Trade wars and innovation. How to grab strategic opportunities
The disastrous consequences of trade wars
“A trade war is good and easy to win,” said President Donald Trump, before introducing a 25% import duty on steel and 10% on aluminum. These levies are good news for U.S. steel and aluminum manufacturers, but a blow to the users of steel and aluminum.
American companies such as Harley-Davidson and Caterpillar expect major negative consequences from the taxes on the steel and aluminum that they use in the production of vehicles. Caterpillar calculated that the import duties increased the cost of raw materials to 400 million dollars annually. Harley-Davidson is considering moving part of its production to Asia.
But also companies that source their steel and aluminum exclusively within the U.S. are affected. The import duties allow American steel and aluminum producers to raise their domestic prices. They can do this because they no longer have to compete aggressively with low-priced foreign rivals.
Some companies are even hit twice. The European Union and China have imposed retaliatory measures on many products from the United States. For example, a company such as Correct Craft, a Florida-based shipbuilder, not only pays more for the aluminum in its boats, at the same time it has to give discounts to its overseas customers to compensate for the tariff increase. This adds up to a loss of millions of dollars for the company.
Non-American producers are also experiencing difficulties, even though they do not currently sell in the United States. All metals that are no longer exported to the US as a result of high duties are now finding their way into the global market, causing downward pressure on prices.
Innovative solutions for trade wars
Crisis situations lead to innovation. Necessity forces us to look for solutions. Trade wars also oblige us to be creative and to look for new solutions to pressing problems.
Import duties can be the cause of multiple problems, with various solutions.
- More expensive raw materials: look for cheaper or alternative raw materials.
- Disruption of the production chain: research alternative suppliers and technologies.
- Reduced competitiveness: maintain market share through disruptive innovation.
- Increasing competition: search for new markets and applications.
Even if your company is protected by import duties in your home market, innovation is still needed in the long term. If the duties are later abolished, you will suddenly have to fight against cheaper foreign competitors. Innovation offers a solution to these issues, but how to start? Each innovation process is unique, but let’s look at some practical examples where raw materials played a decisive role.
Examples of strategic innovation during trade wars
Identify technologies and materials that make you less dependent
- Rising raw material prices. One customer was faced with rapidly rising prices of titanium due to the increasing popularity of the strong, light and corrosion-resistant material in the aerospace, defense and medical sectors. Through a data-driven scan of the market and analysis of customer needs, we found a solution: a source of cheaper titanium that precisely met the requirements.
- Shortage of raw materials. Not only the purchase price can play a decisive role, but also the availability of raw materials. One of our customers was confronted with a long-term shortage in the production of a necessary chemical raw material. A disaster for the production process. Within the specific industrial context of the customer, we mapped out all possible alternative technologies: from own production to recycling and substitution. The company is now able to tackle these challenges with peace of mind, without fear of future shortages.
Develop new processes that give you more opportunities
- Quality problems with raw materials. A large company needed a chemical raw material with a higher degree of purity than was readily available on the industrial market. If you don’t have any control over the raw materials, you can investigate how you can adapt your own production processes to work with what is available. We mapped out technologies with which that company can work with the lower quality products with minor adjustments.
- Supplier monopoly. A customer was left with only one supplier for a certain product. When this supplier also quit, the only alternatives available had an excessive level of contamination. Our researchers looked for the relevant technologies to eliminate the contamination so that the customer has alternatives to secure the production chain.
Develop new markets and products
- Overcapacity in the market. The overcapacity of a commodity chemical led to a sharply reduced sales price for a customer. Creax researched innovative applications based on unique combinations of relevant product properties. For example, we mapped out new products with higher profit margins, based on existing specializations. This allowed our customer to quickly get out of the worrying situation.
- Asian competition. Chinese competitors disrupted a company’s traditional, historical market. We carried out an extensive technology and market study that provided a complete picture of the customer’s sector. As a result, they received an extensive list of leads in emerging applications where there were opportunities to the pioneers and thus conquer the lion’s share of the market.
Away with tunnel vision
A trade war can get your company into trouble surprisingly quickly. Escaping the downward spiral is difficult using the existing way of working. Fortunately, strategic innovation brings new opportunities to companies that want to move forward. From a clear and complete overview of technologies, opportunities, and markets, you make targeted choices for a profitable future. Wondering how we map out the possibilities in your niche? We’d love to show you how we can use our tried and tested system to map out the possibilities in a structured way so you can proceed quickly.