European Firms Chart New Paths

Three major European chemical companies—AkzoNobel, DSM, and Solvay—have outlined aggressive programs to increase the sales they derive from the developing world.

DSM plans to raise sales from high-growth economies to 50% of its total by 2015, from 32% now. Key to the strategy is China, where the firm expects sales to more than double to $3 billion by 2015, supported by capital expenditures of $1 billion.

In a decentralization drive, DSM also plans to relocate its anti-infectives, engineering plastics, and fiber intermediate headquarters to Asia. “By strengthening our regional presence, we will further adjust our organization to become truly global,” CEO Feike Sijbesma says.

Redoubling its R&D efforts, DSM plans to open innovation centers in China and India. The firm also set a target to increase sales of products introduced in the past five years to 20% of total sales by 2015, from about 12% now.

Like DSM, AkzoNobel plans to increase sales from high-growth markets to 50% of revenues in the next five years. The firm also wants to double sales in China and Brazil to $3 billion and $2 billion, respectively, and to quadruple sales in India to $1.4 billion. The firm’s overall sales, which were $18.9 billion in 2009, are targeted to expand to $27 billion by 2015.

“Recent economic developments have enabled us to develop a deeper understanding of the shifting global marketplace and how we can seize opportunities to capitalize on our diversified portfolio,” says Hans Wijers, Akzo’s CEO. The firm wants “breakthrough” and environmentally friendly R&D innovations to be the source of 15% and 30% of revenues, respectively.

Solvay is also reorganizing, partly as a result of the sale of its pharmaceuticals business to Abbott Laboratories earlier this year and partly to position itself for fast growth in developing markets.

The firm plans to cut 800 jobs, about 5% of its global workforce, and take other cost-saving measures to reduce spending by more than $160 million annually. The actions, to be completed by 2012, are intended to refocus the firm on its chemicals and plastics businesses.

The reorganization includes creation of two new global businesses: a specialty polymer unit to be located in Bollate, Italy, and a specialty chemical unit to have its headquarters in Seoul, South Korea. Such measures will “foster a sustainable future for our group,” CEO Christian Jourquin says.

The firm also intends to beef up its R&D capabilities with the creation of an innovation center at a yet-to-be-determined site. The center will operate under the direction of a chief scientific officer who will report to Jourquin.

Frederick M. Peterson, president of consulting firm Probe Economics, points out that the plans of the three firms “recognize the longer term reality that economic growth will be in countries like China and Brazil,” not in Europe and the U.S.