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The 1990s were a disappointing decade for the world economy. Due to two significant global slowdowns, growth in world output is likely to have averaged just 3.1% a year, according to the International Monetary Fund, weaker than either the 1970s or the 1980s. During this period, Japan underwent a decline in economic activity unprecedented among major industrial countries in the postwar era. The economies in Asia's emerging markets have suffered from painful financial crises. Much of Europe has experienced high unemployment and weak growth.
All of the world's major chemical companies are very interested in Asia, since many of the Asian countries have exhibited rapid growth in many sectors recently, including the specialty chemicals business. Many companies are interested specifically in China, the ASEAN countries and India, although they are also interested in old investment opportunities such as Taiwan, the Republic of Korea and Japan. Although there are some delays in implementing project schedules due to the recent economic crisis in the ASEAN countries and the Republic of Korea, most major chemical companies are continuing their investments in Asia. At the same time, Asian companies are looking for joint ventures with these major global chemical companies.
The globalization strategies of most leading chemical companies are based on a scenario of the world economy's development until the year 2010. For Japan, North America and Western Europe it is estimated that demand for chemical products will grow at rates of approximately 2.5% per year; in contrast, the estimated figure for Southeast and East Asia is around 6% per year, although the economic crisis in the Republic of Korea and the ASEAN countries slowed overall economic growth during 1998-2000. By 2010, the Asia Pacific market is forecast to be larger than that of Western Europe and the United States combined, as the major companies globalize. The focus of the major chemical companies has shifted to the ASEAN countries, China and India, whereas in the 1960s, 1970s and 1980s, world-class chemical companies invested heavily in relatively developed Asian countries such as Japan, the Republic of Korea and Taiwan.
Most major chemical companies in the world are trying to establish a strong involvement in the rapidly growing Asian market. Despite the serious economic downturn in 1998-1999, the economies of the Republic of Korea, Thailand, Malaysia, Singapore and the Philippines will be restored to the 1997 level in 2000 and resume rapid growth of up to 8% per year starting in 2001. The Indonesian economy will take longer to restore economic strength, and rapid growth will resume after 2002. The economies of China and India are continuing rapid growth of 5-7% per year. Japan's economy is well-developed and will exhibit slow growth. In the next thirty years, Asia will have the most rapidly growing economies in the world.
The Asian financial crisis set back the growth plans of many U.S. chemical companies over the last two years and was partially responsible for the recent poor financial performance of U.S. chemical companies. Despite relatively strong demand for chemicals in the United States, the slowdown in trade with Asia hurt the U.S. chemical industry. Nevertheless the established U.S. chemical companies in Asia (e.g., Dow, DuPont, Rohm and Haas) are expanding their presence there and are formulating plans for expansion in the region. For example, DuPont is maintaining its aggressive growth plans in Asia. Prior to the mid-1980s its efforts were focused on Japan, but it is now investing more in China, Taiwan and the Republic of Korea. It does business in fifteen countries in the Asia Pacific region, guided by DuPont Asia Pacific Ltd., headquartered in Tokyo. Since 1992, DuPont has invested over $2 billion in the Asia Pacific region and has plans for another $1.5 billion. Relative newcomers to investment in the region (e.g., Hercules, Eastman Chemical, CK Witco) are committing significant resources and are beginning to view Asia as their major growth vehicle.
For most U.S. chemical companies, Asia still accounts for about 10-15% of total worldwide revenues. This will change, however, as companies formulate strategic plans that generally call for a larger portion of their sales to be in Asia. Moreover, many of these companies are announcing long-term commitments to the region, with ambitious plans for investment in the area. Most companies start their involvement in Asia with a local partner, and then as the market develops they set up subsidiaries in Asian countries. As another entry approach, U.S. chemical companies have set up a number of R&D alliances in the region, especially in Japan. India and China are also prime candidates for R&D alliances.
Most major Western European and Asian chemical companies have also reaffirmed their long-term commitment to the region and plan no drastic alterations to their investment strategies even though their Asian businesses have been badly hit. Although there are some delays in project schedules, many projects of the major chemical companies in Asia are proceeding despite the economic downturn. At the same time, this economic movement is reciprocal. A few Asian companies in Japan and Taiwan are investing heavily in the United States, rather than in other Asian countries. A few other companies in the Republic of Korea and Taiwan are investing heavily in China. The strategies of Asian chemical companies differ widely, depending on their business culture and the core competence of the individual companies.
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