A new formula for global chemicals supply: How multinational companies can transform their supply chains in light of disruption

November 19, 2019

Executive summary

The chemicals sector is changing rapidly. For the past 20 years, multinational corporations have been consolidating their supply chains to the point that some products can be sourced from only one or two countries. Lower costs, the ability to produce larger volumes, and stricter environmental regulations in developed countries all contributed to this shift.

Currently, for example, China’s output accounts for about 39 percent of the global chemicals sector,1 and the sector in China is expected to expand at a compound annual growth rate (CAGR) of around 5 percent until 2025, involving total sales of US$4.85 trillion. This growth compares with around 2.7 percent CAGR in the U.S., 1.3 percent in Germany, and less than 1 percent in Japan over the same period.

Business leaders well know the risks of overreliance on a single, or limited, market for raw materials and intermediates. This situation is leading some multinational companies to rethink and diversify their supply chains, which represents a new set of challenges. Companies in the chemicals industry must build wider and more robust supply networks, looking beyond any one country to do so. Because many governments are becoming more environmentally conscious, companies must focus on removing most highly polluting substances and processes from their product mix. Nonetheless, there are ways in which they can expand their market share and profitability.

To compile this report, Strategy&, PwC’s strategy consulting business, interviewed top executives at five leading global chemicals companies — three based in Germany and one each in China and the U.S. — that had deep experience in global trade. Using insights from these interviews and observations of the industry, we propose measures that global companies can take to manage the changes in chemicals supply.

For the short term, these measures include securing supply, using alternative formulas, and resorting to a financial buffer. For the medium term and long term, companies have a limited window of time in which to create a favorable competitive position. The recommended measures include establishing a resilient supply chain, reviewing product portfolio and business segments, and staying vigilant.

1“Inflation adjusted global chemical industry sales,” IHS Markit, Jan. 17, 2019.

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The risks in today’s supply chains are undeniable. However, the changing landscape also offers opportunities for multinational companies buying from and manufacturing in China.

Multinational chemicals companies must first establish a short-term plan to secure supply or find alternatives. In the longer term, multinational companies should take back control of critical competencies by staying vigilant when it comes to changes in the business environment. They must also adjust their product portfolios to ensure long-term competitiveness — even if that requires making painful changes in the coming years.

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Iris Herrmann

Partner, Strategy& Germany

Dr. Nils Naujok

Partner, Strategy& Germany

Krishnan Narayanan

Advisor, Strategy& South Asia

Ruirui Zong-Rühe

Senior Manager, Strategy& Germany

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