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Braskem–GreenPlastics–TheHRChallengeCaseStudyThiscasewaswrittenbyHeikoSpitzeck,FundaçãoDomCabral(www.fdc.org.br).Itisintended to be used as a basis for class discussion rather than to illustrate eithereffective or ineffective handling of a management situation. The case has beencompiled from publicly available sources, internal documents and interviews withBraskem executives such as Claudia Bocciardi (Director of InstitutionalMarketing),Jorge Soto (Director of Sustainable Development), Alexandre Elias (DirectorRenewableChemicals),MarceloArantes(Vice-PresidentPersonnelandOrganization)andAntonioMorschbacker(DirectorofTechnologyforRenewables).FurthersupporthasbeenreceivedfromSoniaChapman,MárioPinoandAlineMariscalPadeti©2016,HeikoSpitzeck,FundaçãoDomCabral–www.fdc.org.br.Nopartofthispublicationmaybecopied,stored,transmitted,reproducedordistributedinanyformatwithoutthepermissionofthecopyrightowner.

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Braskem–GreenPlastics–TheHRChallengeHEIKOSPITZECK1It´searly2007andMarceloArantes,VPPersonnelandOrganizationofBraskem,wasscratched his head. His colleague, Claudia Bocciardi, Director for InstitutionalMarketingwas asking for help in order to capacitate the commercial team for thenewGreenPlasticsbusiness.However,hesoonrealized,thatthechallengehefacedextendedbeyondmerelythecommercialfunctionalone.Braskem,Brazil´sleadingpetrochemicalcompany,hadjustannouncedthesuccessfulproductionofa“greenplastic”whichismadeoutofEthanol.Theprocesssubstitutesoilintheproductionofplastics,inthiscasepolyethylene(PE)byarenewablesource:sugarcane. Claudia Bocciardi, Director for Institutional Marketing recalls thechallengesfacedbythecommercialteam,tryingtocaterfortheinterestsofpotentialclients:“Ourcommercialteamswereheavilyquestioned,mainlybyclientsinEurope.The big questions concerned the competition between sugarcane and foodproduction,andthedeforestationoftheAmazonforest.”Traditionally, the commercial staff of Braskem was used to sell commodities in abusiness-to-business (B2B) environment. The discussion between the clientspurchasing departments, and Braskem´s sales force usually centred on price,followedbyqualityandtime.ThenewGreenPlasticsbusiness,however,hasledsalespeopletotalktopotentialclients´marketing,sustainabilityandinnovationdirectors.Therethediscussionshiftedfrompricetorisksalongthevaluechain,howtoprovetheplastic is reallymadefromsugarcane,andhowtocommunicatethebenefitsofGreenPlastictothefinalconsumer.NotallBraskem´ssalespeoplewerefitforthesechallenges.Marcelorecalls:“TherewasaclearchallengefromthemarketonhowtoconvincepotentialclientstospendalittlemoreonGreenPlasticsforthereputationalvalueitgeneratesbeingasustainableproduct.Soteammembersneedednegotiationandconvincingskills.”However,MarcelorealizedthattheGreenPlasticsteamneededmorethanjustsalespeople, because its business model was different from Braskem´s traditionalbusiness: “One challenge was to establish the qualification, people in the GreenPlastic teamsneededtopossess.Whatareall thepotential situations thesepeoplewillfaceinthemarketplace?Howtoorganizetheteamandcapacitateittomanageanewstart-upbusinessinGreenPlastics?”AboutBraskem

1 © 2016 Heiko Spitzeck, Fundação Dom Cabral – www.fdc.org.br. All rights reserved.

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Braskem is the leading Brazilian petrochemical company and the largestthermoplasticsproducerintheAmericas.Itoperates36industrialplantsincountriessuchasBrazil,U.S.,ArgentinaandGermany.Thecompanyis listedontheBrazilianStockExchangeBOVESPAandsince2005hasbeen included in its sustainability index (ISEBOVESPA). It is also listed inNewYork(NYSE) andMadrid. In 2006 the company was controlled by Odebrecht (38.6% ofshares),Petroquisa(8.3%ofshares)whiletherestofthesharesareonfreefloat.iTable1:Keyfinancialperformancedatafor2006-20072KeyPerformanceData 2006 2007NetRevenue(R$millions) 16,969 18,788EBITDA 3,023 3,250NetDebt 7.278 6.123NetIncome 117 642In 2007 Braskem had the ambition of being among the 10 largest petrochemicalcompaniesworldwideintermsofmarketvalue.iiThecompany´sVisionfor2020is“tobetheworldleaderinsustainablechemistry,innovatingtoservepeoplebetter”.In 2006 the company produced 6 million tons of chemicals and petrochemicalsincluding Polyethylene (PE), Polypropylene (PP) and PVC. Within the value chainBraskemconcentratesitsstrategyonbasicpetrochemicalsandthermoplasticresins.For it´s production it traditionally buys oil from companies such as Petrobras. Theproduced thermoplastic resins produced and converted by plastic convertercompanies into, for example, electronics and car parts, and packaging materials.Traditionallypetrochemicalsareacommoditybusiness,inwhichstrategicattentionisdirected to preserving margins and reducing costs. As research by Deloitte showsmargins have shrunk and commoditization has increased in the chemical industryduring the years 1998-2009.iii This iswhy Braskemopted for a vertical integration,whichledtoareductionofsuppliersandtotheconsolidationofthesector.Figure1:Braskem´slocationinthevaluechainiv

2SeeBraskem2009AnnualandSustainabilityReport,p.17.

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ThegreenplasticTraditionally plastics such as Polyethylene are produced fromoil and gas. BraskemhassuccessfullyproducedPolyethylenemadefromEthanolinapilotplant,whichinturn ismadefromsugarcane. Ithasthussubstitutedanon-renewablerawmaterial(oil & gas) by renewable sources (sugarcane), which in turn can be considered amajorsustainableinnovation.The production of the pilot plant required an investment of U$ 5 million, and itreachedacapacityof12tonsannually.Theproductwasusedfortestswithpotentialclients.Figure2:ThedifferencebetweentraditionalandgreenPEv

Braskem: Largest thermoplastic resins producer in Americas and global leader in biopolymers

EXTRACTION Raw Materials

1st GENERATION Basic

Petrochemicals

2nd GENERATION Thermoplastic

Resins

3rd GENERATION Plastic Converters

NAPHTHA CONDENSED

GAS / ETHANOL ADDED VALUE

COMPETITIVENESS

COMPETITIVE INTEGRATION

Industrial Capacity 16 million ton/year

Overview Industrial: 28 BRA, 5 USA

and 2 GER Projects: MEX e VEN

1Sales Revenues USD 23,8 billion

1EBITDA USD 2,2 billion

12011

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The whole production cycle starts on the sugarcane plantations, which feed intodistilleries,wheresugarjuiceisfermentedanddistilledtoproduceethanol.Throughdehydrationprocessesethanol is transformed intoEthylene,akey ingredient intheproductionofplastics.Ethyleneispolymerizedintopolyethylene(PE),whichisthenusedbyplasticconvertersinthesamewayPEmadefromoil.Theproductionof1haoflandresultsin3tofGreenPE.Foraproductionof200,000tofGreenPEapprox.65.000haoflandareneeded,anarea,whichrepresents0.02%ofallarablelandinBrazil.SugarcaneismostlygrowninBrazil´ssoutheastregion,farfromtheAmazonlocatedinthenorthwest.Figure3:FromsugarcanetoGreenPE–MetricsandRelationsvi

A bio-based alternative to conventional polyethylene

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Traditional Sustainable

Sugarcane based Ethanol

Polyethylene

Oil

Gas

From Sugar Cane to Green Polyethylene Metrics and relations

1 Hectare of land

82,5 ton Sugar Cane

7200 l Ethanol

3 ton Green Ethylene

3 ton Green PE

Braskem’s Green PE: 200 kton/year 460 millions liters of Ethanol = approx. 65 thousand hectares

produces produce produce produce

~1,7% of Brazilian ethanol production

~0,02% of Brazilian arable land

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During its growth sugarcane consumes CO2 from the atmosphere. Research byFundaçãoEspaçoEcohasshownthatforeachtonofGreenPEroughly2.5tofCO2are absorbed. In contrast to oil-based plastics, Green PE does not emit CO2 in itsproduction process and a production of 200,000 t of Green PE would avoid theemissionof920,000 tofCO2,equivalent to theCO2emissionsof1millioncarsperyear.These characteristics are highly attractive for companies that want to availthemselvesofadifferentiatingfactorinsustainability,especiallyinregardtoclimatechange.PotentialclientsareNatura,Danone,Faber-Castell,P&G,Coca-Cola,Johnson&JohnsonaswellasNestlé.TheGreenPE is chemically identicalwithPEmade fromoil,whichallowsclients touse theirexistingproduction facilitiesandrecycling technologies.Braskemcalls this“drop in” as clients can simply drop theGreen PE into their existing processes, anadvantagecomparedtootheravailablebio-plastics.Thefigurebelowsummarizesthewholelife-cycleofGreenPE.Figure4:Thewholelife-cycleofGreenPEvii

Whileall thissounds likeamajorsustainable innovation, thereare,however,someissuesofconcern.Byusingsugarcane,Braskeminvolvesitselfwithacompletelynewvaluechainbasedonagribusiness.Thesector,andinparticulartheEthanolbusiness

Green Polyethylene Cycle

Ethanol CH3-CH2OH At the distillery, the sugar juice is fermented and distillated to produce ethanol

Sugarcane The sugarcane crop metabolizes the CO2 to produce sucrose

Carbon capture The green polyethylene is transformed in final products in the same unities already existents

The green polyethylene is 100% recyclable (Mechanical / Incineration)

Recycling Green PE [CH2=CH2] The ethylene is polymerized in polyethylene production unities

Ethylene CH2=CH2 Through the dehydration, the ethanol is transformed in ethylene

Very Favorable Ecoprofile*

Captures and Fixes 2,5 t CO2/t PE

* Preliminary Ecoeficiency Analysis (From cradle to Braskem gate)– Fundação Espaço Eco 2007/2008

FROM CRADLE TO CRADLE

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hasreceivedcriticismrelativetosocialissuessuchasthedisplacementoffoodcropsandtheraisingoffoodprices,occupationofindigenouslands,childandslavelabourtogether with sub-standard working conditions. Additionally, environmental issuesaboundsuchasdeforestation,expansionintoconservationareas,waterconsumptionand pollution, impacts on biodiversity, environmental degradation due tomonoculturesandsugarcaneburning.viiiThenextstep:SettingupaTeam&BuildingClientDemandAll the positive characteristics of Green PE – production by a renewable source,favourable carbon footprint and drop-in – are potentially very attractive tocompanies,pursuingadifferentiationstrategyandwantingtopositionthemselvesassustainable companies. This applies above all to brand owners such as Nestlé,Danone,Coca-Cola,Procter&Gamble,whichaimed todifferentiate themselves forconsumers sensitive to sustainability issues. Braskem´s research showed thatsustainability-oriented consumers are mainly located in Japan and Europe.Commercial staff needed to understand these markets and how their clientsstrategicallyaddressedconsumers’sustainabilityinterests.BraskemaimedtoinvestUS$290millionintoagreenPEproductionplantwith200ktyixcapacity.Ifthisinvestmentinoperationsshouldpayoff,Marceloneededtobuilda high-performing team for the Green Plastics start-up within Braskem´s existingorganization.

iSeeBraskem´s2006AnnualReport.iiSeeSlideNo.35ofhispresentation“OcaseBraskem”attheExpoGestãofair,08.06.2006.iiiSeeDeloitte(2010):Thechemicalmultiverse–Preparingforquantumchangesintheglobalchemicalindustry,p.6.ivTakenfromBraskempresentation“SugarcaneBasedPolyoefins”madebyRodrigoBelloliattheBiopolymerWorldCongressinVenice,April2012.vTakenfromBraskempresentation“SugarcaneBasedPolyoefins”madebyRodrigoBelloliattheBiopolymerWorldCongressinVenice,April2012.viTakenfromBraskempresentation“SugarcaneBasedPolyoefins”madebyRodrigoBelloliattheBiopolymerWorldCongressinVenice,April2012.viiTakenfromBraskempresentation“SugarcaneBasedPolyoefins”madebyRodrigoBelloliattheBiopolymerWorldCongressinVenice,April2012.viiiSeeXavierC.V.,PittaF.T.andMendonçaM.L.():AMonopolyinEthanolProductioninBrazil:TheCosan-ShellMerger;GoldembergJ.,TeixeiraCoelho,S.AndGuardabassiP.(2008):Thesustainabilityofetanolproductionfromsugarcane,inEnergyPolicy36(6),p.2086-2097;FAO(2013):Biofuelsandthesustainabilitychallenge,TradeandMarketsDivision,FoodandAgricultureOrganizationoftheUnitedNations,Rome.Seealso:http://www.worldwildlife.org/industries/sugarcane(accessed06.02.2015).

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ixKty=kilotonnesperyear.