In April, China National Chemical Corp. finalized its $1.01 billion purchase of KraussMaffei Group. At the time, ChemChina highlighted that this is the single largest investment that a Chinese company has ever made in Germany.
Simon Robinson, editor of Urethanes Technology International, a sister publication of Plastics News, interviewed Hans Ulrich Golz, a member of the KraussMaffei managing board and president of the Munich, Germany, company's injection molding machinery unit, about the transition.
Q. Could you tell us a little bit more about the recent purchase of your company by ChemChina and what it will mean going forward? For KraussMaffei Group is it simply access to good capital at reasonable rates or is there more to it than that?
Golz: We see several advantages. The transaction will enable us to gain stronger access to the market of Greater China. We intend to accelerate our growth in Asia and particularly in China, which will also strengthen our business in Germany, Europe and in the rest of the world. Furthermore, the KraussMaffei Group will become the principal business entity in the operation and management of related machinery enterprises for ChemChina. We are expanding our existing product portfolio, especially in tire production machines.
Finally, with ChemChina as an owner we've got easier access to capital at good rates. We are very optimistic because ChemChina has a long-term interest in our business. This is different to the three financial investors we have had in the past as owners of the KraussMaffei Group.
Q: As far as senior management is concerned does that mean changing from thinking in timeframes of 3 to 5 years to thinking 7 to 10 years out or further than that?
Golz: ChemChina is a long-term oriented strategic investor with a huge interest in the growth of the KraussMaffei Group. The transaction will not only have benefits for our China business; it will benefit us across the globe and strengthen all of our sites.
Q: Does the investment by ChemChina into the KraussMaffei Group and also into Pirelli mark the start of a larger trend of Chinese investment into high-quality European capital goods markets and consumables?
Golz: There is a move in China towards higher quality equipment as well of high quality products made using it. In the past China was desperate for industrial production. But this is changing if you look for example at the automotive sector in China: All the global OEMs have to produce the same quality all over the world. Chinese customers are increasingly demanding more. They understand there is a value behind quality and they want a better quality. This drives technology forward.
At the same time, wages in China are rising at double-digit rates. That means salaries are more expensive, and companies are thinking in the longer term. If salaries become more expensive, more automation is required. Automation helps improve quality. Rising levels of automation in China are an important trend and ChemChina relies on our know-how and technologies.
Q: So part of the attraction that ChemChina has in the KraussMaffei Group is that your companies are innovators, and that they believe they can bring this to their company?
Golz: Innovation is a process and you can manage innovation. The brands of the KraussMaffei Group can look back on a long-term tradition and our customers can take advantage of our leading solutions for processing plastics and rubber.
Q: Thinking about raw materials, are there sufficient high-quality raw materials available for production in China? The steel used to make a mold is significantly different to the steel used to make an injection molding machine isn't it?
Golz: It depends, certainly some steel qualities are not available in China and they have to be imported. This is expensive, but the material is becoming more and more available. However demand will lead to supply and if there is a significant demand for steel for molds, if it's not available today, then it will be tomorrow.
Q: What do you think ChemChina can bring to the KraussMaffei Group apart from good access to capital markets and long-term thinking?
Golz: Stability. Our customers no longer think about the question ‘who will be the owner of the KraussMaffei Group in the next five years?' ChemChina has a long-term strategic interest in the KraussMaffei Group to develop the brands further and to strengthen our common market position.
Q: Is there anything that ChemChina can bring to the KraussMaffei Group, perhaps in terms of management or technology?
Golz: ChemChina operates three rubber plants in China which perfectly complement our portfolio for tire production. Therefore we see huge synergies could offer full-line equipment for tire production in the future. ChemChina is also a significant manufacturer of plastic raw materials leading to many interesting cooperation models we are currently exploring. In 2015, ChemChina had a turnover of more than $42 billion.
Q: I was interested in your CEO's comments that it might be possible to produce machines in China and import them to Europe under a different brand. Could there be a brand strategy like that for the KraussMaffei Group?
Golz: We've just started our cooperation and we are going to familiarize ourselves with ChemChina's business. As soon as we have the best visibility we will decide how ChemChina products will be marketed in the future and under which brand name.
There are interesting opportunities to produce machines and technologies of the KraussMaffei Group in China. Two years ago, we already opened a KraussMaffei Group factory in Haiyan, which is a 90 minute drive away from Shanghai. We are manufacturing MX and GX series injection molding machines there to our worldwide quality standard. Our customers in China and Asia benefit from short delivery times and fast service. We also export these to the U.S. market.
Q: ChemChina's machinery business is all about rubber processing isn't it?
Golz: In addition to these three rubber processing machinery plants, ChemChina has a plant which manufactures machines for chlor-alkali electrolysis. The name of the plant is Bluestar Chemical Machinery. This is a new product for us and we are becoming more and more familiar with this portfolio.
Q: Are there any concerns about a loss of intellectual property after the acquisition by a Chinese investor?
Golz: ChemChina has already made a number of acquisitions, most recently the takeover of Pirelli. The group is aware that know-how and technology cannot be disconnected from the people, the engineers. This is why ChemChina is taking a clear stance and investing in our locations in order to strengthen them. We are also talking about complementary technologies, and not core technology, which are required to optimize the plants in China. In essence, it is what we are already doing today everywhere: We are investing in the USA, Slovakia and other countries. Nobody fears that we are weakening our company as a result. In fact, the opposite holds true. History shows that the companies, take the automotive industry for example, who have made proactive investments in China, are significantly stronger today at their parent plants than they were before.
Q: In terms of geography can you tell where you see the machinery sector as being stronger at the moment?
Golz: For the injection molding business in terms of regions NAFTA, including Mexico is doing really well. South America depends on the different countries: Brazil is weaker at the moment.
In Russia the automotive industry is completely down. Western and Eastern Europe are doing very well. China is coming back now in the automotive sector, it was struggling a little bit. India is still a huge market, but because they operate on the ‘good enough' principle and won't pay for technology, there are only a few customers.
For Netstal, Middle East Africa is also doing well. Iran may come up as an opportunity. The country has a population of 70 million people and a good automotive industry. They were unable to invest in new machinery over the past 10 to 15 years. It could be a very promising market once financing issues are cleared up, and that's down to the banks or governments.”
Q: In terms of product sectors, which are growing strongly at the moment?
Golz: In the U.S. and Europe, the automotive industry is still on a very high level, perhaps down slightly from last year when it really was booming. The packaging market is becoming increasingly strong.
The medical market is doing well all over the world, and the demand for reasonably priced medical disposables is growing in countries like China, which is positive.
The beverage market in China is overinvested and has been since around 2012 when capacity was built which is not being fully utilized. Soft drinks are not booming as expected. People invested heavily, customers bought seven or eight lines when they would normally buy one or two. It was a nice business at the time but now we are facing a situation where our customers have a lot of underutilized investment.