Recessionary conditions in Europe and moderate growth in China resulted in secondary quarter earnings reports sharply lower for many chemical companies. Based on these observations, industry executives and analysts are closely monitoring Latin America for indications of how well the region withstands external pressures, including problems in the US and the Eurozone.
Economists estimate that the region´s GDP will grow about 3.5% in 2012, coming from a 4.4% growth in 2011. Brazil is by far the biggest chemical producer in the region and is expected to deliver a 2012 GDP increase of about 3.7%. Growing trade with the US and Canada, but also with Europe, competitive raw materials and proximity to the world´s largest market are reviving Mexico´s chemical industry sector , which ranks number two in Latin America´s chemical industry production.
The region is in much better shape to withstand pressures from economic developments abroad and outside the region, with most of the countries in Latin America in much better condition with respect to financial liquidity than before the 2008 crisis. Based on these promising overall economic circumstances, industry executives in leading Latin American chemical companies have turned to growth strategies over the past two years, including large-scale Mergers & Acquisitions, e.g. MEXICHEM´s acquisition of WAVIN, GRUPO ALFA / ALPEK´s acquisition of EASTMAN´s PET business, and growing Joint-Venture activities, e.g. BRASKEM´s joint venture with GRUPO IDESA.
Like CEOs in many other sectors, CEOs in the Chemical Industry are focusing primarily on developing new products and services, actively managing their portfolios, and capturing a larger share of their existing markets, as well as secondarily endeavoring new markets and regions as a route to growth. The best examples out of Latin America have been mentioned already. BRASKEN, focusing on regional expansion, entered into a Joint Venture with IDESA in Mexico in order to assure raw material supply for their respective polyethylene PE business, its existing main portfolio building block. MEXICHEM made a step beyond this scenario. They acquired the leading supplier of plastic pipe business based in the Netherlands. Beyond the regional expansion, this is a good example for portfolio extension downwards the supply chain.
What does this mean for the CIO?
Companies with a strong focus on regional expansion usually want to leverage the existing system landscape capabilities and just copy their installed base business processes into the new subsidiaries. They are looking for efficient and effective ways to roll-out their proven solution just as it is. The other case can be much more complex. As long as the acquired business is an additional chemical business, usually the already existing IT processes can be implemented
and used also in the acquired business unit. But in the last few years we have seen examples of chemical producers acquiring businesses outside the pure
chemical business up and down the supply chain. The MEXICHEM acquisition of WAVIN is only one prominent example. Since this acquisition MEXICHEM, being a chemical producer, can be considered as a hybrid model with strong roots in the Chemicals business and an important footprint in Mill Products industry. This has a significant impact on IT processes and a mirrored roll-out of IT processes from installed base is impeded, IT processes based on Mill Products IT requirements like e.g. “variant configuration” need to be implemented.
What does this mean for the SAP Solution Portfolio?
SAP supports chemical companies in their respective acquisition and roll-out activities with various products and services, facilitating a fast and rapid deployment of existing solutions. Regional focus and subsidiary roll-out is facilitated by products like e.g. “Best Practices for Chemicals (BP4C)”, and Rapid Deployment Solutions (RDS) like e.g. the “SAP ERP rapid-deployment solution for subsidiary rollout”, which addresses customers that operate on a global level, and that wish to integrate their subsidiaries (legal entities) into one single instance in order to reduce the complexity and cost of their IT landscape, and gain in transparency and efficiency. SAP ERP rapid-deployment solution for subsidiary rollout enables you to integrate the SAP Best Practices Baseline Packages of multiple countries within one client, and to take advantage of preconfigured, country-specific content and documentation for each country.
SAP Best Practices for Chemicals is an industry template. It builds on an existing system landscape and a specific ERP release / Enhancement Pack. The template contains 83 chemical-specific, preconfigured business scenarios. Best Practices for EHSM is complementary to this package and adds another 12 scenarios. The underlying software needs to be licensed and installed upfront.
In addition to that, the System Landscape Optimization (SLO) Service helps customers evaluating system transformation requirements, provide a tailor-made solution proposal for the individual landscape transformation requirements, and execute service providing step-by-step guidance and expert support.
Industry-specific business requirements and processes can be covered by activating industry add-ons like e.g. SAP ECC Industry Ex. DIMP 6.0 (Industry Solution Mill Products) or industry solutions like e.g. SAP IS OIL.
Eyes will be on Latin America in the future to see how they fair through this economy. In the meantime, SAP will be doing everything possible to make sure our customers can run better than ever.