Click to edit Master title style,,Click to edit Master text styles,,Second level,,Third level,,Fourth level,,Fifth level,,*,,*,,35,I,Click to edit Master text styles,,Second level,,Third level,,Fourth level,,Click to edit Master title style,,,,Noordwijk, October 4, 2004,Prof. Roland Berger,Chairman,,,Roland Berger Strategy Consultants,EU enlargement – new opportunities for the chemical industry,The changing face of Europe,Challenges and opportunities of enlargement for EU 15,Opportunities for EU,15,chemical players in CEE and CIS,Conclusion,Contents,A.,The changing face of Europe,,% of EU 25,France, Germany, Italy and Benelux:,Six wealthy core countries start economic integration process in 1957,1.1,EU 6 (1957),*,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,* 2003 data,,> Europe's core countries had sluggish growth over the last ten years: Average growth 1.3% p.a. in Germany,,1.7% in France, 2.5% Netherlands,,,GDP/capita [USD],28,608,118.0%,,75.5%,% of US,Population [m],227,50.0%,78.0%,GDP [USD bn],6,494,58.9%,59.0%,,,,Denmark, Ireland and the United Kingdom:,First acces-sion round after 16 years increases economic power,1.2,EU 9 (1973)*,* 2003 data,,> As a result of EU integration, Ireland's economic growth has been out-standingly high over the past ten years: 7.6% p.a. (DK 2.1%, UK 2.8%),,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,Population [m],297,65.0%,102.0%,,GDP/capita [USD],29,141,120.2%,76.9%,GDP [USD bn],8,655,78.5%,78.8%,% of EU 25,% of US,,,,Greece:,A poorer country joins the European Union in 1981 – first discussions about dilution,1.3,EU 10 (1981)*,* 2003 data,,> Greece now has high average growth rates (3.8% p.a. from 1995-2004) – partly due to European money from structural / regional funds,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,GDP [USD bn],8,827,80.0%,80.3%,Population [m],308,67.7%,106.2%,,GDP/capita [USD],28,659,118.3%,75.6%,% of EU 25,% of US,,,,Spain and Portugal:,Accession of two less developed southern countries reduces EU's average wealth,1.4,EU 12 (1986)*,* 2003 data,,> Today, the southern countries contribute to EU growth: Spain (3.3% p.a. since 1995) and Portugal (2.4% p.a.) achieved high average growth rates,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,GDP [USD bn],9,816,89.0%,89.3%,Population [m],359,78.9%,123.0%,112.8%,72.2%,,GDP/capita [USD],27,343,% of EU 25,% of US,,,,Sweden, Finland and Austria:,Europe's northern enlargement pushes up the average GDP per capita,1.5,EU 15 (1995)*,* 2003 data,,> Stimulus to EU growth over the past ten years: Finland's economy grew 3.5% p.a. on average, Sweden's 2.7 % p.a., and Austria's 2.0% p.a.,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,GDP [USD bn],10,534,95.5%,95.9%,Population [m],381,83.7%,130.5%,,GDP/capita [USD],27,648,114.1%,73.0%,% of EU 25,% of US,,,GDP [USD bn],11,028,100.4%,Population [m],455,156.0%,Eastern Europe, Malta and Cyprus:,The biggest round of enlargement ever changes the face of Europe,1.2,EU 25 (2004),*,* 2003 data,,> GDP growth rates of up to 6.5% p.a. in CEE (average 4.4% p.a. since '95),> But: Enlargement is a big challenge for Europe,an,Union to create wealth,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,GDP/capita [USD],24,237,64.0%,% of US,,50 years of enlargement:,Compared to the US, the EU has gained size at the expense of average wealth,,,> Today, Europe's GDP per capita is only about two-thirds that of the US – in terms of total GDP, both economies are now comparable,EU vs. US*,[US=100%],,,,59.0,77.5,80.3,89.3,95.9,100.4,78.0,102.0,106.2,123.8,130.5,156.0,75.5,76.9,75.6,72.2,73.0,64.0,1957,EU 6,1973,EU 9,1981,EU 10,1986,EU 12,1995,EU 15,2004,EU 25,GDP,Inhabitants,GDP per capita,US = 100,* based on 2003 data,1.3,,Wealth gap:,Ten years ago, the north of the European Union was rich and the south was poor,2.1,>,South gained wealth in,EU: From,34.4% of EU-9 (1986) to 59.8% today,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,1995: Gap between north and south*,1995,* 2003 data,** EU 12 *** Portugal, Spain, Greece,GDP [USD bn],Unemployment [%],Population [m],SOUTH***,NORTH**,1,161,9,373,13.4,9.2,62,319,RATIO,9:1,,,,,GDP per capita [USD],18,726,29,383,3:2,2:3,5:1,,,,,7,429,27,620,4:1,Today,,the gap is between east and west – GDP per capita in the EU 15 is four times higher than in EU 10,2.2,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,2004: Gap between east and west,,>,EU support will help EU 10 e,conomic,development to reach EU 15 wealth,2003,EU 10,EU 15,493,10,534,10.5,8.5,74,381,RATIO,21:1,4:5,5:1,GDP [USD bn],Unemployment [%],Population [m],GDP per capita [USD],,EU 25 vs. US vs. Asia:,Enlarged EU is a still powerful, but the slowest growing economic region in the world,3.,,> Opportunity: Ten new states give the EU momentum to increase growth,ECONOMIC POWER,[GDP, USD bn],Comparative indicators 2003,POPULATION [m],WEALTH [GDP per capita, USD],GROWTH [avg. GDP growth 1999-2003, %],,10,988,290,3.3,,11,028,455,2.3,US,EU 25,ASIA*,*,Aggregated data for Japan, China, ASEAN,,8,458,1,947,4.8,,,,37,890,24,237,12,058,B.,Challenges and opportunities of enlargement for,,EU 15,Eastward enlargement entails,threats and opportunities,for economies, companies, and governments,Economies,Unit labor cost advantages in EU 10,challenge existing value creation structures in EU 15,, but also offer,momentum for structural change / innovation in EU 15,Companies,Competition,in EU 15 as well as in EU 10,is increasing,, but also new,sales, investment, growth and relocation opportunities,for EU 15 companies in Eastern Europe,Governments,Existing,institutional setups in EU 15 are challenged,by lower taxes / contributions and higher flexibility in EU 10, but also,momentum for political change,,> Effects of enlargement,on,macroeconomic,and,microeconomic levels,,Macroeconomic threats:,Pressure on EU 15 labor markets and competition for best institutional setup,Low wage-competition / unemployment threats,,Migration,(up to,3.8 m,people from CEE will move to the EU 15),,Offshoring,(e.g.,830,000 people,in CEE employed by German firms in 2004),,Low tax / social contributions competition,,Also:,Less regulation,(e.g. IMD bureaucracy index: Estonia ranked 9th, UK ranked 33rd),,Financial burden (EU budget),,Cost of enlargement,(2004-2006): 49 bn EUR,,> Differences: Countries with high degree of regulation, geographical proximity to CEE and net contributors to EU budget are more affected,1.1,,,,,,,,39,0,19,0,15,0,0,0,17,4,15,0,8,5,12,5,GER,POL,LIT,EST,Taxes,,Contributions,,CORPORATE TAXES [%] / SOCIAL CONTRIBUTIONS 2004 [% of GDP],,Macroeconomic opportunities:,Higher growth momen-tum for structural / institutional change and innovation,Enhanced growth in east and west,,EU 15 benefits from,backlog of demand,,in CEE,,New momentum,in 'New Europe' through increased,trade,/,know-how,,Momentum for structural change / innovation,,Labor-intensive,/ low value creation,industries/ products,,no longer,,competitive in EU 15,,Structural change towards high-tech goods,and,services,the only choice for 'Old Europe' (->,growth / wealth,),,Momentum for institutional change,,Regulations, taxes, subsidies, flexible markets,,> EU enlargement helps policymakers bring about necessary but often unpopular structural reforms in their respective countries,1.2,,CEE 8,+1.3-2.1,p.a. 2005-09,,EU 15,+0.5-0.7,cum. 2000-09,Source: EU Commission,IMPACT OF 2004 ENLARGEMENT ON GDP GROWTH [%],,Microeconomic threats:,Increasing competition for EU 15 due to lower labor / unit costs in Eastern Europe,,> Differences: Mature industries more affected than innovative ones,,border,regions more than,w,estern, small companies more than large,2.1,,,,,,,2.82,1.19,0.56,-0.15,-1.03,-2.26,Chemi- cals,Medical techno- logy,IT equip- ment,Auto- motive,Steel industry,Wood,Industries with comparative,ADVANTAGE,in GER,Industries with comparative,DISADVANTAGE,in GER,More attractive business conditions in CEE,Labor costs,only between,10.4%,(Slova-kia) and,17.8%,(Hungary) of,EU 15,level,Taxes,lower and,social contributions,only between,10.0%,(Poland) and,16.3%,(Czech Republic) of,German,level,Capital costs,about,20% lower,– because of lower investment needs due to flexible labor markets,Need for,Industry restructuring,Innovation,(creative destruction),REVEALED COMPARATIVE ADVANTAGE–GERMANY VS. EASTERN EUROPE [Index],,Microeconomic opportunities:,CEE offers new markets and growth / investment / offshoring opportunities,,>,L,abor costs in CEE will remain attractive for at least 30 more years,2.2,2001,2010,2020,2030,,,,,39.4,66.3,POL,42.4,67.9,EST,61.4,78.5,CZR,71.5,84.1,SLO,100,EU 15,New markets for infrastructure, capital and consumer goods,75 m new consumers,with increasing purchasing power for consumer goods,High,demand,for modernized,infrastructure,and,capital goods,New growth and investment opportunities,Privatization,of state-owned companies,Acquisition,/,restructuring,of EU 10 enterprises,Low unit costs through offshoring,Setup of,own production facilities,Outsourcing,of labor-intensive production,Lower taxes,and,social contributions,CONVERGENCE IN PER CAPITA INCOME [index, EU 15 = 100],,,Result of 2004 enlargement:,New European division of labor based on regional comparative advantages,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,RELATIVE,ABUNDANCE OF CAPITAL,AND,TECHNOLOGY,WESTERN EUROPE:,Capital/knowledge-intensive,economies,EASTERN EUROPE:,Labor-intensive,economies,,,RELATIVE,ABUNDANCE OF LABOR AT LOW COSTS,3.,> Free exchange of goods,and,services, financial and human capital will allow EU to compete head to head with the United States and Asia,,,96.2,109.8,117.2,97.7,121.1,132.6,134.7,74.8,1999,2000,2001,2002,= Imports from CEE,= Exports to CEE,,,BRAIN,BRAIN,TRADE RELATIONS BETWEEN EU 15 AND CEE [EUR bn],,,Major industrial sectors are already reaping the benefits of the,new European division of labor,through FDIs,4.,Leading sectors in terms of FDI in Eastern Europe,= % of all extra-EU 15 flows,1997,1998,1999,2000,2001,2002,,,,,,,6.0,9.8,12.1,19.9,16.3,,5.5,4.5,3.9,4.9,12.4,16.1,6.3,,> Also,chemical firms have moved eastwards in search of new markets ...,,,AUTOMOTIVE,,,FINANCIAL SERVICES,,FOOD,,TELECOMS,26.9%,of all German FDI flows go to CEE,EU 15 FDI IN CEE,1997-2002 [EUR bn],C.,Opportunities for EU 15 chemical players in CEE and CIS,Chemical industry in CEE / CIS:,Still small in size but growing at 2.5 times the speed of Western Europe,Chemical output growth,2004-2014 [Ø % p.a.],,> Chemical revenues of 34.3 bn USD in Eastern Europe (CEE 23.5 bn USD, CIS 10.8 bn,USD,) are comparable in size to Ireland or the Netherlands,,,,,,,,,,,8.5,7.5,5.3,4.9,4.2,2.2,1.9,1.2,IND,CHN,CEE,CIS,Middle,East,EU 15,JPN,NAFTA,2.3,5.3,1.6,0.8,3.6,33.0,11.0,27.8,Global share [%],,1.,1,2,3,4,5,CEE vs. CIS:,Basic structural differences in chemicals – despite of similarly good growth perspectives,2.,,> Very different (market entry) strategies necessary for CEE,and,CIS !!!,1) Poland, Czech Republic, Romania, Hungary, Slovakia, Bulgaria,2) Russia, Ukraine, Kazakhstan, Uzbekistan, Azerbaijan, Georgia, Moldova,CEE,1),CIS,2),PLAYERS /,ACTIVITIES,Local / regional players,producing,value-added chemicals,Big private oil/gas companies,producing,,mainly,petrochemicals and commodities,COMPETI- TIVENESS,Domestically but not yet globally com-petitive production / asset footprint,Uncompetitive production / logistics, but competitive raw materials / feedstock,TRADE,High imports of high-/medium-value chemicals, low level of exports,High petrochemical exports, high consumer chemicals imports,DEGREE OF PRIVATIZATION,State-owned / -controlled companies still dominant,Privatization of Russian players largely completed (Renationalization?),ACTIVITIES OF WESTERN COMPANIES,Greenfield investments and JVs in consumer-driven segments,Demand-driven Greenfield and supply-driven Brownfield investments / JVs,Players / activities:,Local players producing value-added chemicals in CEE – CIS strong in raw materials,2.1,,> Local/regional pl,ayers in CEE and strong resource-driven players in CIS,CEE,CIS,PLAYERS:,Weak, big state-owned / -controlled players and some strong private local / regional chemical producers,Largest players on various value-chain levels: CIECH, Zaklady Azotowe, Unipetrol, Duslo, Novacke Chemicke Zavody, etc.,ACTIVITIES:,Value-added chemical production sites in all parts of CEE,Ethylene: CZ, HU, PL, RO, BG, SL,Polyethylene: HU, PL, CZ, HU,Ammonium nitrate: PL, SK, BG, RO,PLAYERS:,Strong oil / gas companies and weak SMEs,Large oil / gas companies,: Yukos, Lukoil, Surgutneftegas,Some agrochemical companies,: Azot, Akron, PhosAgro, Eurockim, Uralkalii,ACTIVITIES:,Production of low-cost commodities (gas, raw material and energy-based chemicals),Dispersed and,dislocated production,centers remain from Soviet era,Production,in CIS,dropped 60%,in early 1990s –,today,more or less,at 1990 level,again,Unfavorable logistics,for world markets,Competitiveness:,CEE assets competitive domestically – CIS assets not, but competitive raw materials,2.2,ASSETS:,Production sites are competitive (technology, scale) – but only on domestic markets,Example (Ammonium nitrate production in Pulawy, Poland):,Capacity 700 kt,Minimum domestic size 550 kt,Minimum global size,,1,000 kt,LABOR PRODUCTIVITY:,Uncompetitive vs. EU 15 industry – turnover per employee at 30% of EU 15 level in 2003,Significant,increases,: Up from 19% in 1995,ASSETS:,Uncompetitive production sites, but competitive raw materials,Example: Methanol and derivatives (Natural gas at Middle Eastern costs of 60-75 cents / MBTU),Fully,,fledged combinates,and,dislocation of process chains,Uncompetitive logistics,costs,LABOR PRODUCTIVITY:,Uncompetitive vs. EU 15 industry – turnover per employee only at 3% of EU 15 level in 2003,Stagnating,or even decreasing:,In 1995,CIS productivity level was,4% of EU 15,,> CEE slowly catches up with EU 15 efficiency – unsolved problems in CIS,CEE,CIS,Trade:,High level of imports in both CEE and CIS – CIS with significant exports of mainly commodities,2.3,HIGH IMPORTS:,16.6 bn USD,Specialty / fine chemicals,polymers,Consumer,chemicals,LOW EXPORTS:,5.0 bn USD,Polymers,,Petrochemicals,DOMESTIC PRODUCTION,covers,53%,of domestic,demand of 35.1 bn USD,HIGH IMPORTS:,8.1 bn USD,Consumer,chemicals,HIGH EXPORTS:,7.0 bn USD,Agrochemicals,/ fertilizers,Raw material-based,chemicals,Gas-based,chemicals,DOMESTIC PRODUCTION,covers,32%,of domestic,demand of 11.9 bn USD,,> Increas,ing,high-value added imports,in,CEE / CIS in the coming years – likely to be followed by import substitution international investments,CEE*,CIS*,*,) 2002/2003 data,Degree of privatization:,Most players in CIS are in private hands today – CEE still largely state-owned,2.4,EXTENT OF PRIVATIZATION:,Only in Hungary / Slovakia privatization has been completed, in Poland / Czech Republic the state still holds major shares,RECENT DEVELOPMENTS,Poland:,CIECH,group partially privatized in September 2004 (IPO),Czech Republic:,Unipetrol,sold 63% to PKN – but significant restructuring and further ownership changes are expected,OUTLOOK:,Privatized CEE players,will enhance their impact via,M&As in CEE,EXTENT OF PRIVATIZATION:,In Russia, more than 96% of the top 400 chemical firms are privatized, in rest of CIS ongoing process,RECENT DEVELOPMENTS,Russia: Joint ventures with Western,,companies,, e.g. Gazprom with Sibur and Nizhnekamskneftekhim with BASF,Ongoing activities also in rest of CIS:,In the,Ukraine,a,privatization program,of large enterprises has just been approved,OUTLOOK:,Technology- and know-how-based input of Western companies,will increase,,> Privatization / rest,ructuring is still an issue in Poland and the Czech Republic – companies in CIS are more open for partnership / know-how,CEE,CIS,Likely future developments in CEE:,Significant changes in industry structure – opportunities for EU firms,3.1,Significant industry structure changes are expected,Only few competitive companies remain,, many (even privatized, but uncompetitive) companies are likely to fail,Unclear,role of,state-owned companies,– big, still state-owned companies are,likely to stay,(even if privatization fails),,Privatized companies that are active in restructuring / M&As will follow their path mainly without Western partners,CEE chemical companies,can become serious competitors,on the EU stage,Capture market potential and growth through export and FDI,Enter market with brand and marketing power,Participate in market developments through Greenfield investments,Use time window of low factor costs to optimize EU 25 global footprint,Capture the advantage of homogeneous EU-25 policy and market,,>,EU firms must integrate,the new CEE countries i,n their EU-25 strategies,KEY DEVELOPMENTS IN CEE,OPPORTUNITIES FOR WESTERN COMPANIES,Likely future developments in CIS:,Large players win against small ones – also opportunities for EU firms,3.2,Big gas-oil-driven and Western com-panies will gain momentum against SMEs,Many,SMEs,are,likely to disappear,(weak financial resources, limited marketing power, lack of R&D, uncompetitive price position, etc.),Gas-/oil-based and selected raw material-based companies will expand their chemicals portfolio downstream,Often in,cooperation with international partners,Open for FDIs,Participate in raw material / supply advantage by trading in technology and process know-how and capital,Cooperate with big oil / gas and raw material firms,Capture consumption-driven market potential through Greenfield investments or joint venture with raw material / basic chemicals manufacturers,In the meantime: Build up consumer-driven segments with export and marketing activities in CIS,,>,EU firms can capture supply / energy advantages and market potential,KEY DEVELOPMENTS IN CEE,OPPORTUNITIES FOR WESTERN COMPANIES,CIS with disadvantages vis-à-vis Middle East:,Higher logistics cost for gas / raw materials production,3.3,LOGISTICS COST [USD / t kdPD] Russia – Western Europe,LOGISTICS COST [USD / t kdPD] Middle East – Western Europe,Railway 28 USD / ton,Shipping 5 USD / ton,Loading 20 USD / ton,,,,,,,,,,,,,,,,,,,,,,,,,CIS,,,,,,EU 15,,Tanker loading terminal,Railway,Shipping route,Middle East,,Total 53 USD / ton,Shipping 16 USD / ton,Loading 20 USD / ton,Total 36 USD / ton,,>,Similar production costs in CIS and Middle East – but much higher logistics costs from CIS to Western Europe diminishes competitiveness,,,,Outlook:,The focus of the global chemical industry is moving ever more to the east,4.,FAR EAST,Demand powerhouse,Production center for fine / specification chemicals,CEE / CIS,CEE: Increasingly competi-tive production site,CIS: Raw material provider,MIDDLE EAST,Future powerhouse of petrochemicals (especially natural gas / ethylene-based derivates),,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,> CEE/CIS: Opportunities especially for EU companies to overcome growth barriers at home – but the "real" opportunities are in Far,and,,Middle East!,D.,Conclusion,Conclusion:,The changing face of Europe offers broad business opport。
