Chemical companies have had their share of progress the past 2 decades. They have gone from the bottom to all the way up top, and have also become globalized in this whole process. However, nowadays, chemical companies are increasingly facing a harsher environment; probably because nowadays chemical companies are grapple with increasing commoditization. They have previously tried and are still trying to cut down the operating cost to offset this trend. However, during this period, the marketing and sales sector has been suffering, and as a result, expenses have continued to rise. Even signs like a buck 188 for sale could not help us gain back profits.
Companies are coming up with operating models to help improve margins and have concluded that this matter cannot be solved or fixed over by the sales and marketing department; this strategic issue needs the intervention of the company’s leadership, but taking steps in this direction has proved to be difficult by many companies.
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The chemical sector had been performing well in the capital market since the 2000s, and a part of that industry had enjoyed their share of high profits because of gas feedstock. However, for the majority of the players, product ranges have started to become more and more comprehensively commoditized and resulting in squeezed margins.
On doing an analysis of 50 plus leading global companies, we found out that in the time period of 10 years over 2004-14, general and administrative cost, in comparison with revenues, rose from 13.4 % to 14.4%, and a similar type of pattern was observed in the evolution of SG&A relative to gross profit.
All of this has been happening because their colleagues are taking a lean approach towards operations. The commercial department keeps on pushing to go with the traditional marketing and sales approach. And that adds to their expense. Digital technologies can afford the commoditization trend and new opportunities. Making this a good time for chemical companies to rethink their sales and marketing operating models.
There must be a reason behind the emerging commoditization trend, let us take a look at that. Production technology for chemicals have become broadly available and has also lead to a rapid buildup of capacity. This being the case in emerging markets. Along with this has come a unique type of engagement with customers with a traditional chemical producer. The number of chemical producers has also increased day by day, in spite of consolidation of more mature western markets.
Concluding this article by stating that like every other sector of the economy. They too have had their share of ups and downs. They too have faced competition and all sorts of fights. But you always find out a way and make the best of it. As they did by globalizing them and will soon become one of the most profitable sectors as well.