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In my 1st blog on this topic - Strategic Priorities for Chemical Industry we had discussed Industry’s current challenges and trends. In this blog, I will attempt to answer following questions - What the future bodes for the Industry? How can it transform itself in today’s dynamic business environment? How will it continue to add value and remain relevant?

To find answers to these questions - it is essential to first define its operations. This industry transforms raw materials (like Naphtha) to produce variety of products by utilizing Chemistry and Chemical Engineering Unit Operations (like Heat Transfer, Mass Transfer etc.). These material transformation operations are energy intensive and can result in sustainability challenges to manage and mitigate. Therefore, this industry is one of the most regulated industry with regulations covering like its products storage, transport & their marketability. Industry is fully aware and understands Sustainability challenges it faces and is leading the change to make its operations more sustainable, efficient and with lower carbon footprint. Chemical Companies are setting targets to reduce usage of coal, achieve carbon neutral operations, reduce emissions, and increase recyclable content in their products.

Next we will aim to understand its global structure and dynamics. Chemical Industry growth, spread, and structure has gone through huge transformation in last 30 to 40 years. This can be checked from top 10 Global Chemical Companies (from 1985 to 2021) list as attached below:

The Industry’s center of gravity, its supply chain, manufacturing setup has gravitated towards Asia. Asia is the largest region with 5 Asian Countries (China, Japan, Korea, India, and Taiwan) in top 10 Chemical Industry countries (by Sales) (Cefic Facts and Figures 2022).

In midst of these structural changes and challenges, it is now pertinent to explore and understand what makes a chemical company more successful and how is it able to differentiate itself.

Competitive situation of chemical companies or countries where they are located is defined by their ability to source competitively priced raw materials (as raw materials constitute more that 50 % of total manufacturing cost and this proportion (raw materials as % of manufacturing cost) varies based on product segment (basic or specialty)), have access to intellectual processes knowhow (manufacturing process, R & D capabilities etc.) and are located nearer to customers and key demand centers.

Can you think of any such company or a country which has strong competitive position in all these three factors (raw materials access, Strong Intellectual Capital & closer to Demand Centers)? The answer is No. This explains the fact that in their pursuit for continued success, companies in this industry mostly take inorganic growth route through Mergers, Acquisitions or Divestures to continuously refine their product portfolios and location strategy.

As stated in my 1st blog that (chemical industry products) consuming industries are transforming as customer requirements and their industry dynamics are constantly evolving. This upheaval in consuming industries has made industry to appreciate the fact that Classical competitive advantages (raw materials access, Strong Intellectual Capital & closer to Demand Centers) are losing their edge and cannot sustain profitable operations. Chemical industry needs to reinvent itself.

For this the mantra is - Bring the end customer upfront and focus on his requirements to embark on customer-centric and customer-led transformation. This requires industry to explore, prioritize, and formalize those strategic directions, decisions, and actions which will lead to this transformation and ensure that Chemical Industry continues to add value.

I will cover these (strategic directions, decisions, and actions) in my next blog. I look forward to your comments.
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