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Wednesday, 18 September 2019

AkzoNobel sells its North American Decorative Coatings Business to PPG. How sustainable!

Thursday, 31 January 2013 | Posted by: Tony Mash, TMA Consulting Inc.

I was struck over the holiday season by the news that AkzoNobel had sold its Decorative Coatings Business in North America to PPG. The news reminded me that, while change management commentators devote considerable attention these days to the environmental pillar of Sustainability, consideration must also be given to the economic pillar when developing new business strategies.

I used to work in the ‘heavy’ chemical end of ICI and, prior to its acquisition by AkzoNobel, watched the majority of the capital resources of the company being invested in the acquisition and integration of paint companies as ICI consolidated its Coatings Business in North America and elsewhere. To see the North America Decorative Coatings Division of AkzoNobel sold onto a new owner is somewhat of an emotional shock, but I can justify the transition to myself in terms of the economic pillar of Sustainability.

Andrew Neil, past editor of the Sunday Times of London, is a well-regarded independent commentator on economic matters. While addressing the economic challenges that continue to face us all, he gave his view that, sadly, no politician knows what to do to correct the current economic recession in the Western World. To those business leaders looking for revenue growth, he advised that they should focus on growth in market share and not rely on growth in total market size to achieve their goals over the coming years.

Although the US economy has shown signs of recovery in the second half of 2012, there are rocky times ahead as the country deals with its fiscal cliff. Since much of world growth is driven by US consumer consumption, it is a brave man (or woman) that invests at this time. For not only are there deficits to address, but there are those who believe that consumer spending in the Western World is unlikely to grow at all in the future. This view is strongly influenced by the concept of the ‘New Normal’ which links economic activity in the western world with demographic changes. (www.new-normal.com)

The ‘New Normal’ view of our current economic malaise points the finger at western Baby Boomers born in the period 1946–1964. This sector of the population, now 25% of the USA, has been successful in creating wealth on the back of strong economic growth throughout its working lives. The Baby Boomers have driven consumption growth over the past 25 years but are now starting to consume less and save more as they prepare for an increased period of retirement as a result of improved life expectancy. With depressed consumption in the Western world, emerging economies in Asia, Latin America and Africa will not be able to rely on export markets for growth but will have to refocus, as some already are, on domestic growth, particularly in rural areas where consumer demand patterns are very different from those of the western Baby Boomers.

So how does Sustainability in the Coatings Industry apply here?

Firstly, industry in general is in for restructuring to meet the changing requirements of consumers, and the Coatings Industry is no exception. Companies will need to reshape to meet the demands of the future, and AkzoNobel and PPG are doing exactly that.

Orr and Boss in a recent ICIS conference presentation reported that, in the period 2006 to 2011, the North American Coatings industry declined in value terms by 0.8% pa CAGR while the global market grew by 3.5%. On one side, AkzoNobel is releasing resources presumably for investment in other geographic markets of the world which offer higher growth than the USA, and PPG is consolidating its position to enhance market share in one of its core regions of the world. This deal offers both companies the opportunity to be more efficient in the use of their resources by increasing scale of operations in focused areas of activity.  Sounds like a win-win to me and a good way of addressing the economic pillar of Sustainability!

This Blog has in past issues addressed the need for Sustainable Development in new coatings product designs that offer improved performance with reduced environmental and social impacts. According to ‘New Normal’ commentators, consumer demand is expected to trend towards ‘doing more with less’ as the needs of the average consumer change. Sustainable Development and the New Normal are very much in line with each other here and call for greater effort (and therefore investment) in designing products, services and supply chains that adjust to the new economic and social global trends as well as the requirements of future consumer markets. Improved coatings properties, sourcing of more renewable raw materials and delivering reduced carbon footprint all at lower costs are very much the menu for the future, together with more effective systems for paint recycling.    

AkzoNobel and PPG have made a brave decision. I do not believe it will be the last for them or for the rest of the Coatings Industry as a whole, if it is going to survive the global changes we are seeing around us.   

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Tony Mash
TMA Consulting Inc.
Tony Mash
President
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