Interview with Silke Brand-Kirsch
Strategic success factors for companies in the nonwoven sector
Schlegel und Partner is the market research and consultancy company for technology-focused and complex products. For 25 years, they have been specialising in client-specific business-to-business market insights, delivering valuable analyses and insights, identifying new horizons and opportunities for a global customer base. Nonwovens and specialty paper are two of their key fields of expertise.
TT: What are the key business models that are applied in the nonwoven sector? Which of these hold the best opportunities for long-term profitability?
From our experience, we see five main business models in the market. Three of them create good to excellent profitability.
TT: So, could you elaborate on the most interesting ones?
First, there is the "operational excellence" option. This is suitable in low customisation or mass markets like construction house wrap. It needs only minor alterations on the machinery. This model is running the asset with a maximum exploitation of the capacity in line with excellent channel management to sell the product. Sounds simple but only a few players in the industry are able to drive this.
Then, there is the "technology edge" concept. It triggers excellence in process, product or raw materials that deliver uniqueness within a market that will not be copied easily by other suppliers. Either because of IP or other limitations, like in the supply of a special fibre, this has been a common approach for many players of the industry for decades, but it is going to fade out. The main reason is the lack of creating an "edge" that is so beneficial, that customers are prepared to pay more for this feature.
Another approach which is closely linked to technology edge model, is to move forward along the value chain to exploit more of the added value and to secure a certain channel access. We call this business model "vertical integration."
TT: These business models seem to be more applicable to larger players in the nonwoven market. Do you see any specific approach for SMEs?
Definitely. The "customised product" approach business model is prevalent in segments where the demand for nonwovens per customer is low and a customer- specific development is necessary. Usually, needlepunch lines can operate with smaller quantities by using individual fibre blends and integrating even natural fibre like flax or hemp. This business model can also add value by providing services like flexible order quantities and fast delivery, which is also part of the premium that customers are willing to pay for.
Also, the business model of "toll manufacturing," meaning dedicated lines with customer-driven product developments and securing supply for these customers, is accessible for smaller players.
TT: Is there any further advice on how not to approach the nonwoven market?
What proved to be of no major success was the strategy to integrate a variety of technologies and to be active in many different sub-segments of the nonwovens market. It is a heterogeneous and diversified market with only limited synergy potential on segment or technology level. Even though most technologies are applied within most of the segments, the value chain structure and the end-application often differs significantly. Also, the customer need for bundling certain products or reducing suppliers is only prevalent if they can bargain for their purchasing volume which is then a disadvantage for the nonwoven supplier.
TT: How can nonwoven companies be sure that their business model is still providing enough future growth potential in sales and in profit?
It is an absolute must to monitor the market and the benefits that are provided for customers, on a regular basis. Megatrends like digitalisation and new mobility concepts are going to have a significant influence on all of us. Only the companies that are flexible enough to react to incumbents or even create new benefits for customers will stay in business in the long run. This might also imply limiting yourself regarding growth objectives and to focus more on profit and other KPIs.