INDUSTRY fi BUSINESS
Trend to global firm foreseen for 1970's U.S. chemical companies will battle overseas competitors not only for markets abroad but in the U.S. itself • CM&E - In the 1970's the chem ical company will no longer be a single national organization with foreign markets, but will have the shape of a multinational one in its technology, its products, its organization, and its mar kets. The U.S. chemical company, operating on a global scale, will face one great challenge during the decade of the 1970's: Its competitors, pow erful and global in their own way, will be battling for markets not only abroad, but in the U.S. itself. This is the expectation of many chemical marketers. Last week in a symposium at the Atlantic City meet ing they were examining the chal lenges and problems they will face in the 70's. Some of the particular problems they see reflect those they've battled in this decade: overcapacity, high la bor and raw material costs, declining prices for chemical products, increas ing government regulation, and for eign competition. W. Ward Jackson of Commercial Solvents Corp. says that in the 1970's: • Technology improvements will continue to lower production costs forcing older nonadaptable plants into obsolescence. • Labor costs will continue to rise, increasing the need for cost improve ment in product development, pro duction, marketing, and other areas affecting profit margins. • Chemical companies and their customers will make greater use of competitive-bid purchasing, often on a worldwide scale, for lower-cost raw materials. • Greater skill in using data process ing will be reflected by improved ac curacy of marketing forecasts. • More nonchemical companies will enter and expand in the chemical field, bringing different marketing tech niques and strategies to the chemical industry. In the 1970*5 larger and more eco nomical plants will be coming on stream. This trend has already taken hold. Overcapacity could very well bring about a change in end-use pat terns during the 1970's. Producers might lower the prices of products reaching overcapacity in order to com pete for end-use markets that were unattainable at original prices. In 24 C&EN SEPT. 16, 1968
light of this, Russell C. Kidder of Stauffer Chemical Co. says that mar keting research departments will have to be sharply aware of developing overcapacity problems and the effect this overcapacity might have on other products. John Conway of Air Reduction Co. says that the computer could be used more extensively to improve the chem ical industry profit picture through sales methods analysis, product quality analysis, product elimination, and elimination of unprofitable accounts. The computer can also find wider application, he says, in assisting man agement to determine and measure product-market opportunities, require ments, and customer needs, and to recommend the structure and meth ods for internal development of new product plans and programs. George B. Hegeman of Arthur D. Little, Inc., says that computerized management information systems, sup plying up-to-the-minute details on sales, inventory levels, and distribu tion schedules, are already a routine part of most company operations. But, he adds, while many informa tion and control problems have been solved by using computers, marketing departments are just beginning to ap ply mathematical models to improve long-range forecasting and planning in marketing. No new information or technique is needed to improve planning and fore casting, Mr. Hegeman says. What is needed is not more sophisticated math ematics but a revamping of older techniques and a better understanding of the interrelationships within the market environment. He points out that most companies already proc ess more marketing information than they need. Another area of challenge is the need for more accurate price forecast ing for new products. Because of the proliferation of new products, compe tition in the 1970's will become even more keen than in the past. For the new product, Dr. Newman H. Giragosian of GAF Corp. points out, many companies are prone to be overly opti mistic about the price it can com mand. Dr. Giragosian says that the 1970's will call for lower distribution costs
and more efficient methods of trans porting chemicals. Currently, proc essing costs account for only 15% of the total sales price of a chemical, but distribution costs are between 40 and 50%, he says. With an eye toward cutting physical distribution costs, Ο. Ε. Beutel and D. G. Griffin of Dow Chemical say that today's disparate batch materials handling will be integrated with man ufacturing to create a continuous ma terials flow concept. In transportation, the intermodal concept will be advanced in the 1970's. Highway transportation will function as the master intermodal link tied to rail, marine, and air modes. Mr. Beu tel and Mr. Griffin foresee the devel opment of special equipment, such as climate control units from the cryo genic ( - 4 2 3 ° F.) to load temper atures as high as 400° F. For rail transport, there will be unit trains such as that proposed to trans port anhydrous ammonia from the Gulf Coast to the corn belt, jumbosize rail tank cars capable of moving 400,000 pounds of cargo or more, and hopper cars with a gross weight of 526,000 pounds. Air transport of chemicals will also grow, especially as the huge liners become operational. Boeing 747's will be available in the 1970's to haul 100 tons in 14 standard 20-foot containers at speeds of more than 600 miles per hour. Lockheed's proposed L-500 will carry 140 tons of cargo. Skillful but selective use of air transport will pro vide a small but critical mode for chemical distribution. George Fowles and M. W. Osborne of B. F. Goodrich Chemical Co. say that a major challenge facing plastics marketing in the 1970's, particularly the big volume thermoplastics indus tries, will be intelligent pricing. In the sixties, the price erosion of thermo plastics was more rapid than had been anticipated and was accompanied by a spectacular growth in volume. For example, U.S. production of plastics in 1958 totaled 4.5 billion pounds, in 1967 grew to 14.2 billion pounds, in 1970 will reach 19 billion pounds, and by 1980 is expected to climb to 45 bil lion pounds per year, almost a 200% increase over total production in 1967.
These chemical marketers believe the 1970's will bring to the industry
John Conway wider use of computers
George B. Hegeman for management
R. P. Monaghan better market intelligence
George Fowles hence intelligent pricing
Newman H. Giragosian with keener competition
J. P. Cunningham for high volume products
O. E. Beutel distributed at low cost
Russell C. Kidder but overcapacity remains
J. F. Bourland to haunt ag chemicals as
K. R. Fitzsimmons pesticide patents expire
W. Ward Jackson lowering profit margins
Plastics in packaging, particularly polyethylenes, had tremendous growth in the sixties. In the seventies vinyls, for example, should experience very rapid growth, especially in the blownbottle field, and become one of the major markets for polyvinyl chloride. The biggest challenge in selling domestic industrial chemicals in the next decade, P. R. Monaghan of Jefferson Chemical Co., Inc., says, will be to increase the relative productivity of sales personnel. The industry must do a better job with fewer people and uti-
lize more fully the bridge concept of selling in depth. In the bridge concept, the salesman is an extension of company management and is its representative in the customers' shop. The more productive salesman will rely more on his company's R&D management, manufacturing management, treasurer, and even president to call with him on their counterparts in a customer company. The commodity approach to selling organics is becoming standard. According to Dr. J. P. Cunningham of
Shell Chemical, prices of large-volume products have declined at rates well in excess of those projected by industry forecasters. With corporate diversification becoming a popular route for expansion, Dr. Cunningham says, organic chemicals have displayed a considerable appeal to other industries. Another trend of the sixties that could grow rapidly in the 1970's is the increasing availability of processes and know-how on a royalty basis. If widespread starvation is to be averted, J. F. Bourland of American Cyanamid indicated to the symposium, then worldwide food production must increase by 20% above that of its present level between 1970 and 1980, and 72% above the 1970 level by the year 2000. Several patents on basic pesticide formulations will expire in the 1970's. The profit potential from a proprietary position in the pesticide market will erode as pesticides become commodities, according to K. R. Fitzsimmons and L. G. Smith of Shell Chemical Co. This could lead to a weakening of prices and subsequent strain on profits. P. R. Monaghan summed up the challenges of the seventies in a discussion on selling domestic industrial chemicals. "First, we need to vastly improve our skills in market intelligence, forecasting, development, planning, and pricing strategy. We are not talking just about statistical skills, but we need to know a great deal more about customers and competitors, such as strengths, weaknesses, objectives, and probable reactions to various courses of action which might occur. We need to be sure we have a proper assessment of our own strengths and weaknesses in relation to our competitors. "Second, we need a dedication on the part of marketing management to the use of mature judgment in directing and controlling operations in such a way that effects of basic strategies and decisions are measured in relation to profit and return on investment," Mr. Monaghan says. "Drive for volume at all costs, overreaction to rumors in the market, decentralization of pricing responsibility too far down the line, the naive assumption that competitive facts are not lawfully revealed in the market place—all of these factors will diminish as marketing management successfully faces up to its task. "Rather simple solutions to a complex problem you may say. Perhaps, but the fact is that, simple or not, many have failed to meet the challenge of the sixties and unless more attention is paid to the simple, basic solutions, more will miss the mark in the seventies," Mr. Monaghan warns. SEPT. 16, 1968 C&EN 25
