1、0INoordwijk,October 4,2004Prof.Roland BergerChairman,Roland Berger Strategy ConsultantsEU enlargement new opportunities for the chemical industry1IA.The changing face of Europe B.Challenges and opportunities of enlargement for EU 15C.Opportunities for EU 15 chemical players in CEE and CISD.Conclusio
2、nContents2IA.The changing face of Europe3I%of EU 25France,Germany,Italy and Benelux:Six wealthy core countries start economic integration process in 19571.1EU 6(1957)*2003 data Europes core countries had sluggish growth over the last ten years:Average growth 1.3%p.a.in Germany,1.7%in France,2.5%Neth
3、erlandsGDP/capita USD28,608118.0%75.5%of USPopulation m22750.0%78.0%GDP USD bn6,49458.9%59.0%4IDenmark,Ireland and the United Kingdom:First acces-sion round after 16 years increases economic power1.2EU 9(1973)*2003 data As a result of EU integration,Irelands economic growth has been out-standingly h
4、igh over the past ten years:7.6%p.a.(DK 2.1%,UK 2.8%)Population m29765.0%102.0%GDP/capita USD29,141120.2%76.9%GDP USD bn8,65578.5%78.8%of EU 25%of US5IGreece:A poorer country joins the European Union in 1981 first discussions about dilution 1.3EU 10(1981)*2003 data Greece now has high average growth
5、 rates(3.8%p.a.from 1995-2004)partly due to European money from structural/regional funds GDP USD bn8,82780.0%80.3%Population m30867.7%106.2%GDP/capita USD28,659118.3%75.6%of EU 25%of US6ISpain and Portugal:Accession of two less developed southern countries reduces EUs average wealth1.4EU 12(1986)*2
6、003 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 ratesGDP USD bn9,81689.0%89.3%Population m35978.9%123.0%112.8%72.2%GDP/capita USD27,343%of EU 25%of US7ISweden,Finland and Austria:Europes northern enlargement pu
7、shes up the average GDP per capita1.5EU 15(1995)*2003 data Stimulus to EU growth over the past ten years:Finlands economy grew 3.5%p.a.on average,Swedens 2.7%p.a.,and Austrias 2.0%p.a.GDP USD bn10,53495.5%95.9%Population m38183.7%130.5%GDP/capita USD27,648114.1%73.0%of EU 25%of US8IGDP USD bn11,0281
8、00.4%Population m455156.0%Eastern Europe,Malta and Cyprus:The biggest round of enlargement ever changes the face of Europe1.2EU 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 European Union to create wealthGDP/capita USD24,
9、23764.0%of US9I50 years of enlargement:Compared to the US,the EU has gained size at the expense of average wealth Today,Europes GDP per capita is only about two-thirds that of the US in terms of total GDP,both economies are now comparableEU vs.US*US=100%59.077.580.389.395.9100.478.0102.0106.2123.813
10、0.5156.075.576.975.672.273.064.01957EU 61973EU 91981EU 101986EU 121995EU 152004EU 25GDPInhabitantsGDP per capitaUS=100*based on 2003 data1.310IWealth gap:Ten years ago,the north of the European Union was rich and the south was poor2.1 South gained wealth in EU:From 34.4%of EU-9(1986)to 59.8%today199
11、5:Gap between north and south*1995*2003 data *EU 12 *Portugal,Spain,GreeceGDPUSD bnUnemployment%PopulationmSOUTH*NORTH*1,1619,37313.49.262319RATIO9:1GDP per capitaUSD18,72629,3833:22:35:111I7,42927,6204:1Today,the gap is between east and west GDP per capita in the EU 15 is four times higher than in
12、EU 102.22004:Gap between east and west EU support will help EU 10 economic development to reach EU 15 wealth2003EU 10EU 1549310,53410.58.574381RATIO21:14:55:1GDPUSD bnUnemployment%PopulationmGDP per capitaUSD12IEU 25 vs.US vs.Asia:Enlarged EU is a still powerful,but the slowest growing economic regi
13、on in the world3.Opportunity:Ten new states give the EU momentum to increase growthECONOMIC POWERGDP,USD bn Comparative indicators 2003POPULATION mWEALTH GDP per capita,USDGROWTH avg.GDP growth 1999-2003,%10,9882903.311,0284552.3USEU 25ASIA*Aggregated data for Japan,China,ASEAN8,4581,9474.837,89024,
14、23712,05813IB.Challenges and opportunities of enlargement for EU 1514IEastward 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 structu
15、ral 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 h
16、igher flexibility in EU 10,but also momentum for political change Effects of enlargement on macroeconomic and microeconomic levels15IMacroeconomic threats:Pressure on EU 15 labor markets and competition for best institutional setup Low wage-competition/unemployment threats Migration(up to 3.8 m peop
17、le 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 Diffe
18、rences:Countries with high degree of regulation,geographical proximity to CEE and net contributors to EU budget are more affected1.139,019,015,00,017,415,08,512,5GERPOLLITESTTaxesContributionsCORPORATE TAXES%/SOCIAL CONTRIBUTIONS 2004%of GDP16IMacroeconomic opportunities:Higher growth momen-tum for
19、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 competit
20、ive 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 res
21、pective countries1.2CEE 8+1.3-2.1 p.a.2005-09EU 15+0.5-0.7cum.2000-09Source:EU CommissionIMPACT OF 2004 ENLARGEMENT ON GDP GROWTH%17IMicroeconomic threats:Increasing competition for EU 15 due to lower labor/unit costs in Eastern Europe Differences:Mature industries more affected than innovative ones
22、,border regions more than western,small companies more than large2.12.821.190.56-0.15-1.03-2.26Chemi-calsMedicaltechno-logyIT equip-mentAuto-motiveSteelindustryWoodIndustries with comparative ADVANTAGE in GERIndustries with comparative DISADVANTAGE in GER More attractive business conditions in CEE L
23、abor 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 restructurin
24、g Innovation(creative destruction)REVEALED COMPARATIVE ADVANTAGEGERMANY VS.EASTERN EUROPE Index18IMicroeconomic opportunities:CEE offers new markets and growth/investment/offshoring opportunities Labor costs in CEE will remain attractive for at least 30 more years2.2200120102020203039.466.3POL42.467
25、.9EST61.478.5CZR71.584.1SLO100 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 compa
26、nies 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 contributionsCONVERGENCE IN PER CAPITA INCOME index,EU 15=10019IResult of 2004 enlargement:New European division o
27、f labor based on regional comparative advantagesRELATIVEABUNDANCEOF CAPITAL AND TECHNOLOGYWESTERN EUROPE:Capital/knowledge-intensive economiesEASTERN EUROPE:Labor-intensiveeconomiesRELATIVEABUNDANCEOF LABOR AT LOW COSTS3.Free exchange of goods and services,financial and human capital will allow EU t
28、o compete head to head with the United States and Asia96.2109.8117.297.7121.1132.6134.774.81999200020012002=Imports from CEE=Exports to CEEBRAINBRAINTRADE RELATIONS BETWEEN EU 15 AND CEE EUR bn20IMajor industrial sectors are already reaping the benefits of the new European division of labor through
29、FDIs4.Leading sectors in terms of FDI in Eastern Europe=%of all extra-EU 15 flows1997 1998 1999 2000 2001 20026.09.812.119.916.35.54.53.94.912.416.16.3 Also chemical firms have moved eastwards in search of new markets.AUTOMOTIVE FINANCIALSERVICESFOODTELECOMS26.9%of all German FDI flows go to CEEEU 1
30、5 FDI IN CEE1997-2002 EUR bn21IC.Opportunities for EU 15 chemical players in CEE and CIS22IChemical industry in CEE/CIS:Still small in size but growing at 2.5 times the speed of Western EuropeChemical output growth2004-2014%p.a.Chemical revenues of 34.3 bn USD in Eastern Europe(CEE 23.5 bn USD,CIS 1
31、0.8 bn USD)are comparable in size to Ireland or the Netherlands8.57.55.34.94.22.21.91.2INDCHNCEECISMiddleEastEU 15JPNNAFTA2.35.31.60.83.633.011.027.8Global share%1.23I12345CEE vs.CIS:Basic structural differences in chemicals despite of similarly good growth perspectives2.Very different(market entry)
32、strategies necessary for CEE and CIS!1)Poland,Czech Republic,Romania,Hungary,Slovakia,Bulgaria2)Russia,Ukraine,Kazakhstan,Uzbekistan,Azerbaijan,Georgia,MoldovaCEE 1)CIS 2)PLAYERS/ACTIVITIESLocal/regional players producing value-added chemicalsBig private oil/gas companies producing mainly petrochemi
33、cals and commoditiesCOMPETI-TIVENESSDomestically but not yet globally com-petitive production/asset footprintUncompetitive production/logistics,but competitive raw materials/feedstockTRADEHigh imports of high-/medium-value chemicals,low level of exportsHigh petrochemical exports,high consumer chemic
34、als importsDEGREE OF PRIVATIZATIONState-owned/-controlled companies still dominant Privatization of Russian players largely completed(Renationalization?)ACTIVITIES OF WESTERN COMPANIESGreenfield investments and JVs in consumer-driven segmentsDemand-driven Greenfield and supply-driven Brownfield inve
35、stments/JVs24IPlayers/activities:Local players producing value-added chemicals in CEE CIS strong in raw materials2.1 Local/regional players in CEE and strong resource-driven players in CISCEECIS PLAYERS:Weak,big state-owned/-controlled players and some strong private local/regional chemical producer
36、s 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
37、 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
38、 CIS dropped 60%in early 1990s today more or less at 1990 level again Unfavorable logistics for world markets25ICompetitiveness:CEE assets competitive domestically CIS assets not,but competitive raw materials2.2 ASSETS:Production sites are competitive(technology,scale)but only on domestic markets Ex
39、ample(Ammonium nitrate production in Pulawy,Poland):-Capacity 700 kt-Minimum domestic size550 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
40、 sites,but competitive raw materials Example:Methanol and derivatives(Natural gas at Middle Eastern costsof 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
41、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 CISCEECIS26ITrade:High level of imports in both CEE and CIS CIS with significant exports of mainly commodities2.3 HIGH IMPORTS:16.6 bn USD
42、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 chem
43、icals DOMESTIC PRODUCTION covers 32%of domestic demand of 11.9 bn USD Increasing high-value added imports in CEE/CIS in the coming years likely to be followed by import substitution international investmentsCEE*CIS*)2002/2003 data27IDegree of privatization:Most players in CIS are in private hands to
44、day CEE still largely state-owned2.4 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
45、 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:Joi
46、nt 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 Privat
47、ization/restructuring is still an issue in Poland and the Czech Republic companies in CIS are more open for partnership/know-howCEECIS28ILikely future developments in CEE:Significant changes in industry structure opportunities for EU firms3.1 Significant industry structure changes are expected Only
48、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
49、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
50、 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 in their EU-25 strategiesKEY DEVELOPMENTS IN CEEOPPORTUNITIES FOR WESTERN COMPANIES29ILikely future developments in CIS:Large players win against small
