Hope is not a strategy

Economic growth

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Hope Sept16Chemical companies face difficult times if they cling to the hope that current challenges will simply disappear.  This is my main concern in a new analysis for ICIS Chemical Business.

It argues that major change is underway in petrochemicals and polymers markets, which will create winners and losers. The current round of major capacity expansions has been based on two flawed assumptions:

   Oil prices would always be above $100/bbl and provide US gas-based producers with long-term cost advantage
   China would always grow at double-digit rates and require ever-increasing volumes of petrochemical imports

Life would be difficult enough if just one of these assumptions had proved to be wrong.  But now the industry is going to labour under the burden of spare capacity for years to come. Even worse, this surplus will be occurring at a time when global trade is being impacted by rising protectionism, as governments focus on preserving local jobs.

The winners will be those who develop new business models, aligned to future market needs.  The losers will simply carry on, business as usual, heading into an inevitable brick wall.

The good news is that two major new opportunities are available to spur future revenue and profit growth, as we highlight in the joint ICIS/International eChem study “Demand – the New Direction for Profit”. Both require new business models, but are closely aligned with core business competencies:

  One opportunity is based on the future megatrends of water and food – two of the five critical risks highlighted by the World Economic Forum for the next decade
  The second opportunity is to develop a more service-based offering, using industry expertise in areas such as process engineering and research and development

There is no doubt that the industry faces difficult times in the next few years. Its previously successful growth models are going to be increasingly challenged by overcapacity, protectionism and the climate change agenda.

Losing companies will ignore the mounting evidence of paradigm shift, as well as the potential for growing revenue and profit by helping customers to “do more with less”. But winners will recognise that new, more service-driven strategies will provide an excellent base from which to develop the new offerings required for future success.

Please click here if you would like to download a free copy of the analysis.

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