‘MADE IN CHINA’ LABEL FOR FACILITIES

Asian suppliers of plant parts and engineering areINCREASINGLY COMPETITIVE on cost, schedule, and quality.

MANAGERS AT BASF have come up with another way to take advantage of their firm’s deepening roots in Asia. The German chemical giant is establishing a new group staffed with hundreds of people who are tasked with procuring chemical plant parts and engineering services from Asian suppliers. The unit has already arranged the shipping of Asian plant parts to BASF manufacturing sites worldwide.

“We even ship equipment to Ludwigshafen; incredible, isn’t it?” observes Klaus Welsch, BASF’s Shanghai-based senior vice president for engineering and maintenance in Asia-Pacific. Germany is a major exporter of heavy equipment and BASF’s traditional source for most of its plant parts, especially for its German sites. Ludwigshafen, about 50 miles south of Frankfurt, is the location of BASF’s headquarters and its largest manufacturing base worldwide. “Asia has become very competitive for plant equipment,” Welsch notes.

One of the side effects of the fast growth of the chemical industry in Asia, and China in particular, is an improvement in local expertise in building chemical plants and manufacturing plant parts. Increasingly, chemical companies and engineering contractors worldwide are turning to China and neighboring Asian countries as sources of parts and engineering services.

WisonEngineering , a Shanghai-based contractor that builds chemical plants and refineries, is using its home base as a calling card for international expansion. “Our ability to competently source plant parts from Chinese suppliers is an obvious advantage for us when bidding on international tenders,” says Dechang Yang, general manager of procurement at Wison.

Wison has already built in Nanjing a synthesis gas plant, now operated by a Wisonaffiliate, that supplies an adjacent Celanese acetyl chemicals facility. And it will expand its syngas relationship with Celanese as the U.S. company moves into the ethanol business in China.

Although China offers low prices, sourcing plant parts and engineering services from the country does not simply translate into a lower construction bill for the buyer, Yang stresses. In fact, he says, Wison is not necessarily a lower bidder than its foreign competitors.

“Depending on the situation, we can save our clients money by delivering the facilities faster, which reduces the capital cost, or finding in China suppliers who can produce longer-lasting plant parts.” Aided by government incentives and the growth of the domestic chemical industry, China is rapidly expanding its ability to produce equipment for chemical plants, Yang notes.

For example, the country now has the capacity to produce 15 million metric tons per year of ethylene, a key raw material used throughout the chemical industry. In 1985, China’s ethylene capacity was only about 1 million metric tons, according to Mitsubishi Chemical Techno-Research, a Japanese market research firm.

Nowadays, Yang says, about 80% of the parts and equipment used in a large chemical plant can be sourced from China. Twenty or so years ago, China had to import most key plant components such as reactors, pumps, and compressors, he recalls.

CHINA’S EMERGENCE as an international supplier of chemical equipment and engineering services is occurring even though its chemical industry still has a relatively poor safety record. In a speech in Malaysia last month at a conference organized by the U.K.-based Institution of Chemical Engineers ,Haoshui Wang, an official from China’s State Administration of Work Safety, acknowledged that too many chemical industry workers die in China every year.

China’s safety record lags behind those of other countries, he said.

Yang insists that Wison can allay any safety concerns a potential buyer of Chinese equipment and engineering services might have. “It makes no sense for the client to pay less if the piece of equipment is not reliable,” he says.

Outside China, Wison works on projects either as a stand-alone contractor or as a partner to more established engineering firms. Either way, Yang says, clients aren’t left in doubt about the pedigree of equipment sourced from Chinese suppliers with unfamiliar names. “We’re able to explainwho the supplier is, how many employeesthe company has, how long it’s been inbusiness, the financial situation, and inwhich other plant the equipment is alreadyin use,” he says.

BASF’s Welsch likewise stresses thatmonitoring the performance of equipmentsuppliers is an important focus of his team,which operates out of locations throughoutAsia. BASF audits all suppliers before placingan order and tests the parts upon arrival.

“The more critical it is, the more we audit,”he says. “We might even watch themweld the parts together, if the equipment isvery critical.” BASF’s guidelines for sourcingparts and engineering services fromAsia are the same as they are for other partsof the world, he adds.

ALREADY STAFFED with 200 people,Welsch’s team is the result of an evolutionin corporate thought. BASF managersrealized a few years back that the companyhad gained institutional expertise in sourcingparts and engineering services in Asiaover two decades of plant construction,particularly in China and Malaysia. His procurementgroup was formally establishedtwo years ago so BASF could build on theknowledge it has acquired and apply itthroughout the company worldwide.

For the time being, the main focus ofWelsch’s team is BASF’s Asian projects.One of its first undertakings was supportingthe construction of a plant in Nanjing,completed in December, that produces watertreatment and paper chemicals. Most ofthe detailed engineering work for the plantwas performed in Asia, Welsch says. “Wemet our cost targets and complied with avery aggressive construction timetable,”he says. The team is now in charge of managinga far larger project, a $500 millionaroma chemicals complex in Malaysia thatBASF announced recently ( C&EN, April 29,page 14 ).

BASF is still in the early stages of fullyexploiting Asia’s potential for supplyingplant parts and engineering services. Welschbelieves that with some external supportmore Asian companies could becomeglobal suppliers. “Like we do in the rest ofthe world, we can initiate supplier developmentprograms in Asia,” he says. “SomeAsian companies have the potential to raisetheir specifications for vessels, valves, andso on.”

The benefits of sourcing parts and servicesfrom Asia are attractive enough that all international chemical plant constructorsare building up their procurementinfrastructure in the region, Wison’s Yangsays. For the time being, with 140 people inits procurement department, Wison maintainsan advantage over its competitors interms of its knowledge of Chinese suppliers,he believes.

Indeed, Yang says other engineeringfirms recognize Wison’s knowledge ofthe Chinese equipment and engineeringlandscape, something that helps Wisonwin contracts or be invited to cooperateon projects with international contractors.Wison is not willing, however, to adviseother firms on how to deal with Chinesesuppliers, even for a fee. “This is our corecompetency,” he says.

Media Source: Chemical & Engineering News
Writer: Jean-Francois Tremblay
Issue: Volumn 91, Number 18
Page: 22-23
Link: http://cenm.ag/china