Akzo Nobel ups sales target for China

It is a demonstration of its confidence in both the Chinese market and in itself that Dutch coatings and chemicals maker Akzo Nobel has revised its sales target for China.

In an exclusive interview with China Daily, Anders Brostrom, president of Akzo Nobel China, said: "We managed to achieve close to $900 million in sales in China last year. Based on our past performance and the result we have obtained, we are now even more confident than before. Our new target is $2 billion in annual revenue from China by 2012."

Just a few years ago, Akzo Nobel set a goal of grossing $1 billion in China by 2010, which Brostrom had once described as "ambitious".

But now the company has come up with an even more ambitious target.

"When we realized that the previous target was within reach, we decided to set a new goal to boost our business here in China," Brostrom elaborated.

Earlier in July, the company upgraded its sales target for China to $2 billion by 2012, with 20 percent of its total worldwide earnings coming from the Asia-pacific region by that time.

Organic growth and M&A

According to the company, goal-oriented business expansion should be fueled by both organic growth and acquisitions.

In Brostrom's eyes, however, it is easier to seek organic development in China than by conducting mergers and acquisitions (M&A) in the local market to drive Akzo Nobel's business forward.

Traditionally, organic growth is slower, while acquisitions make swift market expansion possible. However, mergers and acquisitions may also involve extra risks, Brostrom said.

Although the European company has expanded on home turf mainly through M&As, it is more cautious about this route in China.

"To some extent, China is a challenging market for M&As, because good companies worth buying in the segments we are focusing are numbered. Sometimes it is too expensive to buy some quality local counterparts, and sometimes it may involve cultural conflicts," Brostrom said.

At one point, Akzo Nobel engages in M&As in Europe almost every month, according to Brostrom. "But in China, the situation is totally different, and we have to be prudent" he said.

Instead of acquiring an existing Chinese venture, the Dutch company opened a new coating factory in Langfang in Hebei Province in June.

Leif Darner, the Akzo Nobel board member responsible for China, explained that it was mainly as a result of environmental concerns that his company chose to set up its own factory in Langfang rather than buying an existing Chinese plant with a mature sales network.

But Akzo Nobel does not rule out the possibility of M&As as part of its business expansion agenda in China.

"If there are adequate opportunities, we will not hesitate to take action," Brostrom added.

The company follows stringent standards in maintaining organic development and setting up its own new plants focusing on either the coating or chemical segment here in China.

Chemical business

Akzo Nobel's specialty chemicals business targets niche markets. New projects should boast good commercial prospects and be financially sound.

"We go with our customers in terms of developing specialty chemicals businesses. Issues such as logistics and the investment environment are key in relation to the choice of locations for chemical ventures," Brostrom said.

Being close to material suppliers is also important for setting up new chemical ventures, he added.

"New chemical projects should be close to market demand, and be built in locations with mature infrastructure and convenient transportation," Brostrom said.

Akzo Nobel reiterated in May that it is to spend 250 million euros on two chemical plants in Ningbo in East China.

Initially announced in October last year, the 50-hectare plot has been reserved within Ningbo's Chemical Industry Zone in Zhejiang Province. The two new facilities will produce chemicals used in a wide variety of industrial applications.

The company has chosen Ningbo because of its proximity to Shanghai and its transportation links that will enable Akzo Nobel to supply customers not only in China but also in the entire Asia-Pacific region.

Brostrom emphasized that a key element of this continuing expansion is the company's commitment to sustainability. Akzo Nobel has gone to great lengths to ensure that all its new facilities are constructed to meet to highest applicable standards in areas such as efficiency, safety and the environment."

Coating business

Generating the bulk of Akzo Nobel's revenues from China, the coatings business should also be subject to further expansion. Investment going into those areas should also follow customers.

"We need to defend our leading position in the coatings sector in China, continuous investment is therefore important," Brostrom said.

Akzo Nobel has a relatively small share of China's decorative paint market, despite its strong presence in the local industrial coatings sector.

The Dutch company plans to strengthen its local coatings businesses over the next five years as the country's booming construction industry drives market growth.

"We want to be among the leaders of the local market through organic development and M&As. We will invest in both new factories and market channels," Wilfried Brouwer, general manager of Akzo Nobel's Asia-Pacific Decorative Coating, said at the opening ceremony of the new Langfang plant.

Brouwer added that the country's robust development offered great market potential especially in exterior and interior wall, wood and trim paint.

Akzo Nobel posted sales of $887 million in China last year, with its coating business generating 74 percent of the revenue. Its chemical business contributed 20 percent of the 2006 sales.

By 2006, Akzo Nobel had invested $400 million in its Chinese operations. Hans Wijers, chief executive officer of Akzo Nobel, said the company was planning to invest about $500 million in China by 2012.

By 2010, Akzo Nobel expects 15 percent of its worldwide sales to come from the Asia-Pacific region.

(Shanghai Start 09/28/2007 page4)