Biesterfeld's CEO Birger Kuck, a speaker at this year's FECC Congress in Lisbon, elucidates the challenges and success factors for the chemical distribution industry.

Chemical Connection - As a link between producers and customers in the complex supply chain of the chemical industry, chemical distributors are facing numerous challenges. In addition to matching supply and demand and delivering chemicals and formulations in a timely and safe manner, distributors have to offer additional services to their principals and buyers and earn a profitable margin in an increasingly competitive pricing environment. In recent years, compliance with tightened regulatory standards or sustainability and responsibility requirements have also become more relevant for the distribution sector.

International distributors like the German Biesterfeld Group need to cope with this demanding business environment. In the course of more than 100 years of existence the traditional Hamburg trading house has developed into a group with worldwide activities in the areas of polymers, specialty chemicals, industrial and agrochemicals as well as pharmaceutical raw materials and agents.

This product portfolio is complemented with a range of services in the fields of chemistry, logistics and related compliance management. Biesterfeld's CEO Birger Kuck, a speaker at this year's annual congress of the European Association of Chemical Distributors (FECC), elucidates the challenges and success factors for his industry.

CHEManager Europe: Mr. Kuck, this year's FECC Congress' motto is "Sustainable and Responsible Distribution: The Formula for Success." How can chemical distributors turn this vague statement into concrete solutions?

Birger Kuck: First of all, in a company like Biesterfeld with such an old tradition, sustainability and responsible behavior are fixed in our fundamentals. To achieve our aim - to be the technical leader together with our suppliers and customers in Europe - we have to distribute in a fair and responsible way with a comprehensive and long-term strategy without disregard for our values.

In general, one essential factor and, of course, a formula for success for every chemical distributor is the product portfolio. It gets more and more important that the products are environment-neutral and smart. We consider production conditions and environmental behavior of our suppliers as well as effectiveness and environmental impact of the products.

This can be realized with energy-saving products, which help to reduce energy and production costs. We also want to preserve resources; e.g., by optimizing transport logistics and systems we can reduce effort, protect the environment and reduce costs for our business partners as well as our costs. Likewise "green chemicals" become more important. These products and pre-products were won by recycling or in an eco-friendly way. The demand by the entire production chain is continuously increasing.

What other aspects are crucial for a global chemicals distributor?

Birger Kuck: I see five central key success factors of every distributor. First, as mentioned before, there are the products. Second, the employees are very important. You need fitting know-how to satisfy your suppliers' and customers' needs. The right mixture of experienced specialists and own "new blood" is important for our success. We have no plants or brands, thus, we have to invest in our people. Third, suppliers are a central business factor. Finding and getting new suppliers is not easy. The relationship to our suppliers is long term and is fulfilled by trust, transparency and stability. It is important to install and develop relationship management across hierarchy levels and to build up a network within the supplier organization. The fourth key factor is the customer.

You have to build up a trusting atmosphere and a close relationship to get problems solved and challenges managed. And last but not least, the distribution regions and knowledge about the regional developments are essential for every distributor. For anticipating new trends and handling challenges, it is indispensable to know the development of society, needs and infrastructure in the country. For instance, in our business area specialty chemistry we have to face the aging society and have to react to an increasing awareness for health, cosmetics, nutraceuticals and pharmaceuticals.

How has the role of chemical distributor evolved over the last years?

Birger Kuck: The chemical market is still growing because of increasing demand for chemistry products in different industries. In line with this development the market splits up: a commodities market, characterized by logistic requirements and price sensitivity. No real service, expertise and know-how of the distributor are required. Opposite to this the market for specialty chemicals becomes even more service oriented. Customers expect their supplier to provide technical service, application support and specific chemical know-how. The distributor is an important development partner for the customer. The availability of laboratories becomes essential.

In addition to this you can observe an increasing market consolidation in recent years. Twenty years ago, suppliers who worked together with one to three distribution partners all over Europe had a network of 20-30 distributors. We went through this development with a couple of our suppliers. DuPont, our supplier for engineering polymers, reduced its network of partners in Europe from 22 distributors in 1988 to two in 2012. While suppliers are reducing the numbers of their distributors, the demand from customers for a "one-stop-shop" increases.

Suppliers and customers optimize their contacts and concentrate on one selected partner. To reduce efforts and optimize costs in the supply chain, suppliers use their distributor as technical service provider for their mutual customers. Distributors grow together with their suppliers and act for them pan-European. Biesterfeld followed these trends. We serve our clients with engineers, chemistry Ph.D.s and highly skilled product specialists. We organize training for the customers' employees and provide chemical laboratories to help the customers find solutions and innovations.

A slogan characterizing the distribution business is: "Think global, act local." How has globalization changed the face of the chemicals distribution business?

Birger Kuck: Globalization definitively has changed our business. "Think global, act local" is also an important aspect of the Biesterfeld strategy. Centers of competence act globally with suppliers and multinational customers. Also purchase and logistics are centralized to be able to optimize costs and to improve the availability of each and every product all over Europe. To offer our service on a high level comparable to our quality standards, we have regional offices all over Europe.

Regional closeness gives us the chance to be with our customers and to face new trends and challenges. We talk our customers' language, we invoice in local currency, and we offer local service and deliver from warehouses close to our customers. This is the best solution for our suppliers to optimize the supply chain and customers for getting the best service possible.
Moreover, market and product trends are no longer locally limited. They have worldwide consequences, as seen during the 2008 crisis. So every distributor has to react to worldwide trends, the decreasing prices of commodity goods or the development of new megatrends. Another aspect is the financial background of the distribution market.

More and more companies are controlled by financial owners, mostly by private equity. As an independent family business, we could observe that the priorities and aims had changed partly. In general, the strategic focus became more international and market-share driven. The size of our company allows us to combine the advantages of both: global mind with local focus.

How have the requirements of your principals and customers changed in view of the recent global financial and economic turmoil?

Birger Kuck: For our suppliers and for our customers it is getting more and more important to work in a stable relationship. We realize it in the way to work together in a trustful and stable partnership, where problems and challenges are discussed in an open way. We believe that all parties involved are stronger when they work close together.

This can reduce financial and economic risks - for us and for our partners. We recognize for many companies it is getting more important to work in a sustainable and responsible way together. Security and precautions became more important than the lowest cost because many suppliers and customers had bad experiences in the crisis of 2008-2009. Loyalty and business ethics have grown in importance.

According to a recent study, China and India are taking over important roles in both the import and export of chemicals. What does this mean for the European chemical distributors?

Birger Kuck: The influence of China and India on the European market is essential. To be one of the biggest suppliers and customers at the same time has wide consequences to the whole industry. Of course the prices for the chemical goods are addicted to the consumption and the demand of Asia. If Chinese demand falls off - as it is doing now -trading levels to the world grow and in consequence prices all over the world - and especially in Europe - sink. Or the other way around, if Chinese and Indian demand grows, we in Europe have got problems to get the tonnage for our European customers. It‘s a real challenge to get the influence of China and India managed.

But there are still some business segments with small influence by Asian producers and distributors, e.g., segments of the European life science market are still not influenced much by Chinese products. These markets are also important for sourcing. In Europe we cannot ignore Asian suppliers if we want to offer our customers a full product portfolio.

To better serve your customers it is necessary to expand into these emerging markets. What is your strategy for regional expansion?

Birger Kuck: To reach our aim, to be an outstanding distributor and a leading expert for solutions for the chemistry industry, we have to grow regionally as well as globally. In Europe we offer a pan-European organization through our regional companies. Here it is important for us to have local contact to our customers and solve problems and find new solutions together with them.

Through Biesterfeld International we are globally present, six presences in Asia and 10 in the Americas. We are coming from international trade and offering more and more service to our customers. Also, Biesterfeld International helps us to establish good contacts to our new suppliers in the emerging markets. Also, in 2011 and 2012 so far, we have established presences in North Africa, e.g., in Algeria, Tunisia and Morocco. Speaking of regional expansion, we want to expand further into the Middle East and Commonwealth of Independent States. This has to happen step by step to fulfill our requirements and quality standards. Belarus and Kazakhstan are on our agenda. Also we are still looking to get a presence in Scandinavia and to grow in the U.K. With this expansion strategy we are sure to be ready for the future.