How top industry execs see green, growth, international business and the future of the industry.
This past June, the ASC gathered executives from top adhesives and sealants manufacturing companies to share their perspectives on key topics impacting the U.S. adhesives and sealants industry. Held in Asheville, NC, the moderated Industry Leadership panel included Al Longstreet, VP, HB Fuller; Dave Burger, president, 3M NorthStar Chemicals; Julian Colquitt, president, Adhesive Technologies, Henkel; Mike Klonne, president and CEO, Bostik; and Jim Owens, corporate VP/GM, National Starch. The dialogue included comments about green, growth, international business, and the forecast and outlook for the industry.
Green has been a “buzzword” in the industry for a number of years, demanding more attention and commanding a greater allocation of manufacturers’ resources. Mike Klonne identified drivers for green as several factors: legislation and regulation (currently being led by foreign governments), consumer demand, liability issues in the end-user marketplace, the obligation of formulators and end users to do the right thing (for health and safety, as well as the environment), and the opportunity to innovate and lead the market.
According to Julian Colquitt, customers direct green and often set material limitations, such as the “Wal-Mart effect,” but the panel consensus is that green is here to stay.
Al Longstreet advised, “Yes of course [green is here to stay]. Customers will be impacted by higher oil and natural-gas prices. Customers are asking for green, which can be defined as raw materials based on non-oil/natural gas feedstocks.”
Klonne added, “There is too much history of chemical mismanagement. Momentum to go green will only pick up.”
So is green an option or a mandate? Colquitt suggested that Henkel takes its lead from Germany. “It’s not just the products we produce, but also their impact on the environment.”
Jim Owens agreed. “Customer preferences dictate that they want ‘cheaper’ and ‘green’ products.”
To that end, Longstreet sends a message to suppliers. “We need green raw materials today. We as formulators depend on suppliers (in order to be able) to innovate.”
As Longstreet noted, growth involves challenges. Raw materials have always been both a major focus and a major challenge driving - and sometimes limiting - growth. Owens commented that, when it comes to growth, “Cost and availability of raw materials are big issues.” Competition is another factor, he said, and Klonne added that, “Costs to develop and bring (products) to market” are key as well.
“If overall development costs aren’t going down,” Klonne said, “that’s a problem.” He goes on to advise, “With those cost reductions, the industry should be investing those savings back into new-product development, with an emphasis on green.”
Longstreet added, “Customers ask for continuous improvement.” That, in turn, “requires lots of field testing, which does help drive new technologies into the marketplace.”
So how should suppliers respond? Longstreet said that global adhesive companies are going offshore - sourcing raw materials abroad to save on cost and remove availability issues. Klonne suggested that more collaborative development of raw materials that are brought to market faster could help the innovation process.
So what are the best opportunities for growth, given the challenges of raw-material costs and availability, the contest of competition, and customer demands?
According to Dave Burger, “Twenty years ago, new products reigned supreme; 10 years ago (there was) a shift to growing the core business. Today, we are back to new products.”
Klonne agreed, saying that formulators need to develop new technologies. Core competencies are positive backbones of most companies, he said, but can also be a detriment to new and innovative thinking that catalyzes the development of new technologies.
“We have lived through the phase-out of solvents,” says Longstreet. “The focus today is on reactive technologies,” such as dual-cure adhesives.
“Not just adhesives,” Owens said. Formulators must “add service and equipment to their total offering.”
These changes require a willingness to build new competencies, as well as new capital investments and culture changes. This may not be possible for all companies to the same degree, but companies need to take more risks, Klonne said.
Burger advised that culture changes can affect hiring practices, saying a fit into the corporate culture can be as important a factor as technical abilities.
User changes can also play a role. “We are good at surface bonding,” says Longstreet. “However, surfaces continually change and this frustrates suppliers because change is happening so quickly.”
Due to their greater responsiveness, small suppliers may be more involved in change, Owens said, citing their ability to facilitate quicker turnaround and produce smaller raw-material volumes. Developing new products and technologies is one path. Developing markets outside the United States is another not necessarily mutually exclusive avenue to growth.
Longstreet said that new market targets include Vietnam, Latin America and Eastern Europe. “Think globally, act locally,” he said.
Julian Colquitt agreed with Longstreet and suggested that companies disproportionately invest in these countries. Burger added that Brazil and Mexico have been profitable as well. “Brazil, in particular, has lots of raw materials,” Burger said, which will be a key factor in development.
Burger also reminded formulators that there are two markets in emerging countries: exporting from the region to mature countries (e.g., the United States) and supplying the domestic economy by way of an in-country plant.
“We are bullish on Brazil and Colombia,” Owens said, adding, “China still has huge opportunities for us.”
“Fuller goes to a foreign country where a customer has relocated,” Longstreet explained, rather than finding new customers in a foreign land. In China, there are more than 1,800 adhesive companies. If you don’t enter China with a customer already in place, it is hard to compete.
“My advice,” he added, “is to follow your customer to the next emerging market.”
Longstreet continued, “My advice to those entering their first non-U.S. market: Brazil.”
“I would also add Argentina and the southern cone of Latin America,” Klonne said. The number-one reason for Brazil, though, is high growth rate, he said, and “cultural issues are less daunting than in Asia.”
“Easier to manage,” Owens agreed.
“And the customer base has more similarities to the United States,” said Colquitt.
“What is relevant is the global nature of the market you serve,” said Klonne “It dictates where you need to be.”
Owens advised not to forget the United States. “Here in the U.S., many applications still exist for replacing mechanical fasteners. We can’t forget about that.”
When entering non-domestic markets, there are many factors to consider, including raw material and cultural issues. Distribution of products vs. in-country manufacturing can be an issue as well: how should a company approach a non-domestic market?
Longstreet advised that H.B. Fuller manufactures in the country they serve. “We put a plant in the country,” he said. “This may be done through acquisition.”
Owens and Colquitt agreed. “We locally manufacture, source supplies and staff,” Owens said.
Colquitt said, “We establish a physical location, source local talent. Sometimes we enter into joint ventures.”
Bostik looks for the best way to market in each region, which may mean a direct acquisition, working through a joint venture or establishing an independent startup. Klonne said a company’s approach should be defined by its regional knowledge and infrastructure capabilities, as well as the amount of risk they are willing to take.
3M combines strategies, Burger said. “We may selectively export and establish subsidiary operations in a foreign country.” He adds that good people and strong manufacturing are keys to success.
Emerging markets are another opportunity for growth. Longstreet sees the hot-melt market as a key driver. Klonne recommended market research but says the Asian automotive industry is strong. Colquitt suggested electronics as an opportunity for growth; specifications are based in the EU/Western Europe, he said, while manufacturing is done in Asia. Owens echoed electronics and added medical adhesives as a good opportunity.
Burger suggested that companies look to where there is a rising middle class, typically outside the United States and BRIC (Brazil, Russia, India, China) nations.
The adhesives and sealants industry, too, can take action to stimulate greater use of adhesives, thus creating more opportunities.
Said Burger, “Focus on the United States first, with greater education of specifiers/influencers. Also, research such as non-destructive evaluation will help.”
Owens recommended looking beyond just replacing mechanical fasteners to new kinds of adhesives in order to stimulate overall adhesives use.
Colquitt confirmed the strength of the U.S. market. He said, “There is double-digit growth in selected markets, even here in the United States.”