AkzoNobel innovates for global growth

15 March 2011 22:37  [Source: ICB]

The company's strategy aims squarely at the mid-tier China market, while retaining a focus on high-end developed regions

As the world's largest coatings company,AkzoNobel has considerable resources to devote to innovation. Its strategy will be keenly watched by competitors, as well as customers.

As you would expect, in line with the Dutch-headquartered company's overall growth strategy, Asia is a key focus, particularly China. But the demands of high-end customers in mature markets serving end uses such as aerospace, marine, automotive and decorative are also important.

Airbus A380 covered with AkzoNobel's coatings

The company is pursuing an innovation strategy for developing markets that focuses strongly on cost and pricing. It also takes into account local conditions such as climate and trends such as urbanization. But it is aimed globally at big themes such as well-being and personal identity, reducing environmental impact, products that save time and effort, and technologies that will give completely new functionality.

Board member Graeme Armstrong, the company's chief innovation officer, insists that AkzoNobel does not take its dominant global position for granted.

"We are the largest coatings company, but to our customers we need to be a leading company - not just the largest. We believe we can take market share in various parts of the world by truly leading. Some companies seem to have their entire focus on China, India, Brazil or Africa, and this is a component in our growth strategy. But it's also rooted in the developed world."

AkzoNobel has analyzed the Chinese market carefully and divides it into two. Firms manufacturing for export to mature markets require the high-tier products demanded by consumers, and customers form the first focus.

But with China focusing so much on increasing its domestic market, the company has decided to put a lot of effort into tackling the "mid-tier" sector in both performance and decorative coatings.

Armstrong believes you need Chinese personnel, based in China, to understand market requirements. "Products which are innovated and developed in labs in the UK or US - they just don't get it. We need the insight into the domestic market, which you only get by putting damn good horsepower on the ground in China. People who can spend the time out in the field in the world of the customer and make the connections."

AkzoNobel already spends 11% of its R&D budget in China, equal to the resources devoted to core markets such as the UK. But this is set to rise further in the next two years as the company doubles the number of personnel from 120 at its hub laboratory outside Shanghai. A recruitment drive has already begun.

KEEPING R&D STAFF
Armstrong believes that AkzoNobel treats its innovation staff in China much better than many other global companies, and as a result does not suffer high turnover. Recruits spend time at R&D centers in the UK, Netherlands and the US so that they gain an understanding of the company's innovation strategy.

"Some companies invest in China, but they treat them as offshore incremental development labs. They don't want to tell them anything, because of fears about leakage of intellectual property," he says. "So these bright, well-motivated young people leave because they're not fulfilled. We invest in people and grow their careers."

AkzoNobel prefers to talk about "solutions" rather than technologies when describing its innovation platforms, and it clusters these into five areas: serving the needs of the global mid-market; products for well-being and identity; achieving zero footprint; saving time and effort; and new horizons in functionality.

AIMING FOR MID-TIER
The first of these - serving the mid-tier - is aimed at developing markets, in particular, but the others are also highly relevant, says Armstrong. "We want to create products with high performance, but that are affordable. There are two angles to building affordable products: many formulas developed for mature markets grow around a base that is then added to. There are large degrees of complexity that, frankly, if you strip it back you don't need. You need to go back to the basics of exactly what is required."

He adds: "More important cost breakthroughs come when you look at the entire supply chain: the manufacture, distribution, and the logistics around incoming raw materials and outgoing products.

"We are the largest coatings company, but to our customers we need to be a leading company, not just the largest" Graeme Armstrong Chief innovation officer, AzkoNobel

The company is developing a process technology aimed directly at geographies such as China, where many large "tier-two" cities, which are often hundreds of kilometers apart, exist. "Big, centralized manufacturing sites like you find in Europe and the US don't work in China. You start with a shorter supply line to the customers and build around that."

Known as Project Falcon, it is focused on in-line and high-speed mixing in a continuous process, rather than in batches.

Armstrong says the technology will keep costs to a minimum. It avoids the manufacture of tonnes of a product, which then sits around in a warehouse tying up working capital, and which is then distributed over long distances.

"This is very new - we are just now putting in test facilities. We have signed off on three major proposals for this technology in Indonesia, China and India," he says. "These are big plant extensions or new plants."

WELL-BEING AND IDENTITY
The second major thrust is bringing to market products that bring well-being or better personal identity. In developing countries, huge growth in urbanization and the humid environment have brought about a big increase in vector-borne diseases such as malaria or dengue fever from flies or mosquitos.

AkzoNobel is investigating how coatings can control disease. In Europe, it already sells Sanoprotex for health care facilities. "I think a big prize will be bringing these to homes in developing countries. Why use insecticide floating around in the air when you can put it on the wall?" A product is in the pipeline and will launch "imminently," he says.

"Personal identity is less well developed," says Armstrong. "People who live in urban areas need a place of sanctuary in the home or office. This is their color, image, environment. It makes people feel well."

The third target - achieving zero footprint - is important for AkzoNobel. It is already a leading player in theDow Jones Sustainability Index and Armstrong claims that 50% or more of the company's projects relate to sustainability. It is making "enormous efforts" towards eliminating Volatile Organic Compounds (VOCs) in its coatings, aiming to cut VOCs by weight by 15% by 2015.

TACKLING FEEDSTOCKS
The company is also working with players in the supply chain, such asGermany's BASF, to find alternatives to raw materials including titanium dioxide (TiO2) and polymeric resins, which have a high carbon footprint. TiO2 requires huge amounts of energy to produce.

"There are no immediate solutions to eliminating and substituting TiO2, but we're utterly determined to find them. We're asking our suppliers if we can work with them to find alternative materials. Some are very responsive, others less so. There may be other ways to create whiteness without the need for TiO2."

Saving time and effort in both professional and consumer markets is another important strand of the innovation strategy. This includes the ability to cut time in preparing, drying and handling across many markets. The company is combining paint technology and chemistry with new ways of drying and forming protective films. This could include the use of ultraviolet and infrared light.

In the construction market, ways to make processes faster and more energy-efficient are paramount, says Armstrong. "There's an enormous market for sustainable new build developing markets and retrofitting in mature markets, where 70% of buildings will need to be upgraded to meet new regulations."

Paint that reflects heat has already been launched, but stopping heat escaping by using coatings is more difficult.

"We have massive innovation into thin coatings with excellent insulating properties. The science asking 'how thin can you go' involves lots of smart physics. How do you get lots of what looks like air between the layers of paint?"

AkzoNobel is seeking ways to add new functionality, especially in transport coatings - its second-largest market, after construction. Products such as Intersleek, which reduce energy use in shipping by reducing fouling, are already on the market.

"What's exciting is taking the concepts further into aerospace and automotive. I want to know how fast a car has to go to be influenced by air drag on its coatings What can we learn that will be applied to mass transportation?" A tie-up with Formula 1 racing's McLaren team will aid the research.

KEY FACTS
AkzoNobel's innovation solutions

• Serve the global mid-market
• Offer well-being and personal identity
• Reduce environmental impact
• Make products that save time and effort
• Offer technologies with new functionality

By: Will Beacham
+44 20 8652 3214

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