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Emerald Group Publishing Limited
Copyright © 2002, MCB UP Limited
Central/Eastern Europe and Russia coatings markets 2001, Warsaw, Poland
Keywords: Coatings, Market, Marketing, Europe
Under the title of "Coatings Markets in Central/ Eastern Europe," the first conference of the Centre for Management Technology was recently held in Warsaw. The event attracted delegates from major Central and East European coating companies, making it a major event in Central and Eastern Europe on the topic of marketing coatings in this European sector.
The two day conference included 16 papers and several discussion sessions. According to conference organizers, it attempted to cover the whole gambit of marketing in this European sector. Particular emphasis was placed on the marketing challenges presented in Eastern and Central Europe. Investment and distribution were discussed, technical developments were also examined. The programme included papers from end users, suppliers and manufacturers.
The morning session of the first day covered a variety of marketing topics. Jean-Marie Greindl, president, Polifarb Cieszyn – Wroclaw S.A. gave a Keynote Presentation on industry structure and growth prospects in the paint and coatings market in Poland. The paper examined present and potential markets, and competitors. Distribution channels were outlined along with export opportunities.
Possible threats to the growth of the industry in Poland were also examined. These included changes in tax incentives, environmental legislation, rigidity in Poland's labour market and low productivity. import duties, poor infrastructure, lack of incentives for exporting companies. Changes in distribution channels, along with changes in customer ownership were also outlined.
The paper concluded with an overview of the drivers need for growth such as long term Polish economic development, incentives for the construction sector, quality and productivity improvements. Development of export markets to both Western and Eastern Europe were also examined.
The second paper of the morning, given by Andrey V. Zemnitsky, senior consultant, Russian Investors, OAO Investment Banking Branch, discussed economic prospects and investment in the region. Recent global economic developments such as the slowing down of the US European economies, and the failure of the Japanese economy to revise were examined. The paper then focused on several East European countries which in comparison have been showing economic growth. These included Poland, Czech Republic, Hungry, Russia, Ukraine and Romania.
In conclusion Andry Zemnitsky informed the delegates that that some economists believe that the slowdown of economic growth in EU countries, if prolonged, could also have a positive effect for the transition economies of Central Europe: they would, it was suggested, become more attractive for foreign capital and foreign direct investment. He ended his paper by suggesting that these factors could be important on the conclusion of privatisation in Central European countries. Pointing out that countries with growing or stable domestic markets will be an attractive market and more importantly a successful harbour for foreign direct investment.
Dr. Thilo Heinz Kaffenberger, Kaffenberger AG, in the third paper of the morning, outlined the challenges for the Central European coatings industry in the global context. The global coatings industry, followed by the Central European coatings industry were outlined. Trends were examined and discussed along with new ways to success. The top 20 global coatings companies were named. Discussing growth.
Dr. Kaffenberger estimated that global growth rate for paints and coatings in 2004- 2010 would be 2.8 per cent. He suggested that the Western Europe and North American markets were expecting stagnation. The Asia Pacific rim (with China, South Korea, Thailand and India) having the highest estimated growth rates. Concentration in the industry, globalisation and restructuring were also topics discussed. Dr. Kaffenberger told the delegates that Central European coatings producers were facing the following challenges; increasing competition from big multinational global players with brand names, established marketing, technology and capital resources. He also suggested that the flexibility of small and medium-sized Western European companies, their ability to specialise in niche markets and the excellent technical services they provide also presented a challenge. To meet these challenges Dr. Kaffenberger informed his audience that as independent Central European coatings producers they had to understand the game, make clear decisions and be proactive. You have to be part of the international game, crossing all borders. Accordingly you have to analyse your company's position, its potential and that of its competitors, also the weaknesses of both. On making a clear decision his advise was blunt, based on your analysis you stay in the game if you feel strong enough to face the challenge of the future, or if you have the ability to develop the strengths required. On the other hand if you feel too weak to face the increasing competition, safeguard your investment by selling the business. He then explained to the delegates that being proactive means that a company should not wait until an ideal partner with a high reputation, capital and technology becomes a minority shareholder and solves your problems. Only by being active, self confident, visionary, creative and focused would your company become successful. Being efficient, motivated, sales orientated and open to advice were also prerequisite for success.
In his paper Miroslaw Stachowicz, general manager, ICI Paint Pilawa, examined the challenges of investing in Central/Eastern Europe from ICI's perspective. Starting with an outline of ICI's presence in the CEE region, he then presented a breakdown of ICI's market share. The key challenges in the CEE, return on investment, branding, world- class distribution, fixed costs and industry competition versus co-operation were all topics discussed.
Another important area examined in the paper was return on investment, or more importantly when is it coming? The fact that low disposable income of consumers drives down industry profitability was observed. The impact of market volatility on working capital (stocks), capacity utilisation and customer service were also discussed. How to achieve world-class distribution and creating distribution partnerships were examined. The question of fixed costs or how fixed are they was also put to the delegates.The tax levied on paints in Poland was also a topic raised. According to Mr. Stachowicz, Paints currently carry a 22 per cent VAT duty, whereas other building materials only carry a 7 per cent duty.
An update of the paint and coatings market in Romania was presented by Marius Golopenta, general manager, Policolor. The paper began by outlining Romania's present business environment, GDP growth, 4 per cent in 2001, growing industrial output, exports and decreasing inflation. Improved legal procedures for businesses and political stability. EU negotiations, current WB Adjustment Programme, privatisation and tax reforms were among topics examined. Mr Golopenta then present overview of Romanian paint production. He reported that while the overall paint demand was stable at 85,000 to/yr, production had decreased during the past decade from 100,00 to 45,000 tonnes. However, since 2000 this trend has been reversed.
Looking at the market structure he observed that the industrial paints market segment had decreased over the last decade from 69 per cent to 42 per cent. He also pointed out that about 46 per cent of this market is covered by imports, mainly from Germany, Italy, Turkey and Hungary. these imports are spread over the decorative/ architectural, general industrial, wood protection, marine and road areas. Romania exported mainly to Bulgaria, Greece, Israel and Moldova.
Delegates were also informed that Romania's paints and coating industry is in private hands. That only a few foreign companies have decided to make direct investment until now, of these Meffert Ag holds 50 per cent of DUFA, ICC Industries, Us, holds 75 per cent of AZUR. Major players Akzo Nobel, BASF, DuPOnt and ICI are present in the market only with sales activities. All is not gloom however, Mr Golopenta pointed out that starting from a low point of approximately 3.5 liters per capita overall paint consumption, Romania has a high growth potential. That with an improving economic environment it can expect a more significant direct investment form strategic partners in the future.
The afternoon session started with a review of the car-refinsh market in the CEE and Russia and on its impact on coatings demand, this was given by Jacek Petrus, market manager Poland, PPG Industries Poland Sp.zo.o. Coatings requirements were analysed, i.e. original equipment paint demand depends on new car production, whereas, refinish paint demand depends on existing car park, accident rate, CCC average 20 per cent and new car production.
Major manufactures were then discussed, along with paint demand segmentation. A structure of the Polish market and distribution was presented. The top end of the market should see growth, whereas the middle level wiil find itself squeezed unless it achieves higher standards, makes more investment in equipment, provides the service levels authorised by B/S. As for the "Garage" bodyshop Mr. Petrus believes that it will never disappear but; there are too many in the market, many of which are of low quality. Therefore, legislation, rising customer expectations and the fact that insurance companies will in the future be more discriminating will bring about market changes. Short term and medium term trends such as economic downturns reduction of costs by insurance companies paint manufactures margins squeezed, bodyshops under pressure to reduce costs coupled with the erosion of the top end of this market. Environmental issue raised included solvents containing VOCs, An overview of Europe wide pressure to reduce emissions was also presented.
Following on from this the paper examined how major manufacturers are working to support the changes that will be required by new legislation. It also examined the impetus in new paint technology development resulting from forthcoming legislation. The paper concluded that the new technology lead to reduction of time and labour costs, further development of waterbased and VHS products, new pigment technologies and developments in UV curing. Mr. Petrus end his paper by giving examples of developments from the PPG Group, these are Aquabase, Envirobase and Aquamax, these products are reported to reduce the emission of solvents by up to 85 per cent. Reduce consumption of the product due to better hiding power – therefor lowering costs. Reduce process times – drying are claimed to be reduced by 20-30 per cent compared to solvents. Stirring is said to be eliminated. A reduction of curing time from 15 to 3 minutes is claimed of a UV primer. Mention was also made of Harlequin colours.
The second paper of the afternoon, on the application of automotive coatings in CEE, was jointly presented by Krzysztof Von- Broen, paint Process Manager, Opel Polska and Andy Benson, Account Manager, PPG Industries. The paper started with an overview of Opel Polska, and its products. PPG Industries is Opel Polska's chosen business partner for providing chemical and process management to a clearly defined and mutually agreed upon scope of work. The areas of its responsibilities were outlined for the delegates. These being process control for all material applications, cavity wax application, hazardous waste management, purchase, storage and logistics of all chemicals and consumables. The key areas for process management and sourcing were also defined for the delegates. The paper also gave an overview of the paint shop process, explaining the key stages, phosphate and electrocoat – corrosion protection, primer surfacer – protection and cosmetic and topcoat – cosmetic.
The paper also reported that each AGILA in conjunction with the paint process and being constructed of galvanized steel gives 12 years corrosion guarantee. Processes reviewed in the paper included phosphating, e-coat, electrocoat bake, masking and primer surface preparation, seam and underbody sealing, inner body and HEM sealing.
Also discussed were primer surface application, including waterbased paint, full automatic electrostatic application of exterior, baking at 1408C effective metal temperature. Top coat preparation including manual operation, Tag Rag Process and EMU feathers for DE-ionization surface. Topcoat application including waterbased base coats and colours, solvent based monocoat. Also discussed was OPEL's Quality Control and Process Laboratory. This laboratory we were informed is responsible for testing incoming materials and also for performing in-process checks. The materials involved are manufactured by PPG and by PPG Tier 2 suppliers. The laboratory is open to audit by PPG, Opel and any Tier 2 supplier. In summary the paper concluded that five years ago the concept of Opel Polska was born and many doubted that the choice for the greenfield site and Opel's reliance on Businees Partners for its operation. However, the paper concludes that three years into production it is seen not only by GM, but by the whole of the automotive industry as a benchmark for the future.
From liquid to powder the continuous growth of powder coatings in Eastern Europe was the subject of the following paper. Presented by Ruud Jacobs, member of the board, director of Business Unit – Industrial Coatings, Polifarb Cieszyn – Wroclaw S.A., the paper itemised the major segments for powder coatings in the industrial coatings market. It also listed world production of decorative powder coatings in 2000, which it estimated at 720 kton. End users of powder worldwide were also given, Automotive 12 per cent, architectural 12 per cent, functional 4 per cent, appliances 16 per cent, general metal 47 per cent and others 9 per cent.
The European powder coating market and the market by chemistry were also itemised. The market for the CEE was given as Russia 33 per cent, poland 20 per cent, Czech Republic 13 per cent, Ukraine 11 per cent, Hungary 7 per cent, Byelaruss 3 per cent, Lithuania 2 per cent and others 11 per cent. The paper then went on to give an overview of powder coatings in Polifarb Cieszzyn and Wroclaw S.A., Cieszyn, opened in 1975, was the first powder plant in Central and Eastern Europe and still today the largest in this region. Production started in Wroclaw in 1995, the merger took place in 1997. 1999 saw the merger with Sigmaklon, reorganisation of production from Wroclaw to Cieeszyn took place in 2000, also production was reshuffled to Amsterdam to Cieszyn in the same year. The paper also listed the development of the powder coating from 1975 to 2001. Mr. Jacobs then outlined the composition of the powder coatings, followed by a breakdown of powders by type, these are; Hybrids 6-65 per cent, Polyesters 20 – 25 per cent, epoxies 10 per cent and polyurethans <5 per cent. Figures given in the paper for the powder market in Poland are: Total ± 8000– 9000 t, PCW Faproxyd 2500 t, Becker + Kalisz 350 t and imported powders the rest.
Powder market trends were also outlined, these being thin layers, UV-cured powders, coil-coating, wooden substrates, low bake and automotive. The paper concluded that Hybrid will remain 60 per cent of the market, PES will increase, the market for thin layer powder will grow and that UV cured powders could be in high demand for wood products. As a result market volume will continue to grow in all Eastern European markets, especially Russia, Ukraine and Poland. Domestic production will grow and be of a high quality.
The session ended with a paper on the global outlook for titanium dioxide given by Peter Wulf, sales manager, Central & Easter Europe, DuPont White Pigments & Mineral Products. Mr. Wulf put the total world demand in the year 2000 at 3.9 MM, DuPont's share being 24 per cent.
The paper also examined the consolidation that had taken place within the industry since 1985. The poor profitability of the industry was examined, and the conclusion reached that in future it is not enough anymore to be just a raw material supplier. That customers will reduce the number of suppliers to achieve full benefit of business opportunities. The paper also proposed that e-commerce would provide a future business model. The Internet being a key evolution for TIO2 industry. The paper suggest four sectors: Low Cost Direct, a reliable self- service channel to procure products and services, limited customisation, basic technical support and standard offerings. Integrated Direct: A secure procurement channel that allows visibility to both producers and customers production forecasts and inventory positions, full customisation, full service technical support and tailored offerings. Virtual marketplace: A single source procurement channel that aggregates products and services from multiple industry segments, provides customisable options, technical forums and standard offerings. Spot Auctions: A dynamic channel that matches buyers and sellers in real time in an anonymous secure environment, providing standard options, basic technical support and standard offerings. The paper then went on to discuss pricing, stating that current European prices do not cover the cost of goods sold. In conclusion Mr. Wulf suggest that prices must go up or suppliers will disappear from the scene. that shortages once the business climate improves will impact opportunistic buyers.
The first paper in session three entitled Russia Paint & Coatings Industry Outlook, was presented by Nikolai Yakovlev, general director, JSC Yaroslavskie Kraski. We hope to have permission to publish this paper in full in the next issue of "Pigment & Resin Technology".
David Thomas, operations director pevicoat, BASF Coatings Ltd presented a paper on the current trends in coil coatings. This paper explores the current trends in coil coatings in terms of service to its coil customers. BASF has been at the forefront of development in this area and with the introduction several years ago of Pevicoat to the market. This has proved extremely successful with many units now operating in many locations around the world. The latest of these has just opened in the Russian Federation in Lipetsk. This represents a significant development as the first manufacturing investment for coil coatings in Russia by a Western company.
An overview of BASF is given followed by an explanation of Pevicoat Centres and the benefits they give to customers.
The paper moves on to discuss the latest trends in the market with the development of total paint management. Paint Management is a system that has been utilised very effectively by the Automotive OEM sector. There is now growing interest in adopting this model in the coil coating market. Paint Management allows the coater, working in partnership with the supplier, to simplify and gain efficiency. A move to a position where sales are based on cost per square metre coated rather than the paint consumed is also feasible. This is a long held ambition of many coil coating companies. The Pevicoat concept is a premier service for coil coatings paints designed specifically to manage supply to the coil coating line. It consists of an in situ dispensing system designed to supply a very rapid and flexible service. The system dispenses coloured bases to a high degree of accuracy (+ / - 1 gram). Using the system, it is possible to produce exterior and interior grade products of any colour, at the required gloss, at any volume. The dispense operation only takes a matter of minutes so speed of response is a major benefit for the customer. This method of manufacture has proved to be significantly more accurate than conventional methods used throughout the coatings industry.
The papers outlines several benefits to the coil coater include lower paint inventory through flexibility. Orders can be placed for litre quantities with no minimum order size. There is no need to "round up" the end order to the nearest barrel and purchase more product that is actually needed. Stockholding and disposal costs can be reduced. Through recycling the sophisticated software opens up the possibility to convert surplus, redundant stocks and paint usages into new colours. Through just in time principles the 24 hour lead time that Pevicoat offers, means that just in time principles can now be applied to these products and lead times for paint delivery can be drastically reduced. Increased efficiency is obtained through improved flexibility and communication. Decisions on colour can be delayed in the planning process. The short delivery times enable rescheduling to be carried out very quickly if the correct paint/metal profile is not available. Through reliance on suppliers, Transportation and delays are eliminated as, effectively the paint supplier manufactures next to the line. Through minimal handling, material flow is optimised as the product is delivered to the point of need. Refering to paint management David Thomas suggest that the partnership between supplier and customer can be taken further than an agreement to install and run a Pevicoat unit. He explains that over a long period BASF have developed systems with their Automotive OEM customers. BASF and its customers have explored areas where systems can be optimised for "win win". The goal has been to optimise the whole system, not just parts of it. Line functions have been allocated by expertise i.e. which partner has the core competence to manage that function to the highest efficiency level. This approach requires a different relationship with customers and supplier operating in partnership.
Many Automotive OEM plants now operate this way with control of the coating process delegated to the supplier. This has been taken the point where most OEM customers only pay for the number of cars painted or CPU (cost per unit) not the paint consumed. This is the equivalent in coil coating market as payment by square metres coated, which has long been an ambition of coil coating industry.
Ruud Jacobs presented a second paper on the growing penetration of new technology in wood lacquers in Eastern Europe. He estimates that the industrial coatings market in Poland for wood is 35 per cent. this is divided into the following segments; furniture, joinery (doors & windows) and board. The market for wooden furniture lacquer in 2001 was 14.900 t. Types of paint used included nitro cellulose, acid curing, PUR, waterborne, UV, stains and natural products such as oils and waxes. Mr Jacobs presents a comparison between Poland and Germany of the technological penetration in this sector. Nitro Cellulose, Poland far higher, Germany lower, Acid Curing, Poland far higher, Germany very low, PUR, Poland low, Germany far high, UV Poland low, Germany higher, Waterborne, Poland low, Germany far higher, Stains, Poland low, Germany higher. The paper projects market growth in Poland to have risen from 14.600 t in 2001, to 15.300 t in 2003, rising to 15.900 t in 2005. Development 2001-2006 penetration technology type of coatings for the wooden furniture industry in Poland is projected as shown in Table I.
Mr. Jacobs puts forward that the market trends for wooden furniture lacquers in Poland are motivated by the following; A higher demand for quality, that they export driven. An increasing penetration of modern coating technology such as PUR, Waterborne and UV. An increasing demand for technical support from coating supplier. A high demand for skilled labourers in paint application. The impact of smaller series furniture, A higher demand for colours plus service. Lastly the fact that environmental awareness will result in legislation onpacking.
In conclusion Mr. Jacobs suggest that the Polish furniture industry will focus more on quality and that its export share will increase. A need for new markets will be created. The penetration of modern coating technology will grow, and nitro will remain important to the Polish furniture industry.