Multinationals often dream up ambitious ways of cracking the unpredictable Chinese market, by emphasizing localization, branding, or rapid expansion, among other approaches. Some manage to pull it off, but others struggle for years before changing direction or throwing in the towel altogether. Regardless of the industry, there are few sure-fire formulas for success in China, which is why Degussa's no-nonsense approach is so refreshing: 'Make China happen'.

The orders come straight from the specialty chemical manufacturer's headquarters in Germany. The goal is to triple China revenues from 300 million euros (US$362.96 million) in 2004 to 900 million euros (US$1.09 billion) by 2008. That kind of growth could place Degussa near the forefront of China's chemicals industry.

The strategic imperative has contributed to the rapid growth of the company's China operations. Even its senior officials find it challenging to update its information with the rapid pace of change.

"We had 1,500 people across the country a few weeks ago, but now that should be 2,300," says Eric Baden, regional president of Degussa China, explaining that the company has just taken over a domestic factory in Yingkou, in Northeast China's Liaoning Province. All 800 staff from that factory will be brought into the Degussa family.

The company has established 23 subsidiaries in China since it came to the country in 1988. Its broad regional spectrum of products, ranging from carbon blacks, rubber silanes, amino acids, polyurethane foam additives, high-performance water treatment chemicals, construction chemicals, and initiators used in the production of plastics are sold all over Asia.

Degussa believes it needs certain capabilities and assets in order to achieve its 2008 revenue targets. Its plan therefore calls for an investment of 100 to 150 million euros (US$120.99 to 181.48 million) per year in China, Baden says.

"Organic growth is important, but so are acquisitions," he says. The company has built up an M&A (mergers and acquisition) team primarily consisting of Chinese industry experts.

"They (targeted firms) should be leaders that focus on products in our portfolio, or at least offer interesting additions to our portfolio."

He adds that M&A candidates should have solid corporate governance and share the same basic philosophy. The selection process should proceed at a measured, logical pace, Baden adds.

"I always ask myself two questions: Do we have something that the Chinese partner does not have? Do they have something that we do not have? If both the answers are yes, it makes sense to form a joint venture."

Baden mentions its latest joint venture with Jilin University, Jida-Degussa High Performance Polymers (Changchun) Co Ltd, which was formed last December. Degussa holds an 80 per cent stake.

"Jilin University has developed an important material that can be widely used in the aerospace, automotive and electronics industry. They are interested in us for our marketing capabilities and reputation. Degussa is one of the world's most preferred suppliers to many aerospace, automotive and electronics companies," Baden says.

Degussa identified China as the driving economic force in Asia in the 1990s, and intends to consistently focus on opportunities to enhance the company's position in the regional market over the next few years.

The company's mid-range outlook shows China as a fairly strong contributor to the projected doubling of its consolidated sales in Asia, which stood at 14 per cent in 2004. Degussa (China) Co Ltd was established in Beijing in late 2002 with this in mind. All of Degussa's companies in China are to become subsidiaries of this holding, which will be concentrating on the implementation of new investment projects.

The links between market proximity and innovative prowess are key factors for Degussa's entrepreneurial success.

Its new research and development (R&D) centre, opened in Shanghai in 2004, is an important step in this direction. The 12-million euro (US$14.52 million) centre gives Degussa the opportunity to develop specific products and introduce them to potential customers on a local level. This helps the company further localize its operations.

Degussa's mission in China is to become the country's most committed specialty chemicals supplier through strong relationships rooted in R&D, Baden says, adding that China will become the world's largest specialty chemicals market by 2015.

Specialty chemicals are a part of everyday life, Baden says, listing a number of industries that make use of such products, including the automobile, construction, electronics and aerospace sectors.

Expansion is challenging in China because Baden says it is still a "price-driven" market. Quality and technology have been somewhat neglected.

"Many Chinese clients do not link their purchase departments with their R&D divisions. Buyers are paid for buying cheap. There are always cheaper products than Degussa, but they are not necessarily as good. The chemical ingredients might be different," he says.

He cites the example of carbon black, which is widely used in automobile tyres.

Good carbon black helps tyres save 5 per cent on petroleum costs, but if tyre makers buy cheap carbon black, their cars will consume more energy, he says.

Baden says providers in the specialty chemical industry are closely bound to customers, and trust and mutual dependence are so high that price is not always the main factor behind purchasing decisions.

Degussa generated global sales of over 11.2 billion euros (US$13.53 billion) in fiscal 2004, with approximately 45,000 employees. Almost three-quarters of this turnover originated from outside of Germany. The company has 63 large production facilities in over 50 countries.

(China Daily 01/23/2006 page2)