INSIGHT: E-business shows its worth

05 September 2007 16:57  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Whatever happened to e-business in chemicals: the shift of traditional marketing routes to the internet, using e-marketplace providers?

It morphed into something new and different. A multitude of business pathways enabled by new software and technology.

E-business was going to revolutionise the way chemicals are sold. It was to provide new cost effective trading platforms, link companies and help to cut costs.

But it hasn’t worked out quite like that.

The number of chemicals-related e-business sites has dwindled, leaving one major provider. Chemical companies have very much done it on their own.

Business has shifted to the internet. Some high profile web-based chemicals vending businesses and e-commerce sites have come and gone. The role of the independent e-business provider has diminished and become, in hindsight, much more fit for purpose.

Change has come much more slowly than some in the sector expected. Just past its seventh birthday chemical industry e-platform Elemica is trumpeting the fact that it has turned a profit for the second year in succession. But a great deal of red ink has been spilt to get this far. Elemica-linked companies should be given a pat on the back for their for their perseverance.

It was all going to be so different. Chemical producers and their customers were to be linked seamlessly via the internet. E-business platform providers would help producers cut costs and help link them to a multitude of customers. The Elemica platform was to be a facilitator and provide a storefront for producer’s wares.

Unfortunately business pathways have proved too complex and producers, quite rightly, too difficult to please.

The Elemica platform, however, is more solid than it was. Transaction values totalled $50bn in the 2006/07 fiscal year. Earnings before interest, tax, depreciation and amortisation (EBITDA) were clearly in the black and more than 100% higher than in the previous year, the company said this week without going into details.

“Elemica is well-positioned to keep growing – adding new clients, building our network, expanding our scope of services and increasing the value we deliver to our clients,” chief executive Mike McGuigan said.

The chemical companies that own Elemica have paid a high price to get this far but seem to be at last getting what they want. Some initial investments have been written off.

The platform boasts some big name chemicals amongst its most important clients – and many of them appear satisfied. What Elemica still needs to do is pull in business from many more of the thousands of chemical companies that might benefit from its services.

Elemica has helped drive costs out of the value chain: it was set up to do so. It has battled with business process standards which will ultimately facilitate better business to business communication.

Making the multiple connections that Elemica and other e-business platforms were supposed to do has not proved easy. Indeed most supply chain transactions – 97% in 2006 according to the Elemica – are made by telephone, fax or are ‘point-to point’.

But as more producers and their customers begin to think in the same way and ask: how can I do this better? the e-business platform can think about expanding an offering that had to be slimmed down so it could survive.

Two years ago, Elemica had moved into the black and transactions were increasing. The company has been able to build further transaction volumes in a relatively benign industry operating environment.

“We are continuing to grow this coming year, and intend to extend our offerings to reach the entire chemical industry,” McGuigan says.

Whether the company is successful in that regard remains to be seen but the lure of more cost effective e-business is attractive to more chemicals firms.

As industry’s internet links become more widespread – and as firms and their employees become more internet savvy, e-business platforms might be expected to thrive.

By: Nigel Davis
+44 20 8652 3214

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