The IMCD Group is known globally for sales, marketing and distribution of speciality chemicals and food ingredients.Vijay Ranshinge, MD, IMCD India, and Eugen Rothermel, MD, IMCD China, in an email interaction with Manjushree Naik delve deeper into the details of the group’s India and China strategies and more. Excerpts:
Tell us briefly about your group and presence in Asia-Pacific, especially in India, in the pharma, food and cosmetics sectors.
IMCD is a global leader in the sales, marketing and distribution of speciality chemicals and food ingredients. They are active in a large number of market sectors, out of which the biggest proportion of their business accounts for coatings, pharmaceuticals, food & nutrition, personal care, plastics, detergents, synthesis and lubricants, with an annual turnover of EUR 1.3 billion in 2012. They are active in 36 countries.
IMCD started its business activities in Europe and Australia, where they currently enjoy the highest levels of market recognition as well as turnover. The activities in Asia started later, but they have been confidently building their reputation and presence in this region too. Prior to Alam Subur acquisition, IMCD has had 11 offices in Asia-Pacific, 13 warehouses and 2 laboratories, employing 165 people.
Ranshinge: IMCD India was established in 2004 and we have successfully brought about our key principle in bringing technically focussed sales team, whilst partnering with suppliers like BioSpringer (France), Alland & Robert (France), and Ineos (Europe), to mention a few, complimented by few local suppliers, bringing quality products to customers that provide them the quality and technical edge to the market.
Rothermel: In China, the highest level of our activities is in the pharmaceutical market. In pharma, food and cosmetics combined IMCD China is making several million USD turnover.
The chemicals and ingredients markets are said to have suffered following the global slowdown. Comment.
Overall, the IMCD Group has done well this year. We have a good spread, both from the market sector and geographic points of view. This has enabled us to continue with our growth trend.
Rothermel: This is difficult to comment from an IMCD China perspective; with a turnover growth of 500% and a gross profit growth of 800% this year, it is difficult for a small but strongly growing entity to speak about a slowdown or ‘suffering.’
In general, for China, double-digit growth rates, like it has been the case in the past 20 years, are surely not realistic and sustainable anymore, but estimations show that growth targets for the Chinese economy of 7-8% will be met, and that's still good news, as compared to more mature economies. The Chinese chemicals sector is surely stalling now to a certain extent, but this is mostly a slight cyclical downturn and inventory reductions, but we would not foresee a ‘hard landing’next year. Plus, the here discussed regulated market segments, are rather crisis proof, also in China.
Ranshinge: Though India has a significant domestic market, the production of the Indian chemical industry grew at a dismal rate of an average of only 1.0% per annum, during the period 2004 to 2010. This near flat performance was primarily a result of cheaper imports of organic and inorganic chemicals from China, also poor availability of feedstock compounded the matter further. The devaluation of rupee versus major foreign currencies like the USD and EUR has had its own impact.
However, one of the key sectors that grew positively was speciality chemicals with key drivers being automobile, infrastructure, electronics, technology, etc. which has primarily been led by domestic economic progress. The growth has also been export-driven and this has undoubtedly been affected and has driven the slowdown in the relevant but particular sectors.
What are the different and innovative products offered by you in India?
Ranshinge: From BioSpringer, we represent yeast extracts finding application in, to mention a few, savoury, bakery and confectionery.
From Alland & Robert, we offer customised grades of gum acacia with different particle size and necessary accreditations as required by the food and pharma industry in India.
In cosmetics, we market SMART5, a hydrocarbon-based alternative to D5 (Cyclopentasiloxane).
Also, we are representing Ineos for their specialty oligomers having a comprehensive range of speciality hydrocarbons that are widely used in the personal care and cosmetic sectors.
What more can be done with regard to regulations and policies, as far as the Indian chemicals and ingredients markets are concerned?
Ranshinge: In India, we have multiple regulations that originate from different ministries that govern a particular chemical sector. Manufacturing companies need to take many licences/approvals from different departments, e.g. environmental, local municipality, explosives etc., to set up their units. The need of the hour is to centralise all the regulation in a sector under one umbrella and should be controlled by one governing body which could deal with all the issues such as pesticide registration, its use, fixation of standards for residue in food chain etc. Something similar to REACH regulation in Europe, which replaced 40 odd regulations, should be considered.
Import tariffs are a key barrier for attracting high tech, high specification products into India which would otherwise give the local manufacturers access to technical products and compete internationally with exports that match the requirements of the worldwide market and at the same time provide a choice for the local domestic market.
Bureaucracy is a hindrance to commercial efficiencies and whilst the government has taken huge strides in simplifying and reducing unnecessary complications, further updates and streamlining of commercial regulations and compliances can be done through online automation.
The situation is said to have improved in markets such as India and China considerably. Since you have worldwide presence, what are your observations?
Rothermel: The regulatory environment in food ingredients, cosmetics and pharmaceuticals has not improved in the previous years in China. The contrary is the case; numerous scandals have led to increased mistrust and a strongly tightened regulatory environment. Instead of improved quality of control mechanisms, the authorities are rather implementing added bureaucracy and more rigid market entry conditions, especially for new technologies or new suppliers.
Ranshinge: Though both the countries have got robust domestic markets and are growing economies and have been achieving a good economic growth in last 10 years, they are now both under slowdown. The economic growth forecasted for India and China is 4.9% and 7.8% from earlier levels 8% and more than 10%, respectively. In India, the factors responsible for economic growth are increased trade deficit, high rate of inflation and high interest rate. As a result, consistency in growth of business is a major challenge.
Europe has different growth trends in various countries showing that growth and markets are interlinked, but some more than others. In India and China, the markets were buoyant with domestic demand and with their export market growing further on from the last major slowdown, has meant that the current slowdown is impacting some industries more than others and we see a similar trend as seen between central and southern Europe, albeit still recording fantastic growth (compared to Europe) but some sectors are feeling the chill.
What kind of sales are you looking at this fiscal?
IMCD has a good mix of market sectors and geographic regions and is therefore not dependent on any particular economy. Overall, IMCD is performing well this year, with an annual turnover of EUR 1.3 billion in 2012, and growth anticipated for 2013.
IMCD Asia-Pacific in particular is bullish about its prospect for sales in this region and would expect a challenging growth with a double digit performance over last year. Expansion in different regions both organic and with new acquisitions bodes well for a fantastic outlook.
Are you planning to introduce anything new in view of the mood in the market? IMCD is known for offering tailor-made solutions, could you explain?
Flexibility, transparency and business simplification are pretty much in the core of IMCD’s way of doing business.
When signing up a new supplier, for example, IMCD will plan all the steps of the process for / with them. We would make sure that the supplier would not experience any disturbance to his business and his customers would not even notice there was a significant change in the supplier’s business model. We have done this many times and have vast experience in how this needs to be done efficiently.
IMCD spends a lot of time and effort mapping the market for the products we have within our portfolio. By understanding the business opportunity we can then agree with our principal partner how to generate value-added growth.
All our suppliers get regular and transparent reporting from us on the market developments and opportunities we are working on. Our dedicated product managers will ensure that the interests of the supplier are looked after and that mutual growth opportunities are ensured at all times.
At IMCD we operate an asset light supply chain where we have outsourced all our logistics to reliable third-party logistics services providers to ensure maximum flexibility and the highest service levels in the market with constant changing demands. We understand flexibility and innovation and because there is not such a thing as “one-fits-all” our centralised supply chain team, together with our local operations teams, design logistic customer and supplier solutions according to pre-defined service, quality and sustainability parameters. With the use of engineering tools we can avoid the pitfalls of implementations that often surround these projects and create innovative and robust value propositions.
What about plans such as expansion, diversification, and collaboration?
IMCD Group is continually looking into expanding its successful global model into Asia-Pacific. By this, all industries where IMCD is currently active are of interest. IMCD equally values growth through acquisitions and start-up activities. The group is always looking for a good portfolio fit, market penetration and quality service in its acquisition candidates. All recent acquisitions have reflected this: Warwick, Maxwell, Topichem, Alam Subur, Infineum, and Muskvale.
Ranshinge: IMCD India has modelled itself with successful strategy for its growth in India. Firstly, by partnering with international key suppliers; secondly, by building success with organic growth; and, finally, by complementing expansion by acquisition of similar businesses in India.
How big are the Indian chemicals and ingredients markets, what is your share in them? How different is the Indian market compared to other key markets over the world?
Ranshinge: The industry is increasingly moving eastwards in line with the shift of its key consumer industries (e.g. automotive, electronics, etc.) to leverage greater manufacturing competitiveness of emerging Asian economies and to serve the increasing local demand. This has led to share of Asia in the global chemical industry increasing from 31% in 1999 to 45% in 2009.
With Asia’s growing contribution to the global chemical industry, India emerges as one of the focus destinations for chemical companies worldwide. With the current size of approximately $108 billion, the Indian chemical industry accounts for 3% of the global chemical industry.
In the world stage, India is certainly important player but has its own constraints in reaching its full potential. Factors like lack of infrastructure, multiple regulations, non-availability of feedstock and weaker currency, to name a few, are stagnating its potential to become the world player. However with reforms expected from governments and the policy initiatives for the XII Plan from the Indian government for the period 2012-17 coupled with a multi-pronged strategy for sustainability and growth, the future seems to be encouraging for the Indian chemical industry.
Tell us about the growth in the market and what kind of growth are you envisaging by 2015.
It is difficult to predict events in the current world economy. History however shows that IMCD has grown faster than local GDPs, due to our strong network and market offering.
IMCD group is very enthusiastic on the India and China markets and the opportunities this region can offer for growth. IMCD expects to grow organically as well as inorganically, not only in terms of revenue generation but also with the introduction of many newer products and principals.
Ranshinge: On the one hand, the growth prospects seem to be challenging for the Indian industry considering all the factors mentioned above. However in an optimistic scenario, the end-use demand would be high due to increasing per capita consumption, improved export competitiveness and resultant growth impact for each sub-sector of the chemical industry which could lead to an overall growth rate of over 15% p.a. and a size of $290 billion by 2015. This has a potential for further upside in the future considering India’s increasing competitiveness in manufacturing.
