Germany’s BASF plans to invest €3.1b to help meet rising demand among Asian customers
BASF, one of the world’s largest chemicals producers, plans to invest €3.1 billion into Asia-Pacific in the run up to 2021, as it seeks to better meet customer demand for shorter product development cycles and aggressive cost reduction targets.
Headquartered in the German city of Ludwigshafen, the company expects to spend half the investment budget in China, which contributes half of its sales in the Asia-Pacific region, Sanjeev Gandhi, board executive director and head of Asia-Pacific at BASF, told the South China Morning Post.
Part of the investment spending will go towards boosting production capacity so that a greater share of products sold in the Asia-Pacific region are made locally. The plan is to raise the local target to 70 per cent, up from 60 per cent currently.
He noted some multinational consumer goods producers have encountered “huge problems” in Asia as they failed to “localise” their products to meet customer needs, and lost market share to aggressive regional and local companies.
“It is extremely important that we allow our experts and management in Asia to adapt on a day-to-day basis and provide the customisation wanted, [which is typically] the best solution at the cheapest price,” he told the attendees at an American Chamber of Commerce lunch.
“If we have our typically German engineer, sometimes [offering] over-engineered expensive solutions will not fly.”
He said that product development times have accelerated in recent years, particularly among smartphone markers. Only three years ago, smartphone makers such as Samsung would provide an 18-month lead time to supply chemicals for use in new handsets and other products. But now the lead time has shrunk considerably, with some Chinese smartphone makers allocating just three months.
Gandhi pointed to South Korean cosmetic products giant Amorepacific and Beijing-based bicycle sharing service provider Ofo as examples of successful local companies who’ve become industry leaders.
He said BASF had to adapt its research and development to meet requests from Asian cosmetics companies for whitening skincare products. BASF also came up with solutions and materials specific to Ofo. These included innovations designed to make the bicycles maintenance free, such as tyres that are puncture and air leakage-resistant.
He said a few thousand of BASF’s products get outdated every year, which means it has to constantly renew its offerings by investing in research and development.
But the company also has to maintain a “lean and mean” operation, because “nobody wants to pay you a premium because you are Germany’s BASF”, he said.
BASF together with its partners have invested €16 billion in the region between 1997 and last year, including over €230 million on research and development since 2011, much of it in its “innovation centres” in Shanghai and Mumbai.