SHANGHAI, Aug. 2, 2010 (RISI) -Nalco -- expertise for water, energy and air -- recently opened a new Asia Pacific center for industry marketing, supply chain, technology development and training in Shanghai, China.
The 6,600m2 five-storey facility located on Da Du He Road is the latest in a series of expansions by Nalco in China. A new manufacturing plant was also opened in the Nanjing Chemical Industrial Park last year. The new facility includes a 1,000m2 Customer Experience and Training Center which will provide training for new sales engineers as well as customer seminars and training on industrial water and process treatment.
Reflecting the growth of the paper industry in Asia Pacific, and China in particular, the new technology center will focus on innovation and customer support. Papermakers will benefit from programs for retention, drainage and formation, deposit control, fiber substitution, and water and resource conservation, which form the backbone to Nalco's sustainable solutions. The facility will also concentrate on sensors, automation and industrial water treatment working in concert with Nalco technology centers in the United States and Europe.
PPI visited Nalco's new center and interviewed Xavier Cardoso, Marketing Manager Paper Services, Asia Pacific and EAME. We spoke about how the company is taking on the challenges of the paper industry in Asia Pacific and Nalco's strategies for the coming years.
Nalco's new Asia Pacific center in Shanghai, China is the latest in a series of expansions by Nalco in the country.
PPI: Nalco recently opened a new Asia Pacific center for industry marketing, supply chain, technology development and training in Shanghai, could you give us a brief introduction to the new center?
Cardoso: We started investing in technology development for paper several years ago at our center in Suzhou and have now relocated these operations to Shanghai. Together with our center in Pune, India, we have around 150 people focused on innovation, divided into three areas: water, energy and paper, with the Shanghai center focusing on paper.
We have three other global R&D centers for paper; in Naperville (Illinois, US), Leiden (The Netherlands) and Suzano (Brazil). Coordinated by our global program managers, the R&D projects that we are working on will have a global impact while supporting our local operations.
I also want to highlight the Shanghai investment as a management center for paper. We bring together the sales, marketing and support functions for China under one roof. All the strategic decisions are made quickly and effectively, which is critical in the dynamic market in which we operate.
PPI: What will be the impact of the new center on the Chinese paper industry?
Cardoso: If you look at the industry in China, graphic papers, board and packaging, and tissue are growing at a rate of nearly double-digit growth every year. To stay competitive, our customers need to constantly improve their Total Cost of Operation. By developing solutions that better manage natural resources like fiber, water and energy, the new center will demonstrate the benefits of cost savings through a sustainable approach.
As an example, we help with projects for fiber substitution in different ways, such as increasing ash content or managing more challenging furnish mix. Most of the recycled fiber that Chinese mills use is imported. Imported OCC prices are up significantly, so there is a big advantage for customers to use local OCC, which would also help to stabilize global market prices. But the quality of local fiber is poor and presents challenges like maintaining paper strength, machine efficiency, and productivity. This is a good example of how Nalco can bring value to customers through new technologies and joint development projects.
PPI: The local government has promoted the idea of "green production" in recent years, what are your views of the paper industry on the whole?
Cardoso: The Chinese market is very competitive. Paper producers have very good cost position to compete globally, even with a weaker fiber supply situation. While the western world has to maximize cost efficiency and productivity from relatively old paper machines, China is building very modern machines where it is common to see machine productivities of half a million to one million tons per year. This brings significant cost efficiency to the operations.
The Chinese market faces environmental challenges, with new tighter regulations that the government is enforcing. Water consumption and effluent quality have become increasingly important and impact the ability to build new paper machines and survive in the market. We partner with pulp and paper producers worldwide to deliver environmental Return on Investment (what we call eROI), developing reliable, cost-effective and safe solutions to help our customers achieve their economic, environmental and social objectives. We talk to our customers about solutions that can help them lower cost, improve efficiency, and at the same time save fiber, water, energy and chemicals. All these savings produce both economic and environmental positive impact.
PPI: What are the main challenges in developing Nalco's business in China? Any examples?
Cardoso: I think local customers buy into our ideas and solutions, as long as they can help them save cost. Economic and environmental targets are not mutually exclusive. They can be complementary and this is our competitive advantage.
One challenge for us is to be able to communicate the value that we can bring to the table. Paper producers spend an average of US$5-10/ton on specialty chemicals, which means around 1-3% of the production cost. We can deliver an impact on total cost including fiber, water and energy and fixed cost that can be many times this direct cost. If, for example you save 5% fiber, and replace it with 5% filler, you can easily save US$20/ton or more. Similar savings come from replacing AOCC with LOCC, or by improving machine efficiency
Our PARETO mixing technology is another example of saving fresh water for dilution of retention aids, helping reduce water consumption and energy costs. To deliver these kinds of savings it is important to establish a close partnership between customer and supplier. We are trying to move the market from transactional to partnership behavior, working together on joint development projects like those just mentioned.
PPI: In addition to the technology center in Shanghai, Nalco now has two plants in Suzhou and Nanjing. Could you tell us the impact of localization?
Cardoso: Before the new plants were opened, we used to import half of our products. Now we produce 90% locally. Our customers appreciate this for two reasons: speed of delivery and competitive pricing. China is a competitive market and we have large producers with strong purchasing power, so it is very important to have a supply chain close to the customer.
The proof is that our production has grown so quickly since startup that we are already planning our next capacity expansion.
PPI: What do you see Nalco's competitive edge compared to other foreign suppliers and also local players?
Cardoso: We have been established in China for more than 20 years, and have strong local investment. Many of our senior people have been with Nalco in China since that time, and now know everyone in the industry. A trusting relationship, as you know, is critical to conducting business in China.
The second thing is that China's supplier landscape is very global. While there are a number of local competitors, customers with world-class paper machines don't want to leave their large machines in the hands of inexperienced suppliers, so they tend to trust global players such as Nalco.
PPI interviewedXavier Cardoso, Marketing Manager Paper Services, Asia Pacific and EAMEto talk about Nalco's challenges and strategies in China as well as in Asia Pacific.
PPI: What is your view of the Asia Pacific market outside China?
Cardoso: We have a strong foothold in Japan, Indonesia and India. Japan is a big market with an installed capacity of nearly 30 million tons of paper, though the market is shrinking. Still, the country produces more than 10 million tons of pulp per year, being the biggest pulp producer in the region and one of the biggest in the world. In Japan, we have a joint venture, a company called Katayama Nalco and we are the leading supplier for deposit control, now entering into new areas including pulp, and retention and drainage.
With a growing market, and paper capacity above 7 million tons, India presents a long-term investment area - for many decades to come. We have our own company there, as well as an R&D center. Because of the size of the machines, these customers look for more support from suppliers. Hence, our concept of ICM (Integrated Chemical Management) works well in this market.
Indonesia and Australia are also big markets. APP is our biggest customer in Asia Pacific, and we supply both their China and Indonesia facilities.
PPI: Can you comment on Nalco's contribution to big producers in China, for example, the APP Hainan mill?
We provide biocide programs for the Hainan mill, including OxiPRO deposit control technology. When starting up a new paper machine it is important to work with low risk technologies that have been proven in similar situations. The customer also sought a team of local experts to provide reliable service.
Service is a very important success factor for Nalco. Service means three things for us, reliable performance, continuous improvement and new technology implementation. Our service concept, CMV, stands for Creating and Maintaining Value. Through the CMV process, our local team works with the customer on-site to deliver maximum performance from their existing applications. In parallel, we design, develop and implement joint projects to address the customer's key business initiatives, such as cost reduction, and productivity and quality improvement.
PPI: What are Nalco's strategies in China and the rest of Asia Pacific for the coming five years?
Cardoso: Our goal is to double our number of employees and double sales in China in the next five years, making it our second largest market behind only the United States. Nalco's strategy is always to be close to our customers, understand their needs and work with them and for them. In our paper business unit we have around 250 sales and service people in the region, with over 100 people in China.
Our technology focus translates the customer needs into innovation for the future. With the new technology center in Shanghai we can provide better solutions to customer needs.
I can give you a few examples.
We launched OxiPRO deposit control technology last year. This is an online system designed to measure microbial activity and deposition rates. It allows us to determine conditions in real time, and react quickly to system changes.
This year, we are launching DC-PRO contaminant control technology, which uses the same concept for organic contaminant control (pitch and stickies), related mostly to the use of recycled fiber.
These technologies are strongly welcomed among Chinese customers, especially those with fast machines. One hour downtime will generate significant profit loss, so the ability to predict shutdowns, or even better to prevent downtime by adjusting working conditions, is very important to maximizing process efficiency.