In the second part of this article series, a new approach to innovation for polymer emulsions industry is investigated. Like other industries,
polymer emulsions industry must also innovate itself to meet the challenges and opportunities of the future.
Just to recap these from the first part of the article:
There is an outlook of continued future growth, mainly in Asia, but also two main challenges exist:
− Increasing commoditization of the business, and
− A difficult position in the value chain
In the past, innovation in emulsion industry was related to product or, in lesser extent, process innovation. Hence, despite the ongoing success of polymer emulsions, over the past decade or so, no real disruptive product innovations have been delivered to the market. “New” products are often developed but only with marginal improvements over existing ones, i.e. either:
− Adaption for new regions or to new applications, or
− Reactions to regulatory pressure
Also, according to the author’s observations, there is no silver lining on the horizon – that one big disruptive invention that might turn the polymer emulsions industry upside down. To acknowledge this potential future scenario of only adaptive, marginal innovations will actually open new opportunities for the emulsions industry. It is time to take an innovative look at the potential innovations in emulsions industry. There is more than products or process technologies to innovate.
But there is not “the” emulsions industry. There are the segment leaders, big corporations, where the emulsion segment is often back-integrated in its own raw materials and where customers in many applications fields are served globally from many regional sites. But at the tail end, there are also many small local producers, who operate one or two sites with a few stirred tank reactors.
The emulsions industry also comprises of both:
− The long-established players, and
− The newcomers who fight for their share in emerging regions
Each of these players need to find their own approach to take the challenges and opportunities of the future to innovate.
Let's take a look at the strategies to bring innovative emulsion products satisfying consumers' demands to market faster...
The “Commoditized-specialty” Model Needs to Get Re-invented
There is a friction to be resolved for maybe most of the players in the market. From emulsions industry's customer-end, there is a certain expectation to get provided with customized products. This includes a broad product range to choose from, formulation support and in general a high technical service level. This leads to a specialty mindset in the industry.
Consequently, most companies entertain product R&D groups next to Application Developments groups together with Technical Service groups. This leads to expensive lab set up to produce new emulsions recipes and support the formulation work at customer’s end. Customer challenges are, therefore, answered with new products i.e. a new polymer emulsion with somewhat altered raw material base or production process.
This leads to an expansion both at the product end and at the tail end of the raw material base. An emulsion producer can easily have several hundreds of raw materials on its bill and same amount of chemically different products. This adds significant complexity to manufacturing, which is therefore, set up in most cases for batch operation.
But, based on their position in the value chain, the emulsions industry is pressured on the cost side. This happens from both ends. The raw material suppliers control the prices for main raw materials, such as monomers or stabilizers. The customers, who guard the formulation recipes and act as gate to the final applications, have high pricing power and often several alternatives to choose from. So, actually business conditions are calling for a commodity-type economical model.
But, this friction is not easy to solve. Of course, such complex products like polymer emulsions cannot be sold with just models applicable for defined intermediates or commodity materials.
Business Model Innovation
So what can be done? How to keep fulfilling the customers' need for even higher formulation versatility? Or providing better service whilst keeping the cost under control?
To solve the emulsion business model puzzle, the internal operations need to be run with a commodity model. And the external face to the customer must keep its strong specialty mindset.
To put it in other words, the solution is not more of what has been done in the past 25 years, but to re-think and build new business models. This results in questioning and transforming the self-concept of the main functions in the emulsions business.
A New Face to the Customer
In the old specialty mindset, customers with individual needs for highly qualified technical service would be served with a new product. That product would be sold based on value (product performance or service level) to them. The main function of marketing and sales was to maintain the unique selling point vs. competition by:
− Managing growth, and
− Finding the right differentiated segment approach with differentiated service levels
The new face to the customer is to listen, to understand and to anticipate. What are the new trends in emerging markets? What product will be in need in near or long future?
Emulsions companies might ask the following questions regarding an innovative customer face:
− How much technical service does our customer really need?
− How much standardization vs. individualization would actually be accepted by the market (and at which conditions)?
− How can we use new digital technologies to address existing and potential new customers better?
− What are the potential new & different services we could offer (setting the classical technical service aside)?
− Where are new segments and new markets we could serve with a different cost model?
− How can we better translate market needs into technical requirements to improve our offer?
− With whom could we partner on sales and distribution side?
− Can platforms be built and maintained?
One very important point to make is the position within the value chain. Emulsion producers supply to formulators, who themselves deliver polymer emulsion based solutions to applicators. At the moment, the application development is a shared realm between emulsions suppliers and their customers. Some suppliers have invested heavily into application technology.
For instance, leading suppliers of styrene-butadiene polymer emulsion for paper coating applications have invested into pilot coaters to support their customers in application development. Also, suppliers who focus on Paint & Coatings market, own dedicated application development centers. Hence, this strategy works well with many, small to medium-sized customers, who often don’t have the resources for extensive application development and therefore value this service. But the big players on customer’s side of the emulsions polymers value chain are very independent in their application development. And they guard their formulation Intellectual Property.
So, the question remains, who owns the value from solving the application problem: The polymer emulsion provider or the formulator?
Classical Set-up of Emulsion Polymers Value Chain
The Emulsion Suppliers have no Direct Access to the End-user
Certainly, the use of digital technologies such as Big Data and AI will help emulsions suppliers to gain more customer insights. This will, thus facilitate a transformation of the services and channels provided. E-Business can play a greater role in the future to create direct channels to end-users.
Covestro just launched a flagship store at Alibaba, one of the world’s biggest E-Commerce platforms.1 Alibaba already offers many emulsions grades in his shop. Is this a chance to re-organize supply chain or a thread? The answer is, “it depends”. The emulsion polymer suppliers need to develop strategies on how to use these new opportunities. It will be important to use them as sales channels and profit generation machines, without losing control over their customer connections. They might need to:
− Re-think their relationship to existing customers, or
− Find new partners to distribute the polymer emulsions
» Continue reading to understand the inevitable evolution of new business models in Emulsion Industry for innovative end-use applications!