Just A Word? - The word "megatrend" is a beloved buzzword - but what implications will these trends have on the chemical industry? The Boston Consulting Group's Udo Jung examines value creation in the industry and offers this warning: "Chemicals companies will not differentiate themselves with colorful pictures in their annual reports and glowing accounts of megatrends' assumed automatic benefits for their businesses."

The term "megatrends" refers to fundamental changes with concrete and lasting impact, both on the lives of individuals and on the macro-economic development of entire nations and regions. The list of megatrends is long. Typically, the following are in the foreground:

• Demography and strongly divergent population development in different regions of the world


• The wide divergence in anticipated growth rates among individual regions among the regions of the world, which we describe as a "global two-speed-economy."


• Resource constraints (of energy sources, water, agricultural land, and food), with the resulting necessity of considerably more efficient use of resources


• Continuously increasing mobility combined with simultaneously drastically lower costs of information processing, transmission and documentation


• After the end of the Cold War era, the transition to a multipolar world, including intensified regional conflict and terrorist activities and consequently higher security needs.

The list goes on and could be further elaborated with details. Megatrends will have a serious impact on the world economy and on all sectors of industry, including, of course, the global chemicals industry. Individual megatrends can be translated very concretely into demand for chemicals products or for end products that require specific chemical primary products. For instance, the megatrend resource efficiency leads to concrete demand for chemicals products: e.g. use of weight-reducing high-performance materials (plastics, composites, etc.) in automobile manufacturing, with the goal of reducing fuel consumption (fig. 1).

Therefore, it comes as no surprise that nearly all chemicals companies are emphasizing the connection between global megatrends and their own growth opportunities: Megatrends as drivers of growth.

But the relevant terms and catchwords often seem generic and interchangeable. Why a particular company should profit more from a specific megatrend - as relative to its competitors - often remains unexplained, and it is almost never stated which strategies are relevant to make the most of megatrends for a certain company.

Long-Term Value Creation by Global Chemicals Companies

Which chemical companies, in which regions and segments, have really created value in the past five, 10, or 20 years? What do chemicals companies with long-term successful track records have in common? Do megatrends play a role here? Every year, The Boston Consulting Group analyzes value creation by publicly listed companies on a global basis using total shareholder return (TSR, or the annual change in the price of a share including dividends).

For companies in the high-investment chemicals industry, multi-year comparisons are particularly revealing: Per year, by what percent did the TSR of a company change on average over the last five, 10, or 20 years (fig. 2)?

BASF, for instance, improved its TSR by an average of 17% per year over the last 20 years and is thus among the top quartile of the 83 chemicals companies that have been listed for the last 20 years. Over the last five years, BASF raised its TSR by 17.9% per year on average, putting it in the second quartile of the 131 analyzed companies that have been listed for at least 5 years.

A Look At The Facts

Can any patterns be discerned in long-term value creation by chemicals companies? Figures three and four show the first results of our analysis.
Figure 3 shows average annual value creation for 125 chemicals companies over the last five years, both by region and by the segment of the chemicals industry. The figure also shows the range of annual value creation within the categories.

In many segments, the range is wide: Value creation is determined by specific portfolio momentum, business model and the quality of the company's management. But its regional and segment-specific positioning are also relevant.

In figure 3, regions and segments are displayed by decreasing annual value creation. The first patterns become visible: Asian chemicals companies (except in Japan) achieved higher value creation on average than their American or European counterparts. As far as segments are concerned, the value creation "hit list" is led by fertilizers, basic chemicals (other than in Japan), industrial gases, and agrochemicals.

(Exactly the same four segments are on top in 10-year value creation as in five-year value creation!) Additional insights are derived when the regional and segment views are combined.