Katherine

2015 trends in chemical industry

Jul 5th 2015 at 11:29 PM

The global sales of chemicals doubled over the last decade, hitting USD 5.2 trillion in 2013. The gains were driven mostly by the emerging economies, mostly China where chemical sales recorded a CAGR of 26%. The basic chemicals that hold about two-thirds of the market share also recorded growth mainly because of price hike in oil and gas prices. Today the chemical industry has moved on from major breakthroughs to more of incremental advances that are targeted towards catering a specific problem. Furthermore, there are increased commercialization of manufacturing technologies, especially in converting coal to liquids and gas to liquids. Manufacturing footprints have also changed with the availability of shale gas. New customers are also emerging across a variety of region and markets. To succeed, the companies need to focus on three areas:

 

* Adapting and refining business models and manufacturing footprints

* Identifying new opportunities in emerging markets

* Harnessing the potential of digital technology to capitalize on next wave of value creation

 

Equipping new business models

The dynamics of markets and requirements for success has changed dramatically over the past few years. However, many of the companies are faltering under the weight of obsolete business models. The major problem lies in over investments in specialty chemical business which has offered higher margins in the past, but have recently become rapidly commoditizing in nature. Other companies have been too focused on cutting costs, when actually they should have focused on nurturing growth and innovation. As per research on chemical industry, some vendors have realized the threat from building low cost capacity built in Asia, and costly assets in commoditized marketplaces, rendering themselves uncompetitive in Asian regions. All these factors have forced businesses to close or divest their services. To ensure success, the companies need to readjust their business models across their service lines, which would help them to keep pace with the changing requirements of distinct subsectors.

 

This should begin with assessment of business offerings and all products that are unique in the market place. Once the competitor’s offerings has been understood, the business model can be innovated which would provide operational imperative to improve quality and reliability. These business models would depend on existing products to different markets while taking into account the market realities in each region. Once the business model has been retooled, company can best align market demand, revenue streams, and cost structures to increase profitable growth.

 

Leading in the emerging markets

Demand of chemicals from developing economies will drive the growth of chemicals industry. The gain is likely to range from 6 to 10% compared to 2 to 3% in developed regions. Even if global companies have tried venturing into these emerging economies, they have faced stiff competition from local players, in both supply and demand.

 

On the supply side, new companies are growing rapidly and giving competition to the multinationals. Chemical industry research revealed that these companies have lower cost base, increased agility, decision-making flexibility, and have delivered acceptable value to customers. Moreover, in the demanding side in emerging markets, volume growth is shifting from being export oriented to companies that address the needs of local customers. These companies are highly price sensitive.Moreover, they strive to attain 70 to 80% of product functionality at 50% of price in the developed regions.

 

To be able to lead against the local players, the chemical companies would require to invest in organic capabilities that would cater to needs of the developing markets. This would emphasize on factors like where to focus and which approach is suitable for the company to gain market advantage. Furthermore, the business needs to ensure sales and market support to ensure customer preference and requirements for the market specific product development.

 

Embracing digital transformation

As per market research, by 2020 there will be more than 50 billion devices around the globe that would be connected to the Internet. A third of them would be computers, smartphones, tablets and TVs and the remaining two thirds would be sensors, actuations and other innovative devices that monitor, control, analyze and optimize the way we work. Furthermore, the introduction of Internet of Things has also made a transformative shift for the industry.

 

 

All these advancements and much more have made it imperative for companies in the chemical industry to invest millions in automation and information technology. These investments have actually benefitted the companies through increasing reliability, reducing costs and increasing operational efficiencies in production and supply chain management. As per market research experts, the next frontier of value creation in the chemicals sector can only be reached once the metamorphic potential of digital revolution has been acknowledged.

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