London - European chemical companies need to raise their game and consider options such as partnering with Middle Eastern companies or risk losing out to these Middle Eastern rivals, according to a new KPMG report.
"With an abundant supply of cheap oil and gas reserves, Middle Eastern chemicals companies can access natural resources at greatly discounted prices when compared to their Western neighbours," said Chris Stirling, European head of chemicals at KPMG, in a 15 Dec release.
"The Middle East-based companies have made the most of their natural resource and transformed their business from a supply of raw material to heavyweight, global petrochemicals production. Our research shows that 53 plants could come on-stream by 2012 which, if taken together with investment in Asia, could lead to European players being marginalised on the global market," Stirling added.
The Middle Eastern chemical industry grew at 9 percent a year from 1997 to 2007, and KPMG forecasts average growth in the region at 9.5 percent a year until 2020 - more than twice the global average, the group emphasised.
KMPG said the chemical industry is the EU's third biggest industrial sector, but innovation levels have been falling due to high levels of regulation and it has difficulty attracting sufficient skilled staff. "The European market is also highly fragmented and ripe for consolidation," warns KPMG.
Stirling went on to say: "While the credit crisis has impacted M&A levels in all industries, our research shows that this could act as a catalyst to drive further market consolidation as well-capitalised trade buyers take advantage of the lack of competition from financial investors such as private equity houses. ... Our challenge to the market is to make the most of an historic upper hand in innovation and team up with Middle Eastern companies to access their resource advantages."
Accessible partnerships are possible through joint ventures. Middle Eastern and Western companies have announced collaborations which provide expertise, access to technology and process innovation, without the potential increased complexity that a takeover can bring. "Selecting appropriate partners in the region, establishing symbiotic relationships, and effectively managing the resulting joint ventures will be the key to reaping the rewards now offered by Middle Eastern engagement," said Stirling.