TSMG Well Geared up to Serve Construction Chemicals Company

Manish Panchal
Tata Strategic Management Group (TSMG) is the largest Indian Owned Management Consulting Firm. Having set up in 1991, Tata Strategic has completed over 500 engagements with more than 100 Clients across countries and industry sectors, addressing the business concerns of Construction Chemicals sector. Tata Strategic is well positioned to assist construction chemical companies in developing a robust growth strategy for sustainable long-term growth in the Indian market. We also worked with the Department of Chemicals on the National Chemical Policy and development of the 12th five year plan for Indian chemical industry, says Mr. Manish Panchal – Practice Head, Chemicals & Energy, TATA Strategic Management Group, in an interview with NBM&CW.

Your overview of the latest trends in India's construction chemicals sector?
Construction chemicals Industry is one of the faster growing specialty chemical segments. Currently, it is estimated to be ~ Rs.3,000 crore, growing @ 15-17% per annum. As we know government spends on infrastructure as percentage of GDP has gone up, this has put construction chemicals industry on a high growth trajectory making it an attractive business to be in. This has led to several MNCs and Indian companies entering or planning to enter the construction chemicals segments to augment their product portfolio and become a part of this fast growing specialty chemicals segment.

A key megatrend impacting the construction industry is the focus on sustainability. Increasing focus on energy conservation and sustainability in buildings will require construction chemicals companies to develop products to meet these needs. Government policies that promote the use of energy saving materials and environment-friendly specialty chemicals will also benefit the suppliers. In such a scenario, demand for environment-friendly performance chemicals, such as waterborne coatings, is expected to rise.

Also, as the Indian construction industry evolves, quality will come into sharp focus. Currently, the focus is on improving the speed and quality of construction as urbanization is rising and lack of space in major cities is pushing cities to grow vertically. This has also facilitated increased demand for higher priced, value-added products, for both decorative and structural applications.

Another megatrend impacting the industry is globalization. Globalization which supports competition through low-priced imports of raw materials. This may pose a threat for high-value products such as adhesives and sealants, while formulated products are likely to be unaffected by low-priced imports as the transportation costs are high for these products.

A new trend that is being observed is that of construction chemicals companies focusing on logistics as a differentiator to make product delivery a part of their value proposition.

A word about the key challenges in construction chemicals market?
The fragmented nature of the industry presents a challenge as low entry barriers have led to high competition and several low value products being sold in the market. However, this is likely to lead to a trend of consolidation and we see several acquisition opportunities for companies.

At the same time, the construction chemicals market in India is still highly under-developed when compared to other countries, such as China, which is much larger at nearly ~$7.9 billion.Consumer awareness is very low regarding new chemical techniques and construction aids.

Price sensitivity of consumers is a key challenge for the market. Indian construction chemicals consumers are highly cost-conscious. The customers demand the best quality at very low prices. However, they are still not fully aware of the benefits of various construction chemicals and hence tend to use low-cost substitutes. Decisions are taken based on immediate cost not on overall cost of ownership (life-cycle cost) basis.

Also, market participants are frequently challenged by the absence of quality standards for manufacture and application of construction chemicals which leads to price wars.

The practice of employing unskilled workers in construction activities is still hampering the growth of the sector, as construction chemicals are sensitive products and their use requires basic technical expertise and training.

Please elaborate on the critical success factors for new players in this segment?
The three most critical success factors for the industry are the right price-value proposition, product innovation and customer education.

Companies that manage to achieve the right price-value proposition are likely to capture significant share of the market. Given the low awareness and price sensitive nature of the market, it will be challenging to get consumers to accept more expensive products. Companies must focus on creating the right balance of functionality and affordability.

Offering products innovated for developed countries may not work in Indian market. There is a need to innovate for Indian conditions and environment. Companies must work in collaboration with consumers to develop innovative solutions suited to the specific requirements of Indian consumers.

Effective marketing of products is essential to make users aware of their applications and benefits. Manufacturers could consider investing in programmes to educate construction contractors about the benefits of using superior construction chemicals, in terms of lower project completion time and ease of usage. Providing technical training to workers about appropriate usage of these chemicals in construction will ensure correct application and better results, reinforcing the customers’ belief in the utility of construction chemicals. It is imperative to maintain long-term relationships with customers and exert influence over channel partners to retain foothold in the industry.

What are some of the key growth drivers?
Well the end-use market has promising growth prospects. The Indian construction opportunity is expected to grow by 1.9 times over the next 5 years. This growth will be driven by investments in the infrastructure segment, which are expected to almost double over the next 5 years. 100% Foreign Direct Investment (FDI) in real estate will also boost construction activities.Increasing urbanisation and rising aspirations of large middle income group and changing demographics are driving demand for residential real estate. Also, low current levels of penetration will act as a growth driver for the segment.

Construction Chemicals

On the materials front, increasing acceptability of ready mix concrete (RMC) is also leading to increased demand for construction chemicals. Currently, the use of RMC in construction is around 7% of domestic cement demand. This is expected to go up to 20-25% over the next few years.

Coatings and sealants are expected to remain the largest construction chemical segments. Demand will be driven by their established use in all major construction markets as well as by a shift toward higher priced, water based products. Polymer flooring will be the fastest growing construction chemical segment in coming years. This is mainly due to a lower base and increasing penetration of these products in high-end car park applications. Demand of caulks & adhesives and cement & asphalt additives will be primarily driven by improving standards in building construction markets.

How do you see the Indian government roles in shaping this industry? What is your expectations from the government?
The Indian government needs to play an active role in shaping the industry. There is tremendous amount of skills shortage for which the government must create adequate vocational training institutes or encourage private companies to set up such institutes by providing subsidies. We are not addressing the skills gap at a quick pace and government must frame policies which address this.

Moreover, government must frame policies in consultation with industries. It should change the current and prospective regulatory guidelines incentivizing energy-efficient and green buildings.

Government must also frame policies which encourage adoption of standards matching/harmonizing with international standards. This will help increase the current penetration levels of construction chemicals. For example, complete ban on onsite mixing of concrete would reduce pollution levels and generate demand for ready-mix concrete admixtures.

What are TSMG’s offerings and how can it assist construction chemical companies?
Tata Strategic Management Group (TSMG) is the largest Indian Owned Management Consulting Firm. Set up in 1991, Tata Strategic has completed over 500 engagements with more than 100 Clients across the country and industry sectors, addressing the business concerns of top management. We work with clients and enhance value of their business by formulating effective strategies, developing innovative solutions and partnering with them for effective implementation.

The chemicals vertical of Tata Strategic has worked on several Indian entry strategy, growth strategy, operational efficiency and organizational effectiveness assignments for leading Indian and MNC chemical companies. We also worked with the Department of Chemicals on the National Chemical Policy and development of the 12th five year plan for Indian chemical industry.

We have in-depth understanding of the construction chemicals industry and have been associated with FICCI as knowledge partners for the Construction Chemicals Conclave for two years now.

Tata Strategic is well positioned to assist construction chemical companies in developing a robust growth strategy for sustainable long- term growth in the Indian market. Given the fragmented nature of industry, evaluation of inorganic growth route, identification of potential targets and due-diligence could be an area where we could extend our support. Another key area relevant to this industry is sales effectiveness. Tata Strategic’s proven sales process effectiveness framework could provide significant value to the companies in the industry. Given our extensive experience in the logistics domain, we could also support construction chemicals players in developing/optimizing their logistics strategy.
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