Unlocking DuPont's Asian future
DuPont's Tokyo-based president of east Asia, Carl Lukach tells Business Spectator's Isabelle Oderberg:
Isabelle Oderberg: DuPont has its fingers in a lot of different pies. Could you just give me, in a geographic sense, a bit of an insight into how the financial crisis has affected your company and, more specifically, the geographic region you are responsible for – Asia Pacific?
Carl Lukach: I would call it a recession. It definitely is impacting DuPont globally and in Asia Pacific. In the northern part of Asia we sell a lot of products to the automotive companies and the electronics companies. As you can imagine our volumes to them are significantly down and that’s probably the largest impact. We also sell materials into the construction industry, building construction, home construction and that business of course is off in other parts of Asia as well. Those would be the primary impact areas.
At the other end of the spectrum about a third of our company now, 30 per cent or so of our revenue, has come from the agriculture industry and that’s been a great counterbalance to the recession because the market’s still growing and our products are growing nicely. We should grow in the neighbourhood of about 15 per cent this year globally in the agricultural space and probably more than that in Asia Pacific.
IO: There is still growth in some Asian economies, whereas obviously in the US and some other markets that’s not the case. As the manager of that geographic area of the business, do you feel any pressure to kind of make up for other areas where it’s more difficult to perform?
CL: I wouldn’t call it pressure. I think that within global DuPont we recognise that the growth fundamentals and the growth potential here in Asia are very good, very good for our company. The markets are growing and in many of the markets in Asia we’re under-penetrated compared with the developed markets like the US and Western Europe. So, we’re very bullish on the Asia Pacific markets and management’s expectation of me and my leadership team here in Asia is that we will generate that growth while at the same time the developed markets are shrinking or not growing as fast.
IO: You mentioned agri . There’ve been some really bullish statements from upper management in the US, with a forecast 15 per cent growth in the seeds business. You just mentioned that it could be higher in Asia. How much higher and why?
CL: I wouldn’t want to put a number on it yet, but the 'why' is really a great story for us and for the industry. The products we offer both in seed and in crop protection chemicals are really superior products. In the case of seed it translates into yields per hectare. We have corn and soya bean, but mostly corn in Asia, products that far outperform the existing corn seeds that are being sold and grown in Asia Pacific. We’re bringing those products to Asia for the first time. It’s a relatively small business for us, but the growth rates for our seed business out here are double what you read about today’s growth in North America. Something north of 30 per cent is probably a good estimate for our seed business.
In the area of crop protection products, we recently launched a new insecticide, a very effective insecticide that has a very attractive environmental profile and the regulators around the world really are fast tracking approval of the product. It’s called Rynaxypyr. I know it’s a mouthful to say or spell, but it is a new family of chemistry for us that has a very positive impact in terms of reducing the insect stress on rice, eggplant, cabbage and other crops here in Asia, so we’re really getting a lot of growth out of that product.
IO: Do your products go through Asian food and drug administrations and need approval before they can be marketed?
CL: Yes. Definitely. The agriculture industry is a regulated industry. That’s correct.
IO: And how difficult are you finding it, because I know that in the medical industry space there’s been a real slowdown in approval rates for new products in places like China?
CL: Well, we work with the regulatory authorities of all the countries. I wouldn’t say it’s any different here in Asia from anywhere else in the world. There are no particular issues that stand out. We have our submissions to make to those governments. We do that in a very careful, methodical way and it’s kind of business as usual. That’s part of the requirement of being in that business.
IO: And what are your biggest growth countries in the seeds business and crop protection within Asia Pacific?
CL: Where are the biggest areas? Out of those ones I mentioned, I would say…oh, I’d say corn in China would be probably at the top of the list. But not far behind would be corn and rice in ASEAN and here in Australia canola seed. We’ve actually had a great year this year.
IO: There's been a lot of worry in Australia about our automotive industry and I think perhaps also in America and some of the other developed countries, whereas the outlook in places like India and China is actually quite bullish. How are you positioned in that region and what’s your outlook?
CL: I know there’s a lot of negative sentiment around the future of the auto industry, certainly in North America. I’ve seen that written about Australia as well, but for me personally I’ve never seen so many science-based growth opportunities for the auto industry as there is right now. Maybe you could attribute it to the high oil prices before the crisis hit. I don’t know. But all of a sudden you’ve got technology companies and automotive companies pursuing things like electric vehicles and hybrid vehicles.
I’m sure you know that Hyundai has just launched an LPG electric hybrid in Korea, Honda just launched a hydrogen fuel cell car in Japan, Toyota is expected to release a full electronic, electric vehicle soon in the next two years or so and all of that is generating opportunities for companies like DuPont. We have many projects in the automotive space to develop materials that make the car lightweight.
For example, so that miles per gallon go up, I guess I should say per litre, and so polymers that can withstand the temperature and friction requirements of an auto, of a car are under the hood, so that it can replace metal and reduce the weight of the vehicle and thereby enhance the mileage and fuel efficiency of the vehicle. Things like that.
Also, alternative energy, as it comes into automotive. The potential for biofuels – Dupont has two world-leading projects in bio fuels, cellulosic ethanol and biobutanol. Our goal is for both of those is to produce those alcohols from non-food source bio sources. Actually, I know that the press is quite negative on the automotive industry as we work through the existing technology, but I see these new technology curves ahead for the auto industry that represent certainly growth opportunities for Dupont and that’s what we have our sights set on and we are funding research projects for all of those areas.
IO: Now, you’re based out of Japan, aren’t you? Tokyo?
CL: Yes.
IO: Could you give our readers some insight into how things are feeling over there at the moment, not necessarily to the industries in which you operate, but more in terms of general investment sentiment? There’s been a lot of political and economic instability.
CL: Sure. Well, there are positives and negatives, but I’d say net of those today sentiment is improving. I would say that the low point in terms of business community sentiment was probably in the February, March time-frame. A lot of that is triggered or attributable to the financial outlooks that were published by the large Japanese auto companies and electronics companies, but since then a very significant economic stimulus program is starting to kick in Japan and it’s much less of an infrastructure stimulus plan like you see in other countries. It’s much more of a high tech, environmental, energy focused stimulus plan. So, I’d say the business circles that I’m connected to there in Japan reflect an improving sentiment in business. Now, the new variable last few weeks was the election, the political point that you mentioned. There is a new party in control and the open question is what will the business policies be of this new party that’s now in control.
IO: How do you see the future over the next few months and what will be the key things that you’ll be looking out for from a business planning point of view in Japan?
CL: Well, I think first let’s talk about electronics. I think the electronic supply chains destocked so fast in this recession and so deep that what we’re seeing now is a restocking and it is contributing to this positive sentiment, so orders are picking up. If you look at statistics like the number of flat panel displays and hand-helds that are being produced and shipped from Japan and from Korea, you know, they’re improving, so that’s contributing to a positive sentiment in that space.
In automotive, the same point, destocking was quite severe and quite rapid. I think when the experts write about this recession they’ll say that all this new information technology capability that we have enabled the supply chains to really hit the brakes quickly and cut back on orders and production and all that, so we had to deal with that as a manufacturer, as a supplier and orders are going up. In Japan sales of the Prius as well as other car makers’ environmentally focused cars are going up, so I think that’s contributing to a an improving sentiment in the automotive space as well.
IO: From what I understand, the company is waiting for approval to build a titanium dioxide plant in China. But then, it is also suing a Chinese scientist for allegedly being a thief of trade secrets. What is the feeling like in China for DuPont – is there are any tension between these two developments?
CL: I wouldn’t say it that way. I think that from Dupont’s perspective we’re an inventor, we’re a science company. We spend a billion and a half dollars a year in R&D and we have a certain obligation to our shareholders to protect those inventions and our secrets. That’s really what has kept us sustainable over the past 200 years. Every country and part of the world is different in terms of their laws on intellectual property protection. We take a lot of internal precaution to protect our information that is secret and valuable and it’s really the lifeblood of the value creation capability of the company.
IO: There are a lot of issues around IP and IP theft in China especially around manufacturing. Is this going to become more of an issue as we go forward for all companies operating in China?
CL: I don’t know. I would probably expect it to go the other way because China, being part of the World Trade Organisation and its participation in the global economy more and more, is fully aware of the issues that they’ve got to work on there and there have been some good things published and written by the leaders of China about that. So, personally I am expecting improvements in that area versus what you suggested, which was it might get worse. I think it should get better.
IO: Are they doing enough to stop that kind of theft? I mean to stop that kind of infringement? Do you think they’re working hard enough?
CL: I honestly don’t know enough in that area to judge whether they’re doing enough or doing better, but you know for our company we’re protecting our secrets as we always would, as is normal standard operating procedure for us.
IO: Thanks for your time Carl.
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