Resilience of Chemical Companies: How to Prepare for the Next Recession

The recession has cost them – and chemical companies are no exception. Here’s what flex has done to surpass its peers.

The global economic outlook is clearly becoming more volatile. While no one knows for sure when the next recession will happen, such events tend to be cyclical.

Chemical products are usually called the industry of industry, because its products involve almost all walks of life. This means that chemical companies will be seriously affected by the economic slowdown. We analyzed the path of 264 largest listed chemical companies in the world and found that about 20% of these companies performed significantly better than other companies during the last recession. We call these companies “resilient” – industry leaders who can withstand conditions that weaken their competitors. For a broader study of flexible organizations, please see “bubble burst and slump”. )

Generally speaking, resilient companies will take action in areas where competitors do not take action. As part of our study, we compared the total shareholder return performance of resilient chemicals companies with the median of S & P 500 index companies and inelastic companies from 2007 to 2018 (table). These resilient enterprises not only perform better during the economic downturn and recovery, but also maintain this advantage and perform better than their peers in the growth stage.

Resilient companies stand out by taking five actions:

Prepare balance sheet in advance. Before and during the recession, resilience reduces leverage and takes advantage of increased investment space during the recovery.

Pay attention to economic profits even in a downturn.

Cut costs quickly and control them. In the economic downturn, flexible enterprises are prepared earlier, take actions faster to reduce costs, and can maintain low costs during the economic recovery.

Actively and decisively carry out restructuring. In the economic downturn, flexible enterprises make faster and more influential restructuring decisions to help them adapt to the new economic situation.

Divest during the downturn and then buy at a slower pace early in the recovery. In a recovery period when prices are below peak, flex funds have increased their acquisition activity.

Increased resilience to recession is not necessarily the end of the world scenario. Instead, it should be seen as a pre emptive effort to raise leaders’ awareness of the benefits that the organization can get. The actions taken by elastics need to be consistent, focused and strictly enforced throughout the organization.

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