Lanxess: Continuity with change in the rubber sector

By David Reed, ERJ staff

Leverkusen, Germany-Although 1 July saw the formal launch of Lanxess GmbH, the new umbrella organisation for 17 Bayer AG businesses, the various rubber-related business units are at “all stages” in the transition, suggested a trio of senior executives in a series of interviews on the day before.

“There will be a lot of continuity in the business,” said Joachim Grub, senior vice president of the Polybutadiene business unit, “for example, the Baypren and other tradenames will continue to be used. But,” he insisted, “Lanxess will do something new, not only in terms of products but in ways of thinking.”

The same approach-continuity with change-applies in the firm's technical rubber products (TRP) business, suggested Jürgen Gunter, vice president marketing for the business unit. But there will be one major change in approach here: all customer contacts will be channelled through one person who will be required to combine technical expertise with commercial negotiating skills.

As for the TRP business operations themselves, Gunter says the technical sales unit in Singapore will shortly be relocated to “Greater China,” with the precise location yet to be determined, while an expansion of capacity for the firm's HNBR (hydrogenated nitrile rubber) material is likely in the next few years, even though plant utilisation is presently only about 70 percent.

Both managers acknowledge that their businesses have been under-performing in recent years under Bayer, but both say they are confident that the new structure, with a sharp focus within each business unit, will yield results.

In the Polybutadiene business unit, for example, Bayer has already rationalised the production situation, with plant closures in Sarnia 2002 and Marl, Germany last year. “We learnt a lot from this restructuring,” said Grub, “and are confident we can regain profitability. This is a key point,” he emphasised, “because only if we are profitable can we be reliable.”

Not that the process is at an end. “We have done most of the restructuring, but it never can end,” Grub continued, “we are always investigating how to improve costs, process performance, and the technical performance of products. You can never exclude severe restructuring measures.”

“And we can't ignore changes in the business,” added Christoph Kalla, vice president of the polybutadiene unit, citing the recent switch from cobalt-initiated polymerisation to systems using lithium catalysts. “We had to change quickly,” he said, “we had to shut the Marl unit and [move production] to the Port Jerome unit in France.”

Coupled with the closure of the Sarnia units the year before, more than 180 job losses ensued, Kalla indicated.

One key continuing problem, is the availability and hence the price of butadiene monomer, “it's a daily challenge,” Grub said. “The price for the third quarter in Europe has been settled,” he continued, “but the US has monthly pricing … [and] butadiene will be short mid-term and especially in Asia. We see extremely high spot prices,” he commented.

“We now focus on marketing, utilising the new structure of Lanxess as a global business run out of one hand,” Grub explained. “It is not all out of the headquarters in Dormagen, each of the four regions is responsible for marketing,” he said, while adding that the unit's strategy is set centrally.

Nevertheless, “these regions are supposed to run independently, they have to respond quickly,” Grub added.

The bulk of the unit's business is with the tyre sector where the growth of manufacturing in Asia, particularly in the People's Republic of China, “is a very clear trend, and we follow this,” the Lanxess chief continued. “There is also a well-established polystyrene industry there and other non-tyre operations such as conveyor belts,” Grub said, explaining that polybutadiene rubber is used in both of these applications.

“We keep a finger on the pulse in China, and we will continue to do so,” he concluded.

There will also still be some growth in traditional regions such as Europe and North America, Grub pointed out, “and we can't ignore Russia, there is tyre manufacture there and it is growing, also in eastern Europe.

“You can't divide Europe in west and east any more, we need the right people there,” Grub said. “We want 'intelligence centres' in these regions, we can't afford to be surprised by changes in the market,” he added. To this end, each region is responsible, “all are decision-makers, you can't go through hierarchies any more.”

Gunter, vice president with Lanxess' technical rubber products business, is also enjoying the possibilities offered by the new organisation although also having to face up to the fact that the greatest growth is in China while its production facilities are in Europe and North America .

While Leverkusen remains the unit's headquarters, it too has regional managers-in Europe, the Americas and Asia-Pacific-as well as key-account manager and a global product manager. Asia is, again, high on the list for attention, but this time it is Japan in the spotlight. “We have to focus on [product] approvals in Japanese companies, to support our business with Japanese car companies in the rest of the world,” said Gunter.

This was less of a focus under the old Bayer structure, he said. Because this was a cost on the regional business, while the benefit was felt in another region, the local manager was less inclined to focus on such approvals, Gunter suggested.

“We are a global player in TRPs,” he said, “we have to go to the areas with growth .” Last year, for example, “there was a 40-percent increase in car production in China, and there will be more this year,” Gunter said. “We have growth in North America, but far away from these levels, perhaps 2-3 percent, and [business] in Europe is very flat,” he admitted.

Overall, the TRP business is showing strong growth, the Lanxess manager emphasised when questioned about over-capacity in the manufacture of hydrogenated nitrile rubber, which it markets under the Therban name.

“Our situation, [with manufacturing units in Orange, Texas, and Leverkusen], is very successful,” Gunter claimed. “Growth has been in the double-digit area for years. Leverkusen [opened in 2000] was on purpose overcapacity, you need long lead times for approvals as the items are often safety critical,” he explained.

“[The plant] is even designed to allow doubling capacity with low investment,” Gunter added, pointing out that, “when [a single] approval comes you can get a 20-percent increase in demand.”

Nevertheless, “capacity utilisation globally is about 70 percent,” he estimated, “but growth is more than 10 percent a year, so we already have the next [expansion] step in mind, it could be within three years.”

As for the business unit's other main product, EPDM (ethylene propylene diene monomer), “we are concentrating on the slurry process. This is the right one for us and our products,” Gunter said firmly, “the gas-phase process is not yet fully accepted,” he claimed, adding that “we are monitoring [the situation].”

A more immediate concern is to change the firm's sales and marketing approach, which could be a problem in Europe, Gunter indicated. The firm wants to move to technical selling-combining sales and technical functions and responsibilities in one person. In the past, Bayer had a marketing unit with sales people, while business development was separate, he explained.

“Our approach is to bring both together,” the manager said, explaining that this would mean technical people learning to negotiate prices and contracts and/or commercial people learning to deal with technical aspects.

Local language skills are also important, so that with growth in China the firm expects to appoint more Chinese-speaking personnel. Here, Gunter said firmly, the combination of technical and commercial skills is less of a problem. “It comes with the mother's milk,” he said, “they are by nature negotiators.”

In Europe and the Americas, by contrast, he expects the process could take one to two years. “We won't hire and fire, we'll still have the same people and will have workshops etc to bring the skills closer together,” he explained.

His own experience, in a former position with the Bayer Silicones GmbH business, shows the process can be successful.

“Technicians tend to see a situation in black and white-it works or it doesn't work-whereas commercial negotiation is more shades of grey,” he suggested. “But it's possible [to gain such skills]. I have seen technical people do it, and commercial people too,” Gunter said, admitting that “you need it as a 'personality,' you need a certain talent,” otherwise it's like a footballer with two left feet, training won't solve the problem.

Stepping back a little, Gunter responded to one basic question: with 17 independently run business units, won't that undermine a key aspect of doing business: offering customers all the materials they use as a combined package, often as part of the price negotiations?

Such an approach “is always a disadvantage for the seller,” he said firmly, “you have to fight in your area for the market price.” The idea of having, say, one contact point with the automotive industry “doesn't help,” Gunter claimed, “it is a complex business, you need contacts with all parts.”