The strategy of the established chemical manufacturer

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  • Published date: January 28, 2021
    • Ghumarwin, Himachal Pradesh, India
  • [ #56165 Ad Views - 59 ]
The established chemical manufacturer in Europe, Japan, South Korea and North America will have to take measures to adapt to the decline of the growth rate of the overall demand for chemicals in their own markets. Obviously, in the mature and developed market, some sectors continue to enjoy good prospects and are relatively safe in the new competitive environment. These are subdivided into two main areas, high-end market and low-end market, in which there will be relatively unbreakable niche markets.

The first area is the chemical industry segment that needs customer affinity and high-level service support. For example, fragrance and fragrance companies have developed excellent customer insight and exclusive manufacturing technologies to support customer demand; coating companies that manage automotive coatings in production lines; leather chemical companies work closely with luxury goods manufacturers; and water treatment and construction chemicals. In all of these cases, close relationships with customers make them less vulnerable to the invasion of low-cost overseas competitors. The second area is a group of basic chemicals whose low price means that they cannot be imported; these include sulfuric acid, hydrogen peroxide, industrial gases and, to a certain extent, caustic soda. These are, and will continue to be, regional markets.

Those in office must be particularly careful about the many segments between the poles. In many of these industries, slower demand growth may lead to consolidation and capacity closure in some industries. Producers in Europe, North America, Japan and South Korea have always been net exporters of chemicals, but their export cost position will become increasingly uncompetitive in many product areas. They already face the disadvantage of raw material cost, and they have to face the disadvantage in the other two scores: the existing domestic factories are not only in the wrong place for China and other emerging markets, but they are also often old facilities with essentially new world-class production capacity, and the cost is higher than being installed in the new growth market.

Successful transition to this low growth model requires existing chemical manufacturer to evaluate their product mix and manufacturing footprint. They also have to decide in which areas to become integrators, focus on being the "last person" and in which areas it makes more sense to be the integrated company.

chemical manufacturer must bear in mind that as the industry structure changes, the relative attractiveness of products will also change, and some products are more vulnerable to industry trends than others. They have to look at their portfolios accordingly. Mature markets are becoming net importers of more and more chemicals as new producers with raw material advantages can profitably serve these markets. Although imports often lead to lower prices and lower profit margins in the short run, this is not always the case in the long run, especially when existing enterprises are willing to close part of their capacity. Imports rarely cover all domestic demand. For those existing manufacturers who can produce domestically at a price lower than the cost of imports, if it leads to a market with clearer structure and pricing based on import price parity, this evolution may be positive.

It is also important to emphasize that in all businesses, incumbents must work hard to achieve excellence in low-cost operations, lean and effective marketing and sales. Facing the increasingly fierce competition from the newcomers, the existing chemical manufacturers can not afford any idle business, and must ensure that they are first-class operators in all fields.

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