Matthew Baum, Analyst at GCiS China Strategic Research
Steady growth and medium-term opportunities make this a market worth paying attention to. Despite challenges from domestic companies, there are still opportunities to be had
by expanding to high-growth end-user industries, and producing high-quality products.
Sealants are used all over the world in a variety of industries.
They are primarily used to fill in gaps, and keep things like rain,
sound, heat, and cold from getting in or out. They range in performance, with some possessing properties similar to medium
strength adhesives. Sealants are usually split into one- and two-component sealants, which differ in terms of materials used,
complexity of use, reaction to moisture and curing time.
The SR sealant market is predicted to be worth $20 billion
by 2019, and the majority of demand and growth is in China.
There are five categories of sealant products made in China:
silicone (SR), polyurethane (PU), polysulfide (PS), acrylic (AC),
and other. Out of the RMB 12. 7 billion, or $2.06 billion (2014
RMB 6.2 = USD 1), market, the SR and PU sealants are the most
frequently used in China, while AC and PS have low growth and
small market size.
There are no replacements for sealants in China, and market
growth is set to be stable. But one doubt lingers: How will the
sealant industry fare in the face of a slowing Chinese economy?
Green Tide Rising
One of the major trends in the sealant industry is for environmentally friendly products. The government uses both carrots
and sticks to promote green products. In the sealant industry
the most obvious example of this green drive is the slow decline
in the growth of PS sealants, which are seen as too polluting.
For SR sealants, one of the main green features is longevity. The longer the product lifespan, the less often it has to be
replaced, saving manpower, money, and materials. The base material for silicone sealants, polydimethylsiloxane, breaks down
into non-harmful chemical and minerals, and it can be easily
recycled. Polyurethane sealants are also highly recyclable and
after reaching the end of their lifecycle, can re-bonded, chemically recycled, mechanically recycled or incinerated for chemical
recovery. They are also lightweight, therefore using less energy
for transportation and use. Both of these products contain very
low VOCs (Volatile Organic Compounds).
Demand for green products puts foreign companies at an advantage, as green products require more technology investment,
and foreign products have already achieved a high standard in
this area. There are currently only a small handful of Chinese
companies that can make products that meet international standards like the EU ETAG002 product specification for silicone
structural sealant.
Mr. China Still Applies
Despite the publication of Mr. China over a decade ago, and
its warning to all that read it about doing business in China,
companies still haven’t learnt their lessons when it comes to
the Middle Kingdom. Due to poor management of distribution
networks in China, foreign companies have been left facing
the prospect of a huge number of fake products flooding the
market. This severely damages brand reputation – one of the
key strengths of foreign companies – who are seen as producing high-tech, reliable products. Fake products are prevalent
in the construction industry, as opposed to the automobile or
electronics industry. This is because products are easy to fake
in the construction industry, and in the latter two industries
consumers directly purchase and use products, so quality control standards are somewhat higher.
Foreign companies sell almost all their products via distributors, and less than a tenth by direct sales. Also, distributors provide a range of services for suppliers including
marketing and after sales service. As such a high amount of
revenue is generated through distributors, if there is poor distribution management; fake sealants can appear in any of the
end-user industries.
Henkel, the market leader for sealants in China, is a prime
example of how a good product, being early to market, and a
strong distribution network equal success.
Momentive is another company taking the right steps to ensure strong channel sales, and reduce the number of fake products on the market. They recently designated a Shanghai based
distributor as their master distributor, thus ensuring a more
streamlined sales network.
The takeaway from these suppliers and our interviews with
channel players is clear: Manage sales channels well to eliminate
fake goods, and boost brand reputation.
Despite challenges from domestic companies, there are still opportunities to be had by
expanding to high-growth end-user industries, and producing high quality products.
Sealed in Stability
