Major Discontinuities in The Global Chemicals Market: Operational Excellence: Leadership Perspectives

Operational Excellence:
Leadership Perspectives Major Discontinuities in the

“The key drivers—market-
driven growth and
Global Chemicals Market
innovation, increased As the global economy ebbs and increase differentiation. For companies
presence in emerging flows from one crisis (U.S.) to the next that prefer to focus on organic growth,
economies and operational (European debt markets), chemical innovation will continue to be the main
excellence—remain at the companies are looking for new driver. But chemical companies are
opportunities to improve performance continually pressured to improve their
heart of DSM’s strategy.”
and recapture lost growth momentum. return on innovation by increasing both
Feike Sijbesma, CEO, DSM But leadership teams are facing a series the effectiveness and efficiency of their
of challenges that will likely result R&D operations. In either case, cost
“Through perseverance,
in a reshuffling of winners and losers reductions in operations within mature
resilience, and reorganization, across the industry’s distinct segments, market segments will be key to funding
as well as the ongoing from petrochemicals and polymers geographic expansion and innovation.
commitment to operational to inorganics and agrochemicals.
Emerging markets—and emerging
excellence, we have The challenges come in many forms: players in those markets—represent
positioned our businesses for another challenge as they put
In saturated Western markets, organic
growth in the coming year.” increasing competitive pressure on
growth is difficult, leading large
mature markets. The future state of
Jeff Quinn, CEO, Solutia Inc. players to look at acquisitions as the
the chemicals industry is likely to be
primary means for achieving above-
defined by access to feedstocks and
average growth and increasing market
growing consumer demand in emerging
share. Many segments in the chemicals
markets. As such, the industry will
industry remain highly fragmented,
increasingly be defined by players that
with the top five companies in
have access to the feedstocks, markets
categories such as adhesives and
and technology of the emerging
sealants, catalysts, plastic additives,
world. Already, we are seeing the rise
food additives and electronic chemicals
of emerging market multinationals
controlling less than 50% of the market.
(EMMs), with companies such as
This opens the door for consolidation
Sinopec (China), SABIC (Saudi Arabia),
through M&A, with the current
ChemChina (China), Reliance Industries
economic rebound raising the specter
(India), Braskem (Brazil), and Lukoil
of new takeover opportunities (recent
(Russia) capturing local market share
examples include CF Industries’ $4.7
from mature-market multinationals.
billion acquisition of Terra Industries
These EMMs are not constrained by
in the agrochemicals sector, Japanese
traditional operating models and have
chemicals leader Mitsubishi Chemical’s
demonstrated a willingness to take on
$2.52 billion purchase of Mitsubishi
more risk than more established players.
Rayon, and the 3.1 billion-euro takeover
For example, by investing in assets in
of Cognis by BASF). This is a particular
Africa, emerging companies reason that
focus of global providers seeking to
uncertain political situations in some
improve their presence in emerging
parts of the continent are an acceptable
markets along with their proximity to
trade-off to ensure better proximity to
critical feedstocks and their desire to
raw materials.
move further up the value chain to
3
Volatility is another disruptive force. and younger engineers focus on
Raw materials costs are increasingly different disciplines. The gap has
unstable; the pace of business created a need for as many as 15,000
cycles is increasing. The growing fresh chemists or chemical engineers
interconnectedness of local and regional globally each year. As chemical
markets increase complexity and risk, companies seek to revamp their
as crises in one area can quickly impact operating models, they are hard-pressed
another market on the opposite side to capture and transfer the wisdom
of the globe due to the real-time of outgoing employees while attracting,
exchange of information enabled training and retaining employees
by the global economy. Chemicals who possess the new skills required to
companies must respond more quickly compete in the new global economy.
to rapidly changing cycles across
To be more responsive to these market
geographies, which requires more
discontinuities, chemical companies
balanced customer bases and product
are finding an urgent need to become
portfolios, sophisticated cost and price
more flexible in their operations. The
management practices, and deep
winners in this new landscape are
insights into market developments.
creating global operating models that
As traditional business practices evolve,
enable them to capture market share
companies will need to increase both
and exploit global scale efficiencies
the flexibility and agility of their
(assets, sourcing approaches) whilst
operating models and processes.
also building flexibility and customer
A fourth challenge is sustainability, centricity close to demand points.
spurred by growing environmental Accenture believes that a more
and safety concerns (e.g. REACH). New proactive approach to achieving
regulations aimed at product safety and operational excellence is the most
sustainable production are driving up important competitive differentiator
costs and forcing chemical companies for these times.
to refine processes and governance
The general principles around
structures to develop more sustainable
operational excellence are not new.
products and supply chains by reducing
But the volatility and uncertainty
error rates and increasing flexibility to
of global markets for all segments
adapt to changing operating models.
of the chemical industry makes
As chemical companies address operational excellence a new
these external trends, they also face imperative for many CEOs.
a significant internal challenge: a
shrinking workforce. The worldwide
chemical workforce is contracting,
as aging workers leave the industry
4
Key impact of market discontinuities on
operational excellence, by chemical segment
Petrochemicals Paints and Coatings:
For emerging companies: For emerging markets/companies:
• Managing large-scale operations including distribution • Exploring M&A options (e.g., the fragmented Chinese
and logistics (e.g., port bottlenecks in the Middle East) and Indian paints and coatings market)
• Managing global governance, as large locals turn into For mature markets/companies:
giant multinational companies
• Exploiting high health, safety and environmental standards
• Managing large-scale, rapid integration of acquired as a competitive advantage in emerging markets
(e.g., Western) companies
• Focusing on innovation , R&D and end market relationships
• Managing cultural differences in a global company
• Focusing on end-user proximity and stable position within
For mature companies: the home market
• Managing cost competitiveness; e.g., reduce complexity, • Investing in distribution infrastructure and branding
error rates; increase process speed, decision making
Agrochemicals
• Increasing local presence in emerging markets • Building globally efficient operating models (e.g. , sales
Polymers (Plastic Resins, Synthetic Rubber, and operations planning)
Film and Fibers) • Differentiating services based on customer and market
• Building processes that allow for high flexibility demand and driven by profitability
to follow customers • Balancing working capital with service levels while
• Managing cost competitiveness to deal with cost maintaining flexibility
pressures from emerging regions • Establishing a global presence in large agro markets
• Segmenting customers to serve cost-sensitive and • Defining a strong local presence and knowing how to meet:
other customer needs
– Regional farmers’ needs
• Fostering large-scale facilities to produce cost-efficient
and state-of-the-art technologies (e.g., managing joint – Local legislation on gene-manipulated seeds
ventures to reach scale) – Local soil requirements and weather conditions
• Integrating vertically (e.g., to counter tire manufacturers • Managing cost competitiveness in the fertilizer business
producing their own synthetic resins) to deal with strong cost competition
Inorganics • Building global logistics vs. regional distribution channels
• Continuing to focus on presence in local markets, • Leveraging local R&D
as some markets tend to be very regional
• Choosing capital investments that coincide with the
company’s production cost model as well as market
growth considerations
• Remaining attentive to environmental regulations
• Managing price and maintaining supplier relationships
Source: Accenture research

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Operational Excellence:

Leadership Perspectives Major Discontinuities in the

Source: Accenture research

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