J@pan Inc talks to Peter Massion, President & CFO
By Anna Kitanaka
Can you tell us about your focus in Japan?
For Japan, the majority of our revenue is in industrial adhesives, sealants and surface technologies which are sold through Henkel Japan and Cemedine Henkel. The industrial area is the major focus for Henkel and where we want to be stronger and better positioned in the Japanese market.
Another key market is the hair care segment, where Henkel is active in both consumer retail and professional hair care. Both sectors are very competitive, and unfortunately in the recent past have experienced more or less overall stagnant industry growth.
Two big businesses—are there any synergies between the two?
No, none (laughs). Actually none on the actual business side. You can say there are synergies in the back office functions, such as in Finance and HR. I like to joke that if you come to Henkel and you take the elevator to our offices, you can tell who comes from which division. Industrial adhesives staff tend to wear dark suits, white shirts, and conservative ties—more like me! Hair care employees are more trendy and characterized by spiky and colored hair styles, more fashionable suits and so on. So a completely different flavor with very different personalities. For instance, you would not be able to take a good sales person from hair care and make them sell industrial adhesives.
Can you tell me more about industrial adhesives?
Well it’s a product range used by almost every single industry you can imagine. Our clients range from major OEM automotive companies to leading electronics players, as well as medical, steel and other sectors. For example, there are certain Formula One racing teams that utilize more than 320 different Henkel product applications in their cars. We can honestly say that without our adhesives and sealants, the car wouldn’t stay together during a race!
How about hair care? How do you compete?
That’s a tough one. You may have a company that suddenly has a new unique technology but you have to accept that six months later, everyone will have that too. We do have new products on a regular basis but honestly speaking, our competitors do the same. The overall market size is relatively stagnant so within that, we have to hold our share and try to expand—that is what we are focusing more on: intense marketing efforts for salons through events, PR, advertising, beauty salon consulting and product training, not just selling our products. A key to our success is the many relationships we have built with salon businesses and industry professionals. We support them and know how valuable it is to have them using our products and recommending them to their customers.
What’s your strategy for growth—more acquisitions?
Whenever there’s an interesting opportunity, we will look at it but the challenge is in the area of return margins on sales—we have a globally declared target of 12% and there is basically not a single Japanese company reaching that level which falls into our industry sectors of interest. Of course, you can perhaps acquire a Japanese business and then execute a restructuring process but that is hard as you have to respect certain local customs. You can’t just walk in and make everyone redundant. We always try to apply local practices but if we see it as too much of a challenge to accomplish 12%, it’s much better to develop our business via organic growth.
How different is Japan compared to other markets?
Well for things like our consumer glue sticks—‘Pritt Sticks’— Japanese customers are the most demanding in the world. Glue sticks require a sophisticated winding mechanism for moving the actual glue stick. On extremely rare occasions a glue stick may have a problem being wound back into its casing. This is not acceptable to Japanese customers while in many foreign countries such a problem is addressed by a customer pushing the glue stick back into its casing with his fingers. The Japanese market is much more demanding and tough.
So if Japan is the toughest market in the world, do you use it as the model for high standards?
Well, in Japan we believe that’s how you should do it but the problem is, in other markets where you do not have such high expectations, it is possible to succeed with a more general product. Japanese customers will pay for high quality but the same products may be over-engineered in other markets where customers may not be willing to pay the same price.
So for example in the case of ‘Pritt Glue Sticks,’ Henkel has dedicated factories set up where we can ensure the unique quality for Japan, but in other markets, the same products may just be too expensive to sell profitably.
Have you faced any challenges as a foreign company?
The challenge that we may face locally is the same as for any foreign company, which is that in Japan, to have true success takes a long time. It doesn’t happen overnight. You have to invest in customer relationships, the right products, adapt them to local standards and so on. And sometimes that is a challenge as head-office is much more short-term orientated, so if we forecast good returns in five years from now for a new R&D product idea, although this looks good to regionally based management, head-office may react differently, like “Five years! Do we have to wait five years for a return?” Fortunately our senior level management is actually very understanding and aware of the more demanding Japanese standards, customer expectations and time horizons for consumer collaboration on new products. JI