After 10 to 15 years, domestic chemical companies will be controlled

It is predicted that only a fifth of the major domestic chemical companies will survive in 10 to 15 years. The Korean chemical industry has maintained high global competitiveness for a long time, but it is analyzed that intensive innovation is needed as it is being closely pursued by China and Middle Eastern countries.

According to McKinsey’s ‘Creating a strong future for South Korea’s chemical companies’ report on the 11th, only 4 of 30 Korean chemical companies can survive 10 to 15 years later. appear. McKinsey said, “Only one-fifth of the companies in the global chemical industry will be able to survive 10 to 15 years from now.” “Of the 30 chemical companies in Korea, 5 are in the top quintile, and they continue to increase their value. Only 16 (53%) companies create them.”

The Korean chemical industry has established a strong position in the global market over the past few decades. Outstanding operations, strong demand from nearby regions, and the structure of large corporations have been the foundation for growth. However, as competitors with both cost competitiveness and economies of scale, such as China and Middle Eastern countries, enter the market, their position is shaking.

Although the domestic petrochemical industry has secured an annual production capacity of 10 million ethylene this year, it is expected to have an ethylene production capacity of 30 million in China and Southeast Asia by 2030. 40% of overseas branches and production bases of domestic chemical companies are concentrated in China, and demand from China has increased. In addition, as free trade expands between China and ASEAN (Association of Southeast Asian Nations) countries, these countries’ dependence on China is inevitably increasing.

In the end, the domestic chemical industry, which enjoyed relatively booming until the 2000s, rapidly reversed in the 2010s. From 2001 to 2011, Korean chemical companies’ total shareholder return (TRS: monetary compensation returned by companies through dividends, etc.) grew at an average annual rate of 29.2%, overwhelming the performance of the global chemical market. However, the TRS for the nine years from 2011 to 2020 plummeted to 1.3%.

In order to overcome this crisis situation, three major areas of innovation were suggested. First, overall change in business performance, including mergers and acquisitions (M&A) considering digital transformation and integration of production, supply chain, and network, and establishment of various strategies for each field, such as general-purpose chemicals and specialty chemicals, was selected first. Reinforcing overseas capabilities to discover new demand and customers was also presented as a task. In addition, it is also necessary to build a long-term competitive business portfolio through bold M&As rather than focusing on emerging fields in the short term and engaging in unnecessary competition.

McKinsey said, “The chemical industry was the driving force behind the development of the Korean economy, but as the industrial landscape changed and new competitors appeared, it was in danger of falling behind. There will be,” he said.

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