Plastics, petrochemicals poised for growth in emerging markets despite political risk

Political risk is considered the primary threat to multinational chemicals companies in emerging markets over the next five years, with other challenges, including competition from local companies, poor infrastructure, and the cost of an international supply chain, not far behind.

The report by Kelvin Inn, consulting director, Global Intelligence Alliance (GIA) Hong Kong, features interviews of 20 chemical industry executives, with additional data and insights from more than 400 companies compiled into the Business Perspectives for Emerging Markets 2012-2017 Report.

Emerging market revenue to double
Despite the political risk, the executives told GIA that they expect 38% of their global revenues to come from emerging markets by 2017 on average, up from 19% today. After the BRIC countries, the top emerging markets to target up to 2017 will be Indonesia, South Africa, Saudi Arabia, and Vietnam.

The GIA report noted that "availability, accuracy, and completeness of market intelligence on emerging markets" represents a big issue for potential investors. Overall, 60% of the more than 400 companies featured in the study admitted that decision making is delayed because of lack of information, while 75% harbor doubts about the fullness and viability of the information they do have on emerging markets.

Fully 91% said they would have done something differently in how they planned and executed their emerging markets strategy. Some of the 20/20 hindsight changes included greater effort to adapt to local conditions, earlier market entrance, and ensuring better local market intelligence and due diligence.

Success Factors in Emerging Markets for Chemicals Industry 2012-2017

1. Success Factors (% Respondents)
2. Distribution/access to customers (50%)
3. Localized competitive positioning (35%)
4. Product/service quality (35%)
5. Pricing (30%)
6. Adapting to local culture (25%)
7. Building a strong brand (20%)
8. Local business relationships/lobbying (20%)
9. Localization of products/services (20%)
10. Aftersales service/spares/maintenance (15%)
11. Finding the right talent (15%)
12. Local partner(s) (15%)
13. Supply chain (15%)
14. Cost control (10%)
15. First mover advantage (10%)
16. Flexibility to change as the market develops (10%)
17. Government relations (5%)
18. IP protection (5%)
19. Access to local sources of financing (0%)
20. Appetite for risk (0%)
21. Availability of finance (0%)
22. Reliable access to energy sources (0%)

Threats in Emerging Markets for Chemicals Industry 2012-2017

1. Threats (% Respondents)
2. Political risk (35%)
3. Competition from local companies (30%)
4. International supply chain cost (30%)
5. Poor infrastructure (30%)
6. Difficulty breaking into local networks (25%)
7. Lack of local market understanding at headquarters (25%)
8. Regulations and taxes (25%)
9. Bureaucracy and red tape (20%)
10. Competition from other foreign companies (20%)
11. Economic volatility (20%)
12. Lack of reliable market intelligence (15%)
13. Corruption / weak rule of law (10%)
14. Foreign exchange ratate changes (10%)
15. Grey markets / parallel imports (5%)
16. Rapid change in the market (5%)
17. Lack of demand (0%)
18. Repeated losses (0%)
19. Unreliable local partners (0%)