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Friday, October 15, 2021

The complexity of state-owned chemical companies

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As our interviewees can see, the current situation of the chemical market can be summarized in three aspects: state-owned chemical companies are becoming more and more complex, multinational companies are generally operating in an unfair competitive environment, and the Chinese government is using its power to shape domestic industries.

Executives say the sophistication of state-owned chemical companies lies first and foremost in sales and distribution: their skills are less technically complex, but they are catching up quickly. Interestingly, only one executive believes that as SOEs become more capitalist and more interested in financial performance, competition will become fairer as they integrate into a more regulated global market. In terms of competitive environment, state-owned enterprises have obvious advantages in obtaining government, capital, preferential license and supervision, and environmental control.

Respondents said inflation – especially wages – was the biggest macroeconomic risk to profits. The overall strategy of multinational chemical companies to deal with macroeconomic risks is to have in-depth understanding of customers, make costs more flexible, increase the number of localizations, and develop a broader portfolio to minimize the impact of changes in individual businesses or product lines. The risk mitigation strategy of MNCs is a mixture of tactical measures, compliance and “corporate citizenship” actions, including the following methods:

Show the government how the products support the five-year plan.

Keep a low profile and don’t confront the state-owned enterprises with political background, especially the smaller ones.

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Lobbying and managing relationships with government agencies.

Affect industry standards and norms.

Keep in touch with the local, not just at the provincial or national level.

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