Consulting Firm Publishes Research on the Future of the Chemical Industry

Global consulting firm Simon-Kucher & Partners has identified five industry-specific focus areas that chemical manufacturers must address to strengthen their competitive position in the future. Cem Balıkçıoğlu, Partner at Simon-Kucher & Partners, notes that trade restrictions, eco-friendly chemicals, service-based contracts, agile sales, and digital customer experience share a common denominator: "customer proximity." Balıkçıoğlu stated: "The coming period will be a critical turning point for chemical companies in determining their competitive position, depending on how well they navigate challenges across these five areas." "Change" can be regarded as today's most significant business reality. The COVID-19 pandemic continues to affect global economies. As new variants of the pandemic, technological shifts, and other factors rapidly transform the world, sectoral dynamics are being restructured. The chemical industry is among the sectors most affected by this change. Research conducted by global consulting firm Simon-Kucher & Partners on the chemical sector presents striking data on the direction of sectoral change and the new focus of competition. Among the findings of this research is that there are five areas on which chemical manufacturers must focus to strengthen their competitive power in the coming period. These five areas are expressed as: trade restrictions, eco-friendly chemicals, service-based contracts, agile sales, and digital customer experience.

Time for localization

The trade equation in the petrochemical industry, which has always depended to some extent on geopolitical factors, has become more complex recently with the increasing importance of sustainability. Beyond political environment and costs, compliance with environmental standards and customer demands now affects chemical companies' decisions on where to sell their products and where to source raw materials. The research suggests that companies need to give greater consideration to localizing their production to minimize trade risks. The research indicates that planning and implementing localization in the sector may take several years, but focusing on sustainability and eco-friendly chemicals will accelerate the localization process.

The right environmental approach

It is safe to say that sustainability is a critical issue for chemical companies. From carbon regulations to end-consumer expectations, pressure is mounting for chemical companies to deliver on their promise of sustainable materials produced with green energy. This mounting pressure is likely to be significant enough to cause some companies to decide not to produce certain products. However, the research also presents a solution for chemical companies: "Sector companies can overcome supply shortages resulting from their reliance on fossil-based raw materials or prevent falling into a competitive disadvantage due to trade restrictions by turning toward renewable raw materials and recyclable materials." Nevertheless, Simon-Kucher experts state: "The real challenge for chemical companies is not to 'be environmental,' but rather to find the most suitable 'green' tone for themselves and their customers by accounting for all dynamics."

Service-based contracts hold significant share

Service-based contracts are among the important tools that help companies differentiate themselves from competitors in the sector, create new competitive advantages, and support future revenue growth. However, it is difficult to say that the chemical sector is using this tool effectively enough. According to the latest research by Simon-Kucher on service-based contracts, the sector earning the lowest income share from service-based contracts is chemical companies, with only 3 percent. On the other hand, the share of income from service-based contracts in the chemical industry is expected to triple within the next three years. Simon-Kucher experts state that chemical companies must systematically improve their customer proximity to capture opportunities in service-based contracts. The experts recommend that chemical companies improve and expand the services they provide in key areas such as logistics, training, and data transfer.

Agile sales strategies

According to the research, as the COVID-19 pandemic subsides, chemical companies will have significant opportunities to make their sales processes more agile. Simon-Kucher experts, who stress that the sector can increase synchronous interactions with customers by adopting agile sales strategies, offer the following recommendation to sector companies: "First, chemical companies can shorten their sales cycles. Second, they can achieve significant improvements in time-to-market for products through properly defined prioritization rules. Finally, by using digital technologies to increase visibility, provide guidance, and improve communication, they can position themselves sales-focused."

Can the digital gap be closed?

The widening digital gap between chemical companies and their customers is among the striking findings of the research. While B2B customers are digitalizing, their suppliers remain significantly behind on digitalization. Öykü Elmas, Director at Simon-Kucher & Partners, outlines four steps to consider when creating a market entry model to serve digital customers: 1) Redesigning how chemical companies interact with their customers, 2) Determining the right sales channels, 3) Optimizing service models, 4) Adapting sales models to the new system.

Common denominator: customer proximity

Cem Balıkçıoğlu, Partner at Simon-Kucher & Partners, notes that the research plays a critical role in preparing the chemical sector for the new competitive environment. Balıkçıoğlu states that the common denominator of the five focus areas identified in the research is "customer proximity." Regarding the research findings and the actions that must be taken, Balıkçıoğlu says: "Chemical companies need to get closer to their customers to understand how their demands are changing. Opportunities will emerge when chemical companies move away from focusing solely on a production mindset and draw closer to the real-time dynamics of customer demand. When they stop asking themselves 'How much product does my customer want?' and start asking 'What is the best way to help my customer?', they will begin to see opportunities. What will set the coming period apart is the need to translate these focus areas into concrete actions that will have a significant positive impact on revenue and margins. The coming period will be a critical turning point for chemical companies in determining their competitive position, depending on how well they navigate challenges across these five areas."