India has the potential to become the consumption and manufacturing engine of the global chemical industry. It is witnessing rapid economic growth, has a growing middle class, and is highly competitive at a global level due to its availability of feedstock and skilled workforce along with lower capital and operating expenses than other chemical manufacturing hubs. India could also benefit from the shifting supply chains triggered by evolving geopolitical scenarios and the trend to diversify from existing core manufacturing markets.
Growth Projections: Navigating Opportunities and Challenges
India’s chemical sector is poised to grow at 11-12% from 2021 to 2027 and 7-10% from 2027 to 2040, aiming to triple its global market share by 2040. Anticipated domestic demand is set to increase from $170-$180 billion in 2021 to $850-$1,000 billion by 2040. MSMEs, constituting 28-30% of the sector, play a pivotal role in achieving these growth targets and meeting escalating demand.
However, the sector grapples with significant challenges. Supply chain disruptions and surging commodity prices lead to shortages of critical products, while the escalating cost of capital and deferred capital expenditure due to extended payback periods add pressure. Acquiring and retaining skilled R&D talent proves challenging, and the decarbonization imperative intensifies scrutiny from regulators, investors, consumers, and activists.
Digital and Analytics: A Catalyst for Change
A paradigm shift is underway across the sector, with the emergence of digital technologies and analytic tools. This process involves developing organizational and technology-based capabilities to continuously improve customer experience, lower unit costs, and gain a sustained competitive advantage. Playing a pivotal role in enhancing companies’ production capabilities and cost-effectiveness through improvements in yield, energy efficiency, throughput, and product quality.
The impact of technology extends beyond the confines of the factory. Digital tools play a crucial role in fortifying supply chain resilience by providing real-time insights into shipments, inventory levels, and end-customer demand. Additionally, the implementation of smart pricing models, which consider variations in input and processing costs, facilitates seamless alignment across sales, manufacturing, and procurement functions. Models that analyze production networks, regional costs, and operating risks contribute valuable insights, guiding medium-term decisions related to sourcing and manufacturing strategies.
Transformation Framework for MSMEs
To succeed, digital and analytics transformations require a holistic approach across three dimensions:
Alignment on Value
Value alignment in digital and analytics transformations often falters due to inadequate planning and leadership consensus. Key challenges include differing conceptual understandings of digital, a focus on low-value projects, or an excessive emphasis on technology solutions neglecting crucial people and capability needs. For MSMEs, selecting the right transformation scope is vital for widespread buy-in and meaningful value creation that demonstrates the ROI potential of digital and analytics.
Opting for a domain-based approach, such as manufacturing, supply chain, procurement, or logistics, allows for a focused transformation. Assessment involves estimating value potential and feasibility, considering aspects like customer experience, financial benefits, time to value creation, and ease of adoption and scaling.
In MSMEs, impact is likely to stem from areas like process optimization, maintenance and reliability, and procurement, rather than capital productivity.
Delivery Capabilities
Digital solution delivery requires four core capabilities: talent, operating model, technology, and data. These capabilities can be developed in-house or sourced externally through a partner ecosystem. Benchmarking against companies further along the digital transformation journey helps MSMEs understand their position and areas for improvement.
For building data and technological capabilities, MSMEs can establish a fit-for-purpose infrastructure aligned with their digital strategy, focusing on high-value use cases rather than extensive platforms. They don’t need full technological readiness to begin the transformation journey and can leverage existing technology ecosystems for off-the-shelf solutions aligned with their roadmap.
Change Management
To ensure the anticipated impact of digital solutions, addressing technical, process, and human issues during adoption and scaling is crucial. As a rule, every unit invested in solution development should have a matching investment in change management initiatives, covering areas like process changes and user training. The key elements for adoption and scaling include continuous domain prioritization, change management, impact tracking, and developing the skills needed to scale.
MSMEs should focus on generating high-impact use cases early in the transformation, starting with select cases across priority domains as a self-funding source. These implemented solutions can be “assetized” into a digital and analytics playbook, with funds continuously prioritized for areas with high impact potential.
Effective change management is vital for altering mindsets and behaviours, with inspiration drawn from successful WEF lighthouses in preparing for digital and analytics transformations.
Strategic Roadmap for Scaling MSMEs in India’s Chemical Sector
In pursuit of scalability, Micro, Small, and Medium Enterprises (MSMEs) in India’s chemical sector can establish a robust execution engine. One highly effective approach is the creation of a Transformation Office (TO), a pivotal component for tracking performance and developing the essential speed and capabilities required for scaling. The TO plays a multifaceted role by defining roles and responsibilities, ensuring optimal placement of talent through recruitment or skill development, establishing a governance cadence, monitoring progress across workstreams, setting meeting agendas, incorporating new digital tools and work methodologies, and defining measurable Key Performance Indicators (KPIs) to ensure value capture.
MSMEs can leverage their Centers of Excellence (CoEs) as Transformation Offices by implementing several strategic measures. This includes the training of internal resources, such as continuous improvement champions and teams, utilizing a digital and analytics implementation playbook crafted from the insights gleaned from successful pilot initiatives, and supplementing internal capabilities by bringing in external experts to address any gaps. It is crucial to update the performance management structure for these teams to align with the additional deliverables necessitated by the digital and analytics transformation.
This strategic roadmap ensures that MSMEs can potentially double EBITDA margins through initiatives linked to digital and analytics and effectively navigate the complexities of scaling within the dynamic landscape of India’s chemical sector.
To know more about implementing digital transformation and successful impact stories from Indian chemical sector download the latest CII Report on “Transforming India’s chemical sector through digital and analytics”