The de-regulation of China's domestic chemicals market has allowed entry to international companies for the first time. Having already seen the successful start-up of the CSPCL joint venture in Nanhai, Shell continues to lay strategic foundations in the world's fastest growing chemical market.
The Shell Group is one of a number of international organisations granted an extension to its business licence enabling it to import, export, buy and sell chemicals in local Chinese renminbi (RMB) currency. Shell China Ltd has established the local sales, marketing, logistics, governance and customer service operations necessary to undertake commercial transactions.
Valuable experience
However, while the business potential is attractive, there are still significant barriers for those entering the domestic market for the first time. "China is a very different and challenging market,” says Stephen Kinder, Shell Chemicals Strategy Manager.
“We have valuable experience from our involvement in Nanhai and are one of the larger players in the re-export market, with over $500 million of annual sales. But operating in the local currency, through local business practices, and with rapidly changing legislation, is still new territory.
“International companies in China operate without many of the business processes, systems and safeguards they are used to in other parts of the world. Understanding how the domestic market works requires a pragmatic approach to marketing and trading activities."
Local knowledge
A key part of that approach has been building a locally recruited team. Franklin Zhang, Commercial Operations Manager, has extensive experience of the market and its business practices.
"When you sell any chemicals products in China you're effectively in a spot pricing market, even though there are increasing numbers of annual supply contracts,” he says. “Transactions are generally on cash before delivery terms, lead times are short, and competition is tough. Customers demand just-in-time deliveries and you have to be able to react quickly.
"Once you move into the RMB market you are also trading under Chinese law so you have to ensure that you understand and implement appropriate governance."
China's unique challenges:
- spot nature of pricing
- short lead times and cash before delivery terms
- evolving regulatory environment
Zhang says being able to offer local currency sales is key to developing Shell’s presence in the market. "If you only sell in dollars, you may be perceived as an outsider. Trading in local currency means you are viewed differently and as a result you get closer to the customers."
The first transactions completed by Shell China Ltd involved truck deliveries of polyols but the business has expanded to include bulk ship sales of MEG (monoethylene glycol). Further expansion is expected to include a wider range of chemicals products, a broader network of domestic supply sources and contracting of storage facilities and logistics services.
HSSE compliance
HSSE compliance is another significant challenge in a market where standards, infrastructure and training are not yet firmly established. But Zhang believes this is an area where international companies could have a significant impact. “Customers in China are becoming more sophisticated in their approach to governance and product stewardship, and so are increasingly looking for suppliers that know how to make, handle and transport products responsibly.”
This feature was added to the Innovations section in December 2007
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