New trend: the traditional distribution model is under threat
The transformation of customer industry, the reorientation of business portfolio of related chemical companies, the improvement of digitalization and the regional transformation of value creation all pose challenges to the traditional distributor model.
In particular, the ability to digitize and analyze large amounts of data in real time, as well as the growing availability of data, increases the transparency of complex supply chains and allows for better management and optimization of complexity.
New entrants such as Alibaba or Amazon are entering the field, increasing transparency and providing better markets and sales channels in growth markets. These entrants act as dealers and agents, so that small and medium-sized customers can have direct contact with manufacturers or customers.
But it's not just these digital trading platforms that pose a growing challenge to chemical dealers. Chemical manufacturer is also looking for new ways to take over their distribution business. E-commerce platform makes customers and manufacturers more closely linked, and questions the added value of dealers.
Digital tools, such as robotic process automation (RPA) and artificial intelligence (AI), greatly reduce the complexity and automation of processes and the need to transfer services to chemical distributors.
To remain competitive, chemical distributors - just like chemical companies - need to improve and adjust their own business models. It seems that the mode of a full range of suppliers with a comprehensive industry, customer, product or market mix is too uniform, and they are facing increasing pressure.
As a result, distributors are promoting vertical integration or focusing on industry segments, such as specialty chemicals or pharmaceuticals. However, there are risks in this process. The interface among distributors, chemical manufacturers and customers is becoming blurred; the competition between distributors and chemical manufacturer is becoming increasingly fierce.
In turn, establishing specific core competitiveness in the sales market increases the pressure on chemical manufacturers to strictly review business fundamentals and the extent of outsourcing to distributors.
Success strategy: turn change into your own advantage through specialization, development as a solution provider and partner.
Despite the risks faced by chemical producers (and their customers), three strategic directions provide opportunities for distributors to focus on changes in the chemical industry. These strategies can also be combined with each other.
Functional and regional specialization
An obvious choice is to focus on specific industry areas (e.g., basic chemistry or specialty chemicals) or in regions such as China or Europe. The different requirements of global growth markets require the development of specific local capacities through market access, regulation, logistics, infrastructure and even local production structures, which many - especially small and medium-sized chemical producers - cannot sustain.
Development as a solution provider
The business model of distribution usually does not focus on chemical products. Many distributors have accumulated extensive professional knowledge outside chemical production. Expansion, the ability from multiple suppliers and the ability to create an ecosystem, establish an overall solution selection and other industries as industrial cleaning rather than clean chemical distribution, wastewater treatment and sales, rather than chemical and plastic combination and application consulting in selected markets may unlock the key to differentiation.
Cooperation with digital businesses
New entrants are entering the chemical industry and its market segments; digital platforms offer a possibility in this regard. These platforms provide extensive and effective market access for small and medium-sized customers in underdeveloped markets. At the same time, chemical distributors are trying to digitize their business model and improve efficiency. In the underdeveloped market, their competitive advantage over digital retailers has been reduced in terms of market, customer access and knowledge advantage, but different from digital retailers, they have special expertise in chemical distribution and product improvement. Cooperation or merger will bring significant strategic benefits.
In view of the destructive development of the chemical industry, distributors must ask themselves whether "business as usual" can ensure their future viability. There are too many recent reforms to sit by. More importantly than ever, with a clear strategic reorientation: the successful strategic adjustment of the distribution business model, which distributors will become market leaders in the future will be determined.