The best of two worlds: German and Chinese engineering companies between competition and cooperation
Chemical engineering companies are on a roller coaster ride: Following the recent boom phase that was driven by emerging countries, but also by the shale gas boom in the US, and last year’s steep drop, they are experiencing an almost unprecedented up and down. At the same time, they are increasingly confronting international competition. The answer: an intelligent global set-up, quality and a rigid customer-orientation – including customized solutions.
Big projects, new regions, giant investments: Two years ago, the world of chemical plant engineering was in order. Chemical producers such as BASF, Bayer and Dow had launched huge projects around the world in places like Ludwigshafen, Dormagen, Al Jubail and Freeport. To make its ambitious turnover goals a reality, industry leader BASF invested around 4 billion euros a year in new plants and equipment. The picture was similar at BASF rival Dow. The US chemical maker had multiple mega projects underway. At the Al Jubail site in the Saudi Arabian desert, Dow together with the oil company Saudi Aramco was building the Sadara petrochemical complex at a cost of around 10 billion euros. Around the same time Dow began construction of an ethane cracker in Freeport, Texas at a cost of 1.3 billion euros. The plant was expected to produce 1.5 million t/a of plastic and elastomer products starting in 2017.
The ACC (American Chemistry Council) forecast worldwide investment in chemical plants and equipment to double within the space of eight years.
And now? The low oil price has had a massive impact on the shale gas industry and put many projects on hold. The same holds true for large projects for biomass conversion – who should demand bioethanol if ethane for plastics production is available at a dumping price on the global market? The BRIC countries have turned from the white hope for the global economy to major concerns: The economy in Brazil has slumped, Russia has turned – not least due to the EU sanctions – into an even more difficult market, China’s economy is transforming into a “new normal” with a still growing market, but severe distractions, considering for example the massive capacity shut downs that have recently been announced for the steel and coal industry.
The insecurity in the market is tangible. Especially in the petrochemical industry, the project business has decreased significantly, while plant engineers in the food and pharma sector are still quite content when looking at their business. At the same time, new suppliers enter the remaining global markets. German and European companies are increasingly encountering Chinese and – until a short while ago – Korean competitors, who have internationalized their business partially with massive public support and who are challenging the established players with their aggressive pricing. German and Chinese plant engineering and chemical companies are running shoulder to shoulder on the global scale with differing results depending on regions. In Europe, Germany is still leading while in Asia, Africa and partially in South America the Chinese companies have overtaken. To complicate the matter even farther, German companies are serving the global market increasingly via their Chinese subsidiaries – and soon vice versa considering the recent acquisitions by Chinese companies.
While the first Korean chemical plant builders are paying for their overreadiness to assume risk – earnings at Daelim were down 90% year-on-year in 2013, Samsung Engineering reported a loss in excess of 220 million euros and, as a result, was merged with the Heavy Industries shipbuilding unit as of December 1st, 2014 – the Chinese companies are establishing themselves as serious competition. They are capitalizing especially on the tendency of contracting out large projects as one turn-key package. Chinese bidders are able to cover large parts of the value chain, offering on top attractive financing schemes.
German suppliers counter by quality. Instead of joining the pricing race, they expand their R&D activities and sales networks. They move closer to their customers – balancing centralized competencies and on-site capacities that allow for the fulfillment of “local content” requirements. Cooperation with Chinese competitors is by no means frowned upon. According to a current study be Germany Trade & Invest, more than 20 % of the surveyed companies are open to cooperate with Chinese companies, be it as subcontractor or buyer.
The president of the German Engineering Associaton (VDMA), Dr. Reinhold Festge, pointed out in an interview with gtai that Chinese suppliers are also increasingly open to cooperation and include German companies in the supply chain. The combination of Chinese competency – and prices – and German quality is convincing international customers.
Thus, a hard contest may turn into a win-win-win model for all partners – established European companies, rising Chinese players and, not least, the customers who get the best of two worlds.