Akzo Nobel paints itself a rosy future

Akzo Nobel, the Netherlands-based coatings maker, expects its business in China to nearly double in five years, driven largely by demand for finishing materials used on everything from wood furniture to city buildings.

Akzo Nobel’s ambitions for one of its top emerging markets will mainly focus on supplying a wide range of coating products for urban residences, heavy industry and finished product manufacturing, says Hans Wijers, chairman.

He says Akzo Nobel is on track to generate more than $1bn in revenue from China by 2010. Chinese sales amounted to $655m in 2004, less than 4 per cent of the group’s total worldwide.

The main growth driver for Akzo Nobel in China has been sales of coatings, which now represent about two-thirds of its business in the country, with the remainder coming from chemicals and pharmaceuticals.

Mr Wijers expects strong future demand in the home decoration market, which he describes as “hugely fragmented” as it consists of thousands of companies making everything from “water with colour” to premium paint.

“As home ownership grows, there will be more need for higher quality paint,” says Mr Wijers, who estimates China’s per capita use of decorative paint is now only a tenth of that of mature economies.

The need for a variety of paint products has been driven by the frenetic construction boom in Chinese cities. Total sales of building and decoration materials rose about 27 per cent last year, according to government data.

And through October of this year, investment in real estate development was up nearly 22 per cent compared with a year earlier.

Mr Wijers says his company is looking to derive significantly more sales in home decoration but it currently has a much larger business supplying coatings to heavy industries, including aerospace, shipbuilding and metal production.

One Akzo Nobel product that has been selling particularly well in China is a
silicon-based finish for ships called “Intersleek”, which prevents environmental damage.

Mr Wijers also predicts the car refinishing business, which typically involves painting damaged and used cars, will become increasingly profitable. He believes that having a vast selection of colours will be a key factor in this area.

He says the coating business is one in which it is better to produce and supply materials locally, especially in industries such as furniture manufacturing where customers make specific requests.

Currently, about 70 per cent of the Akzo Nobel products sold in China are made domestically. The company has invested roughly $240m in China in 21 production facilities around the country, including joint ventures and wholly foreign-owned sites.

The company employs nearly 4,000 people in China and recently opened a powder coatings factory close to Beijing, which can provide finishes for home appliances, information technology pro-ducts and metal furniture.

Mr Wijers says Akzo Nobel has plans to continue expanding production capacity in China, either by building new sites or through acquisitions.

“We are looking at other targets,” he says.