BASF's organizational structure, competitive positioning, and future prospects

¶ … BASF Chemicals

This report provides a review of the relevant and timely literature concerning BASF Chemicals to develop an overview of the company's future prospects. Based on the primary themes that emerged from the review of the literature concerning the company's performance in recent years, an assessment of the effectiveness of its organizational structure and leadership, as well as how BASF's strategy positions the company vs. its competitors. Finally an analysis of the external environment in which BASF Chemicals competes is followed by a summary of the research, important findings and salient recommendations in the conclusion.

Overview of BASF Chemicals

BASF (Badische Anilin- & Soda-Fabrik) (hereinafter alternatively "BASF" or "the company") has been among the largest chemical companies in the world for a long time. Together with Bayer AG, Hoechst, and Agfa, the company formed the foundation of I.G. Farben; I.G. Farben controlled the chemical industry in Germany during the period 1925 through 1945 (Strikwerda 1235). Today, BASF is the largest chemical company in the world, outranking Dow, Bayer AG and DuPont (BASF 1). BASF SE was founded in 1865 and is currently headquartered in Ludwigshafen, Germany (BASF SE 5).

Recent Performance of BASF

The company has experienced an impressive 45.5% increase in its stock price compared to this same period in 2010. A comparison of BASF's stock performance for the past 10 years to date vs. The company's top two competitors, Bayer AG and the Dow Chemical Company, is provided in Figure 1 below.

Fig 1. Stock Performance of BASF vs. Bayer and Dow

Key:

BASF

BASF

BAYRY

Bayer AG

DOW

The Dow Chemical Company

Source: BASF at Yahoo! Finance at http://finance.yahoo.com/q/bc?s=BASFY.PK&t=my&l= on&z=l&q=l&c=BAYRY%2CDow

Assessment of the Effectiveness of BASF's Organizational Structure

The company's vertical organizational structure features more than 150 major manufacturing facilities in its global operations (BASF 1-2). At present, the company has six major business segments as shown in Table 1 below.

Table 1

Organizational Structure of BASF

Business Segment

Description

Chemicals

This business segment offers products in the chemical, electronic, construction, textile, automotive, pharmaceutical and agricultural industries (BASF SE 2). This segment primarily provides basic chemicals, glues, and electronic chemicals for the semiconductor and flat panel display industry; solvents and plasticizers; and starting materials for detergents, plastics, textile fibers, paints, coatings, and pharmaceuticals (BASF SE 2).

Plastics

This business segment offers a range of products, system solutions and services (BASF SE 2), including engineering plastics, polyamides and polyamide intermediates, foams, and specialty plastics; and polyurethanes, such as basic products, systems, and specialties for automotive, construction, and furniture industries, as well as household appliances and sports equipment. (BASF -- the Chemical 1).

Performance Products

This business segment provides products and processes intended to deliver improved performance to its customers (BASF SE 3). The segment offers pigments, resins, dispersions, additives, protective films, adhesive tapes, and resins for water-based printing systems; polymers, surfactants, chelating agents, UV filters, and other specialties; human and animal nutrition products; and binders, functional and process chemicals, and kaolin minerals. This segment also offers antioxidants, pigments, light stabilizers, and specialty additives; water treatment chemicals; superabsorbents; active ingredients, such as caffeine and ibuprofen; excipients and customized synthesized services; and aroma chemicals (BASF -- the Chemical 2).

Functional Solutions

This business segment bundles system solutions and products for customers and industries (BASF SE 3). The segment offers automotive and process catalysts; adsorbents; concrete admixtures and construction systems for the building sector; automotive and industrial coatings; and architectural coatings (BASF -- the Chemical 3)

Agricultural Solutions

This business segment provides fungicides, insecticides, and herbicides (BASF SE 3), as well as seed treatment products for crop protection (BASF SE 4).

Oil & Gas

This business segment competes in the exploration and production of crude oil and natural gas industry throughout Europe, North Africa, South America, Russia, and the Caspian Sea region, as well as in the trade, transport, and storage of natural gas in Europe (BASF SE 4).

Assessment of the Effectiveness of BASF's Leadership

Given the far-flung and diverse nature of the company's operations together with BASF's performance during a period of economic global downturn, it is clear that the company's leadership is doing something right, particularly when compared to its top two competitors at Bayer AG and the Dow Chemical Company. The company's leadership has been effective in managing a vast global network of business segments including its chemicals manufacturing and distribution from a strictly operational standpoint, but it has also been fairly competent in responding to growing calls for accountability for its corporate practices and their effects on the environment. There have been some instances in which less than admirable judgment was used by the company's leadership, at least in hindsight. During the 1980s and 1990s, for example, the company experienced a series of public relations setbacks. This was a period when few consumers knew more about BASF than just the fact that they made recording tape (this misperception lingers on today as well). For example, Higgins reports that during the 1990s, "Comments by institutional investors, financial analysts, investment bankers and articles in the financial press, complemented by market research initiated by the company, suggested that few people had a clear vision of the BASF Group and its widely diversified activities" (109). In those instances when consumers were aware of the company's involvement in the chemical manufacturing and distribution industry, their perception of the company was generally negative. In this regard, Markowitz and Rosner report that, "Between 1984 and 1989, one of the nation's longest management lockouts took place at the BASF chemical plant in Geismar. Geismar, the site of large chemical plants owned by BASF, Shell, and other manufacturers, was long known for its filthy plants and lax environmental controls" (246).

The lockout in Germany was in response, at least in part, to efforts by union activists in the United States to represent BASF employees and involved draconian cuts to worker wages and benefits as well as the potential outsourcing of union jobs (Markowitz & Roser 246). The length lockout drew attention to the company's business practices in the U.S. And anti-pollution activities targeted BASF with a public relations campaign of their own designed to increase public awareness concerning the hazardous nature of the company's operations. Coining the term "Cancer Alley" to describe the conditions in regions of Louisiana affected by BASF's operations, the united labor and environmentalist placed this and other billboards throughout the state to highlight the connection between BASF and the high incidence of cancer in the region (see Figure 2 below) (Markowitz and Roser 248).

Fig. 2. Billboard in Gonzalez, Louisiana: "The Gateway to Cancer Alley?"

Source: Markowitz and Posner at 248

Even today, the company continues to assume a heavy-handed stance against collective bargaining at its plants around the world, and has been forced to engage in public awareness campaigns designed to educate the public about the efforts being taken by the company to ensure their operations are safe and conform to industry guidelines (Markowitz and Posner 248). Moreover, because of its vertical structure, the company has a legitimate point to make in these public awareness campaigns since many of the chemicals it manufactures are used by various internal customers alone the group's various business segments; the prevailing perspective among many consumers around the world concerning chemicals, though, remains negative ("chemicals are bad and that's that"), particularly if they are being manufactured in their neighborhoods (Markowitz and Posner 248). From a strictly pragmatic perspective, though, the adage "it's a dirty business but someone has to do it" has been especially applicable to BASF, and company's leadership has done a laudable job in responding to these charges by taking steps to clean up its operations and by focusing its assets on the company's core competencies. As a result, BASF's chemicals segment has emerged as its main driver of profitability as discussed further below.

External Environment

Notwithstanding the potential positive outcomes that could be realized through the company's full range of business segments, it is clear that its chemicals segment will continue to drive the company's success in the future -- if the company's leadership can continue to focus on what the company does best and improve the company's image in Europe and North America. The economic potential of the chemicals industry in the near future is bright, as can be discerned from increasing trade figures between the European Union and the United States in recent years (Dando 33). As this authority emphasizes, "Clearly, the chemical industry is crucial to the well-being of modern industrial societies. Moreover, the worldwide demand for chemicals grew from a level of $1,500 billion in 1996 to $2,400 billion in 2010" (Dando 33). Moreover, innovations in biotechnology are expected to provide more cost effective methods of manufacturing chemicals in the near future as well as the use of combinatorial chemistry and computer modeling to produce new types of chemicals that can eliminate the disadvantages and improve the respective strengths of different chemicals (Dando 33). In this regard, Dando suggests that the pharmaceutical sector will likely experience phenomenal growth in the developed world as populations continue to age and the need for pharmacological interventions increases. In sum, this analyst concludes that, "Obviously, the opportunities provided by the biotechnology revolution are producing a massive restructuring in this industry as it inclines more towards the life sciences and away from traditional chemistry" (33). Therefore, to the extent that BASF identifies these trends and focuses its research and development efforts on "the next big thing" will likely be the extent to which the company continues to model the way for others.