MORE THAN THE BASICS

Turkey 2013 | INDUSTRY | INTERVIEW

TBY talks to Volker Hammes, Head of BASF Business Center for Turkey, the Middle East, and North Africa, and CEO of BASF Turk, on Turkey as a regional hub, the investment environment, and the company's role in the country.

Volker Hammes
BIOGRAPHY
Prior to his current position, Volker Hammes served as Vice-President of Marketing and Sales for Eastern Europe, Africa, and West Asia. He has been at BASF for 23 years, working in Europe and East Asia in a variety of positions. He has a Master’s in Mechanical Engineering/Plastics from Aachen University.

How would you describe the evolution of BASF's role in Turkey?

Looking from the perspective of how BASF became what it is today in the world, its development in Turkey has not been markedly different. The company was founded in 1865, in a different era when chemicals were being synthesized and when the understanding of chemistry was evolving rapidly. Starting out with dyes in the 19th century, BASF was a major driver at the forefront of chemical companies over the next 65 to 70 years, 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 engaged mainly in global trade. We began trading in Turkey in 1880; it took another 90 years to establish a production site in the country, as 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 capability to enter the value-added and downstream chemicals segment, which forms the second pillar of our strategy. We have completed this with a portfolio strategy that includes an array of investments as well as acquisitions. We recently entered a joint venture with INEOS for Styrolution; at the same time, we have become more involved with care, specialty, and construction chemicals. We have grown closer to our customers; a move we feel is beneficial to us as we also focus more on market-driven R&D. By now, most molecules have already been developed; as such, there is an ever-receding prospect of finding or developing new, game-changing molecules. We must do more with the chemical tools we have at our disposal and combine them effectively. To achieve this, we need to be very familiar with the needs of our customers, both now and in the future. We gather experts from various disciplines and add new value. BASF more than tripled in size in Turkey in the space of the six years between 2005 and 2011, by applying this strategy. The year 2012 was one of consolidation for us, and we are now gearing up for the next period of growth. We apply two very different criteria to our investment decisions. The first is that we should only move closer to the market and customers when we can connect closely to a supply chain, which benefits from low transportation costs, and when we see a large enough market to supply from a new location, or at least within striking distance of one. However, for chemicals producers such as BASF, this involves building a major production site for anything from basic petrochemicals to intermediates. There are about 300 intermediate chemicals that form the basis of 90%-95% of the entire chemicals industry. We have six verbund—or integrated—production sites around the world, which is often highlighted as a strength for BASF. The decisive factors of investment are the availability of feedstock, energy costs, and transport and logistical considerations. If any one of these three factors is not right, the entire investment is then in dire straits, so to speak. In terms of the first factor—feedstock—we would naturally look toward the Middle East for feedstock, or North America, where the shale gas boom is leading to greater availability. The second factor, energy costs, is equally as important because the chemical industry naturally consumes massive 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, by sea, land and air.

How would you assess the potential for a future BASF investment in Turkey?

To undertake a large-scale investment in Turkey rather than elsewhere, we need an attractive investment case. In Turkey, the market itself has already grown to a substantial size and the government has already identified the chemicals industry as a key player in the economy. In addition, neighboring countries also have similar plans, bringing both an advantage and a disadvantage. The advantage is that more chemical operations have come to the market, offering new and complementary products that are not simply copied and pasted. The disadvantage here is when everyone heads in the same direction, especially when there are massive new capacities coming on stream at the same time. Chemical investments are carried out to operate for some 30-50 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 that will be 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. We are currently implementing a new strategy entitled “We Create Chemistry for a Sustainable Future," which was published late in 2011. As part of that strategy, for the first time we have been focusing on emerging markets. Turkey is the single most important emerging market neighboring Europe, from where we also manage the wider MENA region. Considering the entire group of 20 interesting, fast-growing countries, Turkey is the only one that has a combination of a large and growing population, is undertaking efforts to diversify its economy, and has the desire to boost value chains, especially in transportation and automotive assembly. Turkey was a net exporter in the automotive industry in 2012. Tier I, II, and III companies are entering Turkey, and this is a phenomenon we are observing very closely, because they 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 and move beyond a simple product, with prices that are subject to fluctuations even in recent years. Especially for oil prices, it has mainly been moving upward. 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 helps keep our optimism alive. BASF truly believes that its products and solutions, as well as its ability to engage in this dialogue, render it a sound partner for the Turkish automotive sector.

“We are helping the automotive industry think in new ways by providing new solutions."