New Delhi: Akzo Nobel NV, the world’s largest decorative paints and specialty chemicals company, best known in India for its Dulux brand, is setting up a new manufacturing unit in Madhya Pradesh. Hans Wijers, the Dutch company’s chief executive officer (CEO) and chairman of the board, was here to announce the Rs 200 crore facility and the entry of Akzo Nobel into the wood coating segment. In an interview, Wijers spoke of his expectations from emerging markets and challenges in the mature markets. Edited excerpts:
You once mentioned that Akzo Nobel was a late entrant in Asia. How is the company performing in the region today?
Let me be specific. We were late in Asia in some businesses. In the performance coating or B2B (business to business), we were quite early here, including in India. We were late in the decorative paints area and speciality chemicals. But that’s more to do with the state of development of the Indian economy and that it has a relatively smaller industrial sector.
Staying in the black: Wijers says the challenge currently is much more in Europe and the US to protect Akzo Nobel’s profitability. Photo: Pradeep Gaur/Mint.
We have invested heavily in the consumer-facing business with the acquisition of ICI (British paints firm acquired by Akzo Nobel in 2008). It has given us a growth platform, which has been benefiting us in the last couple of years.
Most of our growth has been in emerging markets. The decorative paints market in the United States has gone down 35% year-on-year for the last three-four years because of the housing crisis. And European markets...I mean, they are not falling off the cliff, but they are not growing very much.
So the growth really has to come from other parts of the world. Asia, Latin America and Eastern Europe are very important.
Of your total revenue, how much comes from emerging markets?
Forty per cent is coming from high-growth markets. And if you look at our growth plans, it will become 50% during this decade.
When did it grow to touch 40%?
It’s difficult to answer the question because we transformed our portfolio dramatically. When I became the CEO in 2002, we were a conglomerate and there was a strong focus on Europe. What we have done subsequently is we have significantly reduced our chemicals portfolio. We sold our pharmaceutical businesses and acquired ICI. So comparing the company of 2003 with now is difficult.
With the focus on emerging markets, are you ignoring the US and Europe?
No, we are not ignoring them, but there are different challenges, you could say. The volume growth is negative or very small; there is cost inflation, so you have much more of the efficiency drive there. But the other side of the coin is that it is still 60% of our business.
The challenge currently is much more in Europe and US to protect our profitability, with raw material price inflation, low or no growth and ongoing wage inflation. In many of those markets, we were also No. 1...and smaller players have a much more tough life than we have, so it’s a great moment to gain market share.
You are a former economy minister. Any suggestions for the European economy? Does it need more entrepreneurs like in India?
I will start with your last question. Yes, of course, though there are parts of Europe where this has happened. The number of people that have started their businesses has gone up dramatically in the Netherlands. It has made the labour market more flexible.
In markets like Italy and Spain, unemployment is scary high—30-40%. It requires that they liberalize the economy. The services sector is extremely regulated; it has to be opened. What Europe needs is a combination of liberalizing their economies, deregulation, supply-side measures and a much stricter eye over fiscal policy. Countries like Greece, Italy and Portugal have to go through austerity programmes. My preference is IMF (International Monetary Fund) should be involved, because it knows how to deal with that. Finally, some of the leadership has to change.
How have you leveraged the ICI paints business?
It has been a fantastic acquisition. I am supposed to say so, but it is. The first phase was integrating—closing down the headquarters in London, combining the businesses in countries where we have comparable positions. We reduced costs in the company and then embarked on a growth strategy. ICI had a stressed balance sheet. It did not invest much in many of its businesses. Since we acquired it, we have started to invest in brands, innovation, advertising and promotion, research and development, and in building new factories.
Is it a good time to build new brands?
Our challenge is not to build new brands, but to use the current portfolio in emerging markets to stretch brands to the mid-segments as well. We have just introduced Dulux Magic, a relatively low-cost product for the mid market.
What are your plans for India?
We want to ...(expand) our business to €1 billion (around Rs 6,840 crore today) sales, which implies about 20% growth per year. We are investing here to grow, adding capacity, investing in distribution, warehouses and brands.
Are there any signs of a slowdown in China, your second largest market?
A slowdown in China is in the coastal areas in construction. At the same time, in inland China, there is still a growth opportunity. In India, you have the maintenance market; people re-paint their houses. In China, people have to understand that.
How many years will it take for the India business to match your scale in China?
You (India) have chosen another development path. Typically, you see a country move from agriculture to industry to services. You have moved partly from agriculture to services. That has brought your economy to a higher level. Now you see gradually parts of the industry developing. If you continue to liberalize more industrial sectors, then you will start catching up.
You don’t have a large industrial export base. If you see in the last five years, until two years ago, most of our growth was based on serving export industries in China.
Like the fashion industry, is there colour forecasting in the paints industry?
Yes. It’s fascinating. Once a year, we bring together, in Paris usually, some of the people who look into the future—architects, people in the fashion of clothes—and predict the colour for next year. It is built on what is happening in the world, on trends, how optimistic people are...
For 2011, the colour is Lime Twist. For 2012, the colour forecast is Tea Dance (a shade of red).
Which are your favourite colours?
I like yellow colours very much. The ochres...I have just decorated my house (in Utrecht) near Amsterdam with the help of the specialists in the company. My study is now painted red...the kind that you see in Italy.