Songwon Diversifies into Indian and Middle East Plastic Materials Markets
Maurizio Butti and Jongho Park on the Company’s Growth Strategy
On August 1, 2014, Songwon's acquisition of the specialty chemicals business of Indian company SeQuent Scientific, which includes the polymer stabilizer business, the production site in Panoli, India, and the local R&D division, has been successfully completed. The acquisition places Songwon in a stronger position to better meet the needs of their current and future customers in India. In addition, a manufacturing plant in Abu Dhabi will be completed in Q1 2015, according to Maurizio Butti, Chief Operating Officer of the South Korean specialty chemicals company.
"Currently, the consumption of plastic products in both India and the Middle East is less than half the level of more developed countries, which also suggests that the two markets have strong growth potential. We will, therefore, proactively target emerging markets to secure a new growth engine and diversify our markets to build a business structure that supports stability in our business results," says Butti, emphasizing that the company is committed to expanding its presence in the Indian and Middle East markets.
Penetrating Emerging Markets
Butti's decision is based on the high growth potential of both India and the Middle East. "Since Songwon's flagship product is plastic antioxidants, the demand for plastic products heavily influences the company's overall performance," Butti explained. "Around the world, the market for plastic materials such as polyethylene is growing by just 4 to 5% a year on average, but the same market is growing almost twice as fast in emerging economies including India and the countries in the Middle East."
Songwon is currently working on establishing a manufacturing plant for One-Pack-Systems (OPS) in the Khalifa Industrial Zone Abu Dhabi, UAE, in collaboration with a local firm, Polysis Industries. OPS products combine several additives as requested by customers to create a polymer which forms a basis for synthetic resins.
Butti believes that the hot climate in the Middle Eastern countries may contribute to the higher demand for OPS products in these regions. "While there is a strong demand for commercial products in Korea, Middle East customers need polymers with higher levels of stability because of the hot weather," he said. "Once the plant is completed in Q1 next year, we will start penetrating the Middle Eastern market together with Polysis which already has a local network in Abu Dhabi," Butti added.
In terms of Songwon's global sales, Korea takes up the largest share with 32%, followed by Asia (23%), Europe (21%), North and South America (19%), and the Middle East and Africa (4%).
Continuing Growth Strategy
Songwon Industrial's CEO Jongho Park sees that both the demand and applications for plastics are immense, thus, there is ample growth potential for his business despite the global economic downturn.
Since Park took over from his father in 2007, the Ulsan-headquartered local firm has grown to become the world's No. 2 polymer stabilizer manufacturer with over a 20% market share.
Songwon reported revenues of US-$622.5 million in 2013 and US-$ 476.5 million in the first nine months of 2014. As much as Songwon surprised investors with its continuous and robust growth until 2013, reporting a net loss of $8.2 million from Jan. through Sep. 2014, its growth has slumped compared to the previous year.
"This was caused by an unusual combination of unfavorable circumstances which all occurred at the same time," said Park.
COO Maurizio Butti said that two key production lines experienced technical issues, which has led to reduced output and an increase in production costs. Added to that, the price of raw material, which remained low at the time of contract, has risen since then, causing a margin squeeze.
However, Park believes that his company is on the growth path. "Concentrating on the fundamentals and our core polymer stabilizers business, we are looking for chemical companies that can align with us or that we can acquire."
Park said that although sales volumes have recovered in the second quarter, his company still needs to manage increasing raw material prices and lower sales prices.
Songwon International AG
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