5 Porter Analysis

Topics: Chemical industry, Economics, Material Pages: 7 (1705 words) Published: February 27, 2013
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The specialty chemicals market will be analyzed taking specialty chemicals manufacturers as players. The key buyers will be taken as b2b end-users, and commodity chemicals producers as the key suppliers.

Figure 1: Forces driving competition in the specialty chemicals market in China, 2011



The degree of rivalry is assessed as moderate, as the main players are large multinational companies, with the resources to compete for contracts and diverse product range, reducing their reliance on this market alone. The specialty chemicals market is characterized by relatively low product differentiation, although products are less commoditized than base chemicals. Entry barriers include capital requirements to establish manufacturing facilities, and increasingly stringent market regulations, which all serve to increase rivalry. Customers generally have few alternatives to the specialty chemicals they buy, so that the market players face little in the way of indirect competition.

Buyer power is assessed as moderate, as specialty chemicals are valuable and no direct substitutes exist; buyers have little choice but to purchase them. However, in similar fashion, specialty chemicals manufacturers rely on the producers of the crucial raw materials needed in the manufacturing process, meaning supplier power is moderate overall. Despite the existence of small players in the market, those with economies of scale will be able to produce chemicals in bulk and the same at a lower cost, as they can negotiate prices of raw materials. The possibility for viable substitutes displacing players is classed as weak, because no direct replacements currently exist.

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Buyer power
Figure 2: Drivers of buyer power in the specialty chemicals market in China, 2011



Specialty chemicals are sold on the basis of their performance in end-user applications, rather than for their chemical composition. Buyers of such chemicals, include manufacturers of consumer products (i.e. cosmetics), automotive manufacturers and textile producers.

It would normally be difficult for a typical end-user to integrate backwards into specialty chemicals production; such move would require either the acquisition of a chemical company, or the development of suitable in-house manufacturing facilities. Both strategies mean large capital investment.

Buyer power is weakened by the fact, that players within this market serve range of end-markets, meaning they have a wide variety of potential customers.
Specialty chemicals are of great importance to buyers, usually being one of the key ingredients to their manufacturing process, weakening buyer power further. Additionally, as chemicals are usually supplied based on long-term contracts, switching costs are increased and buyer power weakened.

Overall, buyer power is...
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