China
Adaptation capabilities
decide whether a coatings
company succeeds or fails
when facing competition
Regulation pressure puts small or medium companies in a more risky situation than large companies because large
companies have more means to change
production lines and get into new market segment whereas small- and medium-sized companies do not. Market
pressure does not come from regulation
alone. The fact that the prices of coatings raw materials were much higher in
2016 than they were in 2015 also put
more pressure on these companies because of their weaker negotiation power. So either these companies can adapt
fast or win a niche market, or they cannot survive in this era of new competition. And large coatings companies
in China seem to adapt to this market
environment pretty well and many of
them achieved positive economic return
in 2016.
Shanghai Kinlita Chemical Co., Ltd’s
revenue for 2016 is 790 million yuan,
increased by 12. 5 percent over 2015,
and their profit was 75 million yuan,
increased by 13. 34 percent over 2015.
Approximately 70 percent of Kinlita’s
revenue came from its cathode electrophoretic coatings business and another
30 percent of the company’s revenue
was generated by its primer coatings
business. Of course, the prosperity of
the automotive industry might be the
major reason behind Kinlita’s good performance. According to the statistics of
the China Association of Automobile
Manufacturers, China produced 28.1
million vehicles, an increase of 14. 5
percent over 2015, and sold 28.02 million vehicles, an increase of 13. 7 percent over 2015. Twenty four million
passenger vehicles were produced in
2016, an increase of 15. 5 percent over
2015. Automotive, real estate property
and house refurbishing markets led
to the entire coatings market’s quick
growth in 2016, offsetting the negative
impacts from some industrial sectors
such as ship building.
SKSHU, one of the largest architec-
ture and wood coatings companies which
just went public in 2016, increased their
sales to 1,221 million yuan in the first
three quarters of 2016, an increase of
30.67 percent over the same period of
2015. Their profit increased to 52 million yuan at the same time, an increase
of 14. 25 percent over the same period
of 2015. SKSHU invested approximately
300 million yuan to build a new production base in Chengdu, Sichuan province.
Right now their first phase, which has a
capacity of 200 thousand tons per year,
has been put into operation and is focused on the production of emulsion
paint and wood coatings. In addition
the second phase of the production base
is under planning and will focus on the
production of coil coatings, mastic adhesives, etc.
Domestic market becomes
more and more important
for wood coatings
producers.
According to a report from the China
National Furniture Association, 78.94
percent of their members’ products
were sold in the domestic market in
2016, a ratio increase from 74.3 percent
in 2011. The prosperity of the domestic
real estate market led to the growth of
domestic home furniture market. The
demand for home furniture, especially
high-end home furniture, has been
growing in recent years. Dongguan
Yangchen, a company previously focused on developing foreign markets,
launched their own brand in 2008 in
the domestic market. The brand’s revenue reached 3 billion yuan and its domestic sales for the first time surpassed
its overseas sales in 2016.
After six years’ of straight growth,
home furniture export decreased in
2016 by 9. 38 percent compared with
2015. Vietnam and India posed big
threats to China, especially for the
American market; 34.06 percent of
the home furniture exported overseas
went to America, slightly increased
by 0.09 percent. Tailor-made home
furniture also took away the market
share of imported products in some
markets, and this trend is especially
obvious in Germany.
International coatings
players will compete
with domestic coatings
companies in the future
As some small- and mid-sized companies
retreat from the market, large coatings
companies are ramping up their capacities, a strategy that is also being utilized
by some international players.
In February Sherwin-Williams started construction of a 79 thousand tons
per year coatings facility in Nantong,
Jiangsu province. The facility, planned
to be operational in 2018, will have a
total investment of 650 million yuan
and produce 76 thousand liquid coatings and 30 thousand powder coatings
when completed construction. In addition, PPG announced on March 1st
that the company has completed construction of their new high functional
coatings production line in their Wuhu
plant, located in Anhui province. In addition, PPG also plans to invest $75
million to build new high coatings
and PVC sealants capacities in Zhang
Jiagang, Jiangsu province. The first
phase of the project will have a capacity
of 45 thousand tons of high functional
coatings and five thousand adhesives
and the second phase will put another
100 thousand tons of high functional
coatings capacity to the plant.
Axalta and Nippon are also increasing their capacities in China. With
large domestic and international companies both expanding their footsteps
in China, the market competition will
inevitably happen between them, head
on sometime in the future. International
brands are well known and their technologies are proven in the long term in
Western countries. But domestic brands
have more advantages on forging close
relationships with domestic company
customers and quickly initiate marketing campaigns to tap into the fast
changing needs of domestic consumers.
So the ultimate success will largely depend on a well designed strategy which
will put together all the appropriate
brands, customer services and technologies in the right place of the market. In
another word positioning the product
in the right market segment. CW
