Retooling Business Model – Chemical Trading

Even though the requirements of the market for success has changed immensely in recent years, many companies have incurred huge loss due to antiquated business model and go-to-market approach. Majorly for chemical firms, the problem is manifested in overinvestments in specialty chemicals business because it offers differentiation in the market and high-profit margin in the past but that is rapidly commoditizing.
Other companies have been too myopic, cutting cost in specialty lines that would actually benefit from more nurturing, innovation, and focused investments Chemical companies have been late in recognizing the credible threat from lower-cost capacity built in Asia over the last decade, rendering themselves uncompetitive in these regions, often after they have installed costly assets in commoditized marketplaces. Frequently, these actions reinforce one another and companies end up in a death spiral, forced to close or divest businesses.
To avoid this fate, chemical companies need to deliberately adjust more in their business models not only across different lines of business within their portfolios but within the business themselves, to keep pace with the changing requirements of distinct subsectors. The retooling process always should start with the answers to these questions:

How differentiated are the company’s current products?
The manager should assess which product is unique in the marketplace, which is a marketplace, which is moderately distinctive, and which are indistinguishable from the competitor’s offerings. They should also gauge whether increased levels of service could incrementally differentiate some products.

How intense is the competition?
Companies should determine how many suppliers exist in a given market and whether the primary basis for competition in the market is a low cost, increased customization and innovation, or superior customer service.

What is the key operational imperative?
Companies should assess whether the market needs cab best addressed by running a plant at full capacity or by operating more flexibly to produce more customized and distinctive products. Should the operational imperative be quality and reliability, or is there a greater advantage in tailoring the production process to satisfy unique customer requirements.
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– Written By

Shravan Muthukrishnan

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