Wang Yongli: Profit is better than the market

In July 2004, Bayer's chemicals business unit and part of its polymer business were integrated into a new company, LANXESS. The company name Lanxess is a combination of "start" in French and "success" in English. Just over two years after its establishment, LANXESS's market performance is as exciting as its name implies: in 2005, global sales reached 7.15 billion euros, an increase of 5.6 percent over the previous year; at the same time, the share price rose by about 70%, which was the best-performing company in the European chemical industry in 2005; in the first two quarters of 2006, compared with the same period last year, all indicators increased significantly.

LANXESS' outstanding performance is largely driven by the fast-growing Asian market. LANXESS' business in Asia is mainly concentrated in four categories: high-performance chemicals, high-performance rubber, engineering plastics and chemical intermediates. In 2005, the sales revenue in Asia accounted for 16.6% of the world's total, the growth rate was much higher than that of other regions. And the Chinese market is the most exciting market in Asia. 70% of LANXESS products are in the leading position in the global market. In China, where most products are also at the forefront of the industry, sales soared 40% in the first quarter of this year compared to last year. Wang Yongli, President of LANXESS Greater China, is very optimistic about the prospects of the Chinese market.

Wang Yongli answered reporters' questions about LANXESS' development in China.

On the one hand, LANXESS' products are in a leading position in the market; on the other hand, LANXESS's profitability has not yet reached the industry average level. Why is this?

In the past, when we were under Bayer, chemical industry was not the core business of the company, and the investment in resources was not very sufficient. There were many management expenses to be shared, and the business operation ability was not strong. In addition, in the past, our production efficiency was not too high, and we unilaterally pursued market share, resulting in thinner and thinner profits.

Previously, our ABS product (a chemical product) had two production bases in Europe and also in North America, with high manufacturing costs, raw material costs and fixed costs. After the spin-off, we felt that profitability was more important than market share. By combining the ABS production bases in Europe into one and those in North America into one, the cost was reduced a lot, and the profit increased.

We are also one of the world's largest suppliers of rubber chemicals. The price of rubber chemicals is increasing rapidly, and we tell our customers that we provide the best cost-effective products, not a price war. The customer finally accepted our price increase. Our profit level is increasing year by year, and we believe that this year we can reach the industry average level.

In addition to reasonable price increases and cost reduction, what other reasons have contributed to the rapid development of LANXESS in China?

Our rapid development first stems from the rapid development of the overall Chinese market. China's overall chemical market growth rate is much faster than the United States, and the growth rate of the chemical industry exceeds the growth rate of China's GDP. China's annual per capita income exceeded US$1,000 in 2003, and when per capita income was between US$1,000 and US$5,000 that year, the demand for chemicals was very high. These external factors provide good opportunities and space for the development of LANXESS China.

In terms of internal factors, we regard Asia-Pacific, especially China, as the most important market for profit, and we bring the best products, services and technologies to China. In terms of services, in just two years after the spin-off, we have transferred the application R&D center of industrial rubber products from Singapore to China, the engineering plastics application R&D center is also under construction, and the leather chemical R&D center has also been relocated to China. In the past, customers only got our products. Now that we even help customers develop their products, customers are more willing to work with us.

China's local chemical companies are also developing rapidly. Do you feel the pressure of competition?

It is true that China's state-owned petrochemical companies and private chemical companies have excellent human capital, low production costs, and flexible decision-making, especially medium-sized chemical companies, which have a relatively short decision-making cycle. We are a global business and will be slower to respond. On the other hand, Chinese enterprises have strong learning ability and fast catch-up speed. Chinese companies also have a price advantage. In this case, we need to ensure technology investment, maintain technology leadership, continue to reduce costs, and ultimately provide products with the best price/performance ratio.

Are the technical advantages really that obvious?

Technical advantages are relative. It is difficult to maintain a technological advantage continuously, so we have to keep innovating.

In addition, I think this advantage is also reflected in "green competitiveness" or "soft power". Now China is starting to pay attention to the safety of the chemical industry and the degree of damage to the environment, which Europe has been paying attention to decades ago. As a European company, LANXESS has a lot of valuable experience in environmental protection that can be brought to China.

The author is an Assistant Writing Editor for CEConline Magazine.