The Macro Perspective On Basf Chemical Company Commerce Essay

To start, here is the macro perspective on BASF Chemical Company. BASF is one of the leading chemical companies in the world, like this BASF is influenced by many political and economical factors. Different laws and regulations determine the production of the company. Moreover, the technological factor has hardly influence in this area of chemical production, where the innovations are leading force. In addition, the main mission of the company is to create chemistry for the sustainable future. Consequently, BASF Company has a lot of strategic methods to achieve its goals.

This report has some objectives. To start, one of the main objectives of the report is to analyze BASF Company. To show the strengths and opportunities of the company`s future development. On the other hand, this report presents the weaknesses and threats of the company, for which it gives advice to make BASF more successful. In other words, this report aims to gives advice to BASF Company how to improve its internal and external situation.

The following information was collected for this report. For collecting of information were used two main research methodologies. First, secondary research was done on micro and macro environment of BASF Company, for which the main source was used internet. Second, the primary research was done by conducting an interview with Mrs. Sengel, who is member of Executive Board of the company.

The report has the fallowing structure. In chapter two, BASF Company and its product line are shown. In chapter three, the project`s description and aim are explained. Chapter four of the report is the Theoretical Framework of the report, in which the McKinsey`s seven S model, PEST analysis and SWOT analysis are theoretically described. In chapter five and six, PEST analysis and McKinsey`s seven S model are attached to collected information. PEST analysis is used to analyze BASF`s eternal environment, while the McKinsey`s model is used to analyze BASF`s internal organization. In chapter seven, is shown SWOT analysis based on the collected information. In chapter eight the conclusions based on the analyses are drawn. In chapter nine, recommendations for company improvement are given. In chapter ten, this report is critically appraised.

2. Company description

2.1 General Company Information

Here is general information about BASF Company. BASF is the leading chemical company, which chemicals are used in almost all industries. The production of the company is separate in six different segments: Chemicals, Plastics, Performance Products, Functional Solution, Agricultural Solution and Oil & Gas. BASF like an International company has 70 global and regional business units around the world. The department in Germany is thoroughly oriented in produce of Performance Products. BASF combine economic success, social responsibility and environment protection. The main mission of the company is to create chemistry for a sustainable future. BASF’s 111, 141 employees, located all over the world, help the company to achieve its goals. BASF is market oriented in four main areas: Europe, North America, South America and Asia. In 2011, the most sales are made in Europe and company`s annual turnover amounted to 73, 5 billion Euros.

2.2 Product Description

Germany`s department of BSAF has a broad range of products. The main segment is called Performance Products, which includes the fallowing product lines: Dispersions and Pigments, Care Chemicals, Nutrition and Health, Paper Chemicals and Performance Chemicals. The product portfolio of the company in this segment includes vitamins and foods additives, ingredients for pharmaceuticals and for hygiene, home and personal care items. Examples are products for hair care, sun and decorative care, body care, facial and oral care. The company does not offer products to the final client. BASF develop and sale molecules, catalysts and ingredients to the other companies which use this things for manufactures of products for final client. These things are not end- product; they are intermediate products which go to other steps of the production process.

3. Project description

This chapter will give project description. The chapter will be separate in tree sub chapters, which will describe project description, project aim and research approach.

3.1 Project description

This sub chapter will show the project description. To start, BASF is one of the leading chemical companies on the world market. In this market there is a big competition. Firstly, the future opportunity for the company is to create new products. Secondly, to find new market`s possibilities. Thirdly, one of the most important things in this branch is innovation. On the whole, to achieve its goals, BASF have to understand its own strengths and weaknesses.

3.2. Project aim

The purpose of this sub chapter is to explain the project aim. For this project was collected information about external and internal environment of BASF Company. The aim of this project is to understand the company`s situation based on McKinsey 7S analysis, PEST and SWOT analysis and based on it to give recommendations about BASF`s future development. Furthermore, to show BASF`s strengths, weaknesses, opportunities and threats. In other words, these are most important factors which describe present situation and future possibilities for one organization.

3.3 Research approach

To start, for analysis of BASF Company`s present situation are used two research methods. First, the primary research was done by conducting an interview with Mrs. Sengel, who is member of Executive Board of the company. This information is used for internal analysis of the company. Second, the external environment is analyzed by secondary research method. This includes McKinsey 7S analysis and PEST analysis. Thirdly, the strengths, weaknesses, opportunities and threats are described with use of SWOT analysis. In conclusion, all of collected information is used to give recommendations of the company, about its future development.

*The world can be seen in the Glossary

4. Theoretical framework

The purpose of chapter four is to show the theoretical framework of internal and external analysis. Hence, the real company’s situation will be shown. First, in sub-chapter 4.1 will be shown the internal analysis- McKinsey 7S model. The model include seven elements, which are separated in so called hard S`s – Strategy, Structure and Systems and four so called soft S`s – Shared Values, Skills, Staff and Style. Second, in 4.2 will be discusse the external PEST analysis. In other words, Political, Economic, Socio-cultural and Technological factors that influence the company will be include. Finally, in 4.3 SWOT- overview of the company will be given.

4.1 Internal analysis

Figure 1: McKinsey 7S model

7S.gif

Source: 7S strategy software

In this paragraph will be shown the so called hard S`s of McKinsey 7S model. Firstly, Strategy describes actions and plans of an organization to achieve specific goals. The external environment influences the company and its strategy. Thus the enterprise prepares to adapt on changes and to determine the right place among customer and competitors. Secondly, Structure describes the hierarchy of the company. It shows the relationships between the people which work in the organization. It can be seen on the organization chart. It always depends from the business strategy, form the business internationalization, size and diversity. The third “S” from so called hard S’s is Systems. Systems are all procedures which company uses to operate every day. This includes internal and external procedures. Systems are directly related to the Structure and Strategy of the company, because they describe the main practices of the organization to achieve its goals (Cuypers 2010, 3-9).

The soft “S” from McKinsey 7S model, which will be given in this paragraph includes – Shared Values, Skills, Staff and Style. Peters and Waterman’s (1984) argued that shared Values in 7S analysis determine the core guiding principles of the company. Moreover, it refers to what an organization stands for and believes in. Understanding the Shared Values of the company is the easiest way to find the main ideas and goals of the enterprise. To achieve these goals helps Skills. Skills are the unique abilities of the company. Skills describe the capacity and quality of the company in contrast with the competitors. It refers to the learned capability of staff within the company. Very important here is quality of the products and services within the organization. These things are related with the Staff and Style of the company. Staff refers to the number and type of people employed by the company. However, staff describes the processes used to manage the careers of employees. It is related to the Style, because it is directly dependent on the human resource’s system that manage the way staff is encourage, reward and motivate. Style is the work culture. It is describe the main way in which senior managers run the organization. It is related to the system that influences the procedures in the company. The most important things that style describes are how managers allocated their time, beliefs and their leadership skills. The main factors are the size and the structure of the organization which determines how different departments inside of the company are managed (Spencer, 2011).

4.2 External analysis

In the first place, every organization depends on the political factors. Political factors include government regulations and legal issues. The political factors define the structure of the company and the rules under which the company must operated. It depends on the structure, because in the different countries the trade restrictions, tariffs, tax policy and employment laws are not the same (Oxford University Press, 2004).

The second factor which directly influences every kind of company or organisation is the economic factor. The economic environment consist different factors, for example income and income distribution, current and project economic growth, inflation and interest rate. This environment can offer to the company both opportunities and threats. Understanding of economic environment determined the company development (Oxford University Press, 2004).

Thirdly, the company is influenced by social factors. This lifestyle trends and demographic changes determined the consumer behavior. The main purpose of every company is to understand which exactly are the consumer’s wants and needs. If social-cultural changes are clear, it is easier for the company to developing strategies and practices to achieve its goals (Oxford University Press, 2004).

Finally, in these days, one of most important factors which influence the company is technological environment. This is the most dramatic and the fastest development factor. These are forces that create new technologies, products and market opportunities. In the world of technology, the company has to be open and prepare for new opportunities (Oxford University Press, 2004).

4.3 SWOT

According to Berry, the SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situations in business and organizations. SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats (Berry, 2012).

Strengths are internal capabilities that may help the company to reach its objectives; in contrast weaknesses may interfere for that. This includes understanding of the internal environment or the situation inside of the company or organisation. The factors which determined the straightness and weaknesses of the company are tend to be in the present. Factors are relating to products, pricing, quality, staff and processes within the company. With understanding of these factors the company may understand the unique selling proposition and how to improve it (Berry, 2012).

Opportunities and threats are related with the external environment which shows the situation outside of the company or organisation. Here, the factors tend have to be in future. Factors here are relating with markets opportunities – fashions, trends, seasonability, politics, society, competitors and every other external factor which influence the company. With understanding of opportunities company is able to exploit the external factors to its advantage. Threats are negative factors that may challenge the company`s performance (Berry, 2012).

5. External analysis

This chapter explains the external environment analysis – PEST. The chapter is divided into four sub charters. Firstly, sub chapter 5.1 will give the Political factors, which influence the BASF Company. Secondly, 5.2 illustrate Economic factors. Thirdly, 5.3 show Social factors. Finally, sub chapter 5.4 analyzes Technological factors which influence the company.

5.1 Political factors

There are some political factors, which influence BASF Chemical Company. One of these factors is a common initiative for a sustainable chemicals industry has launched by European Union in 2005 year. This factor has a positive effect on BASF, because the mission of the company is to create chemicals for sustainable future. This political factor gives opportunity to the company to make more innovations with collaboration on European Union. The negative political factor for the company is unfavorable political environment. In European Union there are different laws and regulations about Genno- modified products and some molecule products. For these reason USA is more favorable market for these kinds of products (Thomas, 2005).

5.2 Economical factors

One of the results from present credit crisis is reduced consumption of customers. This is strong factor, which influence BASF Company. It makes the future more unstable and precariously. Only the best companies with the best products could keep their market`s place. The second economic factor which influences BASF is increasing energy prices. It is negative because it could damage chemicals industry competitiveness further. On the other hand, there is increasing competition from new economic powers, such as China. To avoid these negative factors, BASF Company could orientate to different markets, such as Africa and Middle East (Thomas, 2005).

5.3 Social factors

In chemical`s industry is very complicated to find new well educated faces. The reason is the fact that young people choose other careers in different branch. Young talents in chemical`s branch, which are well educated require very high remuneration and good working conditions. BASF Company is working to improve matters. Flexible working time is one of decisions of the problem. On this way could be attached qualified labour (Thomas, 2005).

5.4 Technological factors

For BASF Company the technological innovations are very important. The main reason is that technological innovations gives opportunity to the company to make products better, and to add new products in company`s portfolio. The company is focus of solutions for sustainable future, and definitely innovations are the key point for it. At all, the global technology platforms act as partners in product development (Thomas, 2005).

6. Internal analysis

6.1 McKinsey seven S framework

To start, for BASF like as world`s leading chemistry company is very important to strengthen its position on the market. To achieve this goal, company has to focus their business on customer`s needs and demands. In chemistry market, and for company, which do not produce product for the final consumer is required to focus on innovation, to create new products and functionalized materials, and to find new solutions for more sustainable future. These things are very important too, for the other aim of the company, which is to increase year`s profit with average four percent per year, and to grow two percentage points faster than global chemical production (Interview, Appendix 1) (BASF, 2012).

The structure of BASF Company is a Matrix structure. The Matrix organizational structure divides authority both by functional area and project area. In BASF there is Board of Executive Directors which consist eight members. They are responsible for the management of the company. The Board of Executive Directors regularly reports to The Supervisory Board. Supervisory Board consist 12 members, six shareholders representative elected by the Annual meeting and six members appointed by the representative body of the employees. Every country and every different department in BASF Company has a chief, who are supervise from the Chairman of the management board – Kurt Bock (Interview, Appendix 1) (BASF, 2012).

The company systems are very important for the business and for good done work. BASF has an own marketing department in every country where the company is located. In addition, they have supporting marketing agency outside the company, which helps them to develop the motives and the way BASF wants to present itself to the customers. Like a chemicals company, BASF use only trait media for advertising – home personal care magazines or euro- cosmetic magazine, which are special magazines for cosmetic market. To exist and to be successful a big company like BASF is necessary to have fixed rules and good communication between different departments. Primary method within the company to discuss the problems and development in the market are manager`s meetings. The complicated structure of the company determined the need from daily meetings of the leader figures in the organization, much that the other companies (Interview, Appendix 1) (BASF, 2012).

One of BASF`s goals is to make rules and system more common in the different countries. The leader style in the company allows to employees to share their ideas about innovations. Every idea on issue placed by some of employees is consider, but the main decision is always taken by The Supervisory Board. In the same time, the management style is people oriented, one of the most important things for the company is to understand consumer needs, and to create values for them (Interview, Appendix 1) (BASF, 2012).

BASF is company with almost 200 000 employees. Every day in Germany for BASF works 54 000 employees. They work in different departments but the responsibility for their work is taken by managers of every department. There are a lot of frameworks and guides which are coming from the central department, and which are common for every employee. The employees have to respect the rules and framework given by the main department. Rewards and warnings in the company depend from Human Resource Department. There is not something special within the company, they fallow the legal system. Every employee has a set of target which is called “employee dialogue”. This makes management style in the company open for ideas from employees. “Employee dialogue” gives opportunity to employees to talk about the goals which they are achieving in the year and to share new ideas. The incentive system in the company is connected with reward as money bonuses for well done job (Interview, Appendix 1) (BASF, 2012).

BASF Company, as company which do not produce product for the final customers, it is very important to makes products better, healthier and safer than competitors. The reason is that the end consumer never seen and could not understand that BASF Company is better than competitors, and cannot contrast them. The most important thing for the company are innovations, this is the only way that company can be unique and distinctive from competitors. The Company spending a lot of money every year to make research, which helps to find new opportunities for development. In the same time, the company makes everything possible to have products which are already developed and to make them successful on the market. The main question for BASF is to understand better than competitors what are exactly consumer`s needs and to be ready to satisfy these needs on time (Interview, Appendix 1) (BASF, 2012).

The core value of BASF is to create chemistry for sustainable future. To achieve its goals BASF tries to be a company with innovative products, intelligent solution of problems and good service departments. The company strives to be the world most widespread supplier in the chemical industry and to generate high return of its assets. It wants to reach these intentions without harming the environment and nature (Interview, Appendix 1) (BASF, 2012).

6.2 Interconnection of the seven S

To start, for BASF like as world`s leading chemistry company is very important to strengthen its position on the market. For achieve its goal for the Company is necessary to make its products better than competition and to has high quality of its services. For this helps The Matrix organisational structure and the management style of BASF, which is people oriented – oriented to understand customer’s needs. The company is focus on innovations and every decision for a new idea is taken by The Supervisory Board. For the company`s success is important to have good communication between the different departments and to have fixed rules. In BASF this is achieve with regular meetings of The Board of Executive Directors.

The company strives to be the world most widespread supplier in the chemical industry and to generate high return of its assets. For these goals, company has to employ highly qualified staff. Moreover, the leader system of the company is focuses to encourage the employees to share their new ideas. For this, the company use so called “Employee dialogue”. On the other hand, the company has to invest in researches. The R&D department is responsible to find new market opportunities for BASF.

The main mission of BASF is to create chemicals for sustainable future. For this goal helps the good organisation structure, cooperation between departments. On the other hand, very important are employees and the way they are managed. Very important are innovations and the style of the company. All of these things determined the current situation of the company and its future position and development of the market.

7. SWOT overview

First, BASF Company is one of the leading chemicals company in the world. This factor gives chance to the company, to manage the big part of the market and to have hard influence on smaller chemicals companies. Moreover, as so international and big company BASF has a lot of production sides around the world. One of the company`s strengths are production sides, so called Verbund sides. These sides have really good conglomerates of the production. This conglomeration allows, every kind of product produced within the company, to be used in the most efficient way. Different materials produced in one department of the company, can be used in another one, which means that the BASF Company produce raw materials which use in its own production. Besides, this allows to the company, to produce a lot of different materials and products, to make innovations in this sector and to create more value for the customers than competitors (YouSigma 2011).

Second, BASF Company has a huge profit in the last year. Nevertheless, in the last few years is observed declining earnings in several business segments, which is one of the company`s weakness. There are several reasons about this fact. The firs reason, is one of the company threats, is the Economic slowdown in the European Union Region, which is due of the present credit crisis. The credit crisis in these days covers and influence, both small and in the same way huge companies like BASF. The other reason is that people in European Union have possibility to choose between hundred different products. Here the competition is really strong and the market in Europe is developed till maximum. One of company opportunities is to rising commodity chemicals market in regions like Africa, Asia Pacific and Middle East. These are the growth regions of the future, for almost every kind of industry, because the growth rate of profit in future in European countries would not be so high. The other opportunity for the company is always to develop new products and new ideas (YouSigma 2011).

Figure 2: SWOT analysis table

Location of factor

Favorable

Unfavorable

Internal

Strengths

Leading chemical company

Concept of Verbund

Variety of products

Weaknesses

Decrease earning in some countries

Less expenditure for R&D

External

Opportunities

Product innovations

Expand the business in Africa, Asia and Middle East

Threats

Laws and regulations

Economic slowdown in European Union

8. Conclusion

BASF is international company, which is leader in chemical market. The company production is separated in six different departments and its market is oriented in four main regions. The department of the company which is located in Germany is oriented primly in production of Performance products – products for personal care. Moreover, the main mission of the company is to keep its position on the market and to create products for sustainable future. For understanding the present situation of the company was collected information, based on it was made analysis for internal and external environment of the BASF Company.

In this report, BASF Company was analyzed. For this analysis were used McKinsey 7 S model for internal environment of the company. The weaknesses, strengths, opportunities and threats were analyzed based on SWOT analysis of BASF. Based on these analyses it was found that the company has well conducted Matrix Structure and good working management style. Nevertheless, global company like BASF is difficult to manage and demand strict rules and frameworks for the employees. On the other hand, the company produces intermediates, which are used from other manufacture companies to produce final products. For these reason, the final customer is not always informed for the quality of BASF`s products. This is the main fact, that one of the most important things for the company is innovations. Certainly, the innovations and development are the company`s main mission. For this mission helps quality R & D and marketing department. The conglomeration of the different departments is one of company`s strength.

For understanding of BASF`s external environment was used PEST analysis. It was found that, there are different political, economical, social-cultural and technological factors which influence the company. One of negative factors is different laws and regulations, which limited the production of Genno- modified products and some molecule products in European Union. In the same way, negatives factors which influence the company are increasing price of the electricity in these days, and increasing competition from countries such China. But at the same time, the European Union gives opportunity for innovations, which is positive political factor for the company. In conclusion, the company is focus to produce products and to find solutions for sustainable future. Understanding of internal and external environment is the main factor for achieve its goal.

9. Recommendation

In this report BASF Chemical Company was analyzed. Based on these analysis was determine the opportunities, threats, strength and weaknesses of the company. Moreover, the internal and external environment of the company was analyzed. Based on this information, this report gives recommendations of BASF how to take advantage of its opportunities.

Firstly, BASF Company can be better than competition if it makes more innovations. This is possible with collaboration of R&D and marketing department. The company has to be open for new ideas and to search for people who are useful for it. Moreover, the opportunity for the company is to rising commodity chemicals market in regions like Africa, Asia Pacific and Middle East. On this way, BASF will continue to develop the business and to retain its position on the market.

Secondly, one of BASF`s mission is to make its management systems more common for every company`s department in the world. For this mission the company has to create more strictly rules and frameworks, which a common for every employee. Furthermore, BASF have to keep the good communication within departments.

Finally, BASF Company have to invest more in research about customer`s needs. This is the best way to strengthen its position on the market. The most important thing for one company is to know exactly customer’s demands and to make everything possible to create products better than competitors.

10. Critical appraisal

Firstly, the information collected for the external environment of the company – PEST analysis, was very less. There were not interview questions about PEST analysis. For this reason, was very difficult to determine the current external environment of the company and factors which influenced it.

Secondly, BASF Company is huge company for which is easy to find a lot of information. It is difficult to determine which of the information is really important. Moreover, the time for writing the report was limited and the interview was conducted late. It is very difficult with so much information to find the right source. To close, it is necessary to be more prepare with the information for this kind of report.