Challenges and Opportunities Facing the UK Chemicals Industry

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Challenges and Opportunities Facing the UK Chemicals Industry
Faye Allison

3 mins

Challenges and Opportunities Facing the UK Chemicals Industry

Faye Allison, Head of Chemicals provides actionable advice and strategies to help leaders navigate the disruptions facing the UK chemicals industry. Find out more...

While UK Chemical industry performance rose over the course of 2021, 2022 marked a challenging year where rises to both producer price inflation and customer inflation heightened the importance of an agile and efficient business model. 

76% of chemical organisations reported an increase in their input prices in 2022, which for 81% of chemicals leaders has led to higher output prices. For 2 in 5 chemical organisations, these costs are causing sales to fall at a time where profit margins are already diminished. 

Chemical leaders face navigating the wider economic downturn alongside changing consumer preferences, labour shortages, energy costs, as well as resource shortages due to supply chain disruption; all of which create a complex and competitive foundation for achieving organisational success.

In this article, we’ll delve into four key challenges in the UK chemical industry landscape, and underlying opportunities to capture.

Read on to discover the challenges and opportunities behind:

  • Managing labour costs along with other company benefits
  • How the recession could open up new hiring opportunities
  • Supply chain strategies to minimise disruption
  • Talent shortages and graduate opportunities


Managing labour costs along with other company benefits

While labour costs in the current economic climate are unlikely to continue to rise, they have reached a peak in the chemicals industry.

90% of organisations report that the challenges surrounding labour costs in chemicals have worsened towards the end of 2022 as sales made a marked downturn after initial growth at the start of the year. 

To stay competitive and improve investments or other business opportunities it’s important to take the time to build a strong talent attraction strategy with cost control in mind.

My advice would be to focus on establishing what a competitive market rate is for the positions you’re looking to fill. If you can’t pay over that amount, map out the benefits your organisation can provide which can help mitigate additional costs your applicants might experience such as lifestyle benefits, insurance or health benefits.

Alongside this, considering where and when roles can be made hybrid, or even remote can encourage applicants without starkly increasing salary offering.

While fewer than 1% of oil, gas and chemicals companies offered flexible work arrangements before the pandemic, today many organisations are successfully maintaining a hybrid model of work.

Despite a hybrid work model not always being appropriate for chemicals roles where hands-on site work is required, a flexible workplace is often seen as one where a strong work-life balance can be attained, and can contribute to increased applications and improved engagement even with existing employees. 

Research shows that benefits packages that meet staff needs and improve employee experience drive a 78% retention rate, compared to just 41% when benefits do not meet employee needs.


The recession could open up new hiring opportunities

The UK’s Office for Budget Responsibility has forecasted the UK economy to decline by 1.4% in 2022; a sharp contrast from the initial prediction of economic growth of 1.8%. This downturn will plunge the UK into negative growth for the full calendar year and will mark the official start of the recession. 

This stark economic shift will likely see organisations experiencing a reduction in product demand, and a loss of profit which may incentivise redundancies.  This will culminate in experienced talent re-entering the candidate market en masse. Leaders can prepare for this by establishing competitive recruitment campaigns in advance, while bearing in mind that some candidates may become more flexible with their salary expectations.

In the 2009 recession, the demand for chemicals in end markets dropped by 40% in months, causing share prices to plummet to single digits. And yet, many chemicals organisations did succeed and even thrive through this challenging period.

Organisations, like Solyndra, aligned their product development with government grants and investor targets surrounding alternative energy to great success. While other chemical organisations found funding challenging, Solyndra received government funds to support their thin-film solar cell production and expanded manufacturing capacity.

Focusing on new product applications and innovation across the course of a recession can seem cost-heavy at first, but research shows that in previous recessions successful chemicals organisations made the investment to restructure applications to match market realities and make the most of new niche markets that emerged. 

Doing this successfully however relies on accurate market segmentation to understand exactly what the demand of your product will be in the current economic market. Taking this time to understand whether your material or product really offers a superior value proposition compared to what’s already on the market will help streamline launch campaigns and improve the return you’ve made on innovation investment.

As you adapt your portfolio for clients and customers, you’ll likely reflect on your workforce capabilities and notice the opportunities to upskill and improve your resource functions internally to meet the demands of the project. Offering more training courses or even shadowing opportunities can help your workforce make the most of the time recouped out of pivoting away from new product development.

One key threat to success is a lack of investment. Financial movement will be risk averse, making attaining funding challenging, particularly for newer businesses like start-ups and spinouts.

In this climate, chemicals organisations are likely to collaborate to expand portfolios and gain access to expertise and equipment for specialist areas. Alongside this, mergers and acquisitions are likely to increase as the afore-mentioned start-ups and spinouts face investment hurdles and look for alternative routes to business continuity.

Analyses from McKinsey illustrate that successful chemicals organisations in previous recessions planned ahead – this helped them to stay focused on economic profit and cut costs quickly by restructuring and initially divesting in the economic downturn.

Later, on resilient chemicals organisations made strategic acquisitions at lower prices during the economic recovery when prices were cheaper than at the peak to acquire more assets while their competitors were selling off at lower prices. 


Supply chain strategies to minimise disruption

Supply chain issues have undermined business efficacy for chemicals organisations worldwide. In the UK, the challenge continues to escalate, as Brexit and the war in Ukraine continue to stymie progress.

The UK chemicals sector has notoriously complex supply chain flows, which typically involve multiple border crossings as 27% of raw materials and other ingredients are sourced from across the EU.

Today, post-Brexit, 66% of chemicals leaders say that leaving the EU has hampered business. In this challenging climate, chemical organisations across the UK face re-evaluating their supply chain structures to balance costs, carbon footprint and maintain resiliency. 

To address the challenge, 31% of chemicals leaders are planning to bring part of their supply chain in house – for example, by purchasing precursor ingredients and internally manufacturing the required chemicals. Alternatively, 35% of organisationsare simply sourcing domestically in the UK to attain the components required faster.


Talent shortages and graduate opportunities

The UK chemicals industry is beset by a talent shortage, particularly as responsibilities evolve in an increasingly digital environment, and an increasing number of experienced professionals begin to retire. 87%of leaders are concerned about skills leaving their business, and 58% of leaders say access to labour in terms of skills and talent was their biggest business risk. 

From a future-proofing perspective, graduates are a fundamental resource to help mend lower-level skills gaps and create a foundation of internal progression. However, depending on the time of year, graduates can be hard to come by.

In January, while some Masters graduates do finish their education, most others will have already graduated and have been employed the previous year. Taking a proactive approach to graduate recruitment and ensuring that your pipeline is well thought out and considered in advance of graduation season (May to October) will help ensure that you get premium access to best candidates.

When the recession is in full force, the talent shortage will likely be balanced out by the influx of redundant chemical professionals entering the market (this trend has occurred before when prices dropped in the oil industry) – however, these redundancies won’t happen right away.

Chemicals organisations should map out their business, and talent strategy in advance to ensure that they’re in a competitive position to grow and make the most of the influx of candidates on the market across the span of the year. 

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