FEATURES OF TRADE WITH CHEMICAL RAW MATERIALS IN THE ROUTINE OF HSH CHEMIE LIMITED

Transcription

1 BGF KÜLKERESKEDELMI FŐISKOLAI KAR Budapest Business School FACULTY OF INTERNATIONAL MANAGEMENT AND BUSINESS INTERNATIONAL BUSINESS ECONOMICS COURSE Export-Import Management Specialisation AVANS HOGESCHOOL INTERNATIONAL BUSINESS SCHOOL BREDA BUSINESS ADMINISTRATION COURSE Consultants Bendigné Dr. Csánky Hajna Dr. Thurn László FEATURES OF TRADE WITH CHEMICAL RAW MATERIALS IN THE ROUTINE OF HSH CHEMIE LIMITED Prepared by Pal Sandor Budapest, 2005

2 Contents 1 PREFACE 4 2 SITUATION OF CHEMICAL RAW MATERIALS IN HUNGARY 5 3 HUNGARY S MAIN COMMERCIAL PARTNERS 6 4 INTRODUCING HSH CHEMIE LTD THE ESTABLISHMENT OF THE HSH CHEMIE GROUP INTERNATIONAL BUSINESS FEATURES OF THE COMPANY SUPPLIER DIVERSIFICATION - THE PERIOD OF CREATIVITY OPERATIONAL CORPORATE STRATEGIES 12 5 THE HSH CHEMIE HUNGARY LTD FIRM PROFILE OUR PARTNERS DISTRIBUTIONAL ACTIVITY AND COMMISSION DEALS PERSONAL CONTACT ECONOMIES OF SCOPE THE TURNOVER REGIONAL PROBLEMS FINANCIAL EXPOSURE TITAN-DIOXIDE TRADE OF HSH CHEMIE LTD PERSONAL RESPONSIBILITIES INTERNAL METHODS OF WORK INTERNAL COMMUNICATION STOCK LISTING LOGISTICS OF THE HSH CHEMIE LTD DEPOT LOGISTICS INCOTERMS ACTIVE ROLE OF INTRANET AND INTERNET IN THE EVERYDAY WORK COMPETITORS BRENNTAG HOLDING GMBH EXPECTATIONS FOR THE FUTURE (A CONSTANT RISE IN THE YEARLY TURNOVER) 32 6 THE PARTNERSHIP OF HSH CHEMIE LTD. AND COLLODIN LTD DEVELOPMENT OF THE PARTNERSHIP INTRODUCING THE COLLODIN CHEMIE LTD KNOW-HOW - QUALITY FEATURES - ENVIRONMENT PRODUCT DESCRIPTION COLLODIN CASEIN BASED LABELLING ADHESIVES MY COLLODIN TRAINING IN GERMANY OUR COLLODIN PARTNERS DISTRIBUTION FEATURES OF THE ADHESIVES MY JOB AS A TRAINEE SALES REPRESENTATION STRICT PRICE COMPETITION COMPETITION ON THE ADHESIVES MARKET 47 2

3 7 MULTINATIONAL COMPANIES REGIONAL SUPPLYING TENDERS 50 8 PAYMENT TERMS COLLODIN 52 9 THE FUTURE OF THIS MUTUALLY ADVANTAGEOUS RELATIONSHIP MUEHLMEIER LTD MY FURTHER ACTIVITIES SUMMARY REFERENCES 60 Tables and Figures Table 1 Hungary s main commercial partners... 6 Table 2 Summary of Hungary's balance of payments January - August Table 3 Titan-dioxide Trade of HSH Chemie Ltd Table 4 HSH Chemie's 2005 prices for Collodin Adhesives Figure 1 Suppliers of HSH Chemie Hngary Ltd Figure 2 HSH Chemie s Yearly Turnover Figure 3 Seasonality of our specialities Figure 4 Coverage of Brenntag Holding s network in comparison with HSH Chemie International Figure 5 Specification of Signacoll S-HV C Figure 6 HSH Chemie s 2005 Prices for Collodin Adhesives Figure 7 Hungarian Adhesive Market Participants, Figure 8 Price/Value Analysis for Henkel, Collodin, Swift and National Starch Adhesives Figure 9 Product description for Collophon

4 1 Preface In my essay I chose to write about chemicals, about specialty chemicals that are usually unknown for most people, but still used very frequently in the everyday life. Not only chemicals I am going to write about, but raw material production and their distribution processes as well. I decided to introduce these specialty chemicals via the HSH Chemie Ltd, through the daily routine and wide-spread distributional activity of the company. HSH Chemie is the distributor of numerous international chemical companies, which produce very exclusive and special raw materials/chemicals. These raw materials/chemicals appear later on the shelves of stores in forms like plastics, glass or even on the routes as broken dividing lines. On the purpose of giving an overall picture about how a chemical distributor in Hungary works, I will introduce the company s main activity via my job there as a trainee, officially as a sales representative. Through my work at HSH Chemie Ltd I have the opportunity to get a deep knowledge of the firm, even about the most minor trade habits and distribution features that a chemical distributor can face. My job is to represent the German labelling adhesive producer Collodin Chemie Ltd in Hungary, through its chosen distributor company HSH Chemie. I care about our buyer s orders, constantly supervise the stock amount of adhesives and if need order from the producer. But the more interesting part of my job is, to find new possible customers and partners, try to penetrate into new until now untouched fields. Sometimes it requires high level of savvy and in the interests of the partner I even have to consult the producer about possible technical questions. Visiting our partners also belongs to my job, I take part on numerous meetings and conferences. Collodin Chemie Ltd later as Collodin is one of Germany s two labelling adhesive producer companies, with relatively few competitive opponents. 4

5 Beside of picking out and describing the relationship between HSH Chemie Ltd. and Collodin Chemie Ltd. this dissertation is aimed to present the many advantages and disadvantages of an international distribution group functioning in Hungary. 2 Situation of chemical raw materials in Hungary Since 1990, the production of raw materials and semi-finished products has diminished significantly, due several reasons. The first reason that can be mentioned is the relatively small market for Hungarian producers that do not wish to export, or do not have the possibility and resources to produce onto external markets. In this aspect, it simply would not be worth to invest into facilities or into various production factors, knowing that to reach a production size of economies of scale is almost impossible even in the long-run. Another factor that hinders the development of an extended and sufficient chemical raw material industry is the lack of natural resources from which certain chemicals could be won. Let me take an example, the case of titan-dioxide. Titan-dioxide is a soft white powder, is used to various purposes, but the most popular purpose is its colouring effect. It is used as pigment, to whiten any kind of material, even plastics or paint coatings. Today no Hungarian factory or anyone who needs titan-dioxide can get it from a domestic producer, only from distributors. Though Hungary would have some resources to produce titan-dioxide, today and in the long run the production would not be worth below a capacity of tons per year. Even if investors would decide to mine it, such an amount of titan-dioxide surely could not be sold in Hungary. Would they decide to export it to foreign markets, the Hungarian titan-dioxide s price would be so high that no company would pay the price for it. Companies would not buy it because of very high prices (production costs, transport cost, possible duties or customs) and its average quality. Why would they switch their titan-dioxide supplier to a new one - until now unknown - supplier, who s prices are high and its products quality is under the present one s? Titan-dioxide s quality is the higher the whiter it is. It would not be worth neither the price and nor the risk. That is why distributors like HSH-Chemie import it for example from 5

6 Slovenia or from America s best known and most popular producer, DuPont. New producers from Turkey are entering the European Union s markets, but until now they haven not succeed to win a significant market share. A further reason for titandioxide s intensive international trade (concerning Hungary s import too) is that distributors do not need any special licences or permissions to trade it, because titandioxide is not classified as a dangerous good. 3 Hungary s main commercial partners Hungary began to liberalise its imports and exports after 1989 gradually, based on the type of products and services. The scheme of liberalisation was based on the totally or partly liberalised range of products. Hungary had the exact description of those goods or services which s international trade could been liberalised immediately, and had the range of products which s trade could been liberalised only gradually or not at all (weapons, nuclear materials, drugs and plates). Raw materials and specialty chemicals did belong to the group of gradually liberalised products. Today Hungary s most important and most significant international trade partner is the European Union. As being now a totally appreciated and accepted member state of the union, Hungary s relationship to important commercial partners like Germany and Austria is foreseen to be further a prosperous one. In Hungary s international trade balance Germany still has the first place, the second goes to Austria and on the third place stands Italy competing with Russia. Table 1 Hungary s main commercial partners Hungary's principal export destinations, 2004 Hungary's principal import sources, Germany 31,40% 1 Germany 29,20% 2 Austria 6,80% 2 Austria 8,30% 3 France 5,70% 3 Russia 5,70% 4 Italy 5,60% 4 Italy 5,50% 5 United Kingdom 5,10% 5 Netherlands 4,90% Source: 6

7 Later I will describe HSH Chemie s trading partners, from which of course our greatest part of partners belong to these countries. Especially intensive and blooming is our relationship with Germany, but not only because of HSH s German origin, but through the very high quality chemicals and raw materials they produce. The precise supplying methods and the punctual payments largely assist the traditionally good relationship between Germany and Hungary anyway. Considering the case of Germany, this intensive foreign trade is luckily mutual between the two countries, as much as Hungary has a stable place for more than fifteen years among Germany s twenty most important commercial partners. Being Germany an economically well developed and geographically close lying country, it still seems to be an obvious statistics. In our trade with Germany machine industry, processing industry, energy resources and high-tech products play a really dominant role. The structure of trade between Hungary and Germany has been unchanged for the latest years, namely that the trading goods were machine industry products in 60%, 25% were finished goods, but food products were only 3%. Knowing Germany s crucial economical role and power within the European Union, it does not seem to be too surprising that in 2003 Germany became the World s greatest exporter country, catching up with the USA. These export results are valid on both investment and merchandise goods. Italy still belongs to Hungary s most important partners. Though the economical growth in Italy is relatively small and the country grapples with a high unemployment rate, our trade with it still can be said to be good. Bad signs for the coming years could be their deficit in balance of payments. Italy s balance of payments with Hungary traditionally always have had an Italian surplus, but in 2005 Italy seems to have less surplus over Hungary than usually. The main reason could be explained through the Italian factories based in Hungary, which supply their raw materials to produce the products from Italy, but the finished good they sell abroad. Our export to Italy consists mainly of clothing industry products, communication engineering equipments and public transport vehicles. From the aspect of chemical raw materials, this 7

8 relationship could be defined as an equalised one, until now in 2005 with a minor Italian surplus again. According to preliminary data of KSH until August 2005, Hungary s total import has been 8152 billion HUF and its export was above 7686 billion HUF in 2005, which means a slight 7% increase in exports and 3% in imports compared to Though the balance of payments of Hungary still has a deficit, it is easy to see that the country s foreign trade still shows an increasing tendency. Compared to 2004, the trade deficit in August 2005 was less by 281 billion Hungarian Forint. Table 2 Summary of Hungary's balance of payments January - August 2005 EXPORT IMPORT BALANCE Value Same period of the previous year =100% Value Same period of the previous year =100% Value In the same period of the previous year Billion HUF 7686,2 106,9 8151,6 102,7-465,4-746,1 Million , ,7 105,8-1880,7-2940,6 Million USD 39499,1 114, ,2 109,7-2412,1-3581,5 Source: Not only the constantly negative balance of payments means a problem for Hungary, but also the slowly growing unemployment in the recent years. Since 2000 it has been below 8%, the lowest level was reached in 2001 on a value of 5,7%. Now in 2005 the unemployment rate shows an increasing 7,1 %, which does not seem to fall back in the close future. 8

9 4 Introducing HSH Chemie Ltd. The HSH Group focuses on Central European markets where it distributes specialty chemicals made by many of the world s leading producers. HSH headquarters is placed in Hamburg. The Group concentrates mainly on materials used in the following business areas: coatings, paints and construction, cosmetics, toiletries and household products, pharmaceuticals, nutraceuticals, plastic processing, food processing. HSH s expertise in distribution and logistics, our network of local warehouse stock-points and our unmatched technical knowledge about the business areas we operate in makes us different from other distributors: we provide strong technical support, something that most distributors are unable to offer. Our clearly defined distribution and service strategy enables us to offer complete and costeffective solutions to our multinational principals and makes it possible for us to become the supply chain partner of choice to our customers throughout the markets we serve. Worldwide HSH Chemie has over 100 employees, most of who have a technical or chemical background, which allows us to provide superb customer service. We also can arrange distribution services throughout Western Europe through our partnership with the TerGroup and our membership of Pluschem EEIG. 4.1 The establishment of the HSH Chemie Group The history of HSH Chemie began in 1990 in Poland, when Mr. Friedrich Rather who is still the owner of the firm - decided to establish the company Rather&Gratesa Ltd in Poland. Originally they traded specialty chemical products. Later as time passed by the Mr. Rather decided to replace his old firm with two ones called Jablonsky&Rather Ltd. and HSH Chemie Ltd in Germany and Poland (the abbreviation HSH stands for Hamburgska-Spolska Handlova ). In the year 2000 came the idea to create a HSH Chemie division in Budapest, Prague and than slowly in Bucharest, Serbia, Bulgaria, Ukraine, Russia and finally in Turkey as well. Today HSH has offices all around Central-Eastern Europe, and plans to widen its network still further. 9

10 4.2 International business features of the company As a matter of fact all HSH Group members should feature the same suppliers and represent the same products in each country, but eventually they are independent from each other and from the headquarters also. One common feature definitely have the group members: this is that they all have some kind of relationship to Rohm and Haas. In 2001, Rohm and Haas (an American chemicals producing company) was searching for a Central-Eastern European distributor, which would be able to distribute its products. By then the HSH Group was complete all over Eastern-Central Europe, and the management in Hamburg decided to go for Rohm and Haas. HSH Chemie Group has won the distributor rights, which was a great step for a newly established distributor chain like HSH Chemie. Rohm&Haas and HSH have agreed on the distribution terms, and a blooming partnership has begun in As a starting enterprise HSH did not really have many suppliers, and even if in some countries there were four or five suppliers the greatest part of turnover was through Rohm&Haas. HSH had the opportunity to become a significant distributor, but this extension had its price: namely that all members have become very much dependent and bonded on Rohm and Haas. A great danger meant Rohm&Haas s possibility to recall HSH s distribution rights on their products at any moment they just wanted to (at that time 90% of the turnover they had in each country s HSH members). In order to diversify sources and suppliers, HSH countries had to go on looking for new suppliers, not only on painting and chemical industry fields, but any other fields where specialty chemicals could been sold. According to an unwritten goal between the HSH countries, no firm (supplier) can represent more than 15% in the total turnover in each HSH member country. 10

11 4.3 Supplier diversification - the period of creativity In case of a supplier-share of over 20% owned by one supplier it is almost impossible to maintain independence, that is why the management has come to this decision. The diversification process was largely boosted by TerGroup, who decided to make a buyin in 2002 into HSH group. The TerHell Plastic Ltd. (Member of TerGroup) company is a German producer, producing engineering plastics was also interested in the Central-Eastern European market, being already successful in other countries of the European Union. In 2002 TerGroup bought 35% of the HSH Group, with a clear intention to use HSH s already wide-spread and well treated connections to distribute TerHell Group s products. For the first time in Warsaw a serious and perfectly operating TerHell and HSH distribution relationship has been developed and still today it is operating though not without any problems. Other country s HSH distributors clearly had the issue now way to go in the future. All HSH Chemie representatives had to copy this well working Polish cooperation, which was as a useful guide for all the members. Now in Hungary we only distribute the products of Ter Hell Plastics (part of TerHell Group), various engineering plastics that are used in E&E fields, in machine and car manufacturing industries. Beside the manufacturing activity, on some markets TerGroup distributes his products on his own, through a less effective and developed distribution chain. Because of THP s good quality products it was relatively easier to penetrate into this special market, though we had to operate with a relatively low penetration price. As far as I have experienced the cooperation between TerGroup and HSH Chemie, I do not think that this relationship is working in a proper way. As I have mentioned previously, TerGroup sometimes distributes its products through its own channels sometimes it uses HSH Chemie s distribution network. I think the problem is clear, HSH Chemie and TerGroup do not fit together especially not in Europe. The other paradox in this cooperation are the nature of products traded, they totally differ in nature. HSH Chemie handles specialties, TerGroup distributes mainly commodity products for which they would need a completely restructured distribution network (because of the great amounts) and further retraced features also. 11

12 The HSH Chemical Distribution Group joined PlusChem EEIG in 2004 to strengthen its position as one of Europe s leading specialty chemical distributors and to cover Central Eastern Europe for PlusChem. PlusChem, a European Economic Interest Grouping (EEIG) formed in 2000, comprises a network of European independent specialty chemical distributors, each of which has a leading position in its national market area. By combining their talents PlusChem can offer international producers a pan-european approach to marketing their products. PlusChem recognises the need of both its manufacturing principals and customers for a service orientated value-driven partner. It combines the strength of a central organization with local expertise and cultural diversity. PlusChem maintains the highest recognized industry standards of quality, health and safety, environmental responsibility, product stewardship and technical excellence. The PlusChem Group has annual sales of over 470 million, making it one of the leaders in specialty chemical distribution in Europe. 4.4 Operational Corporate strategies When in 1990 Mr. Rather has established the company Rather&Gratesa Ltd in Poland, his basic idea was to trade something unique and at least chemicals that are hard to get in Poland and Eastern Europe. As years passed by and HSH Group went on growing, and though the merger with TerHell Group its main profile still stayed chemicals. Rare chemicals such as specialties very rare semi-finished products. Of course, as always new competitors occur in the chemical market, it is hard stay an exclusive distributor. That is why HSH always tries to provide new products, always looks for new suppliers and new specialties. Deriving from HSH s basic profile and existing connections, we only can sell products that are relatively new on the market though still frequently used industrially. Obviously if an already introduced product becomes successful and accepted, we do anything to maintain a good supplier position by him. HSH s philosophy is to always go ahead, try to find new buyers and partners in order to remain flexible from all aspects. 12

13 5 The HSH Chemie Hungary Ltd. In the new era after 1990 multinational firms wanted to represent themselves in the Hungarian market, dealers started to occur in Hungary. Some firms only could represent themselves in Hungary through agencies, which represented numerous other concurrent firms at the same time. Seeing this disadvantageous process, an intensive office founding was to observe, independent liaison offices were founded. The need was great for a flexible customer service, for a warehouse, for every possible instrument to substitute the socialist IMPEXs. HSH-Chemie Hungary Ltd (later as HSH Chemie) is a German-Hungarian joint venture was established in May 2000 as a distributor of specialty chemicals for coatings, plastics, rubber, household chemicals, cosmetics and water treatment industries. The history of the HSH Chemie precursory company Mezépex started in 1997, when Mezépex and Rohm and Haas agreed on launching a distribution company. The form was a gentleman s agreement, because of very good personal relationships and contact to buyers, not to talk about the evanescent regulations on this field. Their starting field of activity was coating industry pigments and painting industry raw materials. This cooperation was aimed at the more and more frequent request of companies, to be able to buy a complete range of products at the same place. At that time it was a let us say a unique or particular request, today it is a basic condition on all markets. This was the time (after 1995) when distributor as a term was getting more and more popular. With a satisfying close in 1997, Mezépex and Rohm and Haas have doubled their turnover to In 1999 Rohm and Haas has mentioned its claim for a distribution contract, but not by all means with Mezépex. Mezépex s competitor at that time was Brenntag, but finally Rohm and Haas decided on Mezépex because of Brenntag s gappy network and missing experience. Brenntag s profile is still bulk products and not specialties. Somehow Mr. Friedrich Rather had in Poland the contact to Rohm and Haas s top management, and catching the opportunity he offered R&H the existing HSH Chemie distribution network and has promised to build out a significant network a few years. 13

14 As in all other HSH Chemie countries the ownership is in 50% German, the another 50% must be ensured by the local management. Now in 2005 beside general distribution activity (shipping, warehousing, making custom clearance) the highly educated staff can provide technical service to our customers to introduce raw materials into their formulate products. HSH Chemie operates a warehouse at an easily accessible place in Budapest from where we can serve our customers. At key accounts we operate consignment stocks. Among others we represent the following suppliers: Rohm and Haas, Imerys, Perstorp, OMG, Tego Chemie, Silberline, Cinkarna, Rockwood Pigments, DuPont Chemical Solution, Reichhold, Woellner Silikat, Spolchemie, Stepan, Cognis Oleochemicals, Ondeo Nalco etc. The skills of HSH Chemie are: technical background, logistical expertise market knowledge, flexible pricing and supply. We are continuously developing new contacts with our principals and customers for further cooperation in the area of coatings, plastic, rubber, household chemicals, water treatment, pharmaceutical and food industries. 5.1 Firm profile HSH Chemie s profile is the same as by other country s HSH Chemie members (specialties in the fields of coatings, pharmaceuticals, plastics, food industry, etc.) However, compared to other HSH Chemie members, Hungary has the great advantage to gain the trust of potential suppliers more easily than for example Germany or Poland, not to talk about Russia. It is because of the relatively small Hungarian market, where suppliers are less likely to represent themselves on their own. Where key customers are still too small for producers to deal with them on their own, where a distributor is enough to take care about companies (practically where a distributor is able and willing to manage the company). 14

15 5.2 Our Partners Today, HSH Chemie is the distributor of following manufacturers: Tego Chemie, OMG, Silberline, Imerys, Collodin, Degussa, Dupont, Sancan, Muehlmeier, Perstorp, Rohm&Haas, Primacare, Laboratoires Sérobiologiques, Deuteron, Kärtner Montanindustrie, Rockwood, Reichhold, Ondeo Nalco, Cinkarna, BKGiulini, CIBA, Henry Lamotte, Tergroup, KOLB, Tylose, Shinetsu, Woellner, Perstorp, Deuteron. As HSH Chemie s philosophy is to sell and distribute specialties or very rare exclusive chemicals we constantly are on the search for new and new suppliers. HSH Chemie is represented on numerous international forums, where even if the representation is held by other HSH Chemie members we can contact already existing and of course new suppliers. Relatively strictly, we hold on to our principal profile to deal with specialties and avoid any kind of businesses aside these. As HSH Chemie s philosophy is to sell and distribute specialties or very rare exclusive chemicals we constantly are on the search for new and new suppliers. HSH Chemie is represented on numerous international forums, where even if the representation is held by other HSH Chemie members we can contact already existing and of course new suppliers. Relatively strictly, we hold on to our principal profile to deal with specialties and avoid any kind of businesses aside these. Sometimes it happens that we get in contact with suppliers not exactly from this sphere. 15

16 TEGO miox Rockwood COLLODIN EGE Kemia Her-TER Ter-MUA BK Giulini Cognis-oleo Cognis-LSB Henry Lamotte Kolb Mühlmeier Spolchemie Stepan TER-DSM Suppliers of HSH-Chemie Ltd Commission R&H Biocide R&H IEResin R&H P-Polimer R&H CIS R&H Morton Tylose SE Tylose CIBA ERCROS Imerys OMG Perstorp Dupont Titan MON Deuteron Woelner Silberline NALCO Supplier Turnover in HUF million Figure 1 Suppliers of HSH-Chemie Ltd

17 In these cases after seriously considering our chances on the Hungarian market we go on with negotiations with the possible partners. HSH Chemie always tries to cope with partners based in the European Union, obviously because of several reasons (no customs, simple and unified regulations, geographical closeness). OMG or DuPont both are suppliers from the United States but they have EU production too, so sometimes it is worth to make exceptions in order to ensure the highest quality products in Hungary. But not all HSH members are based in the EU. Considering the case of Moscow in the Russian Federation, or Ukraine and Bulgaria, in many cases they really do face several disadvantages. Their only chance to operate is to find suppliers with unique products, or suppliers based not in the EU. It is easy to see on the chart above, that HSH Chemie does business with its partners in all volumes, no matter if it is about 50 tons or 5 kilos turnover a year. Our greatest partner is still Rohm&Haas (Ion Exchange Resins), but Spolchemie and titandioxide trade is also a crucial part of HSH Chemie s portfolio. 5.3 Distributional activity and Commission Deals HSH Chemie s main activity always has been and will be the distribution. Beyond the distributional activity, a growing amount of commission deals is observable. But than the question obviously arises, why is it worth to do a deal with 3-4% profit instead of the usual 15%? The answer is, that in case of a commission deal we do not have any choices to make. I mean if we find a buyer for the products of an international supplier, it is still the supplier s choice whether he will let us distribute his products through our own channel for a price determined by us, or he wants to supply his goods directly to the customer leaving a 3-4% commission per deal for us. The producer s request to supply directly can be one reason for commission deals, the another reason can be the size of the customer, more exactly if a company s size is over HSH Chemie s capabilities to deal with. To supply firms like Coca Cola or Nestlé for 17

18 example would require such a big and up to date stocks, that HSH Chemie Hungary could not afford to maintain it. Further reasons for a commission contract are the price and regional tenders. The price because with our distributor prices we could not gain a really big customer, but a producer still has the opportunity to penetrate with a bit lower prices (the price including even our commission). The regional tender, because certain multinational companies write out regional tenders for suppliers, that HSH Chemie is obviously too small to fulfil (regionally). The payment of commission fees usually happens at the end of each year, via bank transfer. The reason why our money is transferred only in December is that if producers would transfer it occasionally as businesses are done, the bank s transfer fee would be so high that it would not be worth. Of course, about all deals and business actions happening during the year we are informed, we exactly know what amounts firms own us, how much commission they will have to transfer at the end of the year. Until now in 2005 commission businesses have been over 4 million HUF ( HUF) which seems to be around 9 million HUF at the end of Personal contact All around the World in order to keep business rolling without any problems, the parties undoubtedly need a personal contact to each other. The same philosophy is practiced by HSH Chemie Hungary. In order to gain trust by both potential and usual customers, to make them take us seriously we many times have to visit them, on some occasions we even bring some presents with us. Besides making them take us seriously, a great advantage of these visits is getting known the local circumstances (the view of a factory or office tells many times a lot about the company itself) and the faces of our contacts. Contacts with whom we have phoned many times, but never have seen them previously. Another advantage I would mention is the more extended conversation with the buyer, a real occasion for partners for changing ideas, informally telling problems and successes, winning many times new contacts. Usually after these visits all of our partners are a little bit friendlier in business matters as well. 18

19 5.5 Economies of scope As HSH Chemie having 34 suppliers from different countries at the moment, our sources are obviously very much diversified. Diversification is a need - even if a relationship is rolling smoothly for ages soon, we never can know when a manufacturer quits supplying. HSH Chemie is a distributor, so as I have previously mentioned we aim to supply as many kind of products as possible at one place. Today it is a basic requirement towards a distributor, buyers demand to have the possibility to buy complete range of products at one place at the same time. Only with some certain products it would be totally impossible to survive for a distributor today. HSH Chemie has adjusted itself to these requirements; by us buyers have the opportunity to get any product of our 34 contracted manufacturers (of course they have to order it a week before, because we do not have such a wide scale of stocks in our warehouse). A further reason why this complete assortment is preferable for us are our small buyers. Small buyers who only buy minor quantities of sometimes many products. HSH Chemie s profit is mainly generated of these deals, namely because small quantities are obviously more expensive, customers have to pay extra prices to get it. An extra profit is generated through this, because we usually ensure our stocks through big quantity orders from suppliers, for a relatively cheaper price. This price difference is the basis of our activity as a distributor. 5.6 The Turnover Luckily, HSH Chemie s yearly turnover shows a continuously growing amount from year to year. It is due our increasing number of customers, and the always more and more intensive trade. 19

20 Turnover in HUF million HSH Chemie's Yearly Turnover Month Figure 1 HSH Chemie s Yearly Turnover The beginning turnover in the year 2000 was HUF, since then continually increasing with a significant jump in In 2004 HSH Chemie has already reached the half a billion limit, what is more we have accomplished this amount already in August 2005 (our turnover in September 2005 already was HUF). At the end of 2005 HSH Chemie clearly intends to reach the HUF turnover, which according to the present situation seems to be a manageable target. This year s already high profit is largely due to Rohm&Haas s Ion Exchange Resins (which s sales have been over 100 million HUF until now) sales and Spolchemie s alkyd resins sales with more than 60 million Forint. 20

21 million Value (HUF) Seasonality Of Our Specialties Month Figure 2 Seasonality of our specialties As the graph clearly shows, the yearly peaks are usually the spring months, mainly April and July. This year s March and April HSH Chemie has managed to sell an extraordinary amount of Ion Exchange Resins, so the usual peak of April has shifted to March and May. 21

22 5.7 Regional problems Financial exposure HSH Chemie Hungary always applies simple bank transfer as method of payment, using open account payment and taking numerous risks with it. For a distributor today in Hungary there would not be an other chance because of the competitors. As Hungary laying in Central Europe we face the typical payment problems of a regional country. In case of our already traditional partners we are used to delayed payments and excuses for them, even if we give our customers a 60 or a 90 days payment from the invoice date. But eventually we always get our money. HSH Chemie Hungary barely has a few partners who make prompt payments or exactly transfer the money at the maturity date. Companies like Zwack or Globus (DEKO) really do care about paying within the deadlines, they do not dare to risk their reputation and goodwill with a delayed payment. Of course, not all companies pay in time, many times happens that even after phoning the financial department and threatening with starting the liquidation process they do not wish to pay. In cases of non-payment or delayed payment, the question logically arises that why did not we choose a method of payment where the payment would be granted at any time? Well, the answer is, that customers easily can switch to our manufacturers competitors who offer much more advantageous payment terms. Obviously we take the risks of delayed payment; we are not in that position to allow ourselves losing a customer. Each partner no matter how small it is must be treated as our greatest customers. In case of a new customer who is well known on the market but until now we did not have business with him we define an 8 days period. If the possible partner is unknown for us and also unknown globally we define definitely prepayment. After the customer has paid the invoice, he can receive the goods from our warehouse. A good example for this kind of buyer is one of our partners from the Collodin sphere. One day the man has sent an order to our office without introducing himself 22

23 previously, via phone or a meeting. The order was handwritten in a muddled form, so it did not call for much confidence. Even the amount he wanted to order (2 pallets) was relatively big, so HSH Chemie immediately decided to ask for prepayment. Pricing Hungary is a price-sensitive market, no matter from which kind of goods we talk about. Certainly it is also true for specialties which basically represent German and US high-tech chemicals on a Central European price-sensitive market, so consumer prices must be tailored very carefully. As I mentioned, HSH Chemie mainly distributes specialties and chemical raw materials. Along the pricing process to determine final prices - raw materials are traded with slight higher profit, mostly because of our diversified suppliers and commodity features of raw materials. Considering the example of titan-dioxide, it is the case where HSH Chemie has some opportunity gain a bit more on prices. The accepted market price of titan-dioxide lays between 1,5-2,5 Euro/kg, depending on the aim of usage ( Finer food industry titan-dioxide obviously costs more than the type used to colour paints for example). The producing countries of TiO2 are as follows: United States, Finland, Germany, Ukraine, Russian federation, Turkey, Australia, China. From these countries Russia and Ukraine supply the cheapest titan-dioxide, Germany and the USA the highest quality for the highest prices. Titan-dioxide we usually buy from a Ukrainian producer for a price of 1,7 Euro/kg, and with a 12-15% margin we sell it for 1,9-2 Euros. We also have contact to a Russian producer who would be able to sell for a lower price (1,3 Euro), but because of relatively high transport costs and our very bad experiences of quality it would not be worth to conduct a risky business with Russia. Nor would it be worth to import Chinese TiO2. The lower quality segment of TiO2 is very price-sensitive, so we cannot really increase prices because our buyers ( Egrokorr, Whitedevil, Polifarbe, Decora Color paint factories) immediately would choose our competitor when causelessly increasing the agreed price. Obviously if the quantity is bigger, we still can give a 1% rebate. But the specialty quality TiO2 definitely has a higher price, around 3Euro/Kg. 23

24 The American producer DuPont is one of our suppliers that is represented only by HSH Chemie in Hungary, DuPont produces a very high quality TiO2 used in Hungary for food industry purposes. Prices for this special TiO2 can be tailored a little higher, except of HSH Chemie only distributor can provide such a quality in Hungary. 5.8 Titan-dioxide Trade of HSH Chemie Ltd. Table 3 Titan-dioxide Trade of HSH Chemie Ltd. Titan-dioxide Supply price, FCA Budapest (EUR/kg) HSH Chemie Selling price (EUR/kg) HSH Chemie's Profit (EUR/kg) Australian 1,6 - - Russian 1,3 - - Ukrainian 1,3 1,45 0,15 Chinese 1,2 - - Turkish 1,5 1,7 0,2 German 2,7 3,2 0,5 Finnish 1,4 1,55 0,15 USA 2,8 3,25 0,55 Titan-dioxid Trade of HSH-Chemie Ltd. USA 0,55 Supplier Country Finnish German Turkish 0,15 0,2 0,5 Ukrainian 0,15 0 0,5 1 1,5 2 2,5 3 3,5 EUR/kg HSH-Chemie's Profit (EUR/kg) HSH-Chemie Selling Price (EUR/kg) Supply Price, FCA Budapest (EUR/kg) 24

25 HSH Chemie s usual pricing on specialties very rare chemicals is tailored on customer s needs and the given suppliers, with an average profit of 10-11% for the firm. The supplier s prices we usually negotiate on FCA Budapest parity, but should FCA be impossible for some reason, we choose EXWorks. In case of FCA Budapest specialties compared to our commodity characteristics products we put a 15-16% of price on the supplying price in which the transport costs are already included, which means a 10-11% total profit for HSH Chemie. Obviously, prices of specialties may increase and decrease as well, we compute and grant our prices for the customers for the coming three months. Some companies want to have granted prices for a year, but among these today circumstances it would be a very risky business. In case of smaller companies or companies that usually buy a minor amount HSH Chemie gives offer with a 15% total gain on the business, but still mentioning the opportunity of rebate if ordering a larger amount. When entering a new market (for example food industry nowadays), HSH Chemie operates with a penetration-price in order to gain customers. Applying penetration price on specialties can be soon dangerous for us, because penetration price only means a profit of 2-3%, but there already has been an example for nonprofit deals. Should we manage to penetrate into a new market it is almost impossible to increase our prices immediately, the only premise included in the customer price is the transport costs. 5.9 Personal Responsibilities Internal methods of work There are no departments or divisions within HSH Chemie, inasmuch as we are a small firm working with ten people in the office and two further colleagues in our warehouse. The work partition is designed according to the type of traded products, which looks as follows: 25

26 Dr. László Thurn - HSH Chemie Hungary s managing director workflow coordination, tactical goals and objectives Mr. Oktavian Miskucza HSH Chemie Hungary s Procurist, among others taking care about cosmetics additives, cosmetic industry Mrs. Eszter Kmetty Engineering plastics Ms. Ágnes Joó Pigments, Silicone products, aggregates Mrs. Hajnalka Sándorfyné Ion exchange resins Ms. Zsuzsanna Szlifka Cosmetics assistant Ms. Melinda Németh Trade Assistant Mr. János Tímár company advisor and titan-dioxide trade Mr. Attila Almasy Paintings and Cellulose ethyl condenser Myself (Paul Sándor) Labelling adhesives, grinding medias Our managing director Dr. Thurn obviously has an absolute overview on all employees work, sometimes daily contact and consultation with him is needed. Discussing strategic questions and taking more important steps requires his permission, but he is an open-minded leader ready to accept rational arguments and solve problems lucidly. Work moral and mood in the office is very familiar, which makes doing everyday routine easier and work more motivated. Though each employee has his/hers own field of traded goods, everybody is ready for cooperation. At the moment we have 4 chemists, who are ready to give professional advices anytime. In case of broad issues every colleague gives his best, in order to represent HSH Chemie as best as possible Internal communication Stock listing Communication within the firm is basically verbally, as I have mentioned the office is ruled by a familiar mood. Colleagues can discuss issues everyday personally. If somebody would need any kind of specifications or MSDS (Material Safety Data Sheet) requested by a buyer, it easily can be forwarded via or fax. Every month 26

27 HSH Chemie at Budapest has a plenary session, where we discuss the last month s happenings, possible problems, what goals in the close future to achieve. These sessions are ran by Mr. Thurn, with an effective comprehensive characteristics. No room for lack of communication. HSH Chemie rents a warehouse in Budapest, located at Horog utca Communication with our warehousewoman (Mrs. Monika Pallosné) is usually transacted via phone and fax, ing also plays a crucial role. Our managing director Dr. Thurn and HSH Chemie procurist Mr. Miskucza regularly visit the warehouse to keep in touch with the owner and to have weekly discussions with Mrs. Pallosné about existing stocks and occurring problems. The only problem I have experienced during my traineeship at the company was related to the stock listing. The fact that hinders up to date knowledge of current stocks is, that each time we want to know the exact amount of stocks we have to phone Mrs. Pallosné. There is no unified system within HSH Chemie for stock listing, I think the best solution would be an internet-based program. It should be easily reachable with a click to an icon via our computers, a clear menu should exactly show us how much stocks we have at the moment, but this approximate value sometimes is not adequate (for example if talking to a buyer about his orders, it soon can be embarrassing that I cannot tell how much we are able to deliver). Certain steps already have been done in this matter - a program is being developed but no results can be seen until now Logistics of the HSH Chemie Ltd depot logistics HSH Chemie s warehouse logistics. The warehouse/logistics manager of HSH Chemie Mrs. Monika Pallosné - is responsible for all warehouse and storage operations. Her work is to prepare, maintain, issue, and communicate receiving and issuance data, non-conformance documentation, maintenance records, and other instruments necessary for documenting the material control and warehousing 27

28 processes and for maintaining auditable records. Plan, layout, arrange for, and maintain loading and unloading areas, adequately secured storage in facilities, laydown yards, and material handling equipment. Handling of some by HSH Chemie traded specialties soon requires special knowledge of chemistry, or at least knowledge of some material features. Mrs. Pallosné has to receive all incoming shipments and arrange for unloading and handling of goods, verify the shipping documents against the goods received, count, weigh, or measure all receipts, arrange for receiving inspections, identity and document discrepancies, ensure proper identification, and document storage location. She has to maintain records of on-hand inventory perform cycle counts and otherwise verify the accuracy of the on-hand inventory records. As among certain circumstances chemical specialties can have dangerous features, Mrs. Pallosné s main task is to ensure goods are properly stored, protected, and maintained according to manufacturers and company standards (a warranty only can be claimed if goods were stored properly). Generate purchase requisitions for warehouse operations, replacement of consumables, and other goods ordered locally on a min/max basis. Fill properly authorized warehouse requests, pull goods from storage, bag, tag, and otherwise prepare goods for issuance, and make the goods available at the point and time of need. Arrange and process returns, transfers, and outside services on goods, prepare shipping documentation and instruments to transfer care, custody, and control of the goods. She also has to handle the MSDS (Material Safety Data Sheet) collections about the chemicals, each time a shipment is due the MSDS must be attached. Mrs. Pallosné s working hours are from 7 am till 16 pm, so it is a hard job to manage every day. HSH Chemie s warehouse is owned by Mezépex 2000 Ltd. company, from which HSH Chemie rents the room for storage. A change in HSH Chemie s warehouse location is foreseen now, namely that we want to move our stocks to a more modern warehouse complex. This action now is due mainly because of the low situated circumstances at Mezépex 2000 s estates, and the unreliable management of Mezépex

29 5.12 Incoterms Shipment terms (commercial terms) from our suppliers vary from firm to firm, no parity could said to be characteristic in the life of HSH Chemie. As HSH Chemie has over 30 suppliers, a constant debate with the supplier about the parity would be useless and impossible anyway. With each of our partners we have a fixed parity and an adjusted fixed unit price on that given parity. The parity on which we get our materials usually varies between three INCOTERMS: DDU, FCA and EXW. Changing for example EXW to FCA by some deals would be useless, because the supplier would include the price differences in the prices anyway Active role of intranet and Internet in the everyday work The Internet is a public network, open to everybody worldwide. HSH Chemie s Web page on the Internet is the company s public face and image that the company wants people to be aware. Our external site presents the image that HSH Chemie wants the world to see and it may be built for glamour, with many graphics and special features ( Obviously, all member country s contacts and other information is available at this site. Besides ensuring HSH Chemie s non-stop availability, the Internet provides useful help for all workers at the firm. The greatest part of communication is transacted via Internet, without sending/receiving s the daily communication would be very much complicated. A practical and cheap way of communication with international partners is ing, it is rapid and very much reliable. Internet also provides us the possibility to contact new buyers. The most important help that Internet can provide is the amazing quantity of information, all kind of information (interest rates, currency courses, regarding news, multimedia features, etc) that smoothens the daily operation of HSH Chemie. The corporate intranet, on the other hand, is the company s private face where employees get their up to date information. Its appearance is simpler and more casual 29

30 and it is built for speed and safe information not for glamour. In my eyes, the HSH Chemie intranet is a very practical system. HSH Chemie member countries internationally can help each other, departments (focus groups) can easily sign in into their boards (Plastics and rubber, Paints and coatings, HSH buy/sell market, HSH General Group News, HSH Meetings Trainings Fairs) where they have the opportunity to clinch mutually advantageous deals. For example if in a HSH member country remains a greater amount of a certain specialty, through the intranet the country can ask for other HSH Chemie s help to sell it. Conversation in further topics is also possible an established custom, information is very important. Another advantage of the intranet is the centralized information collection Graphic logos, corporate downloads, documents, presentations, supplier addresses open to all employees. Contact addresses are listed according to HSH Chemie member country, employees only have to click on the given country to find their desired contacts.. HSH Chemie Intranet allows employees who might normally never meet before to collaborate on projects. Intranet promotes the sharing of knowledge and ideas and provides a single, secure, reliable access to the company s private information. Often the greatest problem when creating a corporate intranet is convincing the management that no corporate secrets will be disclosed to the public. The employees have to know that security is in place (using firewall software) to keep the data (prices, specifications, contacts, addresses, logos, corporate issues) safe from the outside world. Another problem is convincing people within the company to share their knowledge. The approach to information management on an intranet is open and egalitarian and many Hungarian people are more comfortable with a traditional structured approach. If management/employees are allowed to publish documents on the company intranet there may also be a problem with the question of ownership. 30

31 5.14 Competitors Brenntag Holding GmbH Before comparing the two companies to each other, I would like to note that HSH Chemie International and Brenntag Holding GmbH are definitely not in the same weight class. Brenntag has a worldwide network from China through Argentina. Figure 3 Coverage of Brenntag Holding s network in comparison with HSH Chemie International BRENNTAG HOLDING S NETWORK HSH CHEMIE INTERNATIONAL S NETWORK HSH Chemie International Though Brenntag worldwide being much larger than HSH Chemie, in Hungary the two companies are more or less the same size. As both companies were established after the year 1990 and the tendency of growing locally was the same, on certain fields they did mean an opponent to each other. Under certain fields I mean that Brenntag s basic profile has always been bulk chemicals, not specialties. HSH Chemie and Brenntag mutually competed on both fields, but as Brenntag having a lack of experience on the Hungarian specialty market decided to stick to bulk product s distribution, whereas HSH Chemie went on with dealing specialties. HSH Chemie today tries to avoid bulk businesses, but if a great deal would demand it we obviously are ready to import bulk chemicals (alkyds, alcohols, chlorides, etc.). 31

32 Financial resources of Brenntag obviously are more bilge than for HSH Chemie. The evidence for this is Brenntag s 4,3 million Euro investment into its Hungarian distribution centre, launched in Expectations for the future (a constant rise in the yearly turnover) Since the Hungarian subsidiary of the HSH Chemie Group has been established in 2000, the yearly turnover has been constantly growing, though in diverse measures. HSH Chemie s further targets to maintain a growth of at least hundred million Forints annually definitely will be met, what is more HSH Chemie in 2005 even has exceedingly met this target turnover. Another measure is the number of our partners. At the moment HSH Chemie has 36 suppliers and a lot more buyers- which s number is fluctuating all the time. Widening our contacts is a crucial point in the company s strategy, as we are specialty dealers based on small quantity high price products, so we need very diversified market. Penetrating onto new market segments is planned in HSH Chemie for One of these fields will be the food industry. HSH Chemie Group especially HSH Chemie Poland already has good contacts and valuable experience in bakery and meat industry. Using the focus groups (Food and Pharma group) via the intranet we have the opportunity to contact HSH Chemie Group s suppliers in the food industry field, we get an already well working and ran in network. Obviously penetrating into the food market (with special additives, pigments, flavours) will be a hard task, but we see great chances with many rare additives. 32

33 6 The partnership of HSH Chemie Ltd. and Collodin Chemie Ltd. HSH Chemie and Collodin Chemie Ltd. (later as Collodin) looks back for a one and a half year relationship, with a mutually advantageous relationship. HSH Chemie started to distribute Collodin s products in beginning 2004, since then we got in with Collodin products into several big companies. Until now, cooperation is only extended to the labelling adhesives. 6.1 Development of the partnership HSH Chemie Group s owner in Poland, Mr. Friedrich Rather has good contacts to many German companies and company leaders. He also had the contact to Mr. Paul Josef Nauth, one of Collodin s owners. At this time Collodin clearly intended to get a market share on the Hungarian market again ( Collodin was present in Hungary before 1990 but later they gave up the market), so having the relationship Mr. Nauth contacted Mr. Rather whether he had any ideas about the Hungarian market. Mr. Rather offered Collodin HSH Chemie s distribution network in Hungary, so a blooming relationship began in Introducing the Collodin Chemie Ltd. Bonds by natural means - the slogan of Collodin, that refers to the mainly natural components of their products, emphasising environment friendly production. Collodin is based in Frankfurt Germany, is the producer of industrial adhesives and paper chemicals, was founded in 1875 and is run by the owners Dr. Wolf Stefan Schultz and Paul Josef Nauth. The course for the further success is set by imaginative product development and problem-oriented tailor-made customer advisory service of Collodin, which is obviously transmitted by HSH Chemie to the Hungarian market. 33

34 Collodin is specialized in the production of industrial adhesives and paper chemicals. The primary products are mainly nature s materials such as casein of skim milk, natural latex of rubber trees from South East Asia and pine rosins, mainly from Portugal, China and South America. From these raw materials products on purely water base are being produced. Collodin products are made of environmentally friendly raw materials, right from the intermediate products to the final product itself. They do not impair the recycling process. Collodin s connections all around the world are very wide-spread. Collodin has also production plants in Thailand and Spain from which the neighbouring markets can be serviced by an international team, offering logistic advantages for the customer. PRODUCTION RANGE Casein sizes Starch sizes Resin dispersion adhesives For Paper Production Internal sizing agents Surface sizing agents Retention agents Fixing agents 34

35 6.3 Know-how - Quality features - Environment Know-how gained in the applications technology laboratory and in the field forms the basis for successful development work geared to the future. Only by investing in highly qualified staff and most modern equipment in the R&D field can existing products be constantly improved and new products for new markets be developed- sounds Collodin s philosophy. At Collodin, experts with many years of practical experience provide practical solutions. In the applications technology field, a team of experienced, highly motivated experts is available to work out tailor-made solutions together with the customer. Chemists and engineers are working until late hours to improve new products or to find a solution for the actual problems. The production process is very complex, all supplier s products are examined many times in order to be able for high quality specialty production. Quality features. Regular control between production and Collodin s process technology, combined with electronic process controls, create the conditions under which complicated chemical reactions, some in high temperature ranges, can be safely controlled. Samples are constantly taken and thoroughly examined in our laboratory with highly sensitive equipment to guarantee uniform characteristics and quality. A corresponding testing regulation exits for each product. Not before all values meet the requirements set, is the release for delivery given. Having achieved EN ISO 9001 in October 1992, Collodin still maintains its registration and further embrace the zero defects philosophy and total quality management as its goal. Current complaints are below 0,5% of production output. Collodin also has received the DIN ISO certificate for its Environmental Management System in In 1997 Collodin received an award from the Hessian Ministry for the environment of outstanding achievement in the following areas: working conditions, health and safety, safety technology. Environment protection. For trend setting adhesive and paper technology, new developments are made available for production and already existing products are 35

36 being permanently improved. Collodin has and continues to invest much money in R&D for the safeguarding of the environment. For example, Collodin succeeded in replacing solvent-based adhesives in most areas of industry by water-based ones. In paper production, waste paper could be reused much more effectively. As Collodin is a chemical enterprise, processing many thousand tonnes of chemicals per year. Over the past 20 years, we have replaced raw materials in favour of environmentally friendly products, deleted sales products and updated production methods. Today, 70% of the raw materials used by Collodin are replenishable resources. 6.4 Product description Collodin casein based labelling adhesives The first step when offering a product to a major bottling plant after giving a quotation is to attach the referring specification of the product. Obviously, the type of the recommended adhesive very much depends on the nature of glued surfaces, on the circumstances and on the method of gluing. That is why my colleague (Mr. Janos Tímár) and me always want to meet the packaging engineer and the supplying manager of the firm personally, before delivering the sample products. Many much details have to be discussed; all possible information can be useful for us. Just to make it easier to imagine, details that have to be made clear are as follows: What is the bottle made of? If product is filled in plastic PET bottles, are the labels fixed on the whole surface of the bottle or only glued overlapping at the crossing area? If glass bottles are filled, are the glasses coated with a slight plastic coating or not? What is the filling temperature is it filled wet/hot/cold? Are the bottles one-way bottles or returning bottles ( in case of beer for example) In case of tax stripes, is the cap lacquered? Is it a metal or a plastic cap? 36

37 What is the bottling machine s capacity a different adhesive has to be recommended by a 7000 bottles/hour and a bottles/hour machine What kind of labels are glued (is it plastic or paper labels)? If labels are made of paper, than what quality, how thick is the paper (the usual quality in Hungary is between 30g/cm2-1,1cm2 ) Are the labels metallic? a method to make paper labels glittering, to make them look better in order to seem more expensive What is the adhesives application temperature on what temperature is is applied in the factory? What is the plant s humidity? Many times, managers are not able to answer these questions, with them we can only talk about prices. But the most useful information they can give us, is the contrary adhesive they use at the moment. Forwarding this information to Collodin s engineers ( exact name and number of the adhesive), they immediately know which Collodin adhesive would fit to evoke the currently used concurrent product. Once managers have blessed our price offer, it opens the way for us for an industrial trial. This means, that after disconnecting the old adhesive and cleaning the rotaries, the engineers test our Collodin product among everyday circumstances. It is a very dangerous issue, because should Collodin s adhesive fail due some reasons hundred thousands of bottles have to be rebottled. Not to talk about the trust that the company loses towards HSH Chemie and Collodin. This is a serious drop-out for the plant and completely ruins the production schedule. That is the reason why producers are likely to test new products after season, where no risk of defaulting on the shipments is there. After meeting the responsible persons in the company, we may have to recommend a completely different type of adhesive. 37

38 Nature of casein based adhesives (also called water based adhesives). These type of adhesives for in line rotary labelling machines are always in a liquid aggregate, are usually casein based (the another, basically different glue is the so called hotmelt, but I will write about it later) Casein based adhesive s another two crucial components are starch (corn starch or potato starch), resins and water. Casein derives from milk, as a matter of fact it is the same as normal mozzarella cheese only containing less fat. Casein s quality eventually the adhesive s quality very much depends on the simple fact, from where the milk originates, where the cow has been milked. The fat content of the casein is a very subtle question, because it depends on what the cow is fed with. Fat is inversely proportional to gluing power of the adhesive. The best quality casein originates in New Zeeland; there the fat content of milk is the lowest. Hot-melts. These adhesives are consistent on room temperature; they have a kind of plastic look, only get liquid above 100 Celsius. The name hot-melt comes from the fact that they only are applicable on hot temperatures, but after getting cold again they grant a very strong hold. Hot-melts are applied where materials have to be fixed relatively fast and strong, for a long time. A great advantage of hot-melts is, that they resist to humidity and water, even to heat under 100 Celsius. Further advantage means the infinite storage period, as they do not contain any perishable components (whereas casein is very much perishable). To apply hot-melts, a special gluing equipment is required, hot-melts cannot be glued with machines constructed for traditional casein based adhesives. A specification given to customers looks as follows: 38

39 Figure 4 Specification of Signacoll S-HV C 39

40 40

41 6.5 My Collodin training in Germany As labelling can have very special features, technical knowledge and specific savvy is required in many cases. That is the reason, why HSH Chemie and Collodin has organised a professional meeting for me at Collodin plants in Frankfurt. The training was scheduled for 22nd November 2005, and lasted four days long. In these four days I had the opportunity to meet all the Collodin representatives whom I haven t seen yet personally, only via or phone we had contact. The first day of this training was a general introduction of Collodin itself, the plant, the resources, the suppliers have been introduced. I was made the production process known. I had the honour of being introduced to Mr. Paul Josef Nauth and Dr. Wolf Stefan Schultz, the two owners of the company. I discussed with Mr. Peter Muschalle and Mr. Klaus Sommer (export manager) the Hungarian long-run strategies of Collodin, what fields/industries HSH Chemie in Hungary should push in the future. We have agreed on pursuing new type of smaller buyers in Hungary, for example canned fruit producers and any smaller bottling companies who bottle/label different products. Both HSH Chemie s and Collodin s philosophy is that rather to have 100 smaller buyers than to have 10 giant partners, because of diversification. If from 100 buyers a relationship with one breaks off, it effects the business much weaker than a giant buyer would break off. Immediately it would mean a 10% fall in turnover. The second day, a casein course was held for me by Mr. Andre Körfer, leading engineer of casein adhesives. He gave a detailed presentation about the nature of these adhesives, about proper machine adjustments and possible problems by labelling. All kind of machines, failures of machines and usual abrasions hindering perfect labelling have been introduced (inline rotary type machines). I took with me some sample glasses and caps to Germany for trials, because Győrilikőr Inc. had problems with the glue, so a solutions had to be found for the firm s problems. These glasses were left by Mr. Körfer, who after examining and running certain test could recommend a new compounded adhesive. Tests with this type (Signacoll 3050) are 41

42 already running at the plants of Győrilikőr, hopefully with a successful result. Also this day we have visited a direct buyer near the Collodin with Mr. Körfer, the mineral water producer Hassia. It is a very big firm, with around bottles/hour machines. Hassia has the unique financial condition to Collodin, that Hassia pays not after the amount of adhesive delivered, but after the number of filled glasses. This is a slightly uneconomical for Collodin, because if machines are adjusted to work with a thicker layer of adhesives then the use per bottle obviously will be more. But less bottles will be filled, which means less income for Collodin. This again is a unique circumstance, verifying the importance of personal contacts and tailor-made cases in the labelling industry. The third day I met Dr. Manfred Dietz, Collodin s specialist for hot-melts. He performed and later demonstrated the complete range of Collodin hot-melts, told me about his experiences until now. A wide range of competitor s (Henkel, National Starch) samples are in his office, what makes him a lot easier to develop better Collodin products against them. Unlike Mr. Körfer, Dr.Dietz deals also the commercial part of hot-melts, commercial representation is his job also. I think it is better to have an idea also about prices and not only about the technical part, because sometimes it is useless to have a premium quality adhesive if no company is willing to pay much for it. During the construction phase of adhesives/hot-melts, price is a crucial aspect as well. Dr. Dietz has the opportunity to develop hot-melts along these principals. 6.6 Our Collodin partners As I have mentioned previously, HSH Chemie cooperates with Collodin only in the adhesives, respectively hot-melt fields. A further cooperation in fields of automobile and graphic industry is conceivable. Concerning the adhesives market, we have managed to become suppliers to firms like Zwack Unicum Inc, DEKO Food Inc. (Debreceni Konzervgyár Inc.), Szobi 42

43 Szörp Inc. or Univer Kecskeméti Konzervgyár Inc. To Zwack Unicum we supply labelling adhesives (Signacoll 7100 and Signacoll 7176 H for glue of tax stripes), to DEKO Food we also deliver labelling adhesives for tin products and have the plans to carry on next year with tray hot-melts. Besides these bigger companies, we have smaller partners like Vitamór Ltd. or Aranykapu Inc. 6.7 Distribution features of the adhesives HSH Chemie s distribution process of Collodin adhesives happens the following way: Regularly when our stocks from each type of adhesive - fall below one pallet, we order a new shipment from Collodin in Frankfurt. These always up to date and followed orders are important, because HSH Chemie s main advantage always has been the fast service and that the goods are available anytime in our warehouse. Should a partner of us fax a 2 pallets order and we could not fulfil it immediately, we might took the risk of loosing the buyer. As - among others fields - I am in charge for Collodin products so I regularly have to follow adhesive stocks, summarise the already existing and in the close future foreseeable orders and forward it to Collodin to Frankfurt. Shipments are transmitted to HSH Chemie s warehouse to Budapest (Horog utca), from where our partners easily can receive their ordered types. Prices given by Collodin are on a FCA Budapest basis, shipments are transmitted with a thermo-truck assured by Collodin. 6.8 My job as a trainee sales representation My job as a trainee at HSH Chemie contains the following duties and tasks. From the companies represented by HSH Chemie I represent Collodin and Muehlmeier. I have to take care about everything related to these companies and their products. Concerning Collodin, I significantly have more work then with Muehlmeier (later on I will present Muehlmeier Ltd. detailed). 43

44 Part of my job is what sometimes feels like routine handling and affirming orders for Collodin products is a very organic and everyday work, in order to keep business going. I constantly have to follow the quantity of stocks, to avoid that we run out of stocks (obviously I only have to watch out for Collodin and Muehlmeier stocks). I organise shipments from Frankfurt to Budapest, provide necessary samples for trial cementations and regularly contact partners whether they had any problems or new tasks where I could help. If required, I can contact the engineers of Collodin for recommendations or technical advises. Deriving from the firm profile, all employees at the company are constantly on the search for new partners, new tasks. The same task I have, always looking for new companies to cooperate, trying to find contacts everywhere. Why I like this part of my job better is, that personal contacts and meetings in plants are always more exciting and diverse, even if the company is far away. This process looks as follows: Find the companies where might be a need for adhesives Make an appointment at the firm Contact the supplying manager, discuss the prices, quote a specific product - get as much information as possible Contact the engineer or the plant manager and discuss about technical details and an appointment for industrial trials might have to change my recommendations. If allowed, inspect the trials whether the machines are adjusted properly, whether all details are precisely fitted If industrial trials are successful, make the company order from HSH Chemie Not only new (possible) customers I visit regularly, but already existing good customers as well. Our partners very much appreciate if distributors are concerned about their problems, a high level of service is required to gain trust by managers. Under being concerned of them I understand, that I listen to their occurring problems, try to give useful tips or advices. Usually if once I have managed to enter a company 44

45 with Collodin products and the customers are satisfied with the adhesives I ask about the carry-on of our relationship what would be the new fields to where HSH Chemie could supply them? A minor part of my traineeship is a kind of market research. Should Mr. Sommer (export manager of Collodin in Frankfurt) have a new idea to introduce a new product, I research Hungarian firms whether at a given price it would be a demand for the new product. Sometimes prices given even on EXWorks Frankfurt are so high, that it would be impossible to introduce it in Hungary. In the future probably I will get the representation of the Czech producer Spolchemie, taking it over from my colleague Mr. Janos Timar. 6.9 Strict price competition Hungary is a price sensitive market, in all segments, from all points of view. Especially hard is a distributor s task to make profit and always find new buyers for relatively fixed prices. The basic difficulty to sell adhesives to the Hungarian market is the risks. Introducing a new product and inducting industrial trials is always a great risk failure in production, many costs. Another aspect that toughens the selling process is, that if the offered product ( in this case Collodin) is not significantly cheaper or it does not feature appreciably better qualities, then why would the contacted company switch to the new one? In HSH Chemie s (Collodin s) case the answer is the service we offer our customers. Amid the strict Hungarian competition, HSH Chemie many times has to concede with a penetration price - from the standard 15% profit in order to become the supplier of an important firm. In case of Zwack Unicum Inc to where HSH Chemie supplies Signacoll 7176 H adhesives this is typically the case. EXWorks price for Signacoll 7176 H is 1,72 /kg, the shipment from Frankfurt is around 45

46 0,15 /kg and our selling price to Zwack Unicum Inc. is 1,96 /kg, This price of 1,96 /kg is does only contain a rough 4-5% margin for HSH Chemie, which is far below our usual profit. The problem with strategically important big firms is, that after managing penetration with a given price, it is almost impossible or very hard to increase supply prices. That is why the penetration price has to be calculated very carefully, for long term, calculating on the future price increases of Collodin (if casein s price would increase on the global market, Collodin would have to increase prices anyway). In case of smaller quantity and not strategic customers HSH Chemie obviously tailors prices with 15% profit and forwards any other price increases int the supply prices. Figure 5 HSH Chemie s 2005 Prices for Collodin Adhesives HSH Chemie's 2005 Prices for Collodin Adhesives 4 Price,Euro/kg Signacoll 300 Signacoll 7100 Signacoll 7176 H Signacoll S HV-C Signacoll BA BA CC BA BA 630 EXW Frankfurt, Euro/kg FCA Budapest, Euro/kg Selling price, Euro/kg 46

47 Table 4 HSH Chemie's 2005 prices for Collodin Adhesives EXW FRANKFURT, EURO/KG FCA BUDAPEST, EURO/KG SELLING PRICE, EURO/KG DISPERSION ADHESIVES Signacoll 300 1,6 1,75 1,89 Signacoll ,72 1,87 2,0196 Signacoll 7176 H 1,72 1,87 2,0196 Signacoll S HV-C 1,72 1,87 2,0196 Signacoll ,55 1,7 1,836 HOT-MELTS 13 BA 343 2,24 2,39 2, BA ,5 2,65 2, CC 24 3,4 3,55 3, BA 366 2,74 2,89 3, BA 630 2,74 2,89 3,1212 A further price increase immediately could make the customers to switch to another product or saving on the used quantity. As far as I have experienced, using less from the same type of adhesive can have very unfavourable effects. Effects can be the proportionally increasing viscosity by casein based adhesives (because of air) and the significantly lower power of fixing. Exfoliating and falling labels cab occur, that being the case the plant has to relabell the glasses. Relabelling glasses obviously costs money, more than customers can save with using less adhesive Competition on the adhesives market Growth in global demand for adhesives will be driven by favourable activity in the paper and labelling industry. Total market value will continue to benefit from long term shifts away from commodity adhesives toward more environmentally benign formulations such as hot melts and emulsion polymers. 47

48 Today in Hungary, the same producers rule the market as in Europe: Henkel, Collodin and National Starch. A relatively small market share goes to Swift adhesives, being produced in Austria. Henkel is originally a Germany based manufacturer, but adhesives are newly located in France. National Starch is a Dutch producer, Collodin is German. The greatest slice of the Hungarian market has Henkel (41%), Collodin and National Starch are neck to neck to each other with 28-24% and Swift adhesives own a minor part of 7% market share. Hungarian Adhesives Market - Paticipants in % 7% 28% Collodin Adhesives Henkel Adhesives National Starch Swift Adhesives 41% Figure 6 Hungarian Adhesive Market Participants, 2005 Operating on such a price sensitive market immediately creates competition between the participants, as Collodin s and Henkel s features are roughly the same. Collodin s two main competitors are definitely the same price level, a 1-2% difference in prices is usual. Swift Austrian Adhesives are though cheaper then the average (due Austria s geographical closeness and quality), general features and fixing power is far below the required level. National Starch s prices are basically the same category as Collodin s or Henkel s, perhaps they are slightly higher. My point is, that the price/value analysis is the best of Collodin and Henkel Adhesives. HSH Chemie distributing Collodin s adhesives has a tough job by re-entering the market (as I mentioned Collodin was present in Hungary before 1990, now tries to re-enter the 48