June 4 (Bloomberg) -- BASF SE plans to invest 10 billion euros ($13 billion) in the Asia-Pacific region as it shifts research and procurement to the world’s fastest growing chemical market to help double profitability there.
The Asia-Pacific division, which saw margins deteriorate to 10 percent last year, has a “good chance” to reach the average profitability of the group, Martin Brudermueller, deputy chief executive officer and head of the region, said today at a press conference in Hong Kong. On a group level, BASF aims to lift margins to 20 percent by the end of the decade from a current 14 percent.
The world’s largest chemical company will hire 9,000 people and double sales to 25 billion euros in Asia-Pacific by 2020. Competition in the region is intensifying and BASF is looking to avoid developments in the agrochemical market, where it fell behind peers expanding in Asia.
“The competitive environment has become sharper and more challenging than we had thought,” Brudermueller said today. “We have to change and accelerate the change. We have to be creative and take out costs.”
One-quarter of research and development will take place in the region in an effort to shift the Ludwigshafen, Germany-based company’s focus to a service provider from a chemical producer and differentiate it more from local competitors, Brudermueller said.
Chinese chemical companies have become more competitive in response to government pressure to raise standards and innovation. That has led to an improvement in both the quality and reliability of local competitors, the deputy CEO said.
BASF plans to raise the percentage of locally-made products to about 75 percent from about 60 percent currently, it said. About 1 billion euros in annual cost savings will come from switching to local resources and technical know-how, the company said. Transport costs will be reduced and plants will be built more quickly, BASF said.
The maker of petrochemicals, plastics and pesticides aims to grow 2 percentage points faster than chemical production in the Asia-Pacific region, which is forecast to increase 6.2 percent a year, it said today.
BASF isn’t currently planning a third Asian Verbund site of integrated production plants, Brudermueller said. The 10 billion euros of investment, of which about 75 percent to 80 percent will probably come from BASF and the rest from partners, will be used to expand the current two existing complexes in Nanjing, China and Kuantan, Malaysia, as well as other projects.
While about half of the money earmarked for expansion will be spent in China, the German company also plans to look at investments in Mongolia, Laos, Myanmar and Cambodia, markets that have been untapped as yet, it said.
To contact the reporter on this story: Sheenagh Matthews in Frankfurt at firstname.lastname@example.org
To contact the editor responsible for this story: Simon Thiel at email@example.com