4 minute read 1 Dec 2016
A scientist

How chemical companies can find a new way forward in Europe

By

Frank Jenner

EY Global Chemical Industry Leader

Visionary in markets and business development for the chemical industry. Enjoys race boarding in the mountains. Enthusiastic golfer.

4 minute read 1 Dec 2016
Related topics Supply chain Strategy Digital

Increased competition and commoditization is driving them to differentiate their strategies by business segment and market.

The competitive advantage of the European chemicals industry has declined as the US and Asia develop low-cost production for chemicals. With demand growth shifting to the emerging markets of Asia and Latin America, manufacturing facilities have been moving to these regions and the chemicals producers are following suit.

In addition, stringent regulations in the European chemicals industry, heavy green taxes and slow take-up of alternate feedstock technology contribute to the slow growth of the industry.

As the global environment becomes all the more volatile, chemical players in Europe can consider developing a strategy that enables constant evolution to optimize market share and margin growth. 

What strategies should chemicals players consider in the future?

While restructuring business operations is the need of the hour for European chemicals industry, the industry also needs to have a focused approach to reorganize their business and operating model. An integrated business model that features a proximity to the raw material supplier and development of new differentiated products to meet the needs of the end-consumer is an imperative for the industry.

Unlike earlier, identifying a high-growth product or industry is not enough for a chemicals player. It requires a consistent evaluation of the product (and services) portfolio and its validity amid the current industry scenario. A company needs to manage the complete chemicals life cycle of its products.

Further, chemicals companies can no longer be oblivious to the needs and preferences of the end customer. The chemicals players need to develop specialized products and services for the domain end-user industry of their customers.

While doing this, companies also have to be responsible toward society and its stakeholders. They need to produce products that will improve health, environmental performance and security.
To facilitate this, the companies need to develop a customized business model considering the value chain hierarchy of its businesses.

A road map for the future

1. Refashion your business model and operations

A close scrutiny of the operational parameters, technology and processes in use, the products in the market, and more is crucial for a company’s success in Europe. Further, vertical and horizontal integration across the value chain and functions, respectively, needs to be an integral part of the business model.

2. Identify the optimum feedstock blend

While a base petrochemicals player may focus on acquiring low-cost feedstock, a specialty chemicals player will need to evaluate its cost structure and identify a collaboration strategy to acquire raw materials from commodity and diversified chemicals companies. A diversified company, on the other hand, can invest in an integrated facility to achieve cost savings with a sustainable supply of raw material.

3. Enhance supply chain flexibility

Facing perennial volatility, chemicals in Europe need to identify how best to develop an agile and adaptable supply chain that fulfills safety requirements. A supply chain challenge such as the bull-whip effect is magnified in case of the chemicals industry, as the excess inventory not only increases shelf space but also deteriorates in value.

4. Ascertain the suitable business portfolio

You need to identify the emerging megatrends in different regions and how they will drive the demand for their products. Growth will primarily come from technology breakthroughs in the medical, IT, electronics, automotive and energy sectors. An eye for the megatrends will help differentiate the products with high-margin, high-growth potential.

5. Differentiate your innovation investment strategy according to your customers

For instance, a commodity chemicals company that is energy- and feedstock-intensive should invest in raw-material innovation that reduces costs and facilitates sustainable products. Further, you need to develop innovation road maps with specific R&D targets in each (feedstock, processes and products and solutions), helping to apportion limited resources.

6. Attract the right skill set

You need three integrated elements in your talent pool:

  • Scientists who develop innovative products
  • Industry experts who identify the emerging needs of the dynamic end-user industry
  • Technology experts who help consistently upgrade technology to optimize costs

Companies need to modify their compensation, HR and employee safety policies to facilitate a better working environment.

 

Summary

In an environment where uncertainty regarding feedstock prices, demand growth, currency fluctuations and regulations pose varied challenges every day, companies need to be ready to adapt to the changing environment to improve their competitive position.

About this article

By

Frank Jenner

EY Global Chemical Industry Leader

Visionary in markets and business development for the chemical industry. Enjoys race boarding in the mountains. Enthusiastic golfer.

Related topics Supply chain Strategy Digital