Few industries are more global than the chemicals sector. These days, the global dimension is at the center of almost every chemical business decision. Even if you donít source raw materials globally, have production plants around the world or sell outside the domestic market, your competitors probably do. To compete successfully, you will have to be aware of global issues in your sector.
Ian Thackwray is a Dow Corning Corporate Vice President and is President of Dow Corning Asia. Dow Corning offers silicon-based products, technologies and solutions.
Marc Hennebert is a member of the Chemicals and Life Sciences practices of Strategic Decisions Group (SDG). He leads its Chemicals practice, where his work has primarily been focused on developing value-creating strategies at the corporate and business level. Here, they discuss global expansion and share experiences in this area.
What are the benefits in todayís marketplace for geographic expansion into new countries and regions?
Marc Hennebert (MH): The long-term trend is to see more globalization in many areas of the value chain, driven by customers, innovation, technology and raw materials. The stakes are significant and the potential benefits are huge, not only for the shareholders, but also for the employees and local communities.
Shareholders: mostly financial benefits through new source of top line growth;
Employees: new challenges and rewards of a multicultural, international environment in which they develop;
Local communities: through new investments, the creation of new jobs, the attraction of other companies and services, as well as the introduction or development of new technologies.
Ian Thackwray (IT): Companies that want to maintain a leadership position today need to expand geographically. In addition to Marcís points, we see several more benefits:
It provides economies of scale and manufacturing efficiencies.
It allows companies to satisfy the needs of global customers more easily.
It allows companies to tap into human capital.
It allows them to shift their resourcing as other parts of the world are
In addition to a very strong emphasis on developing local talent and leadership, Dow Corning also moves experts and staff around the world to strengthen the business. This allows us to cross-pollinate and spread expertise. For example, we are taking Dow Corning experts from our more mature businesses in the U.S., Japan and Europe and relocating them to emerging markets in ASEAN, China and Korea to bring needed skills and experience and add to our leadership capabilities.
What are the key risks of expanding beyond your own market Ė economic, political or even social?
MH: I would say there are two key risks: people and regulatory. As you become truly global, the people factor is critical. Indeed, a successful geographic expansion strategy, whether organic or through acquisitions, has to take into account the understanding and integration of different people, teams and culture. Letís remind ourselves here that about two-thirds of mergers fail, primarily due to the cultural factor. The regulatory risk is very important too. All in all, companies expanding must carefully identify and understand the risks associated with all the alternative choices they may have.
IT: I agree. There are many risks that companies need to consider before expanding into new geographies. Issues such as the rule of law, stable governments, social stability, asset protection laws and intellectual property rights are among them. There is also a concern in hyper-growth economies that such rapid expansion may not be sustainable.
At Dow Corning we remain conscious of changes in the local business environment. Often, itís best to start on a small scale, without major capital investments. Itís always wise to be highly sensitive to changing economic conditions in an emerging or developing country.
Having successfully expanded, Dow Corning also helps other companies expand into new geographies with minimal risk by providing contract manufacturing in our plants. This allows a company to establish a base in a new geography without all the risks and provides speed to market. We also provide counsel in local business requirements and regulatory issues.
Dow Corning experts support companies expanding into new geographies, providing everything from quality assurance testing and contract manufacturing to ingredient testing and counsel concerning local business practices and regulatory requirements (AV07140)
What is the best way for firms to build channels to market in new geographies? Is it best to joint venture, acquire or build up from the ground?
MH: There is no systematic answer. Companies have to carefully frame the question of why they want to expand, and identify the various alternatives they have to achieve their objectives. It is by clearly
understanding the risk and uncertainties of each alternative that companies can improve the quality of their decisions and their choice of† ďhowĒ to do it.
IT: There are essentially two ways to expand into a new geography ó with a local partner or to ramp up on your own.
It is critical to find, or develop, local partners who have local expertise, know the local subtleties, and understand the regulatory environment and laws. Local partners understand how companies do business in that geography, have established relationships with customers and prospects, understand logistics and how to move product.
Research is key ó to study the potential in a country before entering. For Dow Corning, we are usually already selling materials in new countries before we establish an operation there. Once we enter a new
geography, we intend to be there for the long-term.
Sometimes companies can move into a new geography in an indirect way. For example, we serve Vietnam through our business in Thailand. In that way, we can build relationships with channel partners and establish a distribution network. At some point, we may open our own office there.
Which are the most promising markets in Asia in terms of growth potential for the next decade?
MH: Asia is now a key focus for western chemical companies faced with established, mature markets such as North America, Europe and Japan offering only modest, GDP-type growth potential. China and India represent the biggest opportunity. There have already been massive investments made in those countries, primarily in petrochemicals although investment is migrating rapidly to downstream segments including specialty chemicals.
The long-term potential of these areas is driven by their population size, demographic growth and long-term GDP per capita growth potential.
IT: I agree with Marc. From our perspective, the strongest, most attractive markets include China and India. Doing business in China is a must if you want to expand globally. India is important due to its large population and strong future potential.
Other markets showing great promise, particularly for Dow Corning, are Southeast Asia, especially Indonesia, the Philippines and Vietnam.
To download the article Geographic Expansion: The Risks and Rewards, or for more information about Dow Corning's geographic expansion, solutions and expertise, go to
Ian Thackwray is a Dow Corning Corporate Vice President, and President, Dow Corning Asia.
Marc Hennebert is a member of the Chemicals and Life Sciences practices of Strategic Decisions Group (SDG), the strategy consulting firm. For more information see
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