,077 | 2,276 | 2,314 | 464.4 | 465.4 | 10.2 | 12.5 |
The 1993 figures are estimates, and EBIT margins are the earnings before interest and taxes as percent of sales.
The sales figures are the total for the company, but the employment figures are for US employment only. Therefore, the efficiency figures can be misleading. However, since most of the personnel reduction in 1991-1992 was in US personnel, the increase in sales/employee for companies with decrease in sales can be attributed to the reduction in personnel.
The sales of five of the largest chemical companies in the US (DuPont, Dow, Monsanto, Union Carbide and Celanese), on the basis of their deflated turnover over the period of 1971 to 1992 are shown in Figure 5. In deflated dollars the performances of Union Carbide and Monsanto and of DuPont after 1978 are unimpressive. Celanese was bought by Hoechst in 1986 and combined with the other Hoechst holdings in the US, and hence the rise in its performance in 1986 and 1987. The only company of these five to show an improved performance over most of that period is Dow.
The net profits (as % of the sales) for the first 4 companies of the above plus Great Lakes and Bristol Myers are shown in Figure 6. The four larger companies show declining profit margins from 1973 to 1985, a rise from 1986 to 1989 and a decline afterwards. Here again the top performer of the 4 was generally Dow. The two smaller companies showed much higher profit margins than the large companies, but with large fluctuations for the case of Great Lakes.
FIGURE 5: Sales of five of the largest US chemical companies for 1971-1992
(in deflated 1967 $)
FIGURE 6: Net profits for 6 US chemical companies for 1971-1992
(as percent of sales)
The performance of Union Carbide, Dow and Great Lakes, will be analyzed in greater detail in the following sections.
3.3.2.1 Union Carbide
The Union Carbide corporation has dropped from the number 2 producer in the early sixties to number 5 today. During that period Dow rose from number 4 to number 2 and is not too far behind the leader, DuPont, in chemical sales.
In its early history at the turn of the century Union Carbide main products were calcium carbide and acetylene. From this starting point it developed 5 main business centers (145):
- Chemicals, Mainly ethylene derivatives: ethylene oxide, styrene, and vinyl chloride)
- Plastics: polyethylene, polypropylene, and phenolics.
- Gases and related products: oxygen etc., molecular sieves, cryogenic equipment.
- Metals and special carbons.
- Consumer and related products: antifreeze, batteries, lamps.
Later, the pesticides started to be prominent products (up to the infamous Bhopal disaster). However, there are no clear integration links between the different business areas.
The three basic points of the company strategy (similar to many other companies) were:
- Strengthening of existing businesses.
- Withdrawing from areas with little potential.
- Shifting the product mix towards “performance materials”.
This policy gave excellent results till the early seventies.
Then two processes began:
- The oil companies entered the petrochemical field, endangering the polyethylene business.
- Many chemical companies started to integrate backwards, into the domain of oil companies, in order to fight the effects of the oil crisis, often using highly leveraged financing (136).
Union Carbide dominated the polyethylene business, being a commercial and a technological leader, it had to maintain its standing. However, it was against its policy to enter the oil business or to undertake heavy debts. The company financed its attempts to keep its market share by selling its other polymer businesses. In hindsight it was a doubtful move. Table 11 originating from McKinsey & Co., illustrates that the company lost capacity share in all its polymer businesses.
| YEAR | 1965 | 1970 | 1973 | 1974 | 1975 | 1980 |
|---|---|---|---|---|---|---|
| Ethylene | 30.5 | 24.3 | 17.4 | 18.2 | 16.4 | 10.7 |
| LDPE | 31.1 | 23.2 | 18.6 | 20.2 | 10.1 | 16.4 |
| HDPE | 13.7 | 12.6 | 5.4 | 5.5 | 10.5 | 6..6 |
| Polystyrene | 10.7 | 5.8 | 6.8 | 7.6 | ||
| PVC | 10.3 | 9.4 | 6.3 | 6.1 | 6.1 | 2.3 |
Two other events: retirement from European production, and the Bhopal disaster brought Union Carbide to its present situation, the last among the big 5 of the American Chemical industry.
3.3.2.2 Dow
Dow is the only one among the large US chemical companies to show a significant growth rate (in constant dollars) over the past two decades, as was shown in Figure 5. The strategy of Dow appears to be vertical integration, growing into consumer specialties with high profit margins while not abandoning commodities and industrial specialties and trying to obtain a 1:1:1 ratio among these three classes (150). This strategy is consistent with the importance of the higher added value, without giving up the advantages of scale of a very large company.
A possible explanation is (150) that Dow is on track in its strategy for product mix. Several years ago Dow management set the goal to boost specialties to 50% of sales. That strategy has been revamped to differentiate between industrial and consumer specialties.
Dow’s president, Stavropoulos, says that the company is driving for sales divided equally among basics, consumer specialties and industrial specialties. Dow is not far from attaining that mix: basic chemicals and plastics account for 41% of sales; industrial specialties, 26%; and consumer specialties, 32%.
The consumer specialties sector is where most of the profit is derived. Although Dow is the sixth largest chemical company in the world, it aims to take on many of the characteristics and the
flexibility of a small company. It is praised for its superior vertical integration. Dow has not neglected modern technology. and has developed the Insite metallocene based catalyst technology, that is changing the way polyolefin are produced. Dow has built new capacity for superabsorbent polymer and new separation systems based on membranes.
Dow’s consumer specialties segment is composed of three businesses: agricultural products, pharmaceuticals and consumer products. The first two are self-explanatory. The consumer products include:
bathroom cleaner, Fantastik cleaner, Wrap plastic films, laundry detergents, plastic bags, apple pectin, hair care products. Not everything goes well in this segment: the pharmaceuticals company
Marion Merrel Dow has profit problems and spoils the performance of the mother company.
Dow was one of the most cited cases of restructuring. Bower (135) wrote: “Until very recently, Dow’s strategy might be crudely summarized as follows: to be the world’s largest and most profitable producer of commodity chemicals and plastics based on low-cost, using leadership and aggressive marketing in the businesses where it competed. Low costs, in turn, were achieved by vertical integration, technical excellence, near or maximum scale, and leveraged financing. When oil prices skyrocketed, Dow sought integration further back to reduce cost. …It was ready and willing to use debt to fund a program of backward integration into oil and gas. But the high interest rates and declining real energy prices of the eighties that precipitously altered the attractiveness of Dow’s portfolio. It had to scramble to generate funds to eliminate debts, liquidating some of the investments. Resources freed by these measures were used to reduce debt and increase the investment in agricultural chemicals, pharmaceuticals and specialties”. The managers of Dow stated: “We were back integrated. But today, you only make your profit at the forward end. You can’t afford to back integrate”.
The profit situation of the company is curious (Figure 6). During the short improvement of the chemical industry, around the year 1988, the net earnings of Dow improved dramatically, and reached almost 15%.
However, in 1992 they dropped to around 2%, like the other leaders. (This may be due to a one time change in accounting practice).
3.3.2.3 Great Lakes
This company can serve as an example of a non-pharmaceutical company, that shows an unusually high profit margin (Figure 6).
From a study of the performance of this company (152.153.154), the following picture is derived:
The sales growth averaged 24.3% per year since 1989 and the net income has also increased by 24.3%. The chairman, E. Kampen, believes that the company can continue to grow at this rate, because of its entrepreneurial culture and its proficiency at managing changes. At any given point of time, 50% of its businesses are undergoing change.
The company has three basic product lines: bromine, furfural and gasoline additives, and each line is integrated from basic raw material to final products, up to consumer goods. Recently great Lakes has acquired Word Blenkinsop from Shell, thus becoming basic also in phosgene products. In general, all its growth has been through acquisitions, made possible by its outstanding cash flow, which distinguishes Great Lakes from other specialties companies.
Great Lakes spending on R&D is rather low. It was 4.5% on sales in 1988, but dropped to 2.8% in 1991. The healthy cash flow alone cannot explain the high profit rate. Even after deducting the equivalent of the interest rate – the profit stays higher than average.
3.4 Germany
Germany is the cradle of the modern chemical industry, and with annual sales of $MMM 100 is still the largest one in Europe, and number 3 worldwide. Its three leading chemical companies, BASF, Hoechst, and Bayer are numbers 1,2 and 4 in the global top 50 chemical companies, after the drop of ICI from the No 1 to the No 3 position, after its split.
The German chemical industry suffers from the same problems, as the other chemical industries in Western countries: low, occasionally negative growth, low profits, and deteriorating trade balance. It has additional problems arising from the unification with East Germany. The chemical output of East Germany is only about 3% of the combined output, but its productivity is low, and the renewal investment is very high (155).
Additional problems of the German chemical industry are: Very high environmental spending- 1.6% of the GNP, and high cost of electricity, $0.09/ kWh (155). Still, the general feeling in the industry is that the situation is under control, and that no special measures have to be undertaken. This may be the result of the unusually high added value of the industry (56% of the total shipments value).
The performance of the three largest German chemical companies is shown in Table 12:
| Company | Sales 1991 ($MMM) | Sales 1992 ($MMM) | Net Profit 1992 ($MMM) | Capital spending (% of sales) | R&D (% of sales) |
|---|---|---|---|---|---|
| Hoechst | 20.247 | 29.403 | 2.6 | 8.24 | 6.3 |
| BASF | 29.888 | 28.540 | 1.4 | 9.3 | 4.6 |
| Bayer | 27.180 | 26.407 | 3.7 | 6.9 | 7.5 |
The growth rate is negative. The profits are low, but positive, probably due to the high weight of pharmaceuticals among the products. Spending on R&D is higher than for the US companies.
The next three largest companies, Henkel (No. 22 in world ranking), Degussa (No 47) and Huels have only a third or less of the turnover of the first three. Their performance is similar.
3.5 Great Britain
ICI is the only one chemical company in UK in the over $MMM 10 class. Despite several attempts of restructuring in recent years ICI found itself in very difficult situation. Its total sales fell from $MM 22,802 in 1990 to $MM 21,309 in 1992. In 1992, for the first time in recent years, it had a net loss of $MM 500. The reaction of the board was swift and unexpected. The board decided on an immediate demerger, in the form of a split between the heavy basic chemicals and the biotechnology, health care and agricultural chemicals businesses. The last businesses representing more than 1/3 of the turnover, were given the name of Zeneca. Each part will be free to develop its own culture and strategy. ICI intended to invest more heavily in its cash cow part, and after the split they could more easily attract investors.
Denis Henderson, the chairman of ICI and Zeneca, and the initiator of the split said (23): “…size and tradition alone are not enough to ensure survival. … Cross-subsidization has often gone on too long and too expensively. The Demerger has to some extent reduced the comfort factor and I believe the impact of that will ultimately prove beneficial.” This change comes at the expense of vertical integration, and it is still to be seen how what the reaction on the added value will be, and what will be the influence of the split on the R&D expenses (about 6% before the split).
Another trend said to be invented by Henderson (173) is the “swap shop”: The nylon for acrylics swap with DuPont that was conditionally approved in September 1992 and that took place a few month later, and the polypropylene for acrylics swap with BASF that was announced in January 1993. Since acrylics are among the most promising polymers at present (34), these swaps may be advantageous to ICI.
Other British companies like BP, Shell and Octel (A subsidiary of Great Lakes) are trying to follow this lead. On the whole, British industry has, as in the past, showed original thinking in dealing with its situation. It is too early to judge the outcome.
3.6 France
An accepted view among the Western economists, is that the private ownership makes industrial companies more efficient and competitive. France, more than other Western countries, took this axiom with some reservations. David Hunter suggests (161) that nationalization in 1981 saved Rhone-Poulenc from bankruptcy or break-up. State control has prevented RP from raising equity by issuing shares, forcing it to resort to inventive but expensive instruments to finance its growth. But state ownership has permitted it to operate with much higher debt than a private company. This had made possible its aggressive acquisitions strategy, spending $MMM 6.8 between 1986 and 1991 to reshape its portfolio toward biosciences and specialties, and build a US presence. All this was going to change with the sale of the state’s remaining 43% holding in 1993.
France has no ideological policy of nationalization of private industry, but such actions are part of the arsenal of means of governmental influence. This government influence is more pronounced in the R&D policy, where the government sometimes deals directly with technological development in areas which other governments leave to the industry. In many areas, including some belonging or bordering on the chemical domain, the government support of R&D gave a significant boost to the French industry.
In the final score, France has the fastest growing chemical industry in Europe, with a record production index (relative to 1985) of 130.
Table 13 presents performance figures for the two largest chemical companies in France with a joint turnover of about 1/3 of the total national turnover.
| Company | Sales 1991 ($MMM) | Sales 1992 ($MMM) | Net Profit 1992 ($MMM) | Capital spending (% of sales) | R&D (% of sales) |
|---|---|---|---|---|---|
| Rhone-Poulenc | 15.844 | 15.445 | 2.7 | 6.9 | 7.1 |
| Air-Liquide | 6.015 | 5.537 | 7.6 | 11.8 | 1.6 |
The current growth rate is negative. The profitability and capital spending of Air Liquide are high. The R&D spending of Rhone-Poulenc is high.
3.7 The Netherlands
It may be significant that the Netherlands, with its large chemical industry (around $MMM 25, almost completely export oriented) with 3 companies in the top 25 of the world list (Chemicals sales of Shell – $MMM 10.3 (including UK holdings), of AKZO – $MMM 7.7 and of DSM – $MMM 5 in 1992) is found at the bottom of the added value classification (Table 3).
J. Schoenmakers (159), suggested that the process of restructuring and concentrating on strong product-market combinations was delayed by the economic boom of the 1980s, which temporarily made the process less urgent. At that time enough money could be made even with sub-optimal mix. The Dutch chemical industry has not changed much during the past 20 years. Despite the fact everybody said a move toward high added value was of vital importance, the industry is still 60% commodity chemicals production, as it was in the 1970s. As a result, the Dutch chemical sector is still one-sided compared with the diversity of products in Germany. Ammonia, salt, and basic plastics account for 80% of the total chemical production in the Netherlands.
3.8 Switzerland
Three Swiss companies, Ciba, Sandoz and Roche, with a joint turnover of over $MMM 25 per year, present one of the most powerful concentrations of chemical industries in Europe. Their leading position in pharmaceuticals and dyes is well known, but their involvement in basic organic and inorganic chemicals is also prominent. Switzerland presents probably the best integrated chemical industry in Europe, with most sales at the consumer end of the line. Therefore, it appears, in sharp contrast to the Netherlands, at the top of the classification by the added value (Table 3). As a result, the profit margins of the Swiss companies are unusually high for the European environment: 10.4% for Sandoz, 6.8% for Ciba and 14.8% for Roche. More significantly, for all these three companies, the profits have risen consistently during the past 3 years (138).
3.9 Japan
The legend that the Japanese chemical industry (second largest in the world at $MMM 180) will not be touched by the recession was incorrect. In 1992 a slow-down started to spread, commencing from the petrochemical industry, exactly as described by Bower (135) a decade earlier. There are no signs yet of recovery, despite the usual heavy involvement by the government, which at this moment is not very effective. It will be interesting to observe, if the proximity and close ties binding Japan with the countries of the Pacific Rim will have a smoothing effect on this recession.
Other factors which may influence the recovery: The Japanese chemical industry is very decentralized, the 12 largest chemical companies do not account even for 1/3 of the total chemical sales, (very unlike the other industrialized countries). The largest company, Asahi Chemical (No 13 in the worlds top 50 list), has sales under $MMM 8. This may add flexibility to the fight with recession. The government, on its part, has curbed administratively chemical imports, thus attempting to protect the local production (152).
For illustration of the present situation in Japan, Table 14 shows the net sales and profits of 6 leading chemical companies:
| Company | Net Sales 1991 ($MMM) | Net Sales 1992 ($MMM) | Net Profit 1992 (% of sales) |
|---|---|---|---|
| Asahi Chemical | 7694 | 7849 | 1.7 |
| Mitsubishi Kasei | 5740 | 5602 | 0.7 |
| Sumitomo Chemical | 5554 | 4926 | 0.9 |
| Sekisui Chemical | 5130 | 5324 | 1.5 |
| Toray Industries | 4729 | 4578 | 4.1 |
| Showa Denko | 4552 | 4015 | 1.3 |
| Takeda Chemical | 4427 | 4458 | 5.6 |
For 4 companies the growth rate was negative (It used to be at least 4% per year). Toray and Takeda produce mainly pharmaceuticals, hence the higher profits. For the other companies the 1992 profits are less than half of the profit in recent years.
3.10 China
In its efforts to change from a communist economy to a more competitive form, China took the diametrically opposite direction of Russia, i.e. by relaxing the centralist rule over the economy before changing the political regime. So far, this formula seems to work better than the Russian formula. Its essence: to delegate the immediate tasks to private, competitive hands, while keeping the long term planning with the central government. The comparison with the former Soviet Union is not completely fair: China has a much larger more population, but since the economy is much smaller, it is easier to manage. The growth rate of the Chinese chemical industry in 1992 was twice its average rate in the 5 earlier years (Table 9).
A more detailed picture of the recent growth of the Chinese chemical production is shown in Table 15:
TABLE 15: The growth of Chinese chemical production (in 1000 metric tons)
| Product | Thousand tons | %change | |||
|---|---|---|---|---|---|
| 1989 | 1990 | 1991 | 1992 | 91/92 | |
| Ammonia | 20675 | 21251 | 21973 | 22965 | 5 |
| Fertilizers | 18547 | 18790 | 19783 | 20990 | 6 |
| Sulfuric acid | 11408 | 11967 | 1333 | 13960 | 5 |
| Sodium hydroxide | 3211 | 3388 | 3533 | 3778 | 7 |
| Sodium carbonate | 2983 | 3799 | 3935 | 4506 | 14 |
| Plastics | 1973 | 2249 | 2640 | 3142 | 19 |
| Synthetic fibers | 1466 | 1655 | 1909 | 2083 | 9 |
| Detergents | 1431 | 1516 | 1461 | 1616 | 11 |
| Ethylene | 1405 | 1572 | 1746 | 1982 | 14 |
| Pesticides | 224 | 228 | 255 | 284 | 11 |
| Drugs | 196 | 172 | 195 | 219 | 12 |
| Synthetic rubber | 289 | 315 | 335 | 366 | 9 |
Although the quantities shown in Table 15 are large, the per capita use is still very small.
The ten largest chemical companies in China in 1992 are listed in Table 16:
TABLE 16: The ten largest chemical companies in China in 1992 (An exchange rate of $1 = 5 yuan was assumed)
| $MMM | |
|---|---|
| Shanghai | 1.7 |
| Beijing Yanshan | 1.5 |
| Jilu | 1.3 |
| Jilin Chemical | 1.2 |
| Daqing | 1.2 |
| Wushun | 1.2 |
| Maoming | 1.1 |
| Jinling | 1.0 |
| Shanghai Gaoquiao | 1.0 |
| Yangzhi | 0.9 |
All companies in this list (with the exception of Jilin) are named as petrochemical companies. The majority of companies with typically chemical names can be found much lower on the list, with annual sales reaching $MM 300 or less. The total output of the Chinese chemical industry was reported for the year 1992 to be $MMM 43.6, 10% higher than in the previous year.
The growth rate of the Chinese chemical industry appears to be limited only by the buying power of the population of the country (and to some extent on the success of exports. Currently the balance of the chemical trade is a negative $MMM 5). The possibility of its reversal is not clear. The Chinese Minister of chemicals, Mrs. Gu Xiulian complained that the first half of 1993 showed only 6.7% growth (over the matching period in 1992) because of the cuts in government subsidies to agricultural chemicals (162).
Shahid Burki, director of the World Bank’s China Department predicted an 8.5% annual increase in China’s GDP for 1992-2000, taking the GNP from $MMM 370 in 1991 to $MMM 730 in 2000. The income per capita will rise from $370 in 1991 to $560 in 2000 in real terms. Under such a scenario, China will still be a poor country. Estimates saying that the income per capita will reach $4000 are dismissed by the World Bank. On this basis the 10% growth target set by the government for the chemical industry is possible, following the 1992 rate of growth.
In a few of China’s regions, that are autonomous to some extent, for example: Guandong, Fujian, Jiangsu and Shandong, called the “Inner Dragons” the development is even faster. The chemical industry there is expected to grow at a spectacular rate.
The two economic problems of China are: To build the markets for future expansion, and to obtain funds for investments. This second problem is not so acute, since many among the “Chinese Diaspora” developed “China fever”. According to the Ministry for Foreign Trade and Economic Relations (“Moftec”), of the $MMM 37 in foreign investment in 1979 – 1992, $MMM 21 came from Hong Kong and Macao and further $MMM 2 came from Taiwan. This investment stream is widening each year. Chemical companies from all over the world are investing in China. Hoechst has investment projects in China for over $MM 400 in 5 years.
The ratio of added value to the chemical output value is 35% (Table 3).
This may be a consequence of good integration of the industry, starting from basic petrochemicals and, perhaps, lack of foreign currency for imported raw materials. The per-capita added value in China is under $100, (Compared to over $5000 in the USA, and about $1800 p.a. in Israel). Since even at that national efficiency the Chinese chemical industry is among the first ten in the world – it is clear that it will have an impact on the world chemicals market.
3.11 South Korea
South Korea was chosen here as the main representative of the “Little Dragons”. The original “little Dragons”, one of the most interesting phenomena of contemporary economics, included South Korea, Taiwan, Hong Kong and Singapore. In the last decade their economy, including the chemical industry, has shown a continuous boom. It started, by high productivity, caused partially by low wages. This attracted foreign industry, which erected local daughter production companies. As a result, foreign technology was imported, foreign loans helped to erect industrial infrastructure and local specialists acquired high technical skills.
With the rising local income, the market developed quickly and induced further development. This reasoning, while plausible, does not explain why such development did not take place at many other countries. Possibly, the Japanese influence was a factor, not always in Japan’s favor. J. Greenwald is quoted in Time (163): “According to Sanwa Research Institute, Japan stands to lose 1.3 million jobs by the end of the decade if companies continue to accelerate the rate at which they build foreign factories.”
Currently, new “Little Dragons” are appearing: Malaysia, Indonesia, and Thailand. Even Vietnam is mentioned as a new economical miracle of the Far East.
The development rate of the chemical industry in South Korea resembles those of West Europe in the sixties, and is better than the overall (and impressive) figures for all the South Korean industry as can be seen in Table 17:
| 1989 | 1990 | 1991 | 1992 | % change 92/91 | |
|---|---|---|---|---|---|
| All Manufacturing | 171.3 | 186.5 | 202.6 | 212.3 | 5 |
| Chemicals & allied products | 154.8 | 172.9 | 194.2 | 218.2 | 12 |
| Industrial chemicals | 156.6 | 188.6 | 222.9 | 271.1 | 22 |
The highest growth rate, over 70%, was in ethylene, propylene, benzene and butadiene.
From the Neeman Institute Report : “The Chemical Industry 2000”, by E. Kehat & R. Wachs, March 1995