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Deloitte: Chemical firms must change focus

Frankfurt: In order to deal with the current economic climate, the global chemical industry will have to go beyond cost-cutting measures and look for new sources of value creation and growth. According to a new report launched this week by the Deloitte Touche Tohmatsu Limited (DTTL) Global Manufacturing Industry group, achieving this will require the industry to expand its perspective to a broader, more holistic view of end markets.

Many end markets are experiencing rapid changes as megatrends such as green/sustainability, resource scarcity, and urbanization accelerate value migration, converge technologies, form new markets, and give rise to new unmet needs. The DTTL report, End market alchemy: Expanding perspectives to drive growth in the global chemical industry, provides insights to help the global chemical industry explore and address relevant unmet needs that can help them unleash potential value in end markets.

Navigating existing and potential new end markets can be challenging for chemical companies and their customers. Taking a closer look at the current financial situation, performance, and changes in end markets can lead to potential vectors of value growth.

"Chemical companies should consider thinking more like their end market customers. It may not be enough for companies to expand their perspective to end markets alone--they should also look at all of the links along their value chains that lead to their end markets to determine where they can derive the most potential new value," says Kai Goebel, Director, Deloitte Germany. "A chemical company's most ideal situation for successfully capturing its full growth potential depends on its ability to adjust its business models by defining and developing the key capabilities needed to succeed. This will likely capture the growth opportunities available from the end markets that chemical companies serve."

According to the report, one approach to unlocking new market opportunities is finding unmet needs through megatrends. These megatrends present challenges that can be solved through new products and solutions that are developed as a direct response to unmet needs of current and future customers in the various existing and developing end markets, while taking into account the risk and complexity for a chemical company to approach an unmet need in one end market.

"Assessing unmet societal needs of underlying megatrends implies a deviation from traditional asset-driven product development, and favors greater systems and solutions thinking," says Duane Dickson, DTTL Global Chemical sector leader. "An updated market-focused growth model could position the role of chemical companies as more than just purveyors of liquids and solids: as problem solvers and solution providers."

The report assesses approximately 10 years of financial information for 230 chemical companies and 3,000 end market companies, and assigns the data to industry groups and end markets segments. The analysis includes 16 end markets that encompass 55 segments, including personal care, health care, household, nutrition, apparel and textiles, transportation, mining and metals, machinery, automotive, construction and infrastructure, electronics, paper and packaging, commercial printing, energy, water, and agriculture.

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