Global chemical small and medium-sized enterprises profiled

Lean but mean

25 July 2008 15:51  [Source: ICB]

SMEs continue to hold a sizeable portion of the market place, showing that it still pays to be nimble and focused

What's your experience? Let us know through ICIS connect

Clay Boswell/London

SMALL AND medium-sized chemical enterprises continue to flourish, despite more than a decade of extraordinary industry consolidation.

Whereas the 10 largest companies held less than 22% of the chemical market in 1997, their share had climbed to almost 30% by 2006. Mega-deals, such as US-based Dow Chemical's $18.8bn (€11.8bn) move to acquire US specialty chemicals giant Rohm and Haas earlier this month, or US-based Ashland's $3.3bn leap for Hercules, also US, suggest that the process is not complete. Size has its advantages, particularly in a capital-intensive industry such as chemicals.

As the following seven stories show, however, smaller companies can hold their own by employing agility and focus to make up for limited resources.

SHAWNEE CHEMICAL

Business: PVC distributor

Annual sales: $82m (€51.5m)

Headquarters: Princeton, New Jersey, US

OUT OF THE ASHES

The death of a business is sometimes the catalyst for a new beginning. Born of desperation after the dissolution of California-based Whittaker Vinyls in 1975, polyvinyl chloride (PVC) distributor Shawnee Chemical was founded by former marketing manager Terrence Hurley.

John Hendershot of Shawnee, Oklahoma, provided Hurley with a loan to purchase some PVC for resale, thus transforming Hurley from "vice president, marketing," to "accidental entrepreneur." The company name Shawnee was adopted in honor of Hendershot.

"We started by buying and reselling off-grade PVC resin and morphed into a prime-grade distributor, executing all the US and Canadian PVC sales activities of Vinnolit of Germany, Policyd of Mexico, and at selected accounts of Georgia Gulf, of Atlanta, Georgia," says Hurley.

Based in Princeton, New Jersey, Shawnee booked sales of $82m in the fiscal year ending March 2008, and delivered 60,000 tonnes of material. The company has 14 employees, and also has offices in Connecticut, Ohio, Georgia and Ontario, Canada.

As growth in the PVC distribution business usually comes from taking market share from competitors, Shawnee touts its experience, long-term relationships and exceptional service as the keys to its success.

"Our engine of growth is primarily the field deployment of seasoned sales and marketing experts. The combined PVC experience of our staff is more than 300 years," says Hurley. "The other engine is our long-term association with leading PVC producers."

While many of the staff came from big chemical companies such as US-based firms Union Carbide, Stauffer Chemical, Tenneco and Occidental Chemical, "transparency and ease of communication within the company by comparison with our former employers is a day-versus-night distinction," says Hurley.

The ease of communication and resulting quick response to the market has been key to winning over prospective customers, many of whom initially indicate their preference to do business directly with the producer.

"Our assignment becomes building a communication channel between customer and producer," says Hurley. "Our secret weapon is our staff of in-the-office sales administrators. We have one person assigned to each producer as a primary contact and ensure that during normal business hours, there is someone at the other end of the email or telephone who knows how to assess a situation and get the right job done."

Shawnee's culture fosters transparency, open communication and above all, integrity, says Hurley.

"This may sound corny and terribly old-fashioned, but it has one great advantage - it works," he says.

MALAYAN ELECTRO-CHEMICAL INDUSTRY (MECI)

Business: PVC producer and distributor

Annual sales: $50m (€31.4m)

Headquarters: Penang, Malaysia

PROXIMITY PAYS

Consistent, reliable supply and effective problem-solving for customers are key to success for this Malaysian producer and distributor of polyvinyl chloride (PVC).

"We produce and focus on unique products that other players are not able to supply," says Ng Chong Lam, director and general manager of MECI. "We believe in being close to customers and understanding their needs."

The company's production automation system ensures process efficiency and reliability to obtain consistent, high-quality PVC resins, according to MECI.

And its automatic batching system, European-made twin-screw extruders and palletizing lines provide the flexibility to produce different PVC compounds for a wide range of applications.

Founded in 1972 with Japanese partners Nippon Zeon and Nichimen, the company, with about 150 employees, is focused on serving the rapidly growing domestic market. However, it seeks to add value in its PVC formulations to enable downstream processing and exports.

"Be not afraid of growing slowly - be afraid only of standing still," is the Chinese proverb that inspires MECI toward its ultimate goal, the conquest of the Asia-Pacific PVC market.

"We plan to grow organically and aim to have 6-8% return on investment," says Lam.

For any customer problems that arise, MECI uses the 4M (manpower, methods, materials, machines) analysis approach, says Lam. "This method of problem-solving is very effective [in using] a scientific approach to find the root causes."

DEEPWATER CHEMICALS

Business: Iodine derivatives

Annual sales: Undisclosed

Headquarters: Woodward, Oklahoma, US

FAST AFOOT

A US-based subsidiary of Japan's Toyota Tsusho, Deepwater Chemicals supplies fine iodine derivatives to a diverse clientele from industries including agriculture, photography, catalysts, inks and colorants, sanitizers and disinfectants, industrial chemicals and pharmaceuticals.

The company has supplied iodine derivatives for domestic and export markets since its foundation in 1931.

"One of the advantages of being a small company is the ability to accomplish things quickly when necessary," says president Masahiro Akiba, who leads Deepwater's 30 employees. "With this size, we work well as a team. All the staff know the company and are aware of what others are doing."

The company's state-of-the-art production facility, capable of making a range of inorganic and organic iodides, is located in the heart of "iodine country," in Woodward, Oklahoma, US.

Deepwater's multipurpose plant can also toll manufacture other fine chemicals that involve many types of organic synthesis, in order to meet specific customer requirements.

One of the keys to success for Deepwater is back integration to crude iodine, of which Toyota Tsusho is one of the leading producers.

Being in a niche business and having close relationships with customers does not hurt either, says Akiba. Logistics and procurement are areas where Akiba says the company could use more manpower, but having access to support from its parent company is also an advantage.

BERACA

Business: Chlorine, cosmetic ingredients

Annual sales: Undisclosed

Headquarters: Sao Paulo, Brazil

CHLORINE AND THE BEAUTY SCENE

The businesses of chlorine and cosmetics do not usually go hand in hand, but the family-owned Brazilian company Beraca has successfully managed both for more than 50 years through innovation and understanding market trends.

Beraca Sabara Quimicos e Ingredientes, which changed its descriptive moniker to Beraca this year, was one of the largest chlorine suppliers in Latin America after Ubirajara Sabara started the company in 1956 in Sao Paulo.

In the 52 years since then, Beraca has grown mainly organically, says Beraca's business director Filipe Sabara. Last year, sales volume grew by 78%.

The company's businesses include animal nutrition, food ingredients, cosmetics and personal care and water technologies.

"Being a small to medium-sized company of 300, Beraca is able to make quick strategic decisions and also to focus on what is sustainable for its business and the market," he says. "You have to be able to trust what your employees are doing, and at the same time observe what the market's thoughts are about your brands."

The company entered the natural and organic cosmetic ingredients market in 1991, when it started supplying jojoba oil in Brazil.

Dealing with natural and organic products presents problems quite unlike those encountered in manufacturing, notes Sabara. Traditional communities and gathering forest materials must be managed and dealt with correctly processes and factories must be certified and production depends on nature's seasonal whim.

For Beraca, sustainability is its business focus and an integral part of its activities.

PCI SYNTHESIS

Business: Active pharmaceuticalingredients (APIs), fine chemicals

Annual sales: $12-14m (€7.5m-8.8m)

Headquarters: Newburyport, Massachusetts, US

NOT A QUITTER

What do you do if your plant is destroyed? In 2005, Ed Price, president of PCI Synthesis, found out.

"If I didn't find a plant and move quickly, we'd have been out of business," he recalls.

At the time, Price was president of PolyCarbon Industries (PCI), which had a good manufacturing process (GMP) manufacturing facility in Leominster, Massachusetts, and research and development (R&D) operations in Devens. The company, founded in 1998, was doing well, with two active APIs commercialized and another eight in the pipeline.

But an explosion in March 2005 put the Leominster facility out of commission.

"Fortunately, we had built up some inventory on our commercial products, but we didn't have a lot of time - only eight or nine months," says Price.

Price was lucky. Just up the road in Newburyport, Massachusetts, Norway's Borregaard Synthesis had a multipurpose facility for sale. The site had 18,000 gallons (68,000 liters) of reactor capacity, compared with PCI's 1,200, and the excess could easily accommodate PCI's needs. However, it was not an API facility.

"We had to acquire the new site and not only bring it up to speed for GMP, but we also had to get it inspected by the Food and Drug Administration (FDA)," Price points out.

Within 11 months, Price and his team converted the facility to GMP manufacturing, but they were still at the mercy of the FDA.

"It was do or die - if the FDA didn't come [soon enough], we were finished, and if it did come and we failed, we were finished," he says. But the agency did come, and after a five-day inspection, the company was free to go forward. All of PCI's customers stuck with the company.

"We were able to keep every one of our APIs alive with our partners," notes Price. "We've had a long-standing relationship with these people. We've always done what we said, and always delivered what we said we would."

The company, larger by $8m in revenue and several nonpharma product lines, was renamed PCI Synthesis.

Competition has been stiff, says Price, but overall business has been on a positive trend.

"The exchange rate and the price of energy and oil are making things more difficult right now, but in the long term, it's good for US manufacturers," he says.

His staff, now numbering 65, has been key to the success of PCI Synthesis, he adds.

"We have very little staff turnover," he says. "No-one's left the company voluntarily in more than six months. My key managers have worked with and for me for over a decade at PCI and [the Newbury Port facility]. I've known them for a long time, and everyone is committed to success."

DIPOL CHEMICAL INTERNATIONAL

Business: chemical distribution and auto parts manufacturing

Annual sales: $100m (€62.8m)

Headquarters: Kensington, Maryland, US

HUSBAND AND WIFE FIND FORTUNE UKRAINE

The Soviet Union's collapse released the entrepreneurial energies of millions of individuals. Among them were two chemistry students, Irene and Alfred Roth.

Chemists of their parents' generation would have been limited to working for the state, but the Roths found themselves in a position to make what they could of themselves in business, and they took the first step toward doing so in the US.

The couple had traveled to the beating heart of capitalism to continue their studies, but they decided to acquire more than an education. In 1994, they established themselves as a chemical consulting firm, Dipol Chemical International.

In the right place at the right time, the Roths found success. Within a year, they broadened their activities to toll processing.

In 1996, they moved the business toward the distribution of polystyrene (PS) and polyurethanes (PUs) in Ukraine as well.

Dipol had 10 employees at the time, but it has since become a leader in polymers and specialty chemical distribution in the countries that once made up the Soviet Union.

Today, Dipol has a staff of 50 and an annual turnover of $100m.

With offices and warehouses in Kiev, Riga, and St. Petersburg, the company has cast its distribution network across Ukraine, Belarus, Moldova, Latvia, Lithuania, Estonia and Russia.

Supported by long-term consignment agreements with major suppliers, Dipol is a one-stop shop for major Ukrainian packaging, civil construction, home appliance and detergent manufacturers, say the Roths.

The couple have not slowed down. To strengthen Dipol's position, the company established Tribo, a joint venture (JV) specializing in the manufacture of powder-coating PU components in 2000. In 2006, another JV, Dipol-Auto, began producing polymer parts for the automotive industry.

UBICHEM RESEARCH

Business: manufacture of pharmaceutical intermediates

Annual sales: 2007 pharma revenue of €6.2m ($9.9m), with a goal of €20m-40m by 2013

Headquarters: Budapest, Hungary

CLOSE RELATIONSHIPS

Ubichem researches, develops and manufactures organic chemicals, mainly pharmaceutical intermediates and products.

Ubichem Research was founded in 1996 by Jozsef Repasi. Now numbering 90 employees, it is looking for acquisition and joint venture opportunities.

The company provides a variety of services to its pharmaceutical customers, including small and medium-scale production, analytical method development, impurity profiling and preparation of reference standards. It operates according to the ISO 9001:2000 quality assurance standards.

Ubichem's relatively small size means it lacks certain technological capabilities, such as large-scale hydrogenation.

But Ubichem's size also allows good information flow between departments, and it facilitates a close relationship with customers through weekly teleconferencing to act and adapt to their changing needs.

Additional reporting by Julia Leonard, Doris de Guzman and Joseph Chang

Sign up for our free CEO Opinion e-newsletter

By: Clay Boswell
+1 713 525 2653

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly