Specialty Chemical Distribution-Market Update

Specialty Chemical Distribution-Market Update

          
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Specialty Chemical Distribution-Market Update

Strategic Imperatives for Suppliers and Distributors
Industrial Products & Processes, Marketing & Sales
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  • Over the past four years, The Boston Consulting Group has published a series of industry reports on chemical distribution. This report, the latest installment in the sequence, describes success factors for suppliers and distributors of specialty chemicals. To reach our conclusions, we updated our market model and conducted a series of interviews with suppliers, distributors, and end customers. (See “Methodology,” below.)

    See Opportunities in Chemical Distribution: Optimizing Marketing and Sales Channels, Managing Complexity, and Redefining the Role of Distributors, BCG report, January 2010; “Market Growth and Trends in Specialty Chemicals Distribution in Europe and Asia,” BCG market update, March 2011; and The Growing Opportunity for Chemical Distributors: Reducing Complexity for Producers Through Tailored Service Offerings, BCG Focus, July 2013.

    METHODOLOGY

    Suppliers of chemicals can outsource sales to three types of players: third-party distributors, agents, and traders. In our market analysis, we defined the chemical distribution market as the gross revenues of third-party distributors.

    This definition excludes direct distribution from chemical suppliers, as well as net revenues through agents and traders. (Some third-party distributors obtain a small portion of their revenues as agents, yet that amount is assumed to be negligible.) Physical market sizes are defined in terms of the country or region in which the chemicals are consumed or processed.

    Market sizes are shown in nominal euros. In order to show underlying growth, we have corrected market growth rates for exchange rate effects using Economist Intelligence Unit (EIU) average annual exchange rates, with fixed rates as of 2008.

    For our analyses, we used data from the following sources among others: Chemdata International; Verband der Chemischen Industrie; European Chemical Industry Council; “Manufacturing,” by Oxford Economics; EIU, for foreign exchange rates and industrial production change; World Input-Output Database; American Chemistry Council; Eurostat; United Nations Industrial Development Organization; ICIS; Orbis; and companies’ annual reports, websites, and filings with the U.S. Securities and Exchange Commission.

    In general, the chemical industry can be categorized into commodity and specialty segments. Commodity chemicals are produced (and consumed) in bulk, with relatively transparent pricing and minimal variation among suppliers. By contrast, specialty chemicals are typically produced in smaller volumes and are, in many cases, proprietary formulations that customers use in specific applications. These categories, though, are not black and white; changes in the life cycle of chemical products lead to a gray zone.

    In practice, this is a spectrum with multiple potential operating models for each segment. To develop the segmentation used in our reports, we have classified approximately 175 chemical products and product groups.

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