When people think of German consumer products company Henkel, shampoo and detergent, not adhesives, are what come to mind. But adhesives are some of the company’s biggest sellers in China – with automotive and packaging manufacturers as its main customers. The company has 14 factories in China and posted annual sales of US$703.7 million in 2008, representing a 48% yearly gain. Jan-Dirk Auris has worked for 25 years in Henkel’s adhesive technologies division and was named the firm’s president for Adhesive technologies in the Asia Pacific region last year. Prior to moving to Asia, he held positions in the US and Europe. Auris has overseen the consolidation of the regional adhesive business in Shanghai as well as the company’s US$5.05 billion acquisition and integration of the adhesive and electronic materials business of US firm National Starch and Chemical in 2008. He talked to China Economic Review about the acquisition, the economic downturn and where he sees growth opportunities for the company.
Q: How important is China to Henkel’s adhesive business?
A: China is the most important country in our Asia Pacific portfolio. We also have our research and development center here that helps us to be very close to the action. It’s one of five research and development sites worldwide so it’s one of the major pillars of the company. It develops products specifically for China and the region as well as for the rest of the world.
Q: What adhesive product lines do you offer in China?
A: We have quite a successful adhesive business for the automotive industry. One of our key customers, a major German car manufacturer, was one of the first international players making an investment in China. They asked us to follow them here. Based on this development we built quite a good auto business and we were able to expand beyond this key account into serving successful local players and also Japanese and Korean players. In addition, we have quite a strong electronics business. It’s natural that many contract manufacturers started first in Taiwan and Korea and then moved over to China. So a large number of famous electronics manufacturing firms are among our key customers. On top of that, our business was enhanced through acquisitions of local players. Henkel has just completed one of the largest acquisitions in our history – National Starch. With that acquisition we increased our business for industrial adhesives, moving from the number two position in the market to the number one position. For industrial adhesives, we sell adhesives into a huge variety of packaged goods, such as feminine hygiene products and diapers, as well as to the tobacco and furniture industries.
Q: What adhesives does Henkel produce for the electronics industry?
A: This is one of our success stories here in China. When we talk about electronics we talk about everything on a circuit board as well as the plastic bonding and the sealant for the housing. So we have a very strong product range. That’s also why our acquisition of National Starch is so important: It not only strengthens our industrial adhesive business, it strengthens our electronics adhesive business.
Q: How is the economic downturn affecting your business in China?
A: It does affect our business in China, but at the end of the day, we believe that the fundamentals haven’t changed. We have such a strong position in the adhesives business in China and China is the largest market for adhesives in Asia Pacific. Given the sheer size of the market, the sheer demand of the market, we still have quite significant growth for our various adhesive businesses. And China will continue to be our growth engine.
Q: What impact has foreign participation in the Chinese auto market had on Henkel’s business?
A: From our perspective, there is still growth potential in the Chinese auto sector. In fact, growth will eventually shift to China and it will become the world’s biggest auto producer.
Q: How are you taking advantage of this trend?
A: We have a specific strategy for international original equipment manufacturers (OEMs), but we’re also quite successful with the local OEMs. The local OEMs depend on Henkel and they like to work with Henkel because we bring a lot of know-how to the table. For example, we have our own design centers – we don’t design cars for them, but we help them to design parts and adhesive solutions that in turn help them design safer cars to meet certain standards. That’s different from how we deal with our major German car manufacturing customer, which still carries out most its product development in Germany. However, this manufacturer is also moving design centers to Asia, particularly to China and India. That is why it is important to have our research and development center close to the customer because we cannot depend on communication across different time zones.
Q: Is there any area where you see more growth opportunities during the downturn?
A: We feel that every crisis creates an opportunity. If you examine our product offerings and you look at how we try to create value for the customer, everything we do relates to providing the cost-saving opportunities. We allow them achieve cost-savings by shortening a certain process or helping them to run a machine faster. We can also give them the option of substituting a material with a different adhesive, so they spend less than they used to on a certain process.
Q: How do you view the competitive landscape in the adhesives market in China? Is your competition primarily coming from other global players or local firms?
A: In terms of international players, our closest competitor has worldwide sales of around US$1.4 billion, while our global sales are around US$9.8 billion. But we are dealing more with local competition; almost every city in China has local adhesives manufacturers that have relationships and a history with their customers. But we still see an opportunity to compete with local players because customers’ requirements are changing quite dramatically. I remember when I was first traveling in China in 1990 we were trying to sell very high-quality adhesives for bottle labels that needed to be applied by high-tech machines. I was visiting a factory and saw 200 women labeling the bottles by hand. But now if you visit any brewery or beverage manufacturer in China, nobody is labeling by hand, it’s all done by machine. So customer requirements are changing, and that’s where we come in.
Q: Do you see any acquisition opportunities at the moment?
A: It’s always on the plate, but it always depends on the opportunity. We are constantly reviewing opportunities, but if you were to ask me right now, I’d say we haven’t fully completed the integration of National Starch – in Asia Pacific, it’s almost 90% integrated. Just to give you an idea of the magnitude of that acquisition, we almost doubled our size in Asia Pacific through National Starch. If you acquire a business that is almost the same size, or maybe a little bit smaller, then at the end of the day you change a lot of things. We tried to communicate with employees very early on – the completion of the deal was in April 2008 – and our first priority was to have as little uncertainty as possible. The number two priority was to leverage our technology for the benefit of our customers. For the rest of 2009, I would like to keep people focused on servicing the customer rather than thinking about a new acquisition. However, when an opportunity comes up – and we’re continually investing in China – you never say never.