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Braskem–GreenPlastics–TheMarketingChallengeCaseStudyThiscasewaswrittenbyHeikoSpitzeck,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–TheMarketingChallengeHEIKOSPITZECK1It´searly2007andClaudiaBocciardi,DirectorofInstitutionalMarketingofBraskem,could not get to sleep. Braskem, Brazil´s leading petrochemical company, had justannounced the successful production of a “green plastic” which is made out ofEthanol. The process substitutes oil in the production of plastics, in this casepolyethylene(PE)byarenewablesource:sugarcane.Claudiaknewthatthiswasabigthingandrecalls:“Weknewthatatinthismomentwe had a product which differentiates us in the market”. Several businesses,includingBraskem´sclients,weretalkingaboutsustainability–itwasthehottopicoftheday.TheGreenPlasticwouldfarewellinthisrespectasitofferssomesubstantialadvantages:

- it substitutes non-renewable oil in the production process with renewableEthanolmadefromsugarcane

- theprocesscapturescarbon,assugarcaneabsorbsCO2inordertogrow- Greenplasticcanbeusedeasilybyclients–anadvantagecalled“dropin”–as

the product is identical to its traditional versionmade from oil. Thismeansthatclient’sdon´tneedtoadapttheirmachinesandproductionprocesses.

- GreenPlasticcanaseasilyberecycledaseasilyastraditionalplastic.Whatsoundslikeaclear-cutsustainableinnovation,comeswithsomechallenges.Inusing oil for production, Braskem is involved with other petrochemical companieswith – depending on the company – a track record of safety and well-definedprocesses aswell as laws for environmental protection. In switching to sugarcane,Braskem involves itselfwithavaluechain including smallagricultural farms.This inturnhasledpotentialclientstowonderaboutissuessuchasslaveandchildlabour,deforestation of the Amazon forest, raising food prices aswell as other social andenvironmentalissues.WhatmostconcernedClaudiawashowtotellthestoryofGreenPlasticstotherightaudience:“Weareapetrochemicalcompany,anorganizationusedtocommunicatingin a B2B environment. We are not a company used to communicating with theconsumer.” Alexandre Elias – Director of Renewable Chemicals agrees: “How tocommunicate with the final consumer is a constant challenge. To talk aboutabsorption of CO2 works well with the sustainability departments of our clients.However,consumersdonotunderstand.Ourindustryisanindustryofengineersandverytechnical in itscommunication.OnceyouhaveaproductsuchasGreenPlasticthechallengeisinmarketing,tocommunicatetheconceptofGreenPlastics.”

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

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For these reasons Green Plastics required a B2B2C (business-to-business-to-consumer)approach.BrandownerssuchasCoca-Cola,Natura,Johnson&JohnsonorDanoneweremostlikelytobeinterestedinusingGreenPlasticfortheirpackaginginordertodifferentiatethemselvesassustainablecompaniesintheeyeofconsumers.AsexplainsJorgeSoto,DirectorofSustainableDevelopment:“OneofthefirstthingswelearnedaboutGreenPlasticwastocontactnotonlywithourdirectclient,butalsowithourclients´sclient.SowearetalkingtobrandownerssuchasProcter&Gamble,Coca-Colaor TetraPak. Theseorganizationswant todifferentiate themselves in themarket.” SoGreen Plastics, in the end,would affect consumption choices of theirclients´clients.Braskemneededtofindawaytopositiontheproductinthemarketand to help their clients communicate the value Green Plastics added to the endcustomer.TheNationalCouncil of Self-ConstrainingPublicity (CONAR) issuednorms regardingtheuseofsustainabilityinadvertisingsuchas:truthfulness,relevanceandaccuracy.In order to avoid advertising issues or “greenwashing” claims, Braskem needed tofindawaytocommunicatetheadvantagesofGreenPlastics,whilemakingsurethatthey can substantiate their claims and that potential risks such as child labour arewellmanaged.As if thiswerenotenough,Braskemalsoneeded tomakesure thattheirclientswouldnotengageingreenwashingusingtheargumentofGreenPlasticswithunsubstantiatedclaims.Furthermore,Braskemneededtomaintainapositiveimageabouttraditionalplasticsas their product portfolio will be composed of amix of renewable and traditionalpetrochemicalsintheforeseeablefuture.When asked what kept Claudia awake at night she responded: “We had no ideaabouthowtocommunicate,comingaswedo,fromaB2Benvironment.Howshouldwe communicate the story of Green Plastics to our clients, the consumers and tosocietyatlarge?”AboutBraskemBraskem 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.i

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Table1: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

Thegreenplastic

2SeeBraskem2009AnnualandSustainabilityReport,p.17.

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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Traditionally 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

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

13

Traditional Sustainable

Sugarcane based Ethanol

Polyethylene

Oil

Gas

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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

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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Whileall thissounds likeamajorsustainable innovation, thereare,however,someissuesofconcern.Byusingsugarcane,Braskeminvolvesitselfwithacompletelynewvaluechainbasedonagribusiness.Thesector,andinparticulartheEthanolbusinesshasreceivedcriticismrelativetosocialissuessuchasthedisplacementoffoodcropsandtheraisingoffoodprices,occupationofindigenouslands,childandslavelabourtogether with sub-standard working conditions. Additionally, environmental issuesaboundsuchasdeforestation,expansionintoconservationareas,waterconsumptionand pollution, impacts on biodiversity, environmental degradation due tomonoculturesandsugarcaneburning.viiiThenextstep:BuildingClientDemandAll the positive characteristics of Green PE – production from a renewable source,favourable carbon footprint and drop-in – are potentially very attractive tocompanies,whichpursueadifferentiationstrategyandwanttopositionthemselvesas sustainable companies. Brand owners such as Coca-Cola and Danone, however,are also very sensitive to potential reputational risks such as child labour ordeforestation,whichwouldaffecttheirreputation.Claudia and her team needed to come up with a communication strategy thatmanagesrisksandexploitstheopportunitiesofGreenPEandpositionstheproductasanattractivealternativetoexistingbio-plasticsonthemarket.Ifsignificantclient

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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demand canbebuilt up, Braskemaimed to investUS$290million into a greenPEproductionplantwitha200ktyixcapacity.

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).ixKty=kilotonnesperyear.