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In addition to a potential rebalancing of trade flows in the short term, mid- and long-term effects can emerge. For instance, does a producer of tariffed goods respond by improving its cost competitiveness? Doing so could lay the foundation for further growth across all the markets the company serves.
Chemical companies certainly understand the risks and opportunities that tariffs can create. Yet in our experience, they typically decide how to respond to tariffs based on gut feel or anecdotal evidence. This can result in identifying suboptimal steps or even doing something that can harm the business.
There’s a better way. Given the complexity of a tariff’s impact and the need to respond quickly, chemical companies need a systematic and fact-based approach to determine the right course of action—uncovering and exploiting the greatest opportunities a tariff creates while minimizing the risks and downside. Two key technologies are important to consider in this situation.
The first is analytics. Eighty-eight percent of executives in the chemical industry report that their organization is increasingly using data to drive critical decision making at unprecedented scale.2 Analytics can be leveraged to apply algorithms to comprehensive data on products, customers, prices, landed cost, share of wallet and other key aspects of a company’s trade flow. This will allow a company to identify the full impact of the tariff and quantify opportunities and risks at the product and customer level. Such analytics can help a company to, for instance, identify specific customers in markets affected by import taxes that may be looking for a new supplier, or alternatively, customers in non-affected markets that affected competitors are looking to penetrate.
The second key technology is artificial intelligence (AI). In a recent Accenture Strategy survey, respondents said autonomous self-learning and the ability to connect data to drive new insights are AI’s top two benefits.3 With AI, a company can learn from previous disruptions of any kind―including force majeures and exchange rate shifts―to understand price elasticities and product- and market-specific triggers for trade flows. This will allow a chemical company to predict or even simulate the impact of tariffs before they are enacted.
Effectively using these tools requires a qualified cross-functional team that includes data scientists as well as representatives from the marketing, sales, procurement and supply chain organizations. Housing such a team in a "control center" that contains the necessary skills, capabilities, and organization structure can maximize the team’s impact and the insights it generates.
Such capabilities enable a chemical company to closely track buying patterns and pricing across markets and customers to make adjustments as needed. In turn, highly agile operations are critical to translating key insights into actions.
No company doing business across borders likes tariffs, which can make it difficult, if not impossible, to profitably serve a market that a company took years to cultivate. But tariffs don’t have to be an obstacle or injurious to the business. By building a cross-functional control center powered by analytics and AI, coupled with agile operations, chemical companies can equip themselves to neutralize the threats and maximize the opportunities that tariffs create. Fostering competitive agility in this way is invaluable at a time when changing trade measures are becoming more pervasive.
1 Cefic Facts & Figures of the Chemicals Industry 2018.
2 Accenture, Technology Vision 2018.
3 Accenture Strategy, Tech-Led Change in AI, 2017.