The blog’s Christmas Quiz

Question mark.pngIts now 3 years since the Great Recession began.

US GDP is still below previous peaks, despite $5trn of stimulus spending and quantitative easing.

The position in the Eurozone is even worse.

China’s economy will be lucky to escape with a ‘soft landing’.

Policymakers seem to have lost the plot. They have forgotten, or maybe never realised, that demographics drive demand. Yet:

• 29% of the Western population are now aged 55+ and in the New Old generation
• China has lost 400m babies due to its ‘one child policy’ since 1978. These children are not now maturing and available to join the 25-54 cohort of Wealth Generators

What can be done to realign our thinking and policies to this Demographic New Normal? This is the blog’s 2011 Christmas Quiz question.

A failure to find the correct answer(s) will likely condemn countries to run deeper and deeper into debt, as policymakers try ever more desperately to return us to an economic SuperCycle that no longer exists?

The prize for correct entries will be a sustainable recovery in the global economy.

This will be based on Prof Michael Porter’s concept that “Shared Value will drive the next wave of innovation and productivity growth in the global economy”.

BabyBoomers change the markets

Consumption dominates chemical demand. Chapter 7 of our new ‘Boom, Gloom and the New Normal’ eBook therefore looks at the changes taking place in consumer markets. These provide vital insight into how chemical markets are likely to develop in the New Normal.

The key learning is that companies are re-adapting their business models. The great companies of tomorrow will build their businesses by providing products that are of genuine benefit to society.

We therefore highlight three case studies to help companies develop their thinking in this critical area. They provide concrete examples of the changes being made by far-sighted businesses in different regions:

Procter & Gamble, the world’s largest consumer products company, is now following a ‘white space’ strategy to reposition itself for future growth.
• We also look at the lessons to be learnt from the launch by India’s Tata Motors of the world’s cheapest car, the Nano.
• Plus we highlight the new business and technical innovation models being successfully developed by the Bill Gates-funded Meningitis Vaccine Project in sub-Saharan Africa.

All three examples highlight the opportunity for companies to grow sustainably and profitably as we enter the New Normal. They also support the new concept of Shared Value developed by Professor Michael Porter.

As Porter summarises the position:

“Firms have focused on enticing consumers to buy more and more of their products. Facing growing competition and shorter-term performance measures from shareholders, managers resorted to waves of restructuring, personnel reductions and relocating to lower-cost regions, while leveraging balance sheets to return capital to investors.

“The results were often commoditization, price competition, little true innovation, and no clear competitive advantage….Companies have overlooked opportunities to meet fundamental societal needs….Our field of vision has simply been too narrow.”

We argue that doing nothing, and hoping that yesterday consumer-led boom will reappear, is no longer the low-risk option for companies, as profits and growth levels slip.

‘Who dares wins’ might instead be a good motto to post on every boardroom wall. This, after all, is how today’s great companies built their franchises in the past, through world wars, depressions and many other equally uncertain times.

Click here to download a 2 page summary of the Chapter .
Click here to download the full Chapter
Click here to view the 7 minute video with Paul Hodges

2011’s final International eChem/ICIS training course takes place in Singapore next week. It aims to help attendees with detailed implementation issues. Please click here for further details.

USA’s PE exports decline despite shale gas

US PE trade Nov11.pngAs promised, the blog looks today at the USA’s trade position in polyethylene (based on data for the January-August period from Global Trade Information Services, the leading global supplier).

The chart shows US net trade (exports less imports). This peaked in 2009 (green column), with net exports of 1.6 million tonnes. Volume had risen 69% versus the 2007 level of 0.97MT (blue). But volume in 2011 has been just 1.03MT (light blue), only up 6% versus 2007.

The main reason is an overall decline in export volumes from 3.3MT in 2008 to 2.9MT in 2011:

Mexico peaked in 2009 at 734KT, but is 679KT in 2011
Latin America has been volatile, but peaked at 771KT in 2008
China peaked in 2009 at 585KT, but is 192KT in 2011
NEA peaked in 2008 at 178KT, but is 107KT in 2011
SEA has been volatile, but 2011’s 292KT is a new high

Meanwhile, net imports in 2011 at 1.85MT are equal to 2007’s 1.83MT. These come mainly from Canada, whose volume of 1.19MT in 2011 is also similar to 2007’s 1.17MT.

Of course, many Western readers would have expected the USA’s exports to have risen since 2008, not fallen. Its cost position has improved remarkably since then, due to its new source of advantaged ethane from shale gas. The reason is that many of its major competitors do not share its financially oriented approach.

As the blog highlighted last week, most emerging economies also prioritise social and political criteria, whereby employment and strategic geo-political issues have an important role.

The blog’s own research on China’s Sinopec demonstrates how it effectively operates as a utility, supplying raw materials to the factories to keep people employed. Employment is also a key driver for the Middle East and many other Asian countries.

This is why an understanding of Prof Michael Porter’s Shared Value approach is so important for the future. Western companies can no longer rely on the use of purely financial criteria to guide their strategy, as the world transitions to the New Normal.

Political, Social concerns drive non-Western companies

Triangle.pngLast week’s New Normal seminar in Houston continued the success of the Singapore and Frankfurt events. It sparked lively debate about the major opportunities for future growth in the New Normal. These include:

• The over-55 age group in the West – already 272m in number
• Those millions emerging from poverty in the East

One key discussion was around the different outlooks of Western companies, versus many of those in the Middle East and China. As the chart shows:

Western companies focus on economics, with some input from politicians eg taxes, employment law. American companies in particular believe the Profit & Loss (P&L) account is the key driver of success
• This is not so true in the Middle East. Companies there have a focus on the P&L, but usually have close linkages to government, and are very mindful of social needs such as providing employment
• Companies in China start from a different perspective. The majors such as Sinopec are largely state-owned, and their prime role is to act as utilities, providing raw materials to the factories to keep people employed

These distinctions are now taking on growing importance. In 1980, almost all the major companies were Western in orientation, and focused on the P&L. But today, half of the Top 10 companies are from the Middle East and China. So their views matter.

This is another example of the power of the Shared Value concept. As Harvard’s Prof Michael Porter has argued, it creates the potential for “the next wave of innovation and productivity growth”. It enables companies to focus on long-term opportunities and not just short-term financial metrics.

There is no going back to the post-1980 Supercycle world. Companies who now adopt the Shared Value approach will position themselves for success in the New Normal.

The next New Normal courses are later this month in Singapore, and in London in December. Please click here for more details of how to join.