BASF : In the price-conscious chemicals market., a good network is vital. The Thai operation will benefit from big new plants in Malaysia and China.

ASF had already been in the chemicals business for 80 years when it began following its main customers to Asia. As economics in the region began to grow at mid-century, manufacturers of a host of consumer products and other goods set up local bases, and BASF wanted to be there to supply them.

‘Cheap oil and gas prices are a must in the chemical industry, and this is something Thailand cannot provide’
BRUNO FRIESEN
Managing director, BASF (Thai)

Today, the German-based multinational owns or has equity in more than 50 companies in 20 countries in Asia. Its revenue from the region reached 5.2 billion Deutschmarks last year, an increase of 17% from 1996.

Friedrich Engelhorn, the company founder, could never have foreseen how large Badische Anillin-und Soda-Fabrik would become when he started the company in 1865.

BASF AG now has 350 affiliates in more than 170 countries, producing 8,000 different chemical products. Global sales last year were nearly 56 billion Deutschmarks.

The group's products can be divided in five major categories: health and nutrition, colorants and finishing products, chemicals, plastic and fibres, oil and cosmetics, printing and packaging.

BASF came to Thailand before World War II, taking a 30% equity in a joint-venture company
with Bara Windsor, a local trading firm.

"The Thai economy had begun to grow very quickly, and BASF designed to set up a 100% owned company in 1966 called BASF (Thai)," managing director Bruno Friesen said.

The local operation is small compared with those in other countries, with a workforce of 157 at its plant in the Bang Poo Industrial Estate in Samut Prakan.

However, BASF (Thai) generated revenue of more than one billion baht in sales last year. despite the downturn.

The company has three lines: caprolactam, a raw material for producing nylon fibre for the textile industry; polystyrene, with i-nany applications in the computer, electronics and construction fields; and industrial chemicals such as monomers, solvents and adhesives, with a total production capacity of 7,200 tons a year.

BASF has two local affiliates. BASF Vita is an animal feed joint venture between BASF (Thai) with local investors; and BASF East Asiatic Colours and Chemicals is a joint venture between the German parent and East Asiatic (Thailand). The latter deals mainly with the import and sale of textile dyes and chemicals to the textile industry.

Mr Friesen, who has been in Thailand for more than a decade, said the economic downturn had hit the chemical industry hard. Major customers such as automotive, consumer product and textile makers had cut back by as much as 50% and the chemical industry was looking at a 30% drop in sales revenue as a result, he said.

However, BASF sees the crisis as short-term, and it is preparing for the recovery. Across Asia it has been steadily expanding production. Together with local partners, it will invest, DM 10- 12, billion 'In the region in the next five years.

Among the show-cases will be an integrated petrochemical site in Nanjing, a joint venture with Yangtzi Petrochemical Corp and China National Petrochemical.

As well, BASF AG has just acquired a 50% stake from two Korean partners to gain full control of chemical plants there. It has also purchased a lysine business from local investors.

In Malaysia and the Philippines, BASF has invested more than DM1 billion to set up two chemical plants.

In Thailand, BASF Thai intends to increase its equity in BASF Vita to gain control of management of the animal feed producer, in the belief that the local economy will turn around within two years.

In the chemical industry, Mr Friesen said, price is the ultimate factor for customers. Chemical companies are always on the lookout to produce more cheaply and efficiently.

BASF has adopted the "Verbund system" as a company-wide strategy that stresses grouping operations in large, integrated plants for the low-est cost of production. The integrated plants dis-tribute products to customers in nearby countries through offices in each country.

In Southeast Asia, Malaysia was chosen as the manufacturing hub. The company has joined with Petronas, Malaysia's national oil company, in a DM1-billion plant.

Mr Friesen Said that when compared with neighbouring countries, the cost of overall chemical production in Thailand was higher. "Cheap oil and gas prices are a must in the chemical industry, and this is something Thailand cannot provide."

The Thai plant began by serving mainly local demand, with only 15 % of the output exported. However, the economic downturn has forced BASF(Thai) to export more, and that means working to cut costs in order to compete.

The company expects sales this year to remain at the same level as last year, helped by increased export revenue due to baht depreciation.

"Next year we will see zero growth, though our revenue will increase slightly in 2000. The overall industry will experience fierce competi-tion due to the plunge in demand. Some companies will have withered away by then," Mr Friesen said.

However, BASF(Thai) will continue to rein-force its position as a major chemical player in the local market, taking advantage of the arrival of integrated production sites in Malaysia and China, as well as the newly-established logistics centre in Singapore.

Mr Friesen said the network would help BASF (Thai) serve the needs of all its customers at very low prices and strengthen its leading position.

BASF (Thai) Ltd
Established: 1966
Main businesses: Chemicals and animal feed manufacturing
Subsidiaries: BASF Vita; BASF East Asiatic Colours and Chemicals
Number of employees: 157
1997 gross revenue: 1.21 billion baht

Worldwide
Headquarters: Ludwigshafen, Germany
Number of Countries: 170 with both manufacturing and customer service centres
Number of employees: 104,979
1997 gross sales: DM55.78 billion
Net profit: DM3.23 billion