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How Chemical Giants Maintain Competitive Advantage in a Crisis
Jul 21, 2009
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Top chemical companies that managed their capital expenditures (CAPEX) during the economic boom of the last decade are now able to look beyond the downturn and reposition themselves strategically for growth. The finding comes from “Capital efficient chemical companies,” an Arthur D. Little (ADL) analysis of the world’s top 70 chemicals companies' capital strategies.

Management consultancy ADL says in its report that capital-intensive enterprises with broad portfolios of chemicals as well as basic chemical manufacturers are more likely to get through the economic troubles than labor-intensive specialist chemical suppliers. ADL concludes that the highly specific cash flow needs of the first two types of chemical company gives them better capital-management efficiency than specialist suppliers that are less capital-intensive.

The study recommends that chemical companies merge the two businesses processes of margin improvement and fixed asset optimization to put themselves on a better footing for long-term growth. Businesspeople understand that minimizing use of capital releases needed cash. Businesspeople also known that this must be accomplished while continually adapting product mix to optimize margins. "While this duality is theoretically obvious, it is not easy in practice to optimize margins and capital efficiency together," the report states. "The reason is that the two processes are generally managed by different entities in the organization: product mix and margins are primarily targets of product management or market driven business lines, while manufacturing is in charge of asset management. As a result of it in many cases not all factors that assure a proper capital management are orchestrated in an efficient way."

“Due to organizational hurdles, many chemicals companies have difficulty addressing the fundamental disconnect between improving margins and optimizing their fixed assets for lasting organizational improvements," ADL Global Chemicals Practice Leader Edouard Croufer points out. “However, those companies with processes in place to effectively manage both margins and fixed assets have entered the recession with positive bank balances. They view the downturn as an opportunity to buy in new assets and competencies at a discounted price; generating even more cash for their businesses in the long-run.”

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