GLOBAL BUSINESS PROJECT

ECONOMIC
&
INDUSTRY

ANALYSIS REPORT

ECONOMIC ANALYSIS
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 EXECUTIVE SUMMARY
This project report provides a comprehensive economic analysis of the Indian economy,
highlighting key trends, challenges, and growth prospects as of the latest available. The
analysis covers various aspects of India's economy, including GDP, inflation, sectoral
composition, policy reforms, and future trends. The following key findings and insights are
presented:

India's GDP growth for 2023-24 is projected at 6.0% to 6.8%, contingent on global economic
and political developments.

The Economic Survey 2022-23 estimates a baseline GDP growth of 6.5% in real terms for
FY24.

The economy is anticipated to grow at 7% in real terms for the fiscal year ending March
2023, following an 8.7% growth in the previous year.

Credit growth to MSMEs has exceeded 30.5% on average from January to November 2022.

Exports' strong performance has accelerated production processes.

Private consumption reached 58.4% of GDP in Q2 FY23, supported by a rebound in contact-
intensive services.

In summary, India's economy is showing resilience with notable growth in key sectors.
However, uncertainties in global economic conditions and inflation warrant close monitoring
in the upcoming fiscal year.

INTRODUCTION TO THE INDIAN ECONOMY

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Key Drivers of the Indian Economy:

a. Demographics: India's youthful population provides a significant demographic dividend,

contributing to a large workforce. However, this also places pressure on education,
healthcare, and employment.

b. Economic Liberalization: Economic reforms in the early 1990s opened up India's markets,
attracting foreign investments and fostering economic growth.

c. Services Sector Dominance: The services sector, particularly IT and software services,
plays a crucial role in India's economic growth, contributing significantly to GDP.

d. Manufacturing Growth: India's manufacturing sector has been growing steadily, driven
by initiatives such as "Make in India," which aims to promote domestic production.

e. Infrastructure Development: India has been investing in infrastructure development,

including transportation, energy, and digital connectivity.

f. Fiscal and Monetary Policies: Prudent fiscal and monetary policies have helped maintain
economic stability and control inflation.

Salient Features of Indian Industries:

a. Information Technology and Software Services: India is a global IT hub, with a large
number of software companies providing services to international clients.

b. Pharmaceuticals: India is a major player in the global pharmaceutical industry, known for
producing affordable generic medicines.

c. Agriculture: Agriculture employs a significant portion of the population, but there is a

need for modernization and increased productivity.

d. Automobile Industry: India's automobile sector is witnessing substantial growth, with a

focus on electric vehicles and exports.

e. Telecommunications: India has a rapidly expanding telecom industry, with a surge in

smartphone users and data consumption.

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f. Renewable Energy: India is investing in renewable energy sources, such as solar and wind
power, to address energy security and environmental concerns.

Macro-Economic condition of the country

GDP analysis

India is one of the world's largest economies, with a GDP that has been steadily growing over
the years. In 2021, India's GDP was approximately 3.18 lakh crores USD (2021)

However, the growth estimates for 2024 have been revised downward to 6.1 per cent from
6.5 per cent earlier.

GDP Growth:

India has experienced fluctuations in GDP growth in recent years. Here is a brief overview of
GDP growth trends:

2017: 8.2% growth

2018: 7.2% growth
2019: 4.2% growth
2020: India faced a significant economic downturn due to the COVID-19 pandemic, with
GDP contracting by about 7.3%.
2021: The economy showed signs of recovery, with GDP growth estimated to be around
8.2%, driven by a rebound in various sectors.

Sectoral Analysis:

India's economy is diverse and comprises several sectors, each contributing differently to
GDP. Here's a breakdown of the major sectors:

Agriculture:
Agriculture has traditionally been a significant contributor to India's GDP.
It employs a large portion of the population, but its contribution to GDP has been decreasing.
Crop cultivation, livestock, and fisheries are important subsectors.

Industry:
The industrial sector includes manufacturing, mining, and construction.
Manufacturing includes textiles, automobiles, chemicals, and electronics. Mining covers
minerals and natural resources.

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Services:
The services sector is a major driver of India's economic growth. It includes IT services,
business process outsourcing (BPO), finance, tourism, and healthcare.
India has a strong presence in the global IT and software services industry.

Trade and Commerce

Trade and commerce play a crucial role in India's economy. The country is known for its
diverse retail and wholesale sectors.

Infrastructure and Real Estate:

India has been investing heavily in infrastructure development, including roads, railways, and
airports. The real estate sector has witnessed both growth and challenges in recent years.

Financial Services:
The banking and financial services sector has been evolving with digitalization. The Reserve
Bank of India (RBI) regulates the financial sector.

Telecommunications:
India has a large and rapidly growing telecommunications industry. The proliferation of
mobile phones and data services has been a significant driver of economic activity.

Tourism:
Tourism contributes to GDP through travel, hospitality, and related services. India offers a
rich cultural and historical experience to tourists.

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Healthcare and Education:
Healthcare and education services are essential components of the services sector.

PER CAPITAL INCOME

India’s per capita net national income (at current prices) for 2022-23 stands at INR 172,000,
according to estimates from the National Statistical Office (NSO). This marks an almost 100
percent increase from the per capita income in 2014-15 – INR 86,647 – when the Narendra
Modi government first came to power.

INFLATION (WPI &CPI)

Balance of payments/Trade conditions

 According to the RBI, the Current Account Deficit (CAD for the first half of 2022-23
stood at 3.3% of GDP.
 It is expected to moderate in the second half of 2022-23 and remain eminently
manageable within the parameters of viability.
 In January 2023, trade deficit narrowed to $17.7 billion, led by a sharp fall in non-oil
imports. Also,
o FPI outflows have come down.
o Workers’ remittances went up.
o Gold imports have declined.

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How will moderating CAD impact the market?

 The reduction in CAD due to services exports, is a positive sign.

 The rising CAD raises concerns among investors as it hurts the currency and thereby
the inflow of funds into the markets.
 The value of an economy depends a lot on the value of its currency and thereby, it
also supports the equity markets by keeping the fund flow intact.

Unemployment Levels

The unemployment rate in India is 7.95 percent as of July 2023.

The past and current unemployment rate in India is a critical economic indicator expressed as
a percentage that varies based on the prevailing economic conditions.
When job opportunities become scarce during economic downturns, unemployment tends to
increase. Contrarily, during economic growth and prosperity periods, with many job
opportunities available to the public, the unemployment rate is expected to decline.
The formula to calculate the current unemployment rate in India is as follows:

Unemployment Rate = Number of Unemployed Persons / Civilian Labor Force

Yea
Unemployment Rate (percent)
r

2023 8.4 (in August)*

2022 7.33

2021 5.98

2020 8.00

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 2019 5.27

2018 5.33

2017 5.36

2016 5.42

2015 5.44

2014 5.44

2013 5.42

2012 5.41

2011 5.43

2010 5.55

Purchasing power Index (PPI)

In 2022, purchasing power parity for India was 22.9 LCU per international dollars.
Purchasing power parity of India increased from 10.2 LCU per international dollars in 2003
to 22.9 LCU per international dollars in 2022 growing at an average annual rate of 4.40%.

Index for Industrial Products (IIP)

In India, industrial production measures the output of businesses integrated in industrial

sector of the economy. Manufacturing is the most important sector and accounts for 78
percent of total production. The biggest segments within Manufacturing are: basic metals (13
percent of total production); coke and refined petroleum products (12 percent); chemicals and
chemical products (8 percent); food products (5 percent); pharmaceuticals, medicinal
chemical and botanical products (5 percent); motor vehicles, trailers and semi-trailers (5
percent); machinery and equipment N.E.C. (5 percent); other non-metallic mineral products
(4 percent); and textiles, electrical equipment and fabricated metal products (3 percent each).
Mining accounts for 14 percent of total output; and electricity accounts for 8 percent.

Industrial production in India increased 3.7 percent year-on-year in June 2023, easing from
an upwardly revised 5.3 percent rise in the previous month and below market expectations of
4.8 percent. Output from the manufacturing sector increased by 3.1 percent, mining by 7.6
percent, and electricity by 4.2 percent. Considering the April-June period, industrial
production advanced 4.5 percent.

CAPITAL FORMATION & SAVINGS

Gross Capital Formation (GCF):

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Gross Capital Formation, often referred to as capital investment, represents the total value of
investments made in an economy in the form of fixed capital (e.g., machinery, equipment,
buildings) and inventory changes. It is a critical indicator of a country's economic growth and
development.

India's Gross Capital Formation as a percentage of GDP has fluctuated over the years but has
generally been around 30% to 35% of GDP in recent times. Investment in infrastructure,
manufacturing, and other sectors contributes to this figure.

Gross Domestic Savings:

Gross Domestic Savings represents the portion of an economy's income that households,
businesses, and the government save instead of consuming. It is an important source of funds
for investment and capital formation.

India's Gross Domestic Savings rate has typically been higher than the Gross Capital
Formation rate, indicating that India relies on domestic savings to fund a significant portion
of its investments. The savings rate has been in the range of 30% to 35% of GDP in recent
years.
It's worth noting that both Gross Capital Formation and Gross Domestic Savings are essential
for economic growth. A high level of savings can help finance investments, which, in turn,
can lead to increased productivity, job creation, and economic development.

COMPETITIVE ADVANTAGE

PORTER’S DIAMOND FRAMEWORK

Factor conditions: Western and southern states of India have a higher number of intellectual
property filings than the northern hinterlands. These regions foster growth and economic
prosperity. The southern and western states had earlier industrial development, greater
political stability, stronger institutions, and better access to trade routes.

Demand Conditions: As of March 2023, Aggregate demand conditions remain resilient in

India according to the RBI officials. The Indian economy exhibited signs of resilience, as
indicated by various high-frequency indicators.

Firm Strategy and Rivalry: The Indian economy’s domestic dynamics continue to be strong
though negative cross-border spillovers and adverse global developments can act anytime as
a deterrent to achieve the potential high growth path in the current financial year. inflation
has “significantly declined” in June quarter, the recent spike in the prices of ‘fruits,’
‘vegetables,’ and ‘pulses and products due to weather-related disruptions has led to a
sequential increase in food inflation in June 2023.

Related Industry: Related supporting industries consider the upstream and downstream
industries that facilitate innovation through exchanging ideas. These can spur innovation
depending on the degree of transparency and knowledge transfer.

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India had six major industries. These were Iron and Steel, Textiles, Jute, Sugar, Cement, and
Paper. Further, four new industries joined this list namely, Petrochemical, Automobile,
Information Technology (IT), and Banking & Insurance. These industries are important for
India’s economy. Therefore, understanding the growth of these industries can offer a good
insight into the relationship between their growth and government policies.

GOVERNMENT POLICIES AND THEIR IMPACT ON ECONOMY

Government policies play a pivotal role in shaping the economic landscape of a country. This
section will analyze the impact of fiscal and monetary policies, as well as government
policies related to industries and agriculture in India. We will also compare these policies
with those of emerging economies such as Brazil, Russia, China, Indonesia, Romania, and
South Africa.

1. Fiscal Policy:

India:
- Fiscal policies in India are aimed at achieving sustainable growth and fiscal consolidation.
- Key features include subsidies, tax reforms, and public expenditure on social programs.
- Recent budgets have focused on infrastructure development, healthcare, and digitalization.

2. Monetary Policy:

India:
- The Reserve Bank of India (RBI) formulates and implements monetary policy.
- Recent policies have focused on maintaining price stability and supporting economic
recovery.
- Key tools include repo rates, CRR, and open market operations.

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3. Industry and Agricultural Policies:

India:
- "Make in India" promotes domestic manufacturing, while "Digital India" drives
digitalization.
- In agriculture, policies aim at doubling farmers' income, enhancing crop insurance, and
modernizing supply chains.

Happiness Index and Hofstede Cultural Index

The Happiness Index and Hofstede Cultural Index provide insights into different aspects of a
country's social and cultural environment.

1. Happiness Index:

The Happiness Index, also known as the World Happiness Report, is a measure of a country's
subjective well-being and quality of life. It takes into account various factors, including
income, social support, life expectancy, freedom to make life choices, trust in government
and institutions, and generosity. India's performance on the Happiness Index has been
somewhat mixed over the years.

- Income: India has a significant income disparity, with a large portion of the population
living in poverty. However, there is also a growing middle class with improved standards of
living.

- Social Support: India has strong family and community bonds, which can contribute to
social support and well-being for many individuals.

- Freedom: India is known for its democratic system and generally respects personal
freedoms, although issues related to freedom of expression and human rights persist.

- Trust: Trust in government and institutions can vary widely in India, with corruption and
bureaucracy being areas of concern.

- Generosity: India has a strong tradition of philanthropy and charitable giving, contributing
to the generosity aspect of the Happiness Index.

2. Hofstede Cultural Index:

The Hofstede Cultural Index, developed by Geert Hofstede, assesses cultural dimensions that
impact societal behavior and values. These dimensions include Power Distance,

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Individualism vs. Collectivism, Masculinity vs. Femininity, Uncertainty Avoidance, and
Long-term vs. Short-term Orientation. Let's examine how India may align with some of these
dimensions:

- Power Distance: India tends to have a relatively high-Power Distance, indicating a

hierarchical society where authority and social status are respected. This is reflected in the
importance of family, social hierarchies, and respect for elders.

- Individualism vs. Collectivism: India leans more toward Collectivism, emphasizing group
cohesion, family, and community over individual autonomy. Family bonds are strong, and
decisions often involve the collective.

- Uncertainty Avoidance: India can exhibit both high and low Uncertainty Avoidance.
While traditional practices are deeply ingrained, there is also a tolerance for ambiguity and
adaptability in many aspects of life.

- Long-term vs. Short-term Orientation: India generally has a long-term orientation with a
focus on traditions, family, and future planning. However, rapid economic changes are
leading to a more balanced approach in some urban areas.

GROWTH PROSPECT AND FUTURE TREND

Analyzing the growth prospects and future trends of the Indian economy is a complex task
that can be influenced by various factors, including government policies, global economic
conditions, technological advancements, and social dynamics.

1. Post-Pandemic Recovery:

In 2020, India, like many other countries, faced the economic impact of the COVID-19
pandemic, resulting in a significant contraction of GDP. However, by 2021, the Indian
economy showed signs of recovery, with GDP growth rebounding.
The pace and sustainability of this recovery were dependent on factors such as vaccine
distribution, economic reforms, and global demand.

2. Government Reforms:
The Indian government has been implementing various economic reforms aimed at
improving the ease of doing business, attracting foreign investment, and promoting domestic
manufacturing.
Initiatives like "Make in India," "Digital India," and changes in labor laws were expected to
have long-term implications on economic growth.

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3. Infrastructure Development:
Investment in infrastructure development, including transportation, energy, and urban
development, was a priority. Projects like the construction of highways, railways, and smart
cities were expected to create jobs and stimulate economic growth.

4. Digital Transformation:
India's information technology (IT) and software services industry continued to grow, and the
country aimed to leverage its IT capabilities for digital innovation and services.
The digital economy was expected to play a significant role in economic growth, including e-
commerce, fintech, and remote work opportunities

5. Demographic Dividend:
India has a large and youthful population, which can be a source of economic strength if
properly skilled and employed.
Skill development and job creation were vital components of India's growth strategy.

6. Global Trade and Geopolitics:

India's economic growth was influenced by its relationships with major trading partners,
including the United States, China, and neighboring countries.
Geopolitical factors, such as tensions at India's borders and changes in global trade dynamics,
could impact economic prospects.

7. Sustainable Development:
Sustainable and environmentally friendly practices were gaining importance in India's
economic planning.
Initiatives to promote clean energy, reduce pollution, and address climate change were part of
the agenda.

RESPONSIBILITY TOWARDS SOCIETY

CSR Activity: ESG Framework

ESG goals are a set of standards for a company’s operations that force companies to follow
better governance, ethical practices, environment-friendly measures and social
responsibility.

It focuses on non-financial factors as a metric for guiding investment decisions wherein

increased financial returns is no longer the sole objective of investors.

India has a robust Corporate Social Responsibility (CSR) policy that mandates that
corporations engage in initiatives that contribute to the welfare of society.
This mandate was codified into law with the passage of the 2014 and 2021 amendments to
the Companies Act of 2013.

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The amendments require companies in any given financial year to spend at least 2% of their
net profit over the preceding three years on CSR activities.

Whereas ESG regulations differ in process and impact.

India faces significant environmental challenges, including air and water pollution,
deforestation, and climate change, also there are significant social challenges such as
poverty, inequality, discrimination, and human rights abuses, making the importance of
investing in companies that are committed to addressing these issues and promoting social
justice.

India has a complex regulatory and legal environment, and companies operating in India
may face challenges related to corruption, regulatory compliance, and corporate governance.
Therefore, there is an increasing need for recognizing the companies with strong governance
practices to mitigate these risks.

POLITICAL STABILITY

India has a one-party Government.

The relationship between the Centre and the State are:

 Legislative Relations
 Administrative Relations
 Financial Relations

AUTONOMY OF JUDICIARY AND REDRESSAL SYSTEM

The Indian judicial system is managed and administrated by officers. Judges of Subordinate
Judiciaries are appointed by the governor on recommendation by the High Court. Judges of
the High Courts and Supreme Court are appointed by the President of India on the
recommendation of a collegium.

The judicial system is structured in three levels with subsidiary parts. The Supreme Court,
also known as the Apex Court, is the top court and the ultimate appellate court in India. The
Chief Justice of India leads that court. High Courts are the top judicial bodies in individual
states, controlled and managed by state Chief Justices. Below the High Courts are District
Courts, also known as subordinate courts, that are controlled and managed by District and
Sessions Judges. The lower subordinate courts are Civil Court and the District Munsif Court,
headed by a Sub-Judge.

The Ministry of Law and Justice at the Union level is responsible for raising issues before
Parliament relating to the judiciary.

TECHNOLOGY USE IN GOVERNANCE

The India Stack is a large basket of open-source software application programming interfaces
(APIs) of government-backed services such as Aadhaar, United Payments Interface, e-Sign,
and Digi-Locker. The open-source nature allows anybody to connect. This has inspired many
apps with varying architectures, APIs, libraries, and user interfaces. The Stack generates vast

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data across its various use cases. If AI-driven algorithms are applied to study that data, it
could provide granular, deep insights into consumer behaviour and consumption patterns.
While such AI induction may be laudable in intent, tight oversight will be required to
maintain privacy and avoid data leakage.

Moreover, if India uses AI at scale to power digital inclusion and skilling, in that case, it will
need to develop robust filters to root out algorithmic biases and to ensure AI doesn’t
perpetuate existing biases against castes and communities. This involves creating audit
systems to understand how AI ‘thinks’ since it can be a black box even for programmers. AI
deployment in Indian datasets could be very powerful because of the sheer size and diversity
of the country and, therefore, of the datasets. When it comes to large language models
(ChatGPTfor example), India again has an inbuilt advantage in that there is data from a
plethora of languages to work with. If it pushes ahead with this policy, it could become a
world leader in AI. The government could consider developing guidelines for protecting and
mitigating potential harm to citizens.

The government will spend around 1,635 crores to develop this AI ecosystem and make e-
governance platforms more intelligent. The priorities for deployment include the following:

a. Governance applications of the India Stack

b. Powering up the large language model for Digital India Bhashini
c. Building Smarter health care Services.

EDUCATION AND HEALTHCARE

Health and education are defining sectors for equitable human development and sustainable
and inclusive economic growth for India. Given the strong economic growth of the country in
the past decade, increasing demand for public investment across all sectors has created
investment gaps in these key sectors. In addition, challenges are also increasing in terms of
service delivery standards, performance benchmarks, and incorporation of technology into
the provision of health and education services to all, especially the poorest and those located
far from the urban growth centers of the country.

The Asian Development Bank (ADB) has been assisting the Government of India since 2006
to develop PPPs across sectors in India, through a programmatic joint PPP Initiative,
Mainstreaming PPPs in India. Under the initiative, a special task team of the ADB, together
with the Government of India's Ministry of Finance and KPMG consultants undertook a rapid
assessment study to develop possible PPP solutions for meeting the challenges of India's
health and education sectors.

Public healthcare is free for every Indian resident.[13][14] The Indian public health sector
encompasses 18% of total outpatient care and 44% of total inpatient care.[15] Middle and
upper class individuals living in India tend to use public healthcare less than those with a

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lower standard of living.[16] Additionally, women and the elderly are more likely to use public
services

Coming to Education, the types of education offered in India include primary, secondary,
and tertiary education. Primary education is free and compulsory for all children aged six to
fourteen years. Secondary education is not compulsory, but it is free for all children aged
fifteen to eighteen years. Tertiary Education is a choice.

CONCLUSION

India is a land of immense opportunities and challenges, and the decision to invest in its
economy should be made with careful consideration.

Vast Market Potential: India boasts a population of over 1.3 billion people, making
it one of the largest consumer markets globally. The youthful demographic, growing
middle class, and increasing urbanization present enormous market opportunities for
various industries, from technology and consumer goods to healthcare and
infrastructure development.

Challenges and Risks: Despite its potential, India also presents challenges.
Infrastructure deficits, bureaucratic complexities, and varying state-level regulations
can pose hurdles for investors. Additionally, income inequality and social disparities
remain prominent issues.

Cultural Nuances: Understanding India's diverse and complex cultural landscape is

essential for successful investment. The collectivist nature of Indian society, respect
for hierarchy, and the importance of relationships can significantly influence business
dynamics. Flexibility and adaptability are key to navigating this cultural terrain.

Policy Implementation: While India's policies often show promise, effective

implementation can be a challenge. Consistency in policy execution, transparency,
and regulatory stability are crucial for long-term investments.

Long-Term Vision: Investors looking at India should have a long-term perspective.

India's growth story is not a sprint but a marathon. Patient capital and a commitment
to building enduring partnerships can yield significant returns over time.

In conclusion, investing in the Indian economy is a strategic decision that offers substantial
potential rewards. However, it is not without its share of challenges. Success in India requires
a deep understanding of its unique economic, cultural, and regulatory nuances, coupled with a
commitment to adapt and invest for the long haul.

ECONOMIC ANALYSIS COMPARISON

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Countries Taken: Germany and USA

Germany:

GDP: $5.5 trillion

Inflation level: +6.1%
Trade conditions: Germany's current account posted a surplus of €29.6 billion in June 2023.
This means they have a trade surplus.
Unemployment levels: 5.7%
Purchasing power Index (PPI): 146.9 points.
Index for Industrial Production (IIP): 95.7
Happiness Index: Germany ranks 7.03 on Happiness Index.

Hofstede’s Cultural Index:

Fiscal policy: It is adopting a fiscal strategy that is effective, aggressive, and looking ahead.
Considering this, German fiscal policy is based on growth-oriented economic and fiscal
policy, short-term stabilization during the crisis, and a distinct focus on the aim of fiscal
resilience and fiscal stability.

Monetary Policy: German monetary policy is built on relatively stable financial market
structures and transmission mechanisms, which may be attributed in part to the sector's

steady growth and the significant influence of universal banks on the country's financial
markets.

The USA:

GDP: $26.856 trillion

Inflation level: +3.7%
Trade conditions: The USA's current account posted a deficit of -194.880 USD bn in June
2023. This means they have a trade deficit.
Unemployment levels: 3.8%

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Purchasing power Index (PPI): 117.7 points.
Index for Industrial Production (IIP): 102.9
Happiness Index: The USA ranks 6.95 on the Happiness Index.

Hofstede’s cultural Index:

Fiscal Policy: The United States government has tended to spend more money than it takes
in, indicated by a national debt that was close to $1 billion at the beginning of the 20th
century. The budget for most of the 20th century followed a pattern of deficits during
wartime and economic crises, and surpluses during periods of peacetime economic
expansion.

Monetary Policy: Monetary policy in the United States comprises the Federal Reserve's
actions and communications to promote maximum employment, stable prices, and moderate
long-term interest rates.

INDUSTRY ANALYSIS

Industry: Chemical

ABOUT CHEMICAL INDUSTRY

The chemical industry is a vast industry that incorporates all different types of products
producing industries whose generation is based on heavy use of chemicals. Usually,
industries that are involved with industrial chemical generation are broadly known as
chemical industry.

IS THE INDUSTRY FRAGMENTED OR CONSOLIDATED?

India: The Indian chemical industry is fragmented with large, medium

and small companies manufacturing major petrochemicals, alkali

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chemicals, inorganic chemicals, organic chemicals, pesticides,

dyes and pigments and other chemicals.

PORTER’S FIVE FORCES

Force #1 – competition – HIGH

The chemical industry is intensely competitive. There are large numbers of manufacturers,
each vying for a share of the market. In India, there are over 80,000 commercial chemical
products manufactured by firms. It is extremely difficult for a manufacturer to differentiate
itself from its rivals.

Many chemicals are commodities which are sold purely on the basis of price. The high level
of competition can drive prices downwards and firms have to look at ways to provide value-
added services if they want to have better price realizations.

Force #2 – threat of new entrants – MEDIUM

Traditionally, the chemical industry has been dominated by players in Europe, the US, and
Japan. But the rise of manufacturers in hydrocarbon-producing areas is changing the pattern
of global chemical production.

These new producers could possibly pose a greater threat to the incumbents in the years to
come. How much of a challenge they pose will depend on three factors.

 They need to develop their own R&D capabilities. Currently, they are dependent to a
large extent on the companies from the US/Europe and Japan for this.
 The newcomers would also have to work on their marketing network so that they can
sell directly to the consumer.
 They will also have to build their management skills to run operations successfully.

The speed at which these firms develop these capabilities will determine the level of
competition that they will offer to the incumbents.

Force #3 – bargaining power of customers – HIGH

With thousands of suppliers to choose from, chemical buyers have a wide range of options.
While one of the prime considerations that a buyer would have would obviously be price,
there are other factors that influence the purchase decision. Does the supplier make prompt
deliveries? Have there been quality problems in the past? Is the supplier com pliant with
regulatory norms?

Buyers are increasingly using online portals to research suppliers and find those that best
meet their needs. A website that provides access to suppliers can be of great use to a company
that requires chemicals. An online portal specializing in the chemical sector can provide
several details about a supplier’s capabilities and past record. These portals can help to
significantly increase the bargaining power of buyers.

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Force #4 – Bargaining power of suppliers – LOW

As there are thousands of suppliers, their bargaining power is severely limited. Buyers can
log on to a B2B portal and obtain details and quotations from companies across the world.

Despite this, it is still possible for some suppliers to retain a hold over certain customer. A
client that requires a niche product may have only a limited number of suppliers to choose
from. The consumption volumes may be too low to justify the setting up of additional
manufacturing facilities by other suppliers.

Force #5 – Substitute products – MEDIUM

Although it is possible for chemical suppliers to develop substitute products to offer to

customers, it can be a difficult task to do this. It requires a strong R&D department as well as
a high degree of knowledge of the client’s processes.

However, a supplier who can manufacture a new low-cost product that is a viable option for
the customer can gain a significant competitive advantage.

MAJOR PLAYERS AND THEIR STRENGHTS

USA:

The chemical industry in the United States is one of the largest and most influential sectors of
the country’s economy. It encompasses a wide range of companies engaged in the production
and distribution of various chemicals, including basic chemicals, specialty chemicals,
agricultural chemicals, pharmaceuticals, and more. Industry plays a crucial role in numerous
sectors, such as manufacturing, agriculture, healthcare, and consumer goods.

The U.S. chemical industry includes both large multinational corporations and smaller
companies. Some of the prominent players in the industry include:

1. Dow Chemical Company

2. DuPont

3. ExxonMobil Chemical

4. BASF Corporation

5. LyondellBasell Industries

6. Eastman Chemical Company

7. Monsanto Company (now part of Bayer)

8. Chevron Phillips Chemical Company

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9. PPG Industries

10. 3M Company

GERMANY:

Germany offers a broad scope for various career opportunities and business activities. This
industry encompasses areas such as basic chemicals, specialty chemicals, research and
development, manufacturing, sales, marketing, regulatory affairs, and sustainability. With
Germany's strong emphasis on innovation and technology, professionals and companies in
the chemical sector have opportunities to develop cutting-edge products, improve processes,
and contribute to sustainability initiatives. Keep in mind that the scope of the industry can
evolve due to economic, technological, and regulatory changes.

 MARKET SHARE:

As of my last update in September 2021, the chemical industry was a significant sector in
Germany, with several major players like BASF, Bayer, and Covestro.

 JOB OPPURTUNITIES:

There are ample job opportunities in the chemical industry in Germany. The country's robust
chemical sector offers a wide range of positions across various fields such as research and
development, manufacturing, engineering, quality control, sales, marketing, supply chain,
regulatory affairs, and more. The industry's focus on innovation and technology also creates
demand for professionals with specialized skills in areas like process optimization,
sustainability, and digitalization. Whether you're a chemist, engineer, business professional,
or have expertise in other related fields, you're likely to find opportunities in Germany's
chemical industry. Job portals, company websites, and professional networks are good places
to start your job search.

INDIA

The Indian chemicals industry is a major player in the global market, ranking 6th in
production and 14th in exports. The sector provides essential building blocks and raw
materials for many industries, including agrochemicals, pharmaceuticals, textiles, paper,
paints, and soaps. It is valued at US$220b and projected to grow by approx. 9% p.a. during
2020-25 to reach US$300b by FY 2025. The sector is expected to hit the US$1t mark by FY
2040.

Indian specialty chemicals companies are at their lifetime high capex with healthy revenue
and earnings growth over FY19-22. They benefit from strong demand from global clients as
they look beyond China and increase domestic consumption. Stock prices are also at their
lifetime peak and remain well above global valuations.

In the future, strong demand uptick from domestic and international markets will continue to
aid revenue growth for Indian specialty chemical players. This growth will result in strong
earnings in the medium term and sustain high valuations.

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CHINA

China is the world's largest producer and consumer of chemicals, accounting for a significant
share of global chemical production and consumption. The chemical industry plays a crucial
role in China's economy, contributing to its industrial and manufacturing sectors.

China's chemical industry encompasses a wide range of sectors, including petrochemicals,

basic chemicals, specialty chemicals, agrochemicals, pharmaceuticals, and fine chemicals.
Petrochemicals, including the production of plastics and synthetic rubber, are a major focus
of China's chemical industry.

China has a vast production capacity for various chemicals, owing to its abundant access to
raw materials, including coal, natural gas, and crude oil.

SOUTH KOREA

South Korea's chemical industry has seen rapid growth and expansion, with companies like
Samsung and LG entering the chemical sector. The country is known for its production of
electronics chemicals and petrochemicals.

South Korean chemical companies are renowned for their competitiveness, efficiency, and
high-quality products. They are often global leaders in areas like electronics chemicals and
display materials. The industry has strong ties with the country's manufacturing sectors, such
as electronics, automotive, and heavy industries.

South Korea is a major exporter of chemicals and chemical products. It exports a wide range
of chemicals, including semiconductor materials, petrochemicals, and specialty chemicals.
South Korean chemical companies have a strong international presence, with operations and
subsidiaries worldwide.

PORTER’S VALUE CHAIN

The chemical life cycle begins with the extraction of raw materials which includes mining,
extraction of oil and natural gas, minerals, ores, and other activities. These raw materials are
then used in chemical manufacturing, processing, or refining. Manufactured bulk chemicals
are then combined with one another and used to make a wide variety of downstream chemical
products.

A value chain is a chain of activities that a firm operating in a specific industry performs in
order to deliver something valuable (product or service). Products pass through activities of a
chain in order, and at each activity, the product gains some value. The chain of activities
gives the product more added value than some of the independent activities' values. The value
chain for the chemicals industry starts from “petrochemicals” and matures into “basic
chemicals” and further develops into “polymers” and specializes in “specialties”.

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Value Chain: Step 1: Raw Materials/Petrochemicals:

Raw Material is the first step of the value chain. Raw materials are used to manufacture basic
chemicals. These raw materials are mainly metallic or non-metallic minerals and ores, oils,
and natural gas extracted and benefited from mining. Value-added activities are performed on
these raw materials to obtain basic chemicals. This step mainly involves raw material
procurement, R&D, development, and patenting of new innovative chemicals and chemical
processes.

Value Chain: Step 2: Basic Chemicals:

The second step of the value chain produces basic chemicals. Base/Basic Chemicals
Processing is the second step in the chemicals industry value chain. In this step, basic
chemicals are produced from raw materials. These basic chemicals are used by many
manufacturers as raw materials from different industries to manufacture a wide variety of
commercial products such as dyes, detergents, chemicals for household cleaning, plastics
materials, paints, drugs, and fertilizers. Basic chemical processing is performed by chemical
manufacturers and is closely tied to R&D activities.

Value Chain: Step 3: Polymers:

The third step involves the manufacturing of polymers. Polymers, which are principally used
to make plastic goods, constitute about 80% of the chemical industry’s production output.

Polymer manufacturing plants are typically very large, capital intensive, costly to operate,
and difficult to change.

Value Chain: Step 4: Specialties:

The most complex chemicals are produced during the fourth step known as specialties.
Specialty chemicals are used for a variety of purposes and include additives, coatings,
pharmaceuticals, and vitamins. Fine chemicals are complex, single, pure chemical
substances.

Marketing, Distribution, and Sales of Final Products is the next step in the value chain. This
includes the marketing, wholesale distribution, and sales of the final chemical product and
allied products to other manufacturers in the Agriculture, Automotive, Pharmaceuticals, and
Textile industries. The manufacturers from different industries then produce different
consumer goods and products using the final chemical product.

PESTEL ANALYSIS

A PESTEL analysis (Political, Economic, Social, Technological, Environmental, and Legal)

can help assess the macro-environmental factors that can impact the chemical industry in
India. Here's an overview of each factor:

1. Political Factors:

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 o Government Regulations: The chemical industry is heavily regulated due to
environmental and safety concerns. Changes in regulations can impact
production processes and costs.
o Trade Policies: Trade agreements and tariffs can affect the import and export
of chemicals, influencing market dynamics.
o Political Stability: Political stability is essential for long-term investment and
growth in the industry.
2. Economic Factors:
o Economic Growth: India's overall economic growth can affect the demand for
chemicals, as it's tied to various sectors like agriculture, manufacturing, and
construction.
o Currency Exchange Rates: Fluctuations in exchange rates can impact the cost
of importing raw materials and exporting finished products.
o Inflation Rates: High inflation rates can increase production costs and affect
pricing strategies.
3. Social Factors:
o Demographics: Population growth and demographics influence the demand for
various chemical products, including pharmaceuticals and consumer goods.
o Consumer Preferences: Changing consumer preferences towards eco-friendly
or sustainable products can drive innovation in the industry.
o Health and Safety Concerns: Increasing awareness of health and safety can
lead to stricter regulations and demand for safer chemical products.
4. Technological Factors:
o Research and Innovation: Advancements in technology can lead to new
product development, improved processes, and increased efficiency in
production.
o Automation and Robotics: Automation can reduce labor costs and improve
production quality.
o Intellectual Property: Protection of intellectual property is crucial for
companies investing in research and development.
5. Environmental Factors:
o Environmental Regulations: Stricter environmental regulations can require the
industry to adopt cleaner and more sustainable practices.
o Sustainability Initiatives: Growing emphasis on sustainability can drive the
development of green chemicals and environmentally friendly processes.
o Climate Change: Climate-related events can disrupt supply chains and
operations, impacting the industry.
6. Legal Factors:
o Intellectual Property Rights: Protection of patents and trademarks is essential
for innovation-driven companies.
o Product Liability: Stringent product liability laws can affect risk management
strategies.
o Antitrust Regulations: Compliance with antitrust laws is necessary to prevent
monopolistic practices.

It's important to note that the chemical industry in India is diverse, encompassing various
segments like petrochemicals, agrochemicals, pharmaceuticals, and specialty chemicals.
Different subsectors may be affected differently by these PESTEL factors. Companies in the
chemical industry need to continuously monitor and adapt to changes in the macro-
environment to remain competitive and compliant with regulations.
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How has technological disruption impacted the chemical industry?
Reaching a new level of functional excellence

Chemical companies’ business processes, including manufacturing, marketing and sales, and
R&D, present opportunities for performance improvement based on data capture and
interpretation. Functional excellence has generated significant productivity improvements
over the past two decades. Digital provides the means to unlock a new level of productivity
enhancement.

Manufacturing operations present one of the biggest and most readily accessible areas of
opportunity, and this cuts across all segments of the chemical industry, from petrochemicals
to pesticides. We see the potential for a three- to five-percentage-point improvement in return
on sales from employing digital in production operations. Most chemical plants continuously
generate an enormous amount of data but discard most of it. Instead, managers should collect
the data and interpret it to reveal ways to achieve higher yields and throughput, lower energy
consumption, and more effective maintenance. For many companies, these are potentially
easy wins that can be achieved using existing IT and process control systems, while
companies that expand the types of data they collect may be able to capture further gains.

KEY PERFORMANCE METRICS USED IN THE CHEMICAL INDUSTRY

1. Revenue and Sales Growth:

o Total revenue and sales growth rate year-over-year.
o Growth in revenue from domestic and international markets.
2. Profit Margins:
o Gross profit margin and net profit margin.
o EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
margin.
3. Production Efficiency:
o Capacity utilization rate.
o Yield and productivity improvements in manufacturing processes.
4. Inventory Management:
o Inventory turnover ratio to assess how efficiently inventory is managed.
o Days of inventory on hand to measure liquidity.
5. Quality and Safety:
o Number of product recalls or quality incidents.
o Safety incident rates, such as lost-time injury frequency rate (LTIFR).
6. Environmental Performance:
o Compliance with environmental regulations and emissions reduction efforts.
o Energy and water consumption efficiency.
7. Research and Development (R&D) Metrics:
o R&D expenditure as a percentage of revenue.
o Number of new products or formulations developed.
8. Market Share and Customer Satisfaction:
o Market share within specific product segments.
o Customer satisfaction scores and feedback.
9. Supply Chain Performance:
o On-time delivery performance.
o Supplier performance metrics, including quality and reliability.

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 10. Cost Control:
o Operating cost per unit of production.
o Cost reductions and cost-saving initiatives.
11. Sustainability Metrics:
o Carbon footprint and greenhouse gas emissions reduction efforts.
o Percentage of revenue from sustainable or eco-friendly products.
12. Health and Safety Performance:
o Recordable incident rate (TRIR).
o Health and safety training completion rates.

AVERAGE FIRM LIFE CYCLE IN THE CHEMICAL INDUSTRY

The chemical industry is responsible for the production of a wide range of products which are
derived from organic, inorganic, biological, and synthetic sources manipulated by a range of
process operations. These products can be divided into three main categories—commodity
chemicals, specialty chemicals, and consumer chemicals.

LCA is the most used methodology to calculate the environmental impacts of a system. The
term system might refer to a product, service, process, or others. The four steps involved in
an LCA study are well documented in the ISO 14040-series. The first step, Goal and Scope
Definition, consists of defining the main objective of the LCA study and characterizing the
system to be analyzed. The next step, Life Cycle Inventory (LCI), consists of quantifying the
inputs (e.g. raw materials and electricity) and outputs (e.g. emissions and solid waste) of the
system. The third step of an LCA is Life Cycle Impact Assessment (LCIA). In this step, the
environmental impacts of the system under study are calculated by converting the inventory
collected in the previous step into environmental impacts. The last step, called Results
Interpretation, consists of analyzing and interpreting the results of the three previous steps.

CONCLUSION:

The chemical industry is one of the key industries in developed countries. In the chemical
industry, the probably most important sub-group is the basic chemical industry. The basic
chemical industry produces a wide range of products which are used as raw materials in
almost all other industries.

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https://kemgo.com/waiting-to-be-disrupted-the-chemical-industry-and-porters-five-forces/

https://blog.mygov.in/editorial/ai-can-be-the-backbone-of-indias-governance-through-tech/

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