It is a good time to make a success of a business in the chemicals industry, where “…Global market volume for chemicals will more than double in the period through 2035.” according to global strategy consultants at Roland Berger. Increasingly, daily life relies more and more on chemicals; from those that preserve our food, dye the plates we eat from, wash the plates we have eaten from and then treat the waste food we didn’t eat. There can be few industries on which modern life depends on more. So why is it so difficult to make a success from something that everyone needs so badly?
The answers to this are manifold, but include low margins, large price fluctuations, ever stricter regulation, complex logistics chains and global competition.
As SAP SE the German business consultants made clear in a recent report, “Companies in the chemical industry are facing fierce competition as they strive to drive sustainable innovation, growth, and profitability – especially after a decade of financial struggle and consolidation. And even though the future looks bright, with the highest forecasted growth rates the industry has seen in more than 20 years, there are still immense challenges.”
To help you deal with these challenges in 500 words or less, here are 5 top tips to making a success of your chemicals business.
- Use existing assets fully. In the chemicals industry, assets are extremely capital-intensive. To not use those assets to their fullest extent would be a foolhardy business practice. Increasingly, larger and more successful firms are rethinking their plant machinery, creating long-term plans for their replacement, development and improvement.Larger firms are also beginning to value their databases more, seeing them as assets in their own right. Accurate usage of that information can lead to new co-operations in different markets or help find cheaper suppliers from new regions.
- Sustainability. In an industry with such small margins, it is vital to utilize sustainability to maximise profits. As chemical usage increases, finding raw materials from sustainable sources will help keep costs down. It will also assist in sales, as end users become ever more conscious of buying ‘environmentally friendly’ products.Recycling waste chemicals and by-products will also give secondary revenue streams and/or lower production costs.
- Prepare for growth. The best chemical businesses appreciate the importance of exploring new regions and markets. They are continually looking for ways to expand, by either widening their product base (perhaps by combining core-business products with other chemicals to make new products) or by moving up or down the supply ladder.It can also be useful to consider alternative uses for your products, as this can bring in customers from previously unexpected areas.
- Supply chain flexibility. As the chemicals market is very volatile, with frequent and sometimes seemingly erratic price changes, it is important to be able to react quickly should circumstances change.This is particularly relevant as the industry is a very global one, with suppliers and end users often continents apart. Natural and political affairs can change the situation overnight, be it a natural disaster, change in legislation or a trade embargo. Being able to quickly source from new suppliers, switch to alternative materials and use different delivery systems will enable you to stay ahead of the competition.
- Maintain talent and knowledge. Perhaps more so than most industries, the people who make up the staff in your company are a key asset. The chemicals industry is naturally technical and frequently specialised. Knowledge gained by your team is worth developing and paying a premium for to retain, as understanding your product, your markets and your contact information of potential customers and suppliers can prove the difference in making the next deal.
Clearly these five points are a simplified guideline to a complex business. Frequently it is a good idea to watch how the more successful companies operate, and then structure a business model based on their practices.
However, as these larger firms often have economies of scale in both sales and manufacturing, the smaller business must use size to its advantage by being quicker to adapt to market changes and economic conditions. It may also allow for greater specialisation, as smaller businesses can focus on the many market niches that the industry has.
Despite all these problems and the numerous unforeseeable events that will rock the industry, there is a great deal of certainty in building a business in an industry that is certain to be needed.