“Leverage Talent and Experience Base to Focus on Specialty Chemicals”

Dr Raman Ramachandran
Head – South Asia and Chairman, BASF India
The specialty chemical market has a great scope for growth as several reports suggest. In the chemicals market in Asia, India is the third largest market. BASF has made their single largest investment to cater to this burgeoning sector through their Dahej project. In this exclusive interview, Dr Raman Ramachandran, Head – South Asia and Chairman, BASF India talks to Mittravinda Ranjan about how the company maintains its edge over their competition as well as the opportunities it wants to tap into in the Indian market.

What is the progress of BASF’s Dahej site? What role will this new plant play in BASF’s growth strategy in Indian and global markets?
The Dahej project, involving an investment of ` 1,000 crore was broken ground in April 2012 and marks BASF’s single largest investment in India so far. The new Dahej site will be an integrated hub for polyurethanes manufacturing and will also house production facilities for care chemicals and polymer dispersions for the coatings and paper businesses. It will strengthen BASF’s support to key industries such as appliances, footwear, automotive, construction, architectural coatings and personal care, as well as paper. Construction work at the Dahej site is on track and due for completion.

May we have an overview of R&D activities conducted by BASF in India? How do Indian operations support the international research activities?
At BASF, innovation will play a key role to ensure our long-term business success with chemistry-based solutions to address global and regional challenges of resource, efficiency, food and nutrition and quality of life. Globally, our target is to have Euro 30 billion sales from innovations by 2020. BASF invested Euro 1.8 billion in R&D in 2013. As a part of an initiative to globalise R&D, it is targeted to spend 25 per cent of BASF’s global R&D in Asia Pacific by 2020. India will also be an important part of this initiative. We currently have two R&D centers in India.

Earlier this year, we established global R&D functions here in India at the Thane site focusing on organic synthesis, advanced process and formulation research, discovery chemistry for modern agricultural solutions and molecular modelling. With an initial investment of Euro 2 million, this new facility has been set up by BASF under its group company, BASF Chemicals India Pvt Ltd.

Other than this, in India, BASF maintains a strong R&D presence through its sites in Mangalore and Mumbai, which are part of a global technology platform. Strategically located in close proximity to key production assets and customers, these facilities support close collaboration between research, development and business teams on site.

The research projects are focused on catering to the global megatrends – Resources, Environment & Climate; Food & Nutrition and Quality of life. As part of the global research platform, the Indian team collaborates with researchers all over the globe to work on new energy concepts, agricultural solutions, leather chemicals, specialty chemicals and the synthesis of intermediates for industrial applications.

Many global specialty chemical companies have identified India as a big market for their products. Amidst high competition, how does BASF plan to maintain its edge?
The opportunities for the chemical industry in India are manifold. Today, India is the third largest market for chemicals in Asia and is expected to grow further. With increasing purchasing power for all groups of the population, consumers want to buy longer lasting goods and goods that improve their quality of life and status. This offers tremendous scope for innovations from the chemical industry. BASF’s edge comes from our ability to innovate based on a deep understanding of global megatrends and specific customer needs and a non-compromising quality standard. Our long history in India, strong customer relations and local manufacturing foot print will also give us a competitive edge.

As a company, we believe that it is important to have local manufacturing capacity in Asia for Asia. The local manufacturing sites will let us have a very clear cost positioning which will enable us to be competitive. And the most important reason for having a local manufacturing unit is to be close to the customer and understand the local market driven requirements and adapt and act on it promptly. Added to this, we have a very strong R&D capability which will enable us to bring products in the market quickly.

How do you view the growth of specialty chemicals in India in terms of market and as a manufacturer? What are the biggest bottlenecks in your view for the specialty chemical manufacturers in India to compete at global level?
With a growing demand in the chemical industry, I see a very bright future for the specialty chemicals market in India. This has been reaffirmed by the Tata Strategic Report which was released in 2013 on the specialty chemicals market in the country. This report says that the Indian market is bound to reach USD 60-70 billion by 2020.

According to me, one of the biggest challenges we face is the lack of infrastructure and power shortage, ready availability of raw materials are some of the other main deterrents. Hence, large scale direct investments are difficult. But these issues are easily surmountable with adequate government support and providing an additional boost to the R&D sector.

Water treatment chemicals market is already witnessing strong surge in demand across the entire Asia Pacific region. How do you see the competition in this market for BASF? What is your strategy to stay competitive?
In 2050, more than nine billion people will live on our planet. Hence, the growing population would require resources which would ensure sustainable living. Innovations based on chemistry will play a key role in three areas in particular: resources, environment & climate; food & nutrition and quality of life. Amongst these themes, water will play an important role in ensuring a good quality of life and food & nutrition. Here BASF’s water treatment solutions would be able to further this vision in safeguarding a healthy future.

On a local front, according to data by Frost & Sullivan, the Indian water and wastewater treatment market earned revenue of over ` 6,300 crore in 2011 and is estimated to reach ` 10,230 crore in 2016.

These statistics show that there is a strong demand for water treatment chemicals market and we have seen a surge in the number of multinationals working in this area. We are committed to growing our business in the water space. As part of our strategy, we are also working to expand our business beyond flocculants and coagulants in the industrial sector. In the municipal & industrial sectors, the focus is on water treatment & sewage treatment. We shall offer our products or technologies to the municipal sector through direct channels, OEMs or service providers for raw water treatment, dewatering of municipal sludge(s) and sea water desalination.

Our range of products include highly-efficient ultrafiltration modules and cost-effective, space-saving rack designs as the core components of water treatment plants, rounded off by the superb technical support it provides to its customers. All the company’s products are based on the in-house development of its patented Multibore® membrane technology, providing top-quality standards. The extremely small-pore (< 0.02 microns) filters of the Multibore® membrane reliably intercept not only particles, but also microorganisms such as bacteria and viruses, thereby providing a dependable source of clean water.

Which are the other opportune areas for BASF in the Indian market?
BASF’s growth and contribution to Asia Pacific will also develop along with the changing economies and demographics. We will provide solutions for the needs of the emerging middle class forming the ‘base of the pyramid’ through solutions for affordable mass housing, food fortification, wind energy and water purification. These are in line with the four megatrends, we have identified: resources, environment & climate; food & nutrition and quality of life. We will start to enter with the right customers in India and later extend this further to other South Asian countries.

A recent paper by Frost & Sullivan indicated the strong growth that Middle East (ME) downstream chemical manufacturing industry until 2020 with strong emphasis on the specialty chemicals – water treatment, paints & coatings, oil field chemicals etc, which are expected to grow at around 5.0 to 5.5 per cent CAGR. Since ME enjoys the feedstock advantage and is now highly focused on diversifying through value additions, where does that leave India in global competition?

Yes, ME producers look at India as their home turf. But when the ME producers look at diversification, they need to look down the value chain. This currently does not exist in the ME, primarily due to technology reasons and market reasons. The ME market is export oriented market and hence there is no captive demand. Vis-à-vis India, where the local players with their manufacturing units will continue to have a strong position by adapting the products to specific market requirements.

How can India use its strong talent pool to counter the competition that would be offered by the ME in the years to come?
ME, despite being rich in feedstock availability, requires expertise and the necessary manpower for execution of these projects. Currently a lot of Indian diaspora reside in the region and they are well equipped to take this ME’s vision ahead. To counter this, India by having a local manufacturing unit can provide the requisite opportunity to retain the talent pool in the country. Additionally on a social front, Indians would be more willing to undertake activities in the country if provided the competitive benefits that would be provided in the ME.

On the other hand, China – being extremely cost competitive offers a strong competition to India. In your opinion, what kind of growth strategy should Indian companies adopt to get the much needed edge to be globally competitive?
Priority should be on India to become self-sufficient in its chemical requirements. As an importer, it always puts India on the back foot with regards to the vagrancies in the global market. This is a strategy that China has adopted very successfully. China is reasonably self-sufficient and hence has become an exporter. From short to mid-term, this should be India’s strategy and that would generate market growth by being self-sufficient in its requirements. For example, it is crucial to set up petrochemicals units for products such as acrylic acids, oxo-alcohols etc, which India today imports

In addition to this, Indian companies can leverage their talent and experience base to focus on specialty chemicals both for local and for export including contract manufacturing. This would require companies to develop international EHS standards, flexibility to cater to changing demands and a relentless focus on efficiency and economics.

How is the shale gas revolution going to change the global market dynamics for the chemicals & petrochemicals industry? How do you see the impact on the global chemical supply chains in the years to come? And what would be its impact on India?
Competitive raw material and energy costs are one essential criterion for the overall development of the chemicals and petrochemical industry. The recent rapid growth in the production of unconventional oil and gas such as shale gas in the US has led to a significant decrease of natural gas prices which in theory benefits the energy intensive industries.

At BASF, we have taken steps to benefit from the low natural gas prices in the US. With competitive energy prices and a dynamic economic development, the United States and Asia Pacific are becoming increasingly attractive as investment countries for BASF.

The shale gas revolution will definitely change the landscape, especially in the petrochemical industry. These changes are likely in the C1 – methanol, methane ammonia and C3 methane to methanolpropylene areas. This implies there will be a shift in supply chain, which means there will be products manufactured in USA based on competitive feedstock. Needless to say, there will be a certain impact on India as well which, from today’s perspective, further needs to be quantified.