China’s coatings industry has achieved remarkable success over the past 20 years in terms of technology innovation and marketing transformation while facing various challenges. The industry is now more mature and able to withstand risks. Domestic enterprises there are expanding their markets through merger and acquisition.
Despite the global financial crisis, China’s coatings industry continues to grow. China’s economic recovery in 2009-2010 from the global recession indicates that the government’s stimulus package and other policies against the crisis have played an active role in the quick recovery. At the same time the overall dynamics of China’s coatings industry are evolving according to some key trends.
Prior to the recession export markets were the bedrock of the Chinese coatings industry, but this is no longer the case. Domestic demand now represents the major market opportunities. Domestic infrastructure expansion through the construction of roads and bridges, for example, has boosted economic growth. Emerging industries such as wind power generation, logistics and the information industry are also on the rise. Another trend has seen Tier II and Tier III markets develop especially in rural areas, which are becoming larger paint consumption markets. Lastly, China’s middle and western regions are undergoing an accelerated pace of development.
The overall urbanization of China is fueling the paint and coatings industry there. It is the engine for China’s economic growth and all these factors support the continuous growth of the coatings industry in China.
As China’s coatings market continues to expand rapidly, domestic paint manufacturers like Guangdong Carpoly Chemical Group Co., Ltd. (Carpoly Group) are gaining more exposure on the world stage. Carpoly Group, founded in 1993, is today one of China’s largest domestic coatings manufacturers with sales of approximately US$300 million in 2010, which also places it among the top 40 coatings companies in the world, according to Coatings World’s annual Top Companies Report.
In 1993, the “Carpoly” brand was created in Shunde and in 1999, Xinhui Carpoly Chemical Co., Ltd., was established in Jiangmen. By the end of 2009, the Carpoly Group formally upgraded, with four regional companies in Guangdong, Sichuan, Shanghai and Hebei provinces. In 2010, Carpoly Group integrated Fabrico Chemical Co., Ltd. and Guangdong Zhenggao Industrial Co., Ltd. for IPO, and expanded the area of its business to range from paint to ink and packaging areas.
Coatings World recently had the chance to talk with Carpoly head, Mr. Cao Shuchao to gain an inside-out perspective on the Chinese paint and coatings industry. We discussed Carpoly’s current role in the market as well as its plans for the future.
Coatings World: What is the current size of the Chinese coatings market?
Cao Shuchao: In 2009 the total production of China’s paint industry added up to 7,554,400 tons, which surpassed the U.S. for the first time, rewriting the history of the coatings industry. With China’s accelerated urbanization and the rapid development of industry, in the year of 2010, China’s paint industry has maintained a considerable growth pace. The latest data showed that the total production of Chinese paint was 9.666 million tons, an increase of 22.8 percent; architectural coatings represented about 3,519,000 tons, an increase of 23.7 percent. So the expected value of China’s coatings industry in 2010 will reach USD $35 billion. According to the World Paint & Coatings Industry Association (WPCIA) and Coatings Association (PRA), the production of global coatings in 2010 will total up to 22.15 billion liters with an output value of more than 1,200 billion dollars. Therefore, China owns an equivalence of about one-fourth of global paint production, which indicates the important position of the Chinese paint market.
CW: What is Carpoly’s market share in China in the various markets it serves and what are your growth projections for the future?
Shuchao: During 2010, Carpoly recorded sales of $302 million, and became second only to foreign brands in China. In terms of market share in China, Carpoly owns about 1.7 percent. In architectural coatings, Carpoly in 2010 had the same overall share with production of about six million tons, accounting for 1.7 percent of the 3.519 billion tons of output.
CW: Does your competition come mostly from other domestic suppliers or from foreign firms who are continuously pouring money into their China operations?
Shuchao: Most of Carpoly’s competitors come from foreign countries, most notably AkzoNobel from the Netherlands and Nippon Paint from Japan. They rely on continued and strong financial advertising, shaping of higher brand awareness and seizing a large number of consumers. Similarly, with capital, technology, management and other areas, their rates of expansion in foreign channels is very rapid. These factors give them obvious advantages. But with the healthy and rapid development of Carpoly, now the gap between Carpoly and these two foreign brands is gradually narrowing.
CW: Do you see competition from North American and Western European paint companies within China’s borders as a threat, or does it help to set yourself apart from the competition?
Shuchao: Our biggest competitor is AkzoNobel whose business scope is much broader than ours. Within the powder coatings, coil coatings and automotive coatings fields, their achievements are much greater. However, thanks to their strength, the competition from AkzoNobel has helped to improve Carpoly’s standing and set us apart from many local competitors.
CW: What are Carpoly’s short- and long-term goals in China?
Shuchao: The short-term goal of Carpoly in China is to reach sales of 5 billion RMB by 2015. The long-term goal is to reach 10 billion RMB ($15 billion) or more by 2020. We are confident we can achieve these goals.
CW: Are there any plans to expand outside China’s borders?
Shuchao: We have plans to expand to external markets. In fact, Carpoly has established the International Trade Department through which we have been conducting business with Vietnam, South Africa, South America, Central Asia, the Middle East and 17 other countries and regions. In the future, we will consider the acquisition of an appropriate foreign enterprise.
CW: Are there any plans to partner with foreign paint companies from North America and Western Europe?
Shuchao: Yes, if the conditions permit. We hope to acquire an industrial paint business outside China’s borders. We are looking into the automotive coatings market as well. We hope to form cooperation through an acquisition or merger in the near future.
CW: How does Carpoly give back to the community?
Shuchao: In addition to conducting business, Carpoly is also heavily focused on social responsibility in order to create a “green” living environment and a harmonious social environment. Since 2004, we have helped provide education to children who cannot afford it. Through this project Carpoly has supported more than 5,400 students in 27 provinces at a cost of $13 million.
CW: How has Carpoly been affected by the global recession?
Shuchao: We were not significantly affected by the global recession. Domestic demand did not decrease due to governmental policy. Carpoly’s main sales markets are concentrated in secondary and tertiary markets, which reduced the impact. During the global financial crisis of 2008 and 2009, Carpoly recorded 17 percent and 24 percent sales growth. However, due to weakness in the price of bulk raw materials, finished product prices have not changed too much.
CW: Where can we expect to see future investment from Carpoly in terms of infrastructure expansion?
Shuchao: Carpoly’s external expansion started in 2008. We established four regional companies—Guangdong Carpoly, Sichuan Carpoly, Shanghai Carpoly and Hebei Carpoly. Shangahi Carpoly just recently began production preparation while Hebei Carpoly is under construction and will begin production next year. With these four bases of operation Carpoly can cover all of China.
CW: What are the current important trends in the Chinese paint and coatings industry both positive and negative?
Shuchao: China has more than 7,000 paint companies, tens of thousands of paint brands, but only 10 paint brands own a majority of the market share. The total market share and sales revenue of most brands in China is very limited. Over the next 10 years, at least 50 percent of the market share will focus on the small group of major brands. The emergence of news brand will be very limited. Because everyone is fighting for such limited space in the market, competition in the industry will become more intense.
CW: What is the situation in China in terms of raw material availability? Do you source raw materials from within China, from domestic or foreign firms?
Shuchao: Most of our raw materials come from domestic enterprises as well as some top-end materials come from well-known foreign companies. These raw materials are much more expensive but higher quality.
CW: What is the key to grow market share?
Shuchao: The number of stores, store image, brand awareness and public praise are the four major elements for increasing market share. However, the most important element for increasing market share is the total number of stores in the market. Carpoly is represented in approximately 12,000 stores in China. The more stores we deliver our products from the greater the number of people we reach.
CW: What is the one thing you worry most about Carpoly’s future in the Chinese paint and coatings industry?
Shuchao: On one hand, we are worried about the high-end competition in the market, because as everyone knows the development of China’s coatings industry is in its infancy. We have to face the competition of the major international companies. On the other hand, we are concerned about our lack of skilled personnel, as well as the enhancement of human capacity needed to keep up with the development of enterprises. Human resources is the core competition of Carpoly Chemical Group.
CW: What is the one thing you look most forward to in terms of future business?
Shuchao: What I look forward to the most is for Carpoly to be the leading company that creates environmentally friendly, healthy products for consumer. Leading the Chinese coating industry in this direction would be a great achievement. We also wish to cooperate with the major international coatings companies to produce high quality products that help contribute to a healthy living environment all over the world.
• 1993, “Carpoly” brand was created in Shunde.
• In 1999, Xinhui Carpoly Chemical Co., Ltd., was established in Jiangmen.
• End of 2009, Carpoly Group was formally upgraded and became four regional companies in Guangdong, Sichuan, Shanghai and Hebei provinces.
• In 2010, Carpoly Group integrated Fabrico Chemical Co., Ltd. and Guangdong Zhenggao Industrial Co., Ltd. for IPO, and expanded the area of business ranging from paint to ink and packing areas.
• Carpoly Group employees: 2052
• Carpoly distributors: 1,250
• Carpoly retail stores/counter space: 12,179
• 2010 coatings sales: ~$300 million
• Partners/suppliers: Sinopec, Evonik, Rohm and Haas, Mitsui Chemicals, BYK Additives and Instruments, Nuplex Resins, Kerr McGee, DuPont, BASF, Sanmu Group and Yip’s Chemical.
• Markets served: Wood coatings, architectural coatings and industrial coatings.
• Sample projects: 2007 The Nest, Beijing; 2009 CCTV building, Beijing.
• In 2010, the latest World Brand Lab report ranked Carpoly paint number 298, and its value increased to 3 billion.
• From 2006-2009, Carpoly has been named one of Forbes Top 100 Companies in China.