Glowing Tokyo tower at night with other buildings

Shifts in the Asian chemical industry

Shifts in the Asian chemical industry

Shifts in the Asian chemical industry

Paul Harnick | Leadership,

It’s funny how life sometimes surprises you by turning your beliefs and preconceptions on their head. So it was on my most recent trip to Asia. I’ve been a regular visitor for over a decade and throughout all of the dynamic activity in the chemical industry in that part of the world over that time, two things have been constant – the inextricable growth of the Chinese chemical industry; and the inability of the Japanese chemical industry to restructure due to a multitude of political and socio-economic reasons. Constants in an ever-changing landscape – until now.

Every September, I’m lucky enough to co-host a wine tasting dinner for senior chemical industry executives in Shanghai (before I get a phone call from the KPMG powers-that-be, it really is a serious business event!). Now in its fifteenth year, the event has become a staple of the Shanghai business networking scene, attracting the senior Asian leadership of most of the major western chemical producers along with the leaders of a number of locally owned businesses. Above all, it’s great to be able to re-connect with many old friends and occasionally welcome some new faces into their roles in China.

This year, however, the conversation over dinner was different. No longer a discussion of whether the growth rate would come in at 6,7,8 or even 10 percent. First of all it’s apparent that the ongoing trade issues with the U.S. are really impacting business in China, with most companies experiencing a parallel fall-off in growth. At the same time, hopes from twelve months ago of an early conclusion seem to have withered, with thoughts now turning to embedding trade issues into long-term business planning and wider strategic initiatives – specifically those related to trans-national supply chains.

Interestingly, beneath the political trade noise, there appears to be another dynamic at play – a fundamental slow-down in chemical business in China. Equally as interesting, this wasn’t a source of great consternation, with executives taking the view this finally represented the maturation of the Chinese chemical market and the embedding of a ‘normal’ business cycle where the future will be characterized by peaks and troughs, rather than the endless growth we have all taken for granted. If this is the case, developed market business experience will be critical to help businesses in China manage through these new dynamics.

And so, I moved on to Tokyo where the overriding narrative of the last decade has been the seemingly intractable issues which have prevented the Japanese chemical industry from restructuring – remove excess capacity and perhaps consider breaking down some of the conglomerate structures to drive greater scale and focus in individual segments, much as many of their U.S. and European competitors have done over the last ten years.In 2011, I wrote about this very topic in KPMG International’s report The Japanese Chemical Industry: Finding the Right Path.

I arrived with low expectations – albeit aware that Hitachi Corp had recently announced the intention to sell their chemical business. I left invigorated by the profound changes echoing through the Japanese chemical industry driven by an appetite from senior executives to begin making the moves required to re-establish Japanese chemical companies as leaders on the global stage. From the first time I visited, Tokyo has been one of my favorite cities on the planet, not least due to the culture, the food and the hospitality of the people – I now have a reason to go back very soon!

As I return to New York, my reflection is it seems Asia remains the dynamic driving force of the global chemical industry, albeit for different reasons than it has before – everything changes; everything stays the same! Until next time….