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Newsletter 16, March 2006 (No comments so far)
The sun rises eastwards
Marc Fermont considers the reality of expanding chemical and polymer distribution in central Europe and compares this with more established western markets.
This article was published in the European Chemical News issue published on 27 February 2006.
From 1991 onwards, central Europe has experienced an entrepreneurial revolution. It affected all industry sectors, and triggered the rise of many small- and medium-sized chemical converters and transformers eager to develop to serve domestic and foreign needs. Since joining the EU in 2004, central Europe economies have accelerated their growth and are attracting significant new investments in the automotive, paints and coatings, polyurethane, housing, rubber, healthcare and polymer conversion sectors. These emerging markets have caught the attention of several European chemical and polymer distributors attracted by rapid growth rates, limited competition and high demand for technical, logistics, purchasing and marketing services.
In the early 1990s, Finnish companies such as Algol, Aspokem and Bang & Bonsomer entered the neighbouring markets of the Baltic states and Russia. Simultaneously, Neuber and Holland Chemical International entered central Europe to offer their range of bulk and speciality chemicals and started to build a network of service centres across the region. These companies learnt, often the hard way, to manage fluctuating currencies, bank inefficiencies and credit risks. Brenntag acquired Neuber in 1999 and HCI in 2000. Consequently, Brenntag CEE became the central European distribution market leader.
Speciality chemical distributors Azelis PECO, IMCD, Nordmann Rassmann, Univar, Goldmann, Hamburska, Barentz, Erbsloh, Biesterfeld Spezialchemie, Donauchemie and Omya entered or expanded their operations in these promising markets and are striving now to be present throughout the region including Russia and the Ukraine. They compete with local players like Cheman, Dipol, ICC-Chemol, MOLchem, Chemia, Polnil. On the polymer side, Resin Express, Biesterfeld Plastics, Albis and Ashland are serving most central Europe markets.
GRASS ROOT OPERATIONS
In contrast to western Europe, where growth in chemical distribution during the 1990s was associated with frequent acquisitions, expansion in central Europe is mostly associated with entrepreneurial development. Several local distributors were offshoots of former state-owned import-export organisations and were acting as agents rather than as true distributors. Not only this, formerly used tank storage sites were often contaminated. For these reasons, there were few suitable acquisition targets.
One of the toughest challenges for European distributors was the necessity to select, train and retain local talent before they could develop their operations in central Europe. Most companies now offer comprehensive training programmes to new staff. High staff rotation is a local feature reflecting the soaring demand for talented professionals. Brenntag CEE has risen to this challenge by setting up an in-house academy to train staff and develop their professional skills.
EXPANDING INTERESTS
Central Europe is a traditional source of commodity bulk chemicals, fertilisers, polymers, isocyanates and pharmaceuticals raw materials. Local chemical manufacturers are now in better shape and are expanding their market positions locally and abroad. Due to their relatively smaller sizes than most of their western European competitors, central Europe chemical producers are still in restructuring mode as the market gets more competitive. As a result of lack of internal cost transparency, limited knowledge of distributors’ value creation processes and a degree of conservatism, several central Europe producers are still serving directly a large number of small and medium size customers and are competing occasionally with distributors serving the same customers.
However, the need to reduce logistics and commercial costs increasingly favours the outsourcing of smaller transactions to regional distributors. It is estimated that in western Europe around 15% of the relevant chemical and polymer market revenues are served by distributors, whereas in central Europe, the distributors’ share drops below 10%.
Most European distributors are using their global purchasing skills to provide customers with molecules newly produced in India or China. They also help them to package and market their end products for export. In central Europe, the range of services offered by distributors is wide and includes global sourcing, technical assistance, quality management, product stewardship and marketing services. It is anticipated that the dual impact of growing per capita chemical and polymer consumption and chemical manufacturers’ increasing outsourcing will sustain the distributors’ rapid expansion in central Europe for many years to come.
From 1991 onwards, central Europe has experienced an entrepreneurial revolution. It affected all industry sectors, and triggered the rise of many small- and medium-sized chemical converters and transformers eager to develop to serve domestic and foreign needs. Since joining the EU in 2004, central Europe economies have accelerated their growth and are attracting significant new investments in the automotive, paints and coatings, polyurethane, housing, rubber, healthcare and polymer conversion sectors. These emerging markets have caught the attention of several European chemical and polymer distributors attracted by rapid growth rates, limited competition and high demand for technical, logistics, purchasing and marketing services.
In the early 1990s, Finnish companies such as Algol, Aspokem and Bang & Bonsomer entered the neighbouring markets of the Baltic states and Russia. Simultaneously, Neuber and Holland Chemical International entered central Europe to offer their range of bulk and speciality chemicals and started to build a network of service centres across the region. These companies learnt, often the hard way, to manage fluctuating currencies, bank inefficiencies and credit risks. Brenntag acquired Neuber in 1999 and HCI in 2000. Consequently, Brenntag CEE became the central European distribution market leader.
Speciality chemical distributors Azelis PECO, IMCD, Nordmann Rassmann, Univar, Goldmann, Hamburska, Barentz, Erbsloh, Biesterfeld Spezialchemie, Donauchemie and Omya entered or expanded their operations in these promising markets and are striving now to be present throughout the region including Russia and the Ukraine. They compete with local players like Cheman, Dipol, ICC-Chemol, MOLchem, Chemia, Polnil. On the polymer side, Resin Express, Biesterfeld Plastics, Albis and Ashland are serving most central Europe markets.
GRASS ROOT OPERATIONS
In contrast to western Europe, where growth in chemical distribution during the 1990s was associated with frequent acquisitions, expansion in central Europe is mostly associated with entrepreneurial development. Several local distributors were offshoots of former state-owned import-export organisations and were acting as agents rather than as true distributors. Not only this, formerly used tank storage sites were often contaminated. For these reasons, there were few suitable acquisition targets.
One of the toughest challenges for European distributors was the necessity to select, train and retain local talent before they could develop their operations in central Europe. Most companies now offer comprehensive training programmes to new staff. High staff rotation is a local feature reflecting the soaring demand for talented professionals. Brenntag CEE has risen to this challenge by setting up an in-house academy to train staff and develop their professional skills.
EXPANDING INTERESTS
Central Europe is a traditional source of commodity bulk chemicals, fertilisers, polymers, isocyanates and pharmaceuticals raw materials. Local chemical manufacturers are now in better shape and are expanding their market positions locally and abroad. Due to their relatively smaller sizes than most of their western European competitors, central Europe chemical producers are still in restructuring mode as the market gets more competitive. As a result of lack of internal cost transparency, limited knowledge of distributors’ value creation processes and a degree of conservatism, several central Europe producers are still serving directly a large number of small and medium size customers and are competing occasionally with distributors serving the same customers.
However, the need to reduce logistics and commercial costs increasingly favours the outsourcing of smaller transactions to regional distributors. It is estimated that in western Europe around 15% of the relevant chemical and polymer market revenues are served by distributors, whereas in central Europe, the distributors’ share drops below 10%.
Most European distributors are using their global purchasing skills to provide customers with molecules newly produced in India or China. They also help them to package and market their end products for export. In central Europe, the range of services offered by distributors is wide and includes global sourcing, technical assistance, quality management, product stewardship and marketing services. It is anticipated that the dual impact of growing per capita chemical and polymer consumption and chemical manufacturers’ increasing outsourcing will sustain the distributors’ rapid expansion in central Europe for many years to come.
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