**[investwise]** Akzo Nobel (BSE 500710) Wants "Dulux" To Shine Up India

 

Three years ago, Hans Wijers transformed Dutch firm Akzo Nobel from a mid-size drugmaker to the world's largest paints company by acquiring UK's ICI. The former civil servant, who dabbled as a business consultant before becoming the Dutch minister for economic affairs only to return to the corporate world and eventually became the CEO of Akzo Nobel, loves to ask questions. In an exclusive interview with ET , he says asking helps him build a logic as he prefers to ask how one is doing and what he is doing, rather than telling people what to do. But the task is cut out for the India team at Akzo Nobel with the top boss looking at more than fourfold jump in revenues to e1 billion by 2015. Excerpts: Much before buying ICI you said a measure of great leadership is courage, citing example of IBM transforming from hardware to software firm. You did something similar, so was it planned years ahead? Not exactly the timing and exact steps. But where we wanted to go, yes. It took me one year to think of the sequence of steps and then I followed that agenda. How did you justify selling high-margin pharmaceutical business in favour of paints? One of my teachers once said it is not good to be generally right, and you have to be specifically right. Pharmaceuticals is interesting but its high-risk and high-return business and needs scale. We had a nice business, but we were relatively small. We were already a big player in paints and I felt it was an underestimated sector with high-growth potential and if you become number one, you have a very attractive position. So, it was a counter intuitive move and we sold off pharma business and used that money to get ICI. Yes, the margin is not as high as pharma, but in 2009, despite the economic scenario, we still had a formidable margin. It's a very attractive business and less cyclical than what people thought. The deal also gave us a great platform in all growth markets, including the BRIC. But in some of the emerging markets including India, you are not among the top two firms.... In mature markets like Europe and US, if I see a situation like this I would be concerned. But looking at the growth potential in India, its early days and markets are still in infancy. We are at number three position in India but it will change. We have just begun. India will see atypical pattern of growth, services first then industry will take over and we are going to benefit from this. The country has developed a better sense of direction over the past few years that I have been visiting India. You have indicated Akzo Nobel is not chasing mega deals like ICI in the paints industry. What does it mean for consolidation and for Indian growth plans? For very big companies, it is less likely to happen but there are still a long list of companies in the e2-2.5 billion sales mark. So there are lot of M&A opportunities, maybe not within the top five firms but we have aggressive growth ambitions in emerging markets including India. Now, we can do a lot via organic growth in India and the ambition is to upscale the business here in 4-5 years to a e1 billion euro company. That's basically organic growth. Our M&A strategy can be for three reasons. In mature markets, if it leads to consolidation where you can reach the top two positions. In emerging markets, which are at a certain stage of development, to establish a growth platform. ICI has us an entry into markets like India and China where we were too late in the game. Thirdly, if there are local players with excellent technology who do not have resources to go global, we can buy them. Analysts say your China investment strategy has more clarity than that for India... Until now, what we have done in India is on a relatively low scale beyond the cost of acquiring ICI India. We expect it to grow much faster now on the industrial side, which means performance coating business and specialty chemicals in the B2B segment that is small at present compared to our decorative paints business. We have got more ambitious and rather than taking step by step, we plan to accelerate growth in the industrial side. And that could also include acquisitions plus big investments in new plants across the country. For decorative paints business, we want to really outgrow the market primarily through organic expansion. If there are some attractive targets, we will look at them. How do you attack emerging markets like India with a brand that is perceived to be relatively premium? Is there a second brand in the works? Dulux is not just for the very high end and it has different offerings. We have a second brand in some markets and need to build on that. A typical mistake that companies from US and Europe make is focus on high-end products. Although you can grow that, you miss out on enormous opportunities in other markets. Our ambition is to participate in the mid-segment also. There is an existing brand in India and we will use it to serve the mass and mid-end market. Sometime ago, you delisted from Nasdaq. Is it part of a strategy to exit from multiple stock exchanges and what does it mean for Indian arm where the public holding norms have just changed? We were listed in Nasdaq and then we found what Sarbanes Oxley was about. We decided to exit after looking at the benefits and costs involved under the new regulations as international capital markets do not give any premium to have a dual listing in US and Europe. So we only saw the additional costs. If we would ever make a move again, we would not go back to Nasdaq and look at opportunities in Asia. For India, we haven't completely made up our mind and are currently majority shareholder. It's not the highest priority to bring operations directly under one roof. Besides, there's an advantage of being a listed company as it attracts more attention and even if we don't do it for the need for capital, it makes sense to connect with the people. So there might be an argument to stay listed on stock exchange. You have made fairly interesting career moves swinging between public administration and corporate world... I am a curious person and always interested in changes. Having a government experience has been useful to understand how government works and why public servants do what they do. As a consultant, I have learnt to digest lot of information at a very fast pace. But you must be glad you are in the other side, given the state of European economy... I continue to follow closely what is going on in Europe. Even as the growth markets are in BRICs, 40% of our business is in Europe. If you study the history of EU changes take a lot of time. They were never nicely done and Europe stumbles from one change to another and typically looks a bit awkward. But they get there. I guess this time also you will see it will take too much time, mistakes will be made but in the end it is an irreversible process for the European countries to unite further. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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