Strategy Development in the Chemical Industry in China - From a Western perspective, business strategies should be based on two perspectives: an external and an internal one. Differences - From a Western perspective, business strategies should be based on two perspectives: an external and an internal one. The external perspective covers all aspects of the outside world, while the internal perspective focuses on the specifics of the company developing the strategy. While managers of Chinese chemical companies will very likely agree with this general view, there are substantial differences between multinational companies and Chinese chemical companies in the way this view is turned into reality.

External Perspective: Understanding The Market

Analyzing the market environment is arguably one of the most challenging parts of strategy development for the chemical industry in China. The reasons are manifold:
• Market demands, competitors and customers change much more rapidly in China than in developed markets
• The type of market participants in China is broader than in the West, including multinationals, private domestic companies and state-run entities (SOEs)
• Government policy has a stronger influence than in Western markets. For example, some MNCs have recently considered setting up production in China's western provinces in order to align themselves with government policy of promoting these areas
• Reliable data is still hard to come by in China. Any data available - whether customs statistics or data coming from industry organizations - has to be checked for its consistency and reliability
• There are many unofficial but sometimes extremely useful data sources that may or may not be available, e.g., customer lists of individual chemical companies
• Due to the lack of official data, other sources such as phone interviews, face-to-face interviews, fair visits etc. are more relevant than when examining Western markets

With regard to market analysis, local chemical companies tend to be better placed than MNCs as they often have better access to e.g., local industry organizations, customers etc., and a better inherent understanding of the difficulties of getting reliable information in China.

On the other hand, their data collection process frequently lacks the rigidity that Western companies apply, and thus sometimes fails to uncover gaps between a company's perception of the market and market realities. Correspondingly, Western companies do better concerning the formalization of the analytical process but have a harder time getting difficult-to-access information or evaluating unreliable information.

Internal Perspective: Company-Specific Aspects
Keeping in mind that strategic choices are best derived from a fit between internal capabilities and external opportunities, an analysis of internal strengths and weaknesses is vital to gain competitive advantage. However, in this respect domestic Chinese chemical companies and MNCs operating in China show fundamental differences.
MNCs do indeed include this analysis into their strategy development. For example, LyondellBasell established polypropylene compounding sites in China not only because of the market opportunities, but also because the company has knowledge in making these compounds that is superior to that of domestic companies.
In contrast, Chinese chemical companies spend very little time on the evaluation of their internal capabilities. Among them, there seems to be a strong feeling that if the market environment is right, a business opportunity should be grasped regardless of whether their own company has any specific competitive advantage in this area.

There are several possible reasons for this focus of Chinese companies on external factors rather than internal ones.
• Many companies, particularly SOEs, have a very broad business scope, which encourages a similarly broad-based search for opportunities. For example, Sinochem is not only active in chemicals but also in real estate, logistics, fertilizers, energy and finance. In contrast, a Western specialty chemicals producer such as Altana has only a limited number of focus segments.
• In addition, particularly for private domestic companies, there is limited company history that could serve as a guideline for future strategy.
• However, the key element probably is that Chinese chemical companies rely less on immaterial (and thus hard to gain) internal capital such as intellectual property, strong R&D or the technical knowledge of their employees than MNCs.

There is an obvious consequence to the limited importance Chinese chemical companies place on internal capabilities. The analysis of chemical markets should give comparable results independent of which company conducts the analysis. Therefore if this is the sole factor determining company strategy, Chinese chemical companies should all pursue similar strategies. Indeed, this "strategic crowding" can frequently be observed in the Chinese chemical industry. Often there is a rush towards seemingly appealing areas (past examples include PE, PP, coal chemistry and vanillin) by many companies and the subsequent creation of substantial overcapacity.

Let us now take a look at the outcome of the analysis and the subsequent development and selection of strategic options. What are typical China strategies of chemical MNCs, what is typical about the strategy of Chinese chemical companies?