TBY talks to Volker Hammes, Head of BASF Business Center Turkey, Middle East & North Africa and CEO of BASF Türk, on Turkey as a regional headquarters, the investment environment, and the company’s role in the country.
THE BUSINESS YEAR How would you describe the evolution of BASF’s role in Turkey?
VOLKER HAMMES From the perspective of how BASF evolved to become what it is today, Turkey is not very different. We started out with dyes in the 19th century—the company was founded in 1865. That was the age of chemistry, the era in which chemicals were being synthesized and chemistry was being understood. Over the next 65 to 70 years, BASF was a major driver at the forefront of chemical companies developing the basics of its industry. At that time, the goal was to build large chemical complexes and export products to the rest of the world. For a long time, BASF was a German company with more global traits. We began trading in Turkey in 1880. It took another 90 years to establish a production site on the ground in the country, which was part of a general move to shift production closer to target markets as logistics became a more important factor in our business. Today, we have expanded through organic growth and acquisitions in Turkey, and our strength is our adaptability to move into value-added and downstream chemicals as a second pillar of our strategy. We have completed this with a portfolio strategy that includes a lot of divestments and acquisitions. Recently, we signed a joint-venture contract for Styrolution with INEOS. At the same time, we have become more involved with care, specialty, and construction chemicals. We have come closer to our customers, and we feel it is beneficial for us as we also focus more on market-driven R&D. Most molecules have already been developed, and to find or develop new, game-changing molecules is not very likely. We have to do more with the existing toolbox of chemistry and combine it in a smart way. For this, we need to be very familiar with what is needed by our customers, today and the day after. We gather together experts from various disciplines to add new value. BASF has grown more than three fold in the last six years in Turkey, from 2005-2011, by applying this strategy. The year 2012 was one of consolidation for us, and we are now preparing for the next growth period. The key criteria we use to invest in a market are two considerably different investment requirements. One is that we move closer to the market and customer only when we can connect closely into a supply chain, which benefits from low transportation costs, and see a large enough market to supply from a new location, or within “striking distance.” However, for chemical producers such as BASF, this involves building a major production site for anything from basic petrochemicals to intermediates. There are about 300 intermediate chemicals, out of which 90%-95% of the entire chemical industry is built. We have six verbund—or integrated—production sites around the world, which is often highlighted as a strength of BASF. The decisive factors of investment are availability of feedstock, energy costs, and transport and logistical considerations. If one of the three is not right, the entire investment is in dire straits, so to speak. In terms of the first factor, we would naturally look toward the Middle East for feedstock or North America, where shale gas is becoming available. The second factor, energy costs, is equally as important because the chemical industry naturally consumes huge amounts of energy. The third factor is logistics and the supply chain, and Turkey, with its fantastic geostrategic location, has access to Africa, Central Asia, the Arabian Peninsula, and Europe all by water, land, or air.
How would you assess the potential for a future BASF investment in Turkey?
For making a large investment in Turkey rather than elsewhere we need an attractive business case. In Turkey, the market itself had grown to a decent size already, and the chemical industry had already been identified as a key part of the economy by the government. In addition, neighboring countries also had the same kind of plans, which is good and bad. The good is that more chemical operations were coming to the market, offering new and complementary products that aren’t simply copied and pasted. However, the bad is that when everyone heads in the same direction, especially if there are huge new capacities coming on stream at the same time. Chemical investments are carried out to operate for some 30 to 50 years. Therefore, we need to be absolutely sure that we have favorable conditions where we invest, not just for the investment period, but also for the period affected by variable cost drivers such as feedstock, energy, and transportation.
What is the significance of the Turkish market for BASF?
Turkey’s significance is constantly growing. Currently, we are implementing a new strategy entitled “Creating Chemistry for a Sustainable Future,” which was published in late 2011. As part of that strategy, we are focusing for the first time on emerging markets. Turkey is the single most important emerging market neighboring Europe, from where we also manage the wider MENA region. Considering this entire group of 20 interesting, fast-growing countries, Turkey is the only one that has the combination of a huge and growing population, efforts to diversify its economy, and the desire to boost value chains, especially in transportation and automotive assembly. In 2012, Turkey was a net exporter in the automotive industry. Tier 1, 2, and 3 companies are entering Turkey, and this is a phenomenon we are observing very closely because these are our customers. The automotive industry represents 10%-15% of BASF’s sales, and we are sometimes asked why we expose ourselves to such a competitive industry demanding the lowest prices all the time. We can only satisfy customers when we constantly improve, innovate, and offer new solutions, beyond a simple product with prices that are fluctuating up and down with oil prices and, in recent years, only up. Chemistry is an important enabler for the automotive industry. We are helping the automotive industry think in new ways by providing new solutions, and this keeps our organism alive. BASF truly believes that its products and solutions, as well as its ability to engage in this dialogue, make it a very good partner for the Turkish automotive sector.
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