ChemChina is China's largest basic chemical manufacturing firm. It was included in Fortune Global 500 in 2011 and 2012, ranked No. 475 and 402. Its sales revenue in 2011 was 179 billion yuan, and profit was 600 million yuan. The year-end total assets were 254.2 billion yuan. The major products of ChemChina are basic chemicals, new chemical materials, oil processing & refining products, agrochemicals, rubber products, and chemical equipment. The company has106 subordinate enterprises. Its production and R&D bases are located in 140 countries and regions all over the world. Looking retrospectively, ChemChina has been a rapidly growing enterprise and is one of a small number of Chinese enterprises founded after the economic reform and rapidly growing to enter the Fortune Global 500 in 20 years. The development history of ChemChina from nothing to a world giant as well as its strategic measures taken during the process are both characterized by the unique features of itself and deeply stamped with those of the era, reflecting the constantly changing environment faced by the Chinese enterprises in the economic transition years and the strategic movements taken creatively by the Chinese local enterprises to adapt to the environment.Unquestionably, ChemChina is a representative of "big but less strong" companies, lagging far behind the world leading chemical giants in terms of technology and management. Nevertheless, its historical development to become a Fortune Global 500 giant and a leading chemical enterprise in China in less than 30 years is sufficient to motivate us to study its unique history, current reality and future. Today, ChemChina confronts the tasks of internal integration and dealing with financial stringency. New opportunities exist, particularly as Blackstone has became a strategic partner of BlueStar.
Authors :: F. Warren McFarlan, Donghong Li, Lei Li, Hong Zhang
Swot Analysis of "ChemChina" written by F. Warren McFarlan, Donghong Li, Lei Li, Hong Zhang includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Chemchina Chemical facing as an external strategic factors. Some of the topics covered in ChemChina case study are - Strategic Management Strategies, Strategy and Strategy & Execution.
Some of the macro environment factors that can be used to understand the ChemChina casestudy better are - – talent flight as more people leaving formal jobs, wage bills are increasing, increasing transportation and logistics costs, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing inequality as vast percentage of new income is going to the top 1%, geopolitical disruptions, increasing commodity prices,
increasing government debt because of Covid-19 spendings, competitive advantages are harder to sustain because of technology dispersion, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in ChemChina case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Chemchina Chemical, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Chemchina Chemical operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of ChemChina can be done for the following purposes –
1. Strategic planning using facts provided in ChemChina case study
2. Improving business portfolio management of Chemchina Chemical
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Chemchina Chemical
Strengths ChemChina | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Chemchina Chemical in ChemChina Harvard Business Review case study are -
Effective Research and Development (R&D)
– Chemchina Chemical has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study ChemChina - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Successful track record of launching new products
– Chemchina Chemical has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Chemchina Chemical has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Superior customer experience
– The customer experience strategy of Chemchina Chemical in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Low bargaining power of suppliers
– Suppliers of Chemchina Chemical in the sector have low bargaining power. ChemChina has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Chemchina Chemical to manage not only supply disruptions but also source products at highly competitive prices.
Cross disciplinary teams
– Horizontal connected teams at the Chemchina Chemical are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
High switching costs
– The high switching costs that Chemchina Chemical has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Ability to recruit top talent
– Chemchina Chemical is one of the leading recruiters in the industry. Managers in the ChemChina are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
High brand equity
– Chemchina Chemical has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Chemchina Chemical to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Analytics focus
– Chemchina Chemical is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by F. Warren McFarlan, Donghong Li, Lei Li, Hong Zhang can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Sustainable margins compare to other players in Strategy & Execution industry
– ChemChina firm has clearly differentiated products in the market place. This has enabled Chemchina Chemical to fetch slight price premium compare to the competitors in the Strategy & Execution industry. The sustainable margins have also helped Chemchina Chemical to invest into research and development (R&D) and innovation.
Diverse revenue streams
– Chemchina Chemical is present in almost all the verticals within the industry. This has provided firm in ChemChina case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Highly skilled collaborators
– Chemchina Chemical has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in ChemChina HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Weaknesses ChemChina | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of ChemChina are -
High operating costs
– Compare to the competitors, firm in the HBR case study ChemChina has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Chemchina Chemical 's lucrative customers.
Increasing silos among functional specialists
– The organizational structure of Chemchina Chemical is dominated by functional specialists. It is not different from other players in the Strategy & Execution segment. Chemchina Chemical needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Chemchina Chemical to focus more on services rather than just following the product oriented approach.
Slow to strategic competitive environment developments
– As ChemChina HBR case study mentions - Chemchina Chemical takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Workers concerns about automation
– As automation is fast increasing in the segment, Chemchina Chemical needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Aligning sales with marketing
– It come across in the case study ChemChina that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case ChemChina can leverage the sales team experience to cultivate customer relationships as Chemchina Chemical is planning to shift buying processes online.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study ChemChina, in the dynamic environment Chemchina Chemical has struggled to respond to the nimble upstart competition. Chemchina Chemical has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Interest costs
– Compare to the competition, Chemchina Chemical has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Products dominated business model
– Even though Chemchina Chemical has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - ChemChina should strive to include more intangible value offerings along with its core products and services.
Skills based hiring
– The stress on hiring functional specialists at Chemchina Chemical has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
No frontier risks strategy
– After analyzing the HBR case study ChemChina, it seems that company is thinking about the frontier risks that can impact Strategy & Execution strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
High cash cycle compare to competitors
Chemchina Chemical has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Opportunities ChemChina | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study ChemChina are -
Buying journey improvements
– Chemchina Chemical can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. ChemChina suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Loyalty marketing
– Chemchina Chemical has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Creating value in data economy
– The success of analytics program of Chemchina Chemical has opened avenues for new revenue streams for the organization in the industry. This can help Chemchina Chemical to build a more holistic ecosystem as suggested in the ChemChina case study. Chemchina Chemical can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Manufacturing automation
– Chemchina Chemical can use the latest technology developments to improve its manufacturing and designing process in Strategy & Execution segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Chemchina Chemical can use these opportunities to build new business models that can help the communities that Chemchina Chemical operates in. Secondly it can use opportunities from government spending in Strategy & Execution sector.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Chemchina Chemical in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Strategy & Execution segment, and it will provide faster access to the consumers.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Chemchina Chemical in the consumer business. Now Chemchina Chemical can target international markets with far fewer capital restrictions requirements than the existing system.
Building a culture of innovation
– managers at Chemchina Chemical can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Strategy & Execution segment.
Low interest rates
– Even though inflation is raising its head in most developed economies, Chemchina Chemical can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Strategy & Execution industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Chemchina Chemical can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Chemchina Chemical can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Using analytics as competitive advantage
– Chemchina Chemical has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study ChemChina - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Chemchina Chemical to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Chemchina Chemical to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Developing new processes and practices
– Chemchina Chemical can develop new processes and procedures in Strategy & Execution industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Threats ChemChina External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study ChemChina are -
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study ChemChina, Chemchina Chemical may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Strategy & Execution .
Easy access to finance
– Easy access to finance in Strategy & Execution field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Chemchina Chemical can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Increasing wage structure of Chemchina Chemical
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Chemchina Chemical.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Chemchina Chemical in the Strategy & Execution sector and impact the bottomline of the organization.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Chemchina Chemical in the Strategy & Execution industry. The Strategy & Execution industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Chemchina Chemical will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Chemchina Chemical needs to understand the core reasons impacting the Strategy & Execution industry. This will help it in building a better workplace.
Environmental challenges
– Chemchina Chemical needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Chemchina Chemical can take advantage of this fund but it will also bring new competitors in the Strategy & Execution industry.
Consumer confidence and its impact on Chemchina Chemical demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
High dependence on third party suppliers
– Chemchina Chemical high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Chemchina Chemical can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study ChemChina .
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Regulatory challenges
– Chemchina Chemical needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Strategy & Execution industry regulations.
Weighted SWOT Analysis of ChemChina Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study ChemChina needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study ChemChina is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study ChemChina is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of ChemChina is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Chemchina Chemical needs to make to build a sustainable competitive advantage.