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Challenges Faced By Chemical Suppliers

22 Jan, 2020

Challenges Faced By Chemical Suppliers

The chemical industry bears an immense significance in our regular operations and day-to-day lives. The Indian chemical industry is a booming domain, manufacturing more than 70,000 chemicals that are indispensably linked to our lives like Thermoplastics, PVCs, synthetic apparel and textiles, fertilizers, drugs, and other highly sophisticated pharmaceutical products cleaning agents and numerous others.

The chemical industry is keeping pace with the rest of the manufacturing and production industry in India. India currently occupies the sixth position in the list of largest chemical producers across the whole world and the third position in the list of largest chemical producers across all of Asia. Though there is an immense opportunity and scope for further growth and expansion by the chemical industry, it is also facing a lot of challenges and critical roadblocks that it has to overcome to achieve its ulterior objective.

Recent most developments in the chemical industry

The global chemical industry is experiencing a windfall. Though the market is continuously expanding at a tremendous rate, the profitability is skyrocketing. On the other hand, the resulting market competition has ensued, are affecting the efficiency, productivity, and overall performance of the chemical companies.

The highly prosperous chemical market means that it will continue to attract more players, particularly the big ones, thus enhancing the competitiveness and the associated pressure in the industry. Therefore chemical companies are invariably prone to facing critical challenges and should constantly strategize as well as perform accordingly to overcome them.

Unique challenges faced by chemical companies in the recent past

Chemical manufacturers and suppliers, in general, are witnessing several unique challenges. The key challenges faced by chemical suppliers can be summarized below:

    1. Metamorphosis of business portfolios:
    2. Product diversification is on the rise in the chemical industrial sector. Acquisition and mergers are also happening at an exponential rate in the chemical industry, especially in the specialty chemicals sector. Big companies are continuously acquiring minor ones.

      Therefore, it is evident that the business portfolios of chemical companies are highly dynamic as the manufacturers are continuously integrating newer divisions in their scheme of things. They are also getting rid of some other ones which do not fit their provisions at the moment. Chemical producers are always engaging in new market entries and also taking a position in strategic as well as operational mergers. Globalization is another crucial reason that has enhanced the complexity of business portfolios of chemical companies.

    3. Ever-changing demand patterns:
    4. There is minimal scope to ascertain the demands for the chemical products and predict the amount of customer insistence. Uncertainty and unpredictability of the nature of claims are now commonplace in the chemical industry. The chemical companies have extremely restricted amounts of visibility into the orders that their customers will be placing or requesting in the future. The customer portfolios are even varying while they are expanding, and they cover several types of end-user markets. Thus, visibility in the variations of demand represents significant challenges for chemical manufacturers and suppliers.

    5. Expanding portfolio of the products:
    6. Integration of newer technologies is leading to an increasing amount of innovation and research on the products that the industry is presenting to the world. The continuous change is a result of increasing differentiation, selecting newer points of market entry, and effectively planning them as well as the scope of maximizing customer loyalty. The increase in the introduction of more new products, frequent adjustments, and adaptation of the existing products has resulted in a significant number of products in the market. This scenario has led to increments in the operational complexity of the chemical companies.

    7. Regulations and compliance related issues:
    8. Chemical manufacturers are facing growing problems in the documentation of product quality and the compliance of various procedures. These issues are generally contributed by multi-level regulations imposed by the Governments, requirements posed by the end-user market, as well as specific needs and necessities of the customers.

    9. Highly increasing intimacy of the customers:
    10. One of the most crucial trends which are driving companies in the chemical sector is bridging the gap between the industry and its pool of customers. The reasons are the introduction of customer-specific service arrangements and tailor-made products in the market. This case has led to an increase in the complexity of business operations of chemical companies while creating enormous product differentiation too.

Few of the Traditional Challenges and Problems Specific to the Chemical Manufacturing Industry.

Challenges Confronted by Chemical Manufacturers

    1. Inadequacy and shortage of raw materials:
    2. The raw materials which are required in the organic and inorganic chemical industry, which even spans the specialty chemical industry, are often inaccessible and not available in the market in the required quantities. In addition to raw materials, also treated water is an essential requirement for chemical industries. The shortage of water treatment plants makes the scenario increasingly tricky.

      The primary raw materials like naphtha and natural gas are very high-priced in the Indian market compared to the Middle Eastern states, China, and other South-East Asian countries. This case renders the Indian chemical industry uncompetitive in the global market.

    3. Ease of the affordable import of materials:
    4. One of the most significant challenges that Indian chemical manufacturers and suppliers face in general is the shortage of expertise in the import of cheap chemicals.

      The Indian Government has made multiple efforts to waive off the taxes and other regulatory barriers that prevent the entry of numerous chemicals through import. This scenario has resulted in an improvement in the import of several chemical substances at inexpensive rates that are available in the global market.

      Absence of the necessary audits that regulate the qualities due to blockades in transparency result in the increased number of product recalls from the market and thus poses a considerable problem.

    5. The remote location of the industries and inadequate infrastructural facilities:
    6. A vast expanse of the chemical industry in India is located along the Westernmost coast of India, i.e., along the stretch of Gujarat. The market statistics indicate the fact that the biggest consumers of chemical products are located along with the Eastern and Southern Indian territories.

      This case causes a massive augmentation of the price in logistics and transport, thus affecting the cost of the chemical products. Infrastructural complications like the absence of adequate facilities of ports, poor connectivity of pipelines, insufficient power supply, an abnormal condition of the railway system, and erratic nature of the transport system make it challenging for the chemical manufacturers to obtain raw materials from vendors across the country.

    7. Problems in regulations and compliance and high rates of tax:
    8. It is often found that the duties imposed on a lot of raw materials surpass the tax that is imposed on ready-made chemical products and supplies. This scenario causes a massive disruption to the manufacturing sector of the Indian chemical industry.

      This case prevents the import of an array of raw materials due to the high amount of taxes inflicted upon them. It only facilitates the import of similar chemicals and raw materials that have leaner tax regulations. This situation also leads to higher discrepancies in prices.

Key Takeaways

These can be unarguably denoted as the most significant challenges faced by the chemical suppliers, particularly in India.

Shanti Inorgochem is one of the foremost and leading chemical suppliers in India, which is battling the challenges mentioned above and consistently striving for better performance.

Written by: Avanish Patel

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