The merger of two established global materials players, DSM Engineering Materials and LANXESS High Performance Materials last year gave birth to a new entity, Envalior. The company specialises in performance materials, and supplies to sectors such as automotive, renewable energy, food packaging, medical, transportation, building and construction, electronics and electrical goods. Around half of the company’s revenue, pegged at approximately €4 billion, comes from the automotive sector. The material behemoth has nearly 18 production sites, 14 R&D centre plants, and roughly 4,000 employees across Europe, Asia and the US. In a candid conversation, the group’s CEO Calum Maclean shares the dynamics of the Indian market and explains why India is the highest growth market in their portfolio.
Question: India is a dynamic market. How is the world looking at India right now and how has it changed from the last 5 years?
Answer: India probably today is the highest growth market in our portfolio. We have a very significant supply position in India, not only a supply position but a manufacturing base as well. We've got three very high-quality assets, some very good people, standards, and safety records, and manufacturing practices. We've also combined the innovation and portfolio of two businesses who were competitors until very recently. That's allowed us to have a pretty good offering now. We are a truly global business with global assets in all regions or locations. But if you look at the growth rates, not just forecasted but year-to-date growth rates as well within our business, India is, along with China, the highest growth region.
Over the last 5 years, India has gone from being a country where we were always low cost but didn't necessarily have the right quality or standards in terms of products being shipped. That's totally changed now. India now has the quality of products, the standards, still the low-cost base, but also a huge internal market which global companies want to be part of. We've come a long way in the last five years, establishing India as a real growth point for us. That’s why we want to exploit that with the assets, capacity, people, and growing markets we have on the ground.
Question: What kind of opportunities do you see advancing in India across sectors and what are some which are probably lacking or missing?
Answer: I wouldn't say we've missed anything in terms of what we're doing because we are benefiting from two multinational blue-chip companies who were always committed to this market. They put a lot of investment into it, so we're sitting with three very good assets, all of which are not 100% loaded today. We have room to grow into those assets. We have a big innovation team locally helping to develop these products. Combining the benefits of both companies has given us a strong place.
What came out were two big themes that we need to keep running and challenging: sustainability and self-sufficiency. Call it China +1 but many Indian producers today are looking for local production to supply local markets. We are well-placed to meet that demand because we have local assets and are sourcing many local raw materials. This is a growing demand not just in India but also in China, the Middle East, and the US. There is a tendency, at the moment, to be a local manufacturer for a local market.
The second dynamic one is sustainability and the circular economy. Our customers and their customers are looking for circular products with low CO2 footprints and recycling of products. With our portfolio, we have total options of sustainable products. Unfortunately, sustainable products are driven by price and they are more expensive, but we have offerings that go with the market's changing demands.
In automotive, for example, we are going through a transformational period, moving from fossil-based fuels to electric vehicles and hybrids. The rates of change depend on the region and what's driving it. This change is happening globally, and whether by 2030 or 2035, you will see changes in vehicle manufacturing. Although we are a big supplier to fossil fuel based ICE vehicles, we have to embrace this transition and be a big supplier to new energy vehicles as well. Therefore, our products and our product offerings are changing. So it doesn't change a lot in terms of the amount of product we will sell but the actual applications we’re selling into are changing. And we need to make sure that we have the innovation and the R&D to support that.
Question: As you said, sustainability is more expensive. India being a price-sensitive market, how does that play for your clients here? Is it a challenge?
Answer: Globally, not just in India, we remain quite price-sensitive. Green, recyclable, alternative products tend to be higher priced at the moment. We have to pay for that sustainability, and the customer has to pass that on. Everywhere globally, there is price sensitivity. Some regions and customers take more of a stance on sustainability, insisting on and paying for sustainable, recyclable products, sometimes driven by legislation.
India has always been a low-cost region for energy, feedstocks, manufacturing practices, and labour costs. They've managed, quite successfully, to stay low-cost while improving product quality, increasing their market share in exports as well as imports. Many of our customers in India are global, driven by global standards. Those particular customers will pay the extra for sustainable products, especially when exporting. On the other end, there is a very price-focused market that wants quality but also competitive pricing. The choice based on the price difference between a highly sustainable green product and a virgin material depends on the company. India is not pitching themselves in any way as a low-priced market but there's a different view depending on which customers you're speaking to.
Question: In terms of operating here, how does the Indian market differ from other similar markets like China, and what can India do to catch up?
Answer: China has been a high growth region with lots of investment and new products. China, like India but slightly ahead, has focused on standards and qualities, and their cost base has also gone up. India is now a focal point for many multinational companies, partly because of its growing market and partly due to higher quality standards. India is constantly improving in terms of bringing more business, whether for supporting local technology and growing the business, or being a production base for a global customer base.
Comparing my assets, I can say that what we do in India meets equally high standards as anywhere else in the world. Quality of safety, health environment, or manufacturing practices may vary across the group, but our standards are extremely high, and customers appreciate the quality and consistency of our products and operations. Although, some of the safety standards may not be as high here but they are improving.
Question: What are some significant incremental global market trends that are shaping the materials industry today?
Answer: There are several mega trends in our markets today. One of the biggest is in automotive, transitioning to more environmentally friendly, sustainable, lower environmental impact vehicles. Between now and the next 10 years, there will be very little fossil fuel-based new vehicles coming into the market and this trend is being led by Europe today but also China where the quality of electric vehicles is also growing rapidly. The quality and technological advances in EVs are significant, with features like traveling 450 kilometers on a 10-minute charge. The cost of these vehicles is also coming down, driving the trend globally but at different paces. In India, the rate of change may be slower today, possibly moving through hybrid vehicles before fully transitioning to EVs. India will be driven by global trends to meet export demands for lower emission vehicles.
In order to be able to have a fleet of EVs, there should be supporting infrastructure, requiring investment in charging facilities, accessibility, and technology for fast charging.
Another trend is in electronics, with advancements in mobile phones, iPads, and artificial intelligence (AI) requiring fast data-processing and smaller, more efficient units. Data processing - a big thing in India in terms of quality and producers like Apple and Tesla are expanding in India to grow their facilities here due to the skill base, people, and quality.
Sustainability is another critical trend, driven by global warming, CO2 footprints, recycling – chemical or mechanical. That’s shaping where our industries are going.
Question: Pace of change in India is slow, and despite the focus on sustainability, reducing carbon emissions and circularity, there is more action on end-of-life recycling rather than sustainable product designing. What have you observed?
Answer: There is a focus on both, honestly. Customers in India, especially those supporting global markets and ones trying to get the highest-lowest cost, are moving quite fast. They are very focused on these aspects now. Are they talking about the product of today or are they talking about recycling? Well, the answer is they're talking about both.
The question is at what rate they will ultimately get from where they are today to where they need to be. I suspect India will be a follower rather than a leader in these areas.
Leaders include places like China with high-tech products and Europe with strong legislation around recycling, sustainability, and CO2. And it’s not the case that India is slow or not doing it, India is growing at double digits and bringing the required products to the market.
You asked me one of your very first questions about the difference between the Indian market and some of these other markets. There isn’t a big difference; it's more about timing. They are quite focused, engaged, and doing what's right.
Question: With several big players entering the Indian market, do you see India outpacing China anytime soon in terms of manufacturing?
Answer: Comparing [India] to China is probably not the best approach. China has been and continues to be a high-growth area, like India, with massive improvements in quality and technology and embraced sustainability in these areas. China and India are the two highest growth areas. Comparing India to Europe, Europe has higher prices due to energy, labour, and taxation costs, and stronger legislation. Our growth rates in Europe are 1-2%, whereas in India, it might be double digits or 10% plus. Therefore, if you compare growth rates of India to the US or to Europe then it is significantly higher but compared to China, India is tracking alongside China and if anything, at this moment in time, the growth rates, albeit from a slightly lower base, are higher than the Chinese growth rates.
From our perspective as a material producer, we have to follow, to a degree, our customers. Which are big multinationals, whether automotive manufacturers or electronic companies like Apple, Tesla or Tata. There is a movement today of bringing production to India and China for that matter. They are both high growth areas.
They bring it to India because there's high internal growth consumption within India, but there's also an opportunity to manufacture and then export from India. There is a tendency today because of self-sufficiency of being able to produce for your local market but they also have a low-cost base to export. Companies and multinational blue-chip companies are moving historically to China these days, but also to India because of the size of those markets. Therefore, is there a tendency to move out of China and into India to a degree? To a degree yes, but China's very big at the moment. Is there a tendency to move production facilities out of Europe and the US and go into a lower cost but higher quality and higher growth market like India? Yes, for sure.
Question: As a materials producer, how do you assess the geopolitical disruptions and how do they impact different sectors?
Answer: We live in a very volatile world today, and there are many things that have impacted people's views, such as Covid, the Ukraine situation, high energy costs, high interest rates, and inflation. We also have the geopolitics of what's going on in Russia, America, China, the Red Sea, and the Middle East. Policies from many governments are using trade barriers and tariffs to encourage more production within their own countries to meet domestic demands. The uncertain world is forcing behaviours to change. Countries are incentivising to become local producers, and that's about risk really at the end of the day. Businesses that are very exposed to potential issues outside due to the geopolitical issues can be impacted going forward.
Strong companies will have the right combination of local production and local expertise but a global reach and an ability to bring global technology into the regions as well. The biggest successful companies will be a combination, but there is a real tendency at this moment in time moving more towards regional centers as well.
Question: Amidst the ongoing technological revolution, what kind of trends are you seeing in AI adoption and are businesses considering it a cost or a necessity now?
Answer: When you look at a lot of these trends, whether it's sustainability or AI, they have been things which can bring efficiencies to the way you're doing things. They can bring a better product portfolio, but they are becoming now a license to operate rather than a nice product to have. Nowadays if you want to compete in these markets and these businesses then you've got to be able to address them and incorporate them.
For us, AI is about managing cost base, being more efficient, better manufacturing practices and better service for your customers. If you don't embrace that, then your competitors do and before you know it you're not competitive.
Technology is driving change and you have to be part of that for the right reasons as well. it's bringing benefits, whether it's to the environment or the business.
Five years ago wind farms were totally unprofitable and they were very expensive ways of producing power and they were all subsidised. Today wind farms are not subsidised, the technologies have improved massively, and they are the lowest cost energy that you can buy. Same with solar energy as well. Some of these technologies can be high cost but in due course they will be low cost. Customers can't afford to buy more expensive products if their customers are not paying for those products. Buying and selling a sustainable product is difficult to survive if they're still being made to compete with a fossil fuel-based product. Profitability ultimately drives selection but in due course that selection is being driven more and more by legislation and by customers who are prepared to pay excess. It's a changing world, and you have to embrace that.
