The Asia-Pacific region is one of the major drivers for Henkel’s overall business. China, the world’s second largest market for Henkel Adhesive Technologies, and Southeast Asia, another extremely important region for our company, are forecast to continue growth at a blistering pace. The market for adhesives in Asia-Pacific remains largely untapped and will continue growing exponentially.
In 2013, Henkel demonstrated its commitment to the Asia-Pacific region and, more specifically, the Chinese market, when we opened the world’s largest adhesives factory in Shanghai. The Shanghai location of our world-class 50 million euros facility, known as the “Dragon Plant,” underlines the importance of the Asia-Pacific market to Henkel, while responding to rising demand for industrial adhesive technologies throughout the entire region.
Innovation and commitment are critical success factors throughout the Asia-Pacific
At Henkel, we believe in the extraordinary of enabling possibilities. As an innovation-driven solution provider, Henkel facilitates powerful advances in products and services, and develops trend-setting technologies that build value for our customers.
Henkel invests over 250 million euros in R&D and innovation in the adhesive technologies market segment annually. We employ approximately 1,600 professionals in innovation-focused roles around the world, with 400 of them based in locations across the Asia-Pacific region. We also have a technical customer service team of around 350 people regionally. They are tasked with helping customers integrate new developments into their products and processes.
Henkel has actively expanded its investments in the Asia-Pacific region, including new facilities in Korea, China and India. Our main adhesive research facility for the region is located in Shanghai, China and provides new technologies to develop customized products for markets and customers throughout the Asia-Pacific region. Product development centers are established in all major Asia-Pacific countries and work very closely with our customers here to develop products and solutions that meet their specific needs. The Henkel Display Center in Shanghai, a research laboratory focused on technologies for handheld devices, screens and displays, was opened in 2013, while we also founded an innovation center in Pune, India the same year.
In 2014, our Innovation center in Seoul, Korea was launched. The center’s focus is on developing the latest technologies through the strategic partnership with technology leading companies, providing customized engineering solutions for customers based in Korea, and is one of seven new Henkel sites around the world that have been set up to provide rapid services and support. The Henkel Korea Innovation Center’s emphasis is on development of lamination adhesives and structural adhesives for the display and mobile device industries, as well as performance evaluation and process implementation for these markets.
Asia-Pacific Megatrends Underpin Business Growth
Thirty percent of sales within Henkel Adhesive Technologies come from products that are less than 5 years old. Close monitoring of megatrends helps identify new areas for research by pinpointing possible incremental improvements of existing technologies and identifying disruptive technologies that can transform an entire value chain and create completely new markets. So having a good handle on Asia-Pacific megatrends is essential to our business success. These megatrends are primarily driven by the rise of the middle class, needs for energy efficiency, mobility and communications.
Megatrend One: Rise of the Middle Class
The rise of the middle class in Asia-Pacific brings unprecedented demand for product quality, yet higher labor costs, especially in the manufacturing sector. Henkel Adhesive Technologies provides tailor-made solutions to answer demanding requirements for products on the one hand and to solve manufacturing challenges for a wide variety of customers on the other, enabling the process of change from manual and labor intensive to semi-automated, and eventually, fully automated work, while delivering high quality product performance.
Indonesia with its vast, affluent middle-class market is critical in terms of growth as it continues to play a key role in Southeast Asia. Henkel’s existing operations in Indonesia have made it the market leader for adhesive products, selling to shoe producers and the packaging and book-binding industries. We are also gaining market share in sales to the automotive parts and construction materials industries.
Producing 1 million pairs of shoes per month requires 15,000 workers. As labor costs rise, especially in Asian countries like China, Thailand and Indonesia, market leading global sport shoe brands, and their contract manufacturers, are experiencing the need to tightly control production costs, while meeting higher standards in sustainability. At Henkel Adhesive Technologies we enable our customers to automate these industrial applications to meet all of their requirements.
Housing and building requirements in the Asia-Pacific are significantly harder to meet in terms of the materials, design and quality. To create a cleaner and healthier environment, our adhesive products help through not releasing volatile organic substances into the air, while not causing odors. Moreover, Henkel solutions help cut building energy costs.
Henkel also plays an important role in meeting the challenges of regional population increases. For example, on average there are two to four different adhesive applications in one diaper. High performance adhesives make production of 800 diapers per minute possible. According to a recent McKinsey Report, in conjunction with the population increase, the explosive growth of China’s emerging middle class has brought sweeping economic change and social transformation. We believe that will significantly impact the consumer goods market and packaging technology, especially in China.
Megatrend Two: Need for Energy Efficiency and Sustainability
Manufacturers are racing to deliver higher quality with breakthrough products to meet end-user demand, while counteracting the drastically increasing competition for energy and raw materials. Companies are also reducing their environmental impact to meet legal requirements. Manufacturers and enterprises in Indonesia and Thailand, key members of the ASEAN Economic Community 2015, are facing challenges producing higher quality products in a more efficient way that can compete in other ASEAN markets.
The strategy for leadership in end-user products will be won by advances in materials. Adhesives are a hidden industrial champion enabling the adoption of a wide range of special materials for future technologies, especially for energy efficient, renewable, mobile and flexible applications in various end-use sectors.
In 2013, Henkel Indonesia once again grew by double-digit to reach a record high in net sales. This positive development was primarily contributed to by our Adhesive Technologies business unit. Within the adhesive business, the transport and metal as well as the general industry segments, delivered especially high growth.
Lightweight car construction and alternative energy adoption are two desired directions for the automotive industry to move in, especially considering a single car contains about 15 kilograms of adhesives. In Thailand, Henkel is working with about 80 direct customers - both automotive companies and original equipment manufacturers - and delivers integrated solutions along the entire automotive value chain from press, body and paint shops to assembly and repair operations. Henkel Thailand is also working with several automotive customers on various innovative projects, such as alternative-energy vehicles. Together with our customers, we are developing solutions that will lead to sustainable transportation. Using Henkel's adhesive-technologies solutions, customers can reduce their manufacturing processing steps, lower operating costs, achieve lighter, more energy-efficient vehicles and better automotive performance.
China has already advanced to become the largest car market in the world, with a rapidly expanding domestic production base. The country is also one of the major producers of sports equipment and electronic products. In these and many other industries, adhesives are being used more and more as they make the products lighter and enhance performance, while helping to make production processes more sustainable.
Korea and China are pioneering in the LED, energy-efficient lighting segment. Currently, Henkel provides sealants and adhesives for LED chip packages, conductive materials and LED light products and thermal adhesives, as well as thermal pads for LED thermal dissipation. Moreover, we supply innovative phase-changing material products which are compatible with high-power LED light products. Henkel’s high-quality adhesives enhance LED lighting products, while partnerships have been established with many LED manufacturers, mostly in China, Taiwan, South Korea and Japan. We have also successfully expanded our business to the Chinese and South Korean markets, where manufacturers have been endeavoring to establish their own global brands.
China is on the verge of a new era in sustainable development. Many of the country’s business leaders have called for Chinese enterprises to learn advanced concepts from successful experiences of international companies. Renowned for its commitment to sustainable practices, China has set a target to produce 8 percent of its electricity from wind energy by 2030. A single wind turbine rotor-blade contains 500 kilograms of adhesives, perhaps more, so we believe adhesives technology can contribute greatly to the country’s development, especially in terms of energy efficiency.
For Henkel Adhesive Technologies, sustainability is inseparably linked with innovation and efficiency. We are committed to delivering products and solutions that create more value with fewer resources along the entire value chain. Customers everywhere in the world can use customized solutions to increase their added value relative to their environmental footprint. Our broad portfolio of technologies reduces energy consumption, CO2 emissions, and waste generated during production and use of a wide variety of products, ranging from packaging, books and mobile telephones through to automobiles and airplanes.
Megatrend Three: Accelerating Mobility and Communications
Six out of every 10 phones have Henkel Adhesive Technologies in them. Our technologies can make the screen up to four times brighter because we fill the air gaps in the displays.
The Asia-Pacific region is regarded as a hub for technology development and manufacturing, especially in consumer electronics, but also for the automotive industry. Without a doubt, China and Korea are two leading markets that shine in the region. We see solid and increasing demand for mobile phones, handheld devices, displays, lighting and wearable technologies. These industry segments are expected to be driving forces for adhesive technologies. In the near future, Henkel will partner with key industry players to manufacture flexible displays, including curved smart phones.
The increasing population in Asia-Pacific emerging markets further drives demand for cars, other vehicles and solutions for public transportation, such as high-speed trains and aircraft. Henkel solutions make trains quieter, more rigid and more efficient while we have been helping spur on the aerospace industry for over 50 years. Henkel Adhesive Technologies have enabled trends in aircraft engineering toward lightweight construction through the use of lighter composite materials based on carbon or glass fiber. Our solution can also help reduce material fatigue and noise.
Winning with our Asia-Pacific customers
Asia-Pacific has great potential to grow and lead development of the adhesive technologies sector. Not only can Henkel transform megatrends into business opportunities, but we can also work closely with customers to enable them to outperform the competition and create added value with and for them. All of these efforts can help us achieve our ambitious target for 2016: 20 billion euros in sales, 10 billion euros in emerging sales, and 10 percent compound annual growth (CAGR) in adjusted earnings per preferred share (EPS). Henkel, as a group, has seen strong development of 5.5 percent in organic net sales growth in the Asia-Pacific region, with double digit performance of China. We are confident that Henkel Adhesive Technologies, due to its position as leading solution provider, will play a critical role in upgrading the region’s technologies, and enable every possibility.