Effective diversification requires assessing future market trends, identifying parallel markets that align with existing products, and extending reach geographically. In this episode of The Chemical Show, host Victoria Meyer, explores the various reasons why companies choose to diversify, including gaining a competitive edge, growing profits, and navigating industry changes. Victoria also discusses the evolving nature of global and regional supply chains and how diversification strategies need to adapt to these changes.
This the final episode of host Victoria Meyer’s 3 part series on approaches chemical companies are taking to combat the market weakness in the first half of this year (for more on this, check out Episode 118 of The Chemical Show where Victoria reviews 2Q23 earnings reports, Episode 120 which covers Commercial Discipline, and Episode 122 which covers Customer Centricity.
Learn more about the following:
- How diversification creates business resilience
- Good business performance in a flat economy = diversification decisions made early on
- How companies diversify
- The importance of market adjacencies in diversification
Considering the power of customer and market diversification in driving business resilience, Victoria Meyer delves into the importance of diversification in creating a strong and adaptable business. Victoria highlights the perspectives of industry leaders and provides insights into how diversification can help chemical companies navigate flat and inflationary markets, beat the competition, and thrive in times of uncertainty.
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Additional Links:
Listen to Victoria Speak About Customer and Market Diversification Here:
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How Customer and Market Diversification Can Shield Businesses from Economic Challenges
Hi, this is Victoria Meyer. Welcome back to The Chemical Show. Today I am talking about market and customer diversification and its role in creating business resilience during flat and inflationary markets. This is the third and final follow-on episode from episode 118, where I shared insights from 2Q23 earning reports. In that episode we talked about the flat markets that many companies were experiencing due to inventory destocking, sluggish economies and overproduction in some markets. I highlighted three approaches that companies are taking today to create business resilience in these rocky times. Those three approaches are commercial discipline, customer centricity, and diversification of markets and customers. I’ve already talked about the first two in episodes 120 and 122.
If you haven’t listened, go back, find them and take a listen. Now I’m closing out this series by talking about customer and market diversification. The events of the last three years have really highlighted the need for diversification, whether it be in your customer base, the end-use markets you’re selling into, geographic locations that your customers are in or your suppliers are in, and in fact even just supplier diversification. Just like we talk about in financial markets, and if you guys are investors and you’re looking at your financial portfolios, diversification has always been critical. The same is true with chemical companies and across the chemical industry.
So let’s talk a little bit about what diversification is. Diversification is really when companies change or expand their products, offerings, markets, both end-use and geographic. It was really first noted in the 1950s as one of four critical growth strategies by Igor Ansoff, who’s a mathematician and business manager. If you want to go learn more about him and his theories, you can do so through THIS link. He viewed it in a pretty narrow connotation, which I find interesting and ironic, because to me diversification is about growing the pie, expanding your opportunity base. Yet he often talked a lot about products and services. I personally think it’s really appropriate to think about diversification in the sense of geographies, manufacturing locations, your supplier base, your customer base, and more.
The reality is, diversification is not a quick exercise, when you’re thinking about diversifying your manufacturing locations to create better resilience, better cost base, whatever it may be. That’s something that takes a couple years to implement depending on the products that you are servicing and the customers and suppliers you’ve got.
When I talked to leaders about business performance over the past year, some of the benefits of diversification are deeply rooted in the business decisions they’ve already taken. Case in point, a global business leader at a leading materials company that I’ve spoken with has stated her business and her part of the business is rocking this year. Great performance, sales exceeding expectations, consistent growth which is a great counterbalance to her colleagues’ business, which focuses on a different market area. In his case supplying products that go into medical fields and medical applications which is not meeting business plans.
So from a leadership perspective, that diversification, of end uses and of markets, is really successful because when one business is doing great and the other business is not doing great, it provides balance. That’s certainly what we’ve seen over the past year and in many ways over the past three years. The supply chain disruptions we’ve seen as a result of the pandemic, the Russia-Ukraine War, energy prices, and what China is and isn’t doing has really driven the need for better diversification and manifesting those results.
Why do companies diversify? Number one, to beat the competition. Doing something that the competition isn’t doing so that they get a step ahead growing profits. At the end of the day every company exists to grow its profits and create greater value for its shareholders as well as its employees and its customers and its business partners.
It provides strength during downturns and that’s really a highlight of the benefit of diversification of markets and customers, how companies are seeing real resilience in these flat and rocky times is critical. It provides strength, it provides resiliency.
The other reason is really around navigating industry changes. There is no doubt in my mind, and there’s no doubt in your mind that the chemical industry consumer demand is changing as a result of economic shifts, as a result of net zero sustainability and ESG which is driving us towards greater diversification away from some of the traditional chemical feed stocks that we typically see flowing through the value chain and into more green and natural and sustainable products.
How do we take advantage of diversification? From where you are today and where you’re going forward is really number one, assessing where that market is going. Where does your business fit in the future markets? Companies create success with flexibility. It’s not about being everything to everyone. I’ve talked about that before. You’re not going to be diversified to the point where it’s disparate and it doesn’t make sense.
The best opportunity for diversification, I like to think of it as two circles of a Venn diagram. Let’s just say market A and market B, where the overlap is you want to have synchronicity in your diversification because otherwise you’re just assembling a business and a company that requires double the resources, double the products, and double the efforts.
Effective diversification is linked. It’s linked to existing products, linked to existing markets and seeking out the greater opportunities. This comes in supplier diversification, which I’ve touched on before, and customer diversification. Understanding what customer finds value in your products, in your services, in your offerings. Then figuring out what are the parallel markets that then find value in the same things and going after it, extending your reach and diversifying where you’re going.
We also have geographic diversification, and we’re in a really interesting time right now, especially from a geographic diversification standpoint. The signs indicate that we are maybe shifting to more regional supply chains, which implies more regional business models. So you would say, does diversification still hold true? Yes and no. It really depends on products. What we’re seeing is that some businesses are more local, global businesses have a greater reliance on global markets and global suppliers, but that’s not always a great thing.
Putting all your eggs in one basket in terms of where you’re sourcing and where you’re selling, creates risk and less business resilience. For me this aspect of diversification and where companies are really finding value is when they are taking the business they have today and looking at what’s successful. Then finding out, the customers in the markets and the business opportunities that extend, that diversify so that they’re not relying on the same basis and that take them to the new place.
So that’s it. This is a quick and easy snapshot of the benefits of diversification. If you like this episode, share it with a friend and head on over to Apple Podcasts and leave a rating or review. If you are not currently subscribed, please do so subscribe on your favorite podcast player. You can head over to thechemicalshow.com and subscribe to our email list where you get the latest and greatest all the time. So that’s it for today. Thank you for joining us on The Chemical Show. Keep listening, keep following, keep sharing and we’ll talk to you again soon.