Borouge, Abu Dhabi's polymers company, hopes to set up a sales office in Western China to cater to manufacturers lured there by cheap labour.
Borouge aiming to set up shop with China sales office
Borouge, the polymers maker majority owned by the Abu Dhabi Government, hopes to follow Chinese factories westward as manufacturers seek lower-cost labour.
A manufacturer of the raw material for car parts and food packaging, Borouge is evaluating the merits of setting up a sales office in western China within the next two years. Development there is speeding up thanks to China's latest wide-reaching economic five-year plan and the search for cheap labour outside the booming cities of the coast.
"Labour is becoming expensive. We see that there is a move from industry from the coastal lines down to middle China, western China," said Wim Roels, the chief executive of Borouge's marketing company, which has its headquarters in Singapore. "We want to move, we want to go with our customers to be part of it."
A population boom in the West would spur demand for water pipes, electricity cables, bottled water, cars and refrigerators - all goods that depend upon petrochemicals. Demand growth will be vital for Borouge as it brings a US$6.3 billion (Dh23.14bn) expansion with an extra 2.5 million tonnes of production to the market over the next two years.
The migration westward follows Borouge's first steps into China in 2008, when it had a representative office with a handful of staff. Last year it opened a $70 million compounding plant in Shanghai to prepare the polypropylene made in Abu Dhabi for use by car part factories in China, and planning is in progress for a compounding plant in Guangzhou and a warehouse in Tianjin, northern China.
Borouge is also planning a warehouse in south-east India, home to the automotive manufacturing hub of Chennai.
In its technology development and sales model, Borouge has often borrowed from its minority stakeholder Borealis (Abu Dhabi National Oil Company owns the majority). Borealis, the Austrian petrochemical maker that is itself 64 per cent owned by the emirate's International Petroleum Investment Company, supplies materials used in Volvo and Volkswagen cars.
Mr Roels was confident that amid more modest economic growth, demand would simply shift from big-ticket items such as cars that depend on consumer sentiment to staples such as food packaging, rather than decline altogether. He declined to say if Borouge planned to adjust its production output to account for slower growth.
"Polyolefins grow based on GDP. GDP growth in Asia, in the Middle East is still healthy," Mr Roels said. "Yes, maybe China is not growing double digits, but it's still growing 7, 8 per cent, which is still a fantastic growth."
Urbanisation, including areas such as western China, will also help to create new customers, he said. By 2008 more than half the world's population lived in towns or cities, and that number is expected to reach 5 billion by 2030, according to the UN Population Fund.
"People in cities have a very different requirement than people in the countryside," Mr Roels said. "If you live in a city you need power. If you live in a city you need gas distribution, water distribution, sewage systems, transportation. Feeding a city with 20 million people is quite a challenge and the food is not growing in the backyard. It's growing somewhere far away in the rural area of the country, so to be able to get the food to the people in the city, you need some form of packaging."