• Christopher Haggarty-Weir

Changes in the Distribution of Specialty Chemicals

Updated: Feb 1, 2019

This blog post is going to be a bit of a different beast. I will be talking about changes in the specialty chemicals distribution market, but from a more 'academic' view. That is, unlike my other, more casual posts, this one will be more rigorous with respect to the references. Despite the slightly different change, I do hope you still enjoy it!


The specialties chemical distribution sector has seen enormous growth in recent years, leading to significant changes in how distribution functions. The major change to distribution networks has involved around how to cope with the enormity of the demand driven by high levels of growth in emerging economies. From a fundamental perspective, rather than changes in technology or competition, which have played a role, customer demand has been the most important factor for changes seen in the distribution of specialty chemicals.


The chemicals industry is a global behemoth that constantly outperforms the overall market based on returns to shareholders, whose growth over the past two decades has been largely driven by the developments in China (Budde, et al., 2017; Nisbet, 2018). Overall, the chemicals sector can be split into two subsectors, commodities and speciality chemicals; the former being made and consumed in bulk (i.e. acetic acid) and the latter produced in smaller quantities, made frequently with proprietary formulation or in another speciality manner for very specific uses (such as industrial enzymes; Jung, et al., 2014). This paper is going to focus on the specialty chemicals industry because, since around 2010, there has been significant changes in their channels of distribution (Jung, et al., 2014). Drivers that have underpinned this change will be broadly assessed, and the key driver shall be identified and analysed in further detail.

Key Drivers of Change in Speciality Chemicals Distribution

The growth of chemicals distribution have been seen predominantly in developing nations with emerging economies (Jung, et al., 2014). For example, from 2008 to 2013, the Asian-Pacific region, Middle Eastern nations, Eastern Europe and Africa accounted for a 10% growth rate in the distribution market, whilst Northern-America and Western Europe saw a mere 2.6 and 1.6% growth rate, respectively (Jung, et al., 2014). These emerging markets have more capital to invest due to the aggressive growth of infrastructure projects and industry (Economist, 2017), all of which require the use of specialty chemicals (Jung, et al., 2014). This aggressive growth and consumption of specialty chemicals (which has accounted for higher annual growth rates than commodities) has shifted how their distribution is carried out (Jung, et al., 2014). The main changes have included distribution channels needing to handle high product shipping volumes (Budde, et al., 2017), distributors being merged with and acquired by other companies due to enhanced M&A activity (this requires excellent management due to the disruptive nature of M&A’s; Greenwood, 2017), and increased market penetration of 3rd party chemical distributors to enhance the customer experience through the specialization that outsourcing brings (Jung, et al., 2018). Therefore the major driver can be said to all stem from enhanced consumer behaviour that has led to the aforementioned changes occurring.

Further Analysis of the Key Driver

There have indeed been a role for technological developments and increased competition when it comes to reasons behind the major changes in specialty chemicals distribution mentioned above. For example, developments in making certain energy products more affordable has helped lower manufacturing costs of suppliers and some distributors, and enhanced pilot processing methods have done the same; both of which are technological development drivers (Viets, 2018). With respect to enhanced competition, there are indeed reports of increased entrants to the market via SME’s in addition to the wide-scale M&A activity (GVR, 2017), and many established companies have had some struggles in scaling-up demand which has further fuelled competition (Blad, et al., 2017). However, the single biggest driver of fundamental change has no doubt been driven by the high consumer demand thanks to the population growth coupled with economic growth of developing countries (Sindling, 2009). The reason this should be seen as the biggest driver of change is due to the sheer scale of the customer demand; in the last decade the demand from China alone has more than doubled due to the country’s shift from an investor economy to a mixed and consumer-led economy (Blad, et al., 2017).


Speciality chemicals distributors have seen enormous momentum in their business as reported extensively by consultants from McKinsey and BCG (Budde, et al., 2017; Jung, et al., 2014). Going forwards, managers of distribution channels must continue an aggressive approach in order to ablate market slowdowns that are predicted to occur in the future (Budde, et al., 2017; Jung, et al., 2018). This should take the form of increasing their market segmentation and increasing their focus on sub-geographic locations whilst investing in the technology to afford them non-disruptive growth (Jung, et al., 2018). Finally, it is possible that increased consumption will be spurred on by the previously mentioned fact that many new players in the market have sprung up to meet the rising demand levels that established firms cannot meet, which in turn is likely to fuel inter-industry competition and lead to further price decreases, and therefore more advantageous consumption of specialty chemicals (Blad, et al., 2017).


Blad, J., Hirschbichler, E., Liu, N., & Weihe, U. (July, 2017). A game plan for international specialty-chemical companies in China. McKinsey & Company: Chemicals. Retrieved from https://www.mckinsey.com/industries/chemicals/our-insights/a-game-plan-for-international-specialty-chemical-companies-in-china

Budde, F., Ezekoye, O., Hundertmark, T., Prieto, M., & Simons, J.T. (March, 2017). Chemicals 2025: Will the industry be dancing to a very different tune? McKinsey & Company. Retrieved from https://www.mckinsey.com/industries/chemicals/our-insights/chemicals-2025-will-the-industry-be-dancing-to-a-very-different-tune

Economist. (7th October, 2017). Emerging markets are up and running. The Economist, Special Report: Out of the Traps. Retrieved from https://www.economist.com/special-report/2017/10/07/emerging-markets-are-up-and-running

Greenwood, A. (8th September, 2017). Chemical Distributor Valuations Rise as M&A Wave Sweeps Sector. Elsevier: Chemicals Industry News and Analysis. Retrieved from https://chemical-materials.elsevier.com/chemicals-industry-news-and-analysis/chemical-distributor-valuations-rise-ma-wave-sweeps-sector/

GVR. (June, 2017). Specialty Chemicals Market Analysis By Product (Coatings, Agrochemicals, Electronics, Construction Chemicals), By Application (Transportation, Construction, Agriculture, Manufacturing), And Segment Forecasts, 2018 - 2025. Grand View Research. Retrieved from https://www.grandviewresearch.com/industry-analysis/specialty-chemicals-market

Jung, U., Rothman, A., Mahnke, T., & Roth, R. (28th June, 2018). Why Specialty Chemical Distributors Need to Raise Their Game. Boston Consulting Group. Retrieved from https://www.bcg.com/publications/2018/why-specialty-chemical-distributors-need-to-raise-their-game.aspx

Jung, U., Wolleswinkel, R., Hoffman, C., & Rothman, A. (15th April, 2014). Specialty Chemical Distribution-Market Update. Boston Consulting Group. Retrieved from https://www.bcg.com/en-gb/publications/2014/process-industries-go-to-market-strategy-specialty-chemical-distribution-market-update.aspx

Nisbet, A. (April 2018). Chemical Reactions: The Rise of China. Retrieved from https://www.natriumcapital.com/wp-content/uploads/2018/04/The-Rise-of-China-April-03-Natrium-Capital.pdf

Sindling, S.W. (2009). Population, poverty and economic development. Philos Trans R Soc Lond B Biol Sci, 364(1532): pp. 3023-30.

Viets, N. (17th January, 2018). 4 trends in process development for the specialty chemicals industry. SoliQz. Retrieved from www.soliqz.com/trends-process-development-specialty-chemicals/

Phone: +44 (0) 7501 448 220

©2018 by Haggarty-Weir Consulting