Term Paper on "Growth Strategies"

Term Paper 5 pages (1561 words) Sources: 5 Style: MLA

[EXCERPT] . . . .

Growth

BASF, one of the world's largest chemical company's, has a company slogan which states, "We don't make a lot of the products you buy. We make a lot of the products you buy better." (BASF, "About Us"). While this is true, BASF's growth strategy is still one of expansion, competition, and aggressive growth (BASF, 18-19). By focusing on non-cyclical portions of the company's markets, BASF is able to sustain consistent growth, even in periods of economic fluctuation.

First, it is important to understand the concept behind non-cyclical product development. Generally, non-cyclical products are not correlated to the economy, while cyclical products are highly correlated.

Non-cyclical products include anything that assists in production or distribution of goods and services consumers require regardless of income, such as food, power, water, and gas (Investopedia). These products, along with thousands of others, represent the need of consumers, and thus, will continue to experience growth even in times of economic downturn.

BASF has five basic product categories. First, BASF concentrates on the production of organic and inorganic chemicals (BASF, 3). Nearly 8,000 of BASF's products are basic chemicals and intermediates produced from crude oil, natural gas, rock salt, water, sulfur, and other base chemical compounds. These raw materials are then turned into higher value products through BASF's vast production chain (BASF, 22). Further, BASF produces catalysts, or products used to reduce the activation energy of other chemicals, allowing them to react to one another, and glues and resin for woods (BASF, 23). These products are then sold to companies requiring such components for the manufacturing of other, high value products. BASF's chemical division is also a leader in plasticizers, used to shape plastics into the products we commonly use, and pharmaceutical intermediates, which allow for the creation of the active ingredients and dyes in pharmaceuticals to be made (BASF, 25).

By default, these types of chemicals are sold to a broad customer base that uses them in a wide variety of products, such as medicines, plastics, fuel cells, plastic wrap, medical devices, and textiles. While raw material prices fluctuate, and thus have an impact on cost predictions for BASF, the proprietary nature of the results of their chemical productions allow them to consistently produce good earnings ("Valuation of the Specialty Chemistry Industry," 16). Additionally, the growth strategy of BASF includes the closing on non-profitable production plants, such as in Geismar, Louisiana, in 2002 (BASF, 22). Further, the creation of plants in expanding markets, such as Malaysia and China (BASF, 24), allows the company to increase production of these goods required by customers in even times of economic hardship, at a lower cost, increasing the company's growth.

A second area of growth at BASF is their plastics and fibers division. BASF not only produces styrenics and polymers, but also polyurethanes. Styrenics such as Luran S, Ecoflex, and Basotect from BASF are found in products such as CD cases, packaging, monitors, thermal insulation, and paper food packaging (BASF, 30). Polymers are often used in engine and gear components, and polyurethane is a compound found in shoes and 8,000 other products (BASF, 31).

Again, in this division, BASF's production of components used in other products is a key to their growth strategy. By developing new uses for these components, working with existing customers on expanding the use of such compounds, and expanding their customer base, BASF is patterned to grow substantially. In addition to the basic non-cyclical nature of these products, BASF's growth strategy for this division includes a number of additional features. First, BASF assists customers such as Hewlett-Packard in their development of new printers and other products, thereby increasing HP's dependence on products from BASF (BASF, 28). In Asia, the company has partnered with large companies in Singapore to increase marketing in that area of older products, such as styrene, commonly used in this area (BASF, 29). Considering per capita consumption of polymers is expected to rise by over 85% in Southeast Asia by 2010, such a move is vital to the growth of BASF (IAL Consultants, 16).

Further, this division incorporates the non-cyclical nature of the components they create into their growth strategy by selling the fiber portion of the division in 2003, and purchasing Honeywell International's engineering plastics business (BASF, 28). By selling off non-cyclical product lines in turn for the acquisition of a non-cyclical line, BASF furthered their growth by adding more reliance on these types of products. With growth expectations at five percent per year in the engineering plastics division (IAL Consultants, 5), BASF has strengthened their core product base in a way that is streamlined for future growth.

Another non-cyclical division of BASF is the performance product division. BASF's production of performance chemicals are a mainstay of their growth strategy. These chemicals are often used in packaging, magazines, waterproofing, detergents, ink, cardboard, and other vital products to today's market (BASF, 35). Further, BASF produces modern protective coatings, used in a vast number of common products (BASF, 36). In addition, these chemicals are used in diapers, tape, and paper coating (BASF, 37).

BASF admits that a primary component of their growth strategy is the exploitation of synergy effects. They use the example of their chemical compound division's role in the creation of textiles, and the performance division's role in the creation of washing detergents. The textile components, specially created for particular manufacturers by BASF, are then used as the base for detergents designed to clean such components (BASF, 35).

Through the close work of BASF's divisions, these types of synergy effects are common, and assist in guaranteeing the growth of the company in all product areas.

In addition, the performance products produced by BASF are used in products essential to businesses, ensuring a consistent source of revenue for the company (BASF, 36). Products such as ink, monitor components, paper, and cardboard are a must for numerous corporations world-wide. While BASF does not make these products, the customers with whom BASF deals are providers of such components, and require the performance chemicals made by BASF. In providing such materials, BASF does not battle the economic fluctuations of everyday consumers, but instead, provides needed components for business applications.

Again, BASF furthers this growth strategy by incorporating efforts to expand their market, and reduce costs. In 2003, BASF opened a factory for binder coatings in Finland, a central core of BASF's business in that division (BASF, 36). Finland produces nearly 60% of paper used in Europe (BBCNews, online), and is thus a central hub for such components. Additionally, BASF closed down pigment production plants in South American and Asia, where demand had lowered, and concentrated more effort into production in Germany, where demand was much higher (BASF, 36). Further, leather chemical plants were built in Singapore, where one in every to leather products is produced, further ensuring growth through competition and strategic logistics (BASF, 36).

This division also produces superabsorbants, a needed component for baby diapers (BASF, 36). While seemingly a small portion of their industry, the World Health Report noted in their 2000 WHOR that an average of over 140 million babies are born each year (WHO, 18). AS BASF notes, this translates into an important market for the company, and one of continued growth (BASF, 36). By creating the chemicals, and then the component, necessary to create diapers, BASF is concentrating on an area known to produce revenue results.

However, BASF's reliance on their main non-cyclical product, that of oil and gas, are unquestionably one f the primary components of their growth strategy. First, BASF concentrates drilling efforts in areas known for high productivity, such as South America and the North Sea. The result is a higher rate of successful drilling operations, which cut costs considerably (BASF, 46). Additionally, BASF partners with WINGAS, a major supplier of natural gas, to provide natural… READ MORE

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