Electronic databases, e-networking, digital commerce and online markets have all taken the commercial world by storm. Last year BusinessInsider declared that Amazon is now bigger than Walmart. Alibaba is worth more than both of them. It is clear that the business world is going digital, so why is the chemical industry so reluctant to join in?
Well according to Stefan Gurtzgen, senior director of chemicals at SAP and contributor at specchemonline.com, most chemical businesses believe that their competitive edge is in areas other than the ability to market their chemical products effectively. In fact he outlines several business models that chemical manufacturers and supplies are clinging to and explains how these models are fatally flawed.
He writes, “One differentiating strategic success model was customer proximity or having chemical processing facilities and/or technology service centres close to the customer. However, with customer bases going east, eroding customer loyalty, and increasing demand and erratic geo-politics in the digital economy, customer proximity is no longer enough to drive sustainable growth and profits.
Being close to feedstock was another strategic model, in particular for commodity producers. Here also, the advent of shale gas in the US, the oil price rollercoaster and innovative technologies turning coal into chemicals, driven by China, changed the game and diminished the advantage of feedstock proximity.
Lastly, those companies which pursued ownership of intellectual property and technology know-how as a differentiating model are being challenged, due to the rapid commoditisation of speciality products, few new blockbusters being developed and launched and low cost competitors entering the market.“
It seems that older strategic models for chemical businesses are no longer, or are at least less, relevant than before. Instead, Gurtzgen suggests that chemical firms should be embracing technology. They should use digital capabilities to improve the way that they manufacture chemicals, purchase feedstock, organise logistics and above all sell their products.
This is a fact supported by a 2014 Accenture report entitled ‘The Chemicals Industry: Getting ready for next generation B2B’, which stated that there is a, “…new chemical industry customer.” Warning that, “Within a decade, perhaps half or more of a typical company’s traditional workers—those who grew up with paper based invoices and product information— will be retired. Their younger replacements will be ‘digital natives’ for whom rich, electronic-based interactions are the norm and whose expectations of the digital experience are rising rapidly. These will be the buyers that chemical companies must reach. Chemical companies seeking to meet these expectations will be in position to stay close to their customers, which is an increasingly critical asset in a competitive industry.”
Computers are playing a larger and larger role in our lives, from how we communicate with friends, shop online, find love and do business. The chemical industry is aware of that, and is leading the way in using technology to manage chemical processing plants and digital chemistry that can simulate chemical compound development. But isn’t it missing out on an easier way to connect?
Surely the use of digital marketing, E-networking, big data and targeted online campaigns will create the competitive advantage that Gurtzgen sees has gone. No one expects a chemical company to replace Amazon in terms of online trades any time soon, but why do chemical businesses still remain unsure about using the digital world to gain a marketing advantage?