Value creation of chemical companies and its driving factors

If most of the performance of the capital market in the chemical industry is controlled by a few major companies, what does this mean for CEOs of chemical companies that cannot change the performance of the industry? The short answer is that they should focus on effective ways to create value for shareholders.

First, when we look at which companies have created value, we find that many of them are active in M & A activities. This shows that the regional integration measures that enable enterprises to obtain economies of scale will continue to promote the positive and reliable profit growth of the industry. On a broader level, this is also consistent with our research: companies that are more active in allocating capital tend to perform better than their less active peers. Of course, it goes without saying that deals must be well planned and chemical companies must avoid paying too much for acquisitions and ambitious M & A activities. For a long time, both actions have destroyed promising enterprises.

Second, companies should continue to focus relentlessly on functional excellence, and, related to that, invest in numbers and advanced analysis to increase productivity. In this field, CEOs of chemical companies want to establish competitive advantage more than ever before. We have observed that most leaders of chemical companies have made digitization one of their top priorities.

Third, our research on capital market performance in the chemical industry also confirms McKinsey's earlier findings in a wide range of industries, that simply entering the right market is crucial to the sales and profit growth required to create value and excellent capital market performance. For example, a large part of the industry's TRS growth in bulk chemicals comes from companies that are active in the high growth Asian market. At the same time, in the field of specialty chemicals, companies active in agriculture and paint and coatings are major contributors to TRS growth. In agriculture, this reflects the growth of basic food related needs worldwide, and these companies are major providers of crop protection products and seed technology. In terms of coatings, this partly reflects that the growing middle class in emerging markets is turning to buy brand products.

Finally, we have carried out the latest research on the persistent liquidity of the chemical industry, from which CEOs can be encouraged: good strategy can bring returns, whether it is manifested in upward mobility or at least the ability to maintain positions. In our latest analysis, we compared the company's economic profit from 2012 to 2016 with that from 2002 to 2006; our previous analysis compared the situation between 2010 to 2014 and 2000 to 2004. What's changed? Our new analysis shows that the proportion of people who keep the top five ranking is higher - 56% and 50%. We also found that fewer companies went from the lowest fifth to the highest fifth - 9% more than 21%. On the other hand, flow increases immediately between adjacent segments compared to our final report: 13% of the middle 60% of the companies make it quintuple into the top, in the previous analysis, this proportion is 10% and 48% of the middle 60%, compared with 33% in our previous analysis.

chemical suppliers apply digital methods to marketing and sales

Direct business interfaces - or digital platforms - are becoming more and more popular with B2B buyers. Chemical suppliers who want to win in this field must act quickly.

More and more chemical suppliers apply digital methods to marketing and sales. One form of expression is the creation of direct business interface or digital platform. These platforms offer chemicals, plastics and synthetic materials on two customer bases: manufacturer to manufacturer (B2B) and manufacturer to consumer (B2C).

Among them, B2B buyers are more and more willing to buy through the digital platform. In fact, our research shows that 85% of B2B buyers prefer to buy known products from digital platforms rather than by phone or email. One reason for this preference is that consumers pay more and more attention to digital shopping experience.

From the perspective of customers, the digital platform in the field of chemicals can be divided into two dimensions: 1) single manufacturer and "open platform" including multiple manufacturers; 2) standard trading platform and platform for industry expertise. In general, standard products with a dispersed customer base, such as polyethylene, have the greatest potential to be sold through digital channels. Products with large price fluctuation can be sold by electronic auction. Moreover, predefined products can provide more flexibility, thus providing more choices for consumers.

To be successful, such a platform must meet three criteria (chemicals meet these three criteria). First, the transparency of product price (the existing product specifications are not transparent); second, the increase of low efficiency (the platform can simplify sales and make use of scale efficiency); third, the decoupling of production and market matching (the manufacturer is not necessarily the person who sells products). For these reasons, no player can win the digital platform game. On the contrary, joint ventures formed by several chemical suppliers working with e-commerce start-ups (helping to improve speed and flexibility) are likely to succeed (bringing products and data on a large scale and sharing market technology).

Chemical suppliers who want to launch a successful digital platform must act quickly. They have to understand the customer's needs, pain points and the investment needed. Once success factors have been identified, priorities can be identified. For example, is it important to connect with other manufacturers or have a broad customer base? In this regard, partnerships (inside and outside the value chain) are key, including those with logistics companies (transporting goods), insurance companies (protecting goods), banks (financing goods) and packaging companies (repackaging or labeling goods).

How to win? First of all, building an ecosystem should be seen as a means of matching supply and demand. A key success factor will be to change the way the organization operates to reflect these new priorities. Advanced analysis can also utilize recommended product algorithms. Omni channel configuration can help identify customers and enter the platform search function keywords and phrases. This information will enable the sales account manager to further explore any potential sales opportunities.

How can chemical suppliers remain customer-focused?

With the development of the industry, how can chemical suppliers keep customer-oriented

Those enterprises which are facing industry, digitization, sustainable development and changing demand for talents will stand out in the competition.

In the process of revolutionary subversion, industries around the world are developing in a new direction, and the chemical industry, which provides the cornerstone for the global economy, has no choice but to follow suit. But what will the future - oriented chemical industry look like?

Globally, the changing needs of digital and end-user industries force chemical suppliers to develop new products. Chemical suppliers are also introducing artificial intelligence and machine learning into R & D to improve data analysis and digital platform in high potential areas and modernize their operation mode. In response, companies must rethink their talent priorities to develop an innovative and customer-centric culture to keep up with changing times.

Our global chemical market outlook (PDF) explores the trends and drivers of the chemical industry in the future. Our views are summarized as follows. Under the background of industry transformation and strengthened supervision by China and IMO, there are four key strategies worth pursuing

1. Follow the developing needs of customers and end users

We need powerful solutions to cope with the convergence of end-user industry, the change of cross generation preference and the emergence of advanced technology. Develop a portfolio plan, carefully study the future of energy, agriculture, mobile and technology, and map out the possibilities.

For example, what chemicals will be needed for electric vehicle batteries? Can you work with research institutions, the automotive industry and start-ups to license this technology in the future mobile field? Do you invest in sustainable technologies and products, such as seaweed based plant nutrients?

2. Using digital technology to promote the new era of chemical production

New technologies such as 3D printing and 5g will drive demand for reinforcements to complement their use. Artificial intelligence and machine learning are being used in experimental iterations to reduce R & D time and costs.

Chemical suppliers can improve product quality, develop new business models, and accelerate innovation through technologies you may not have heard of. These include soft sensors (which can estimate process variables that are difficult to measure), 4D printing (objects that can be 3D printed by optical or thermal conversion), and edge computing (which can reduce dependence on centralized and always connected network segments).

Demographic changes and new technologies are changing the way, why and where people work, as well as the demands and expectations for labor. In order to acquire the required skills, enterprises need a new way to attract, develop and motivate employees.

3. Take the road of sustainable development

The United Nations has set ambitious goals for sustainable development - zero hunger, good health and well-being, clean water, sanitation and energy, climate action - and chemical companies can play a huge and beneficial role by working with end-users to develop solutions.

For example, possible strategies in this area include investment in R & D to develop high-yield fertilizers and agricultural growth promoters, low-cost solar cells and fuel cells, bio based raw materials, enhanced water treatment and purification technologies.

4. Give priority to talents and culture to promote growth

In order to develop an agile workforce, companies cannot ignore the importance of soft skills, such as leadership, communication, innovation and digital skills. These skills complement departmental expertise and know-how to facilitate the deployment of the latest technologies in their operations.

The world's top employers can teach the industry a lot about how to develop a culture of innovation, growth and employee benefits. For chemical suppliers, in addition to monetary benefits and appropriate growth opportunities, it is essential to provide overall compensation, and efforts should be made to strengthen the brand in the market.

The future chemical industry has begun to take shape today. And companies that build on these trends are now positioning themselves to thrive in the future market.