Chemical industry facing five key challenges in 2019 - consultants

Author: Stefan Baumgarten


HOUSTON (ICIS)--Chemical companies are facing five big challenges impacting their growth, sales and profits this year, consultants Simon-Kucher & Partners said in a report on Tuesday.

The challenges are from volatility, innovation, online portals, customer relationships, and mergers and acquisitions (M&A), the Germany-based international consultancy said.

The volatility of raw material costs, exchange rates and tariffs continue to create “a dynamic environment”, the consultants said.

Agility in contract and price management, in particular, will be a key success factor in 2019, they said.

“Those who aren’t flexible enough in negotiating contracts or fast enough in adjusting prices will face massive pressure on margins,” said Andrea Maessen, one of the report’s authors.

“Digital pricing and data analytics will be important tools to significantly accelerate pricing processes,” she said.

Innovation is at the core of the chemical industry’s competitiveness and firms make major investments and significant product developments. However, 72% of all new products miss their profit targets, primarily because companies consider the monetisation aspects of new products far too late in the innovation process, according to the report by the Simon-Kucher consultants.

Maessen said that to successfully monetise innovation, companies early on must factor in the customer’s perspective and willingness to pay, and they must evaluate new pricing models and metrics and incorporate behavioural pricing strategies.

“Big data and intelligent algorithms, and the tools to utilise them, like BASF's super computer Quriosity, further strengthen the industry’s innovation power,” she said.

“Being able to capture the value through smart monetising strategies will become even more important in future,” she said.

Furthermore, the consultants pointed to online portals as becoming an increasingly relevant channel for selling chemical products.

While chemical companies have traditionally maintained direct relationships with their customers, online portals will change these relationships, they said.

The point of contact with the customer will be taken over by new, and in some cases, non-industry market players like Alibaba and Amazon Business, they said.

Digitalisation would also enable “high-quality interactions” along the entire "customer journey", providing companies with a competitive advantage, the consultants said.

“The chemical industry has had digitalisation on its radar for a long time, but so far companies haven’t been able to achieve any significant breakthroughs in managing customer relationships,” the Simon-Kucher experts said in their report.

They pointed to a study they carried out that found that 70% of chemical companies were dissatisfied with their customer relationship management systems (CRM) because of basic functionality limitations.

However, without a fully functioning and comprehensive CRM, it was difficult to identify and harness untapped potential, they said.

Finally, the industry is facing significant structural changes, with competitors from China and the Arab Gulf coming to Europe and exerting pressure on industrial chemical companies, the consultants said.

Against this backdrop, M&A activities would be another factor influencing the chemical industry in 2019, they said.

“Over the past few years, we’ve seen transactional multipliers surge to new heights,” Maessen said.

“Expectations of future sales growth are a major driver for this phenomena. This is why it’s more important than ever to solidly assess the markets in these transactions,” she added.

A media official at Simon-Kucher & Partners was not immediately available for additional comment.