ME petchem pro­duc­ers must in­vest to build com­pet­i­tive­ness: BCG study

Kuwait Times - - BUSINESS -

Mul­ti­ple mar­ket dis­rup­tions are shift­ing the bal­ance of power among ma­jor re­gional play­ers and re­shap­ing the Mid­dle East­ern petro­chem­i­cal in­dus­try. A num­ber of fac­tors in­clud­ing the shale gas re­nais­sance in the United States, plum­met­ing oil prices world­wide, and a ca­pac­ity ex­pan­sion drive in China and Iran, are putting Mid­dle East­ern pro­duc­ers at risk of los­ing the com­pet­i­tive edge they long en­joyed from cheap feed­stock. Ac­cord­ing to a study en­ti­tled “Why the Mid­dle East’s Petro­chem­i­cal In­dus­try Needs To Rein­vent It­self” by The Bos­ton Con­sult­ing Group (BCG), by en­hanc­ing the com­mer­cial, op­er­a­tional, and in­no­va­tion ex­cel­lence, in­dus­try play­ers can take vi­tal steps to­ward safe­guard­ing their bot­tom line.

“What needs to be done is of­ten clear. Of­ten strate­gies in the Mid­dle-East don’t work out not be­cause of lack of vi­sion, but be­cause com­pa­nies don’t pay suf­fi­cient at­ten­tion to ca­pa­bil­ity build­ing. How to de­velop ca­pa­bil­i­ties needs to be an in­te­gral part of the strat­egy, with a clear plan and at­ten­tion not to stretch the or­ga­ni­za­tion in too many new do­mains. The is­sue to­day is that these new ca­pa­bil­i­ties have be­come es­sen­tial to main­tain com­pet­i­tive­ness - not any­more a ‘nice to have’ for Mid­dleEastern Petro­chem­i­cal play­ers. And since ca­pa­bil­i­ties build­ing takes time, com­pa­nies in the re­gion should em­bark on their trans­for­ma­tion jour­neys now,” said Mirko Rubeis, Part­ner and Manag­ing Di­rec­tor at The Bos­ton Con­sult­ing Group Mid­dle East.

His­tor­i­cally, GCC pro­duc­ers have re­lied on off-tak­ers and traders to carry and sell their prod­ucts in core mar­kets, and as a re­sult have lost any­where from 3 per­cent to 5 per­cent of their prod­uct value to mid­dle­men. Mid­dle East­ern pro­duc­ers must strengthen their sales and mar­ket­ing ca­pa­bil­i­ties (in­clud­ing pric­ing so­phis­ti­ca­tion) in ad­di­tion to their sup­ply chain man­age­ment ca­pa­bil­i­ties. Pro­duc­ers must in­vest more into mar­ket anal­y­sis and cus­tomer seg­men­ta­tion and deepen their un­der­stand­ing of their cus­tomers’ value chain and iden­tify crit­i­cal ap­pli­ca­tions for their prod­ucts. Com­mer­cial ex­cel­lence has be­come even more im­por­tant as petro­chem­i­cal pro­duc­ers in the re­gion ex­pand down­stream the value chain.

Op­er­a­tional ex­cel­lence

Em­bark­ing in an op­er­a­tional ex­cel­lence pro­gram to en­hance en­ergy ef­fi­ciency, ef­fec­tive raw ma­te­ri­als us­age, and as­set uti­liza­tion while op­ti­miz­ing costs could im­prove petro­chem­i­cal pro­duc­ers’ bot­tom line by more than 10 per­cent. In ad­di­tion, play­ers can also ben­e­fit from close in­te­gra­tion with re­fin­ing and other chem­i­cal plant to achieve op­er­a­tional syn­er­gies. Jubail and Yanbu, petro­chem­i­cal in­dus­try hubs in Saudi Ara­bia, are cases in point. Pro­duc­ers in these lo­ca­tions could cap­ture in­fra­struc­ture re­lated syn­er­gies across plants through feed­stock and prod­uct ex­changes, and pool­ing of lo­gis­tics. This ap­proach could prove es­pe­cially valu­able as the use of liq­uid feeds sourced from re­finer­ies in­creases in the Mid­dle East.

GCC petro­chem­i­cal pro­duc­ers must strengthen their prod­uct spe­cial­iza­tion skills for the ben­e­fit of not only their ex­ist­ing value chain but also of fu­ture value chains that will arise from in­creased use of liq­uid feed­stock. By go­ing fur­ther down­stream and in­creas­ing the spe­cial­iza­tion of their prod­ucts, GCC pro­duc­ers can reap higher and more-≠sta­ble earn­ings. Pro­duc­ers must in­no­vate not only in the area of tech­nol­ogy but also in their busi­ness pro­cesses and oper­at­ing mod­els. For ex­am­ple, the abil­ity to re­spond swiftly to cus­tomers’ prod­uct needs is vi­tal to max­i­miz­ing cus­tomer sat­is­fac­tion and the value of prod­ucts. This form of in­no­va­tion be­comes in­creas­ingly im­por­tant when a pro­ducer ex­pands down­stream in the value chain and gets closer to cus­tomers.

“In ad­di­tion to the above three ex­cel­lence do­mains, com­pa­nies should aim to achieve over­all cor­po­rate ex­cel­lence and ex­cel­lence in spe­cific func­tions,” stated Udo Jung, Se­nior Part­ner and Manag­ing Di­rec­tor at The Bos­ton Con­sult­ing Group Frank­furt. “We have seen pro­duc­ers in the Mid­dle East ramp up their com­mer­cial, op­er­a­tional and in­no­va­tion ex­cel­lence with­out align­ing their ef­forts to build up in­ter­nal ca­pa­bil­i­ties and have thus de­liv­ered limited re­sults.

It is vi­tal for com­pa­nies to fo­cus on those ca­pa­bil­i­ties (cap­i­tal al­lo­ca­tion, tal­ent man­age­ment, etc. to name a few) that best strengthen the ex­e­cu­tion of their over­ar­ch­ing cor­po­rate strat­egy. . More­over, they must tai­lor their plans for build­ing cor­po­rate and func­tional lead­er­ship ca­pa­bil­i­ties to the re­quire­ments of dif­fer­ent prod­uct seg­ments such as com­modi­ties ver­sus spe­cial­ized of­fer­ings.”

Mirko Rubeis, Part­ner and Manag­ing Di­rec­tor BCG Mid­dle East.

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