Chemical companies need a proactive approach to facing uncertainties.
Geopolitical uncertainty is on the rise. Volatile oil and gas prices, shifting alliances in the Middle East, shocks to the European Union (EU) such as Brexit, the expansion of China, the Trump administration in the US, and the rise of nationalism and opposition to free trade ─ all these developments and more are increasing stress levels across the business world. Traditionally, the chemical industry has been more reactive than proactive about dealing with geopolitical disruptions. However, chemical companies would do well to consider appointing a Chief Geopolitical Officer to help them address uncertainties in an increasingly turbulent world.
Uncertainty has always been a fact of life in the global economy. Until recently, developing countries provided much of this uncertainty because of political upheavals and accelerated growth. Now we find increasing geopolitical uncertainty in the West as well. Leaders in developed countries are questioning or attempting to change multinational agreements, treaties, alliances and business relationships, some of which have been in place since the end of World War II. In many ways, the idea of a multilateral, global economic community is being challenged by an alternative view of trade as a zero-sum game with clear winners and losers.
Feedstock prices have created additional uncertainties. The price of crude oil is expected to remain somewhat above US$50 a barrel with no significant price increases in sight. Some analysts predict that prices are likely to experience another dip in 2018 as OPEC production rises. US shale oil production will continue to press crude prices downward, and US natural gas production will favor US chemical companies, increasing their competitiveness in world markets.
Despite operating 'in the background', chemical companies need to consider a more proactive approach in addressing today's geopolitical uncertainties, many of which have the potential of drawing chemical executives and organizations into the center of controversy, government scrutiny and criticism - particularly given the fact the industry is truly `global' in nature and so is exposed to many different geopolitical environments.
We believe the following steps should be taken by chemical companies to help them respond successfully to today's geopolitical uncertainties:
Appoint a Chief Geoolitical Officer (CGO)
The CGO should help develop and maintain a strategy that anticipates current and future geopolitical events and enables the company to react successfully to these events with a minimum of disruption.
Conduct a geopolitical audit
One of the first tasks of the CGO should be to conduct a thorough geopolitical audit, asking questions about business planning assumptions, possible changes to the corporate structure, supply chain visibility and other factors.
Develop specialized sources of geopolitical data
Along with reviewing mainstream and industry news sources on a regular basis, companies should work with consultants who specialize in the kind of geopolitical events that might affect company operations, markets and business relationships.
© 2018 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.