In a short span of about four months, The Sanmar Group, furthering its ambitious growth plans made forays overseas through two major acquisitions – a caustic soda-chlorine facility in Egypt and a foundry unit in Germany. Both the acquisitions are significant strides that will provide the Group with a foothold to operate on a global scale. While the famed joint ventures of the Group opened up the passage into India for international technology, the new acquisitions are ‘open sesame’ for the passage to a global platform for The Sanmar Group. The combined capacities of the chemical business in India and the Egyptian facilities after taking into consideration the proposed expansion plans, will present a fully integrated and profitable chemical operation, elevating the Group’s PVC business to the top 20 in the world.
The foundry unit in Germany and the huge expansions in the domestic foundry will provide the Group with a sound footing in the growing automobile ancillaries and off-the road vehicle segments both in the domestic and international markets.
The Sanmar Group’s investments in the international arena will aggregate to about 535 million US dollars. With the overseas investments and the expansion plans The Sanmar Group is today poised for five-fold growth by 2010.
The Sanmar Group forays into Egypt with the acquisition of Trust Chemical Industries. The acquisition and investments in capacity expansion and downstream projects is about 500 million US dollars.
Abdul Khaliq Mustafa and S Venkatesan (Project Team)
P S Jayaraman, Chairman, TCI, R Kalidas, Vice Chairman and JK Menon, Managing Director, TCI.
Salaam Alekum. I welcome each and every one of you at Trust Chemical Industries (TCI) to join the Sanmar family. We bring with us a lot of industry experience and I would like to assure you that we are here for the long term. Sanmar is making huge investments here. We are closely integrating our operations at Chemplast in India with TCI. It is like two families coming together and growing as one team. We invite you to grow with us. God willing, together we will have a good innings.
N Sankar in his address to Trust Chemical Industries’ staff.
N Sankar and Ismail Mohammad Ismail Khalil.
L to R: A Gopinathan, Ambassador of India in Egypt, Mrs Wong, wife of Singapore Ambassador to Egypt, Wong Kwok Pun, Ambassador of the Republic of Singapore in Egypt, Ismail M Ismail Khalil, erstwhile owner of Trust Chemical Industries and N Kumar of The Sanmar Group.
Touring the TCI facility.
TCI employees at the lunch hosted by Mr Ismail to announce change of ownership of TCI.
The Sanmar Group has kept itself highly agile, integrating forwards and backwards, steering the cyclical nature of the chemicals business to profitability. The Group, in nearly four decades of operating in the chemicals business, has taken strategic initiatives to optimise its operational facilities and market reach.
The PVC and chlorochemicals business has seen massive capacity expansion with the establishment of a greenfield PVC facility at Cuddalore with a capacity of about 200,000 tpa. The Group has a long record of chlorochemicals, PVC and caustic soda facilities’ operating experience that dates back to the 60s. It is this long standing experience and exposure to various technologies from diaphragm to mercury amalgam to membrane cell that helped The Sanmar Group clinch the acquisition of Trust Chemical Industries at Port Said, Egypt, amidst stiff competition from major international players. Sanmar’s acquisition of the facility, further expansion in capacity and downstream projects is about 500 million US dollars.
The facility at Port Said scores on its environmental friendly technology for its production process, feedstock supplies, cost efficiencies and its strategic location at the tip of the Suez Canal, facilitating product passage across the Mediterranean to Europe and through the Red Sea to Asia.All the plants – at Mettur, Karaikal and the upcoming Cuddalore plant – are focused on the manufacture of PVC and chlorine derivatives. The Egyptian facility will also follow suit.
The Trust Chemicals facility at Egypt is a state-of-the-art caustic soda plant that has adopted the environment friendly membrane cell technology in the production process.
The plant has a capacity of 200,000 tons of caustic soda, 180,000 tons of chlorine and about 4,900 tons of hydrogen. Expansion plans are already underway to increase caustic soda capacity by 75,000 tons per annum. An ethylene dichloride (EDC) facility is being set up with a capacity of 220,000 tpa. Continuing with the expansion programme, the facility will follow the EDC route targeting a VCM production of 400,000 tpa out of which 200,000 tpa will go to the Cuddalore plant for conversion to PVC and the balance of 200,000 tpa will be used for PVC production at a new PVC facility to be set up in Egypt.
“ This acquisition is a remarkable integration of a chlorine producer and a chlorine consumer, across two continents, resulting in commercially viable products - caustic soda and PVC, a win-win scenario for both.”
R Kalidas, Vice Chairman, Trust Chemical Industries, Egypt.
With these expansions, Sanmar’s PVC business becomes completely integrated. At full capacity, the Group’s PVC business is expected to be amongst the top 20 in the world.
The Port Said facility is managed by a senior management team well groomed, with the technical and leadership expertise required for the chemicals business. The domain expertise and operational efficiencies arising out of operating in a global platform will make Sanmar a major player in the international PVC and chlorochemicals sector.
“This is indeed a great opportunity for The Sanmar Group to have a presence in the international chemical arena and foray into the overseas markets.
Chemplast is a long standing player in the PVC vertical in India. With this acquisition we can establish ourselves in a big and growing market like Egypt. Once production facilities are in place, we will have a fully integrated facility at Egypt for PVC manufacturing and make available vinyl chloride monomer (VCM) thereby assuring supply of feedstock required for our Cuddalore operations.
As for zeroing in on Egypt, the location of the project lends itself for reaching international markets like Europe and Asia besides the natural market which is Africa.”
- P S Jayaraman, MD, Chemplast Sanmar Ltd, India and
Chairman, Trust Chemical Industries, Egypt.
(A Waltz with Sanmar)
Dr Arnold Kawlath, B Natraj and Vijay Sankar.
Sanmar’s ambitious growth plans by way of scale-up in size, equity and market reach, saw the Group’s first overseas acquisition of a foundry unit in Europe. The men at the helm got their act together to blitz the deal in an astounding three-month time-span.
Eisenwerk Erla GmbH, Erla, Germany, a member of The Schubert & Salzer Group, has a 650 year old history of iron extraction and processing in the Schwarzwasser or ‘iron valley’. The Ironworks at Erla has seen history pass through its portals, and change hands between various owners.
The technological prowess evolved and continued, in every century, with every owner. With every landmark event in history, the foundry has been there; through the progress from the industrial revolution to the era of user-friendly dream machines, from monarchy to anarchy, from the cold-war to the crumbling of the Berlin Wall, Eisenwerk Erla has been a key link in the value chain. The only constant in the evolution of this great foundry is continuous effort in terms of process and product variations and modernisation.
The foundry though in different hands, at each change has looked for market gaps and cashed in with product variations to suit market needs. In the 21st century, the foundry has a legacy of a great R & D base, abundant technological skills and patented technology specific to the automobile industry. Coupled with this is a reputation built over decades of excellence, customer relationships and reliability and of course, the strength of customer proximity.
Bertram Kawlath and Dr Arnold Kawlath of The Schubert & Salzer Group with Vijay Sankar and B Natraj of The Sanmar Group at the signing of the agreement.
B Natraj on the Erla Foundry Acquisition
“For sometime now, the Sanmar Foundry at Viralimalai has increased its customer base to include the transportation industry. These would be large steel castings supplied to manufacturers of earth moving equipment. A natural growth from this would be iron castings and The Sanmar Group has chosen SG Iron Castings as an initial launch programme for supply into the automotive industry.
Due to the natural advantages arising out of low manufacturing costs in India, it is expected that the metal pouring and metal castings industry will form the base for The Sanmar Group’s entry into the automotive sector.
The “proving” period for fledgling automotive ancillary is significant and recognising this, we have bought a successful existing foundry in Europe, which has an excellent customer base including Borg Warner, IHI, Audi/VW Group, BMW, Daimler Chrysler, Honeywell, MAN, MTU, Liebherr, Luk, etc.”
Bertram Kawlath: A historian by profession Masters in History (focused on Modern history- global, nuclear strategy, etc).
Masters in English Literature MBA from International University, Geneva A member of the Presidency of The German Council for Foreign Relations Part of The Ten young Entrepreneurs’ Group of the German Chancellor.
Mrs Kawlath: Masters in English Literature Masters in History Teaches English and History Interests: Travelling, foreign policy, family Leisure: Sailing – Sails twice a year with his wife Golfing- Presently the birdies are on the back burner since his 17-month daughter has taken centre stage.
Managing Director,
Eisenwerk Erla GmbH On his choice of specialisation:
My dad wanted me to be a chartered accountant. I wanted to be a historian. I had my way. Our former Chancellor Helmut Kohl himself is a historian, so it is all right, isn’t it?
With Eisenwerk Erla foundry shifting to Sanmar hands, yet another East-West wall crumbles…
In Germany we say, the wall is in the head, if ever there was one and we’ve tried to keep the walls out of our thinking. We never looked at the world as East and West. East and West Germany, I’d say yes. I was born and bred in West Germany.
Our business is in East Germany. The East-West divide does crop up in conversations. Building relationships with people from anywhere in the world is more to do with similar attitudes than anything else. I felt very much at home in India. The ease with the language especially, makes personal interaction much easier as compared to China.
The attributes that brought Sanmar and Eisenwerk Erla together...
Essentially similarities in thinking – both are family-owned businesses and distinct in that we think long term. Our plans are not in terms of years but lifetimes. The levels of flexibility, being able to decide quickly, is another attribute. But most importantly, it is the ethical moorings. When I saw Sankar, I told my Dad, “He is a mirror image of you” the thinking process, quick decision making, creative problem solving, etc. Two like-minded people can come to conclusions very quickly.
‘Spotting’ ethical moorings…
It is in the small things. Erla is a success story, many people knocked on our doors. My Dad wanted to make sure that his people would be treated well. One thing that came across in the business plans, the negotiations and the approach was TRUST. We were very open and frank and in return Sanmar trusted us and showed faith. There was total transparency in our discussions.
The Erla foundry was acquired by the Schubert & Salzer Group. The dynamics of operating a foundry once owned by the state...
In the early nineties when we took over the Erla foundry, there was a severe fall in strength from 550 people in 1989 to just 80 people. But the business potential was huge. The Erla foundry was making vital parts for the East German car industry. Even in ‘cold-war’ influenced East Germany, the foundry had western customers as it brought in foreign currency.
When we entered Erla, the people were sceptical about yet another westerner. My father’s focus was: (1) People (2) Modernisation.Between 1994 and 2006, we invested 45 million euros. The bulk of the investment went into productivity – new buildings, machinery, technology. East Germany was characterised by poor infrastructure. Incidentally, a month before the Wall fell, we installed the second Disamatic line.
Managing a work force with a proletariat gene...
Whatever stereotype East Germany may be attributed to, the Erzgebirge or “Ore Mountain” area is unique in that it is a traditional area. Generations of people have followed the iron works tradition and there is continuity as skills have been passed down. People are very industrious; they love their work, no matter who owns the foundry, as long as they are treated well. Saxony, at the border of World War II, was the cradle of the German machinery and car manufacturing industry. When we came in, it was more a return to tradition. There were no problems whatsoever. The initial scepticism was expected because like the gold miners during the Gold Rush, Erla was exposed to a lot of people who came in without capital. In the end it’s always a question of honesty, transparency and building relationships, and we scored on all these fronts.
On customer management...
In the context of customer management, ‘long term’ is an important word. Our focus is always honesty. We never promise anything we cannot deliver. We strive to be our customers’ enduring partner not the cheapest partner. We address our customers’ needs by working alongside as their R&D partner. Our entry point to customers is the engineering section. It’s only five steps later that we get to the purchase department. We solve our customers’ problem from the front-end product line upwards. Our thinking is that it’s not just a casting problem, there’s more to it.
‘Advantage’ customer proximity…
The advantage has more to do with relationships than geographical proximity. Ours is a strong R&D centre. We have specially skilled people who work closely with the customers at various levels of the manufacturing process. I feel very secure with them. Closeness with the customer is not something created in a year, it takes many years of working together and very good networking. Geographical proximity though not imperative, surely helps. But above all it is technology,R&D and skilled people in the full process line that is our advantage.
Managing the key links for ‘just in time’ delivery...
We have invested in and perfected our core processes. We have also selected partners who have invested in their core processes. We have established an excellent network. The various manufacturing processes may originate in Erla, proceed to the Czech Republic, onward to Hungary and finally head to be part of an engine elsewhere. We choose the correct partner at the correct location for the correct job.
The dicey business of logistics…
Sometimes we undertake delivery ourselves, sometimes the customer picks up the goods themselves. The important thing is the part should be available for the customer when they need it. We have to ensure that the parts are finished at the right time and ready to be picked up. We have invested in sound IT systems to ensure this.
On guarding patent and technology rights…
It is not about patenting a part. The entire manufacturing process right from raw material to its treatment is customised to our customers’ needs and constraints. It is more to do with a continuous process of R&D and hence each product is a holistic solution to the customer’s unique needs.
Recruiting and retaining talent…
We recruit through hard-hitting advertisements. We work closely with universities to tap bright young engineers. We also appoint apprentices and fund their university education and train them. We provide opportunities in R&D for our young engineers to solve our customers’ problems. Who wouldn’t want to write a thesis for a BMW, Daimler Chrysler or an Audi?
Challenges of managing a JV across the globe…
I don’t see any major challenges. After all the ways of working of both the groups are similar. Nothing changes much for me in that my interactions with my father are replaced with Sanmar. Culturally, the language barrier could be there. The only other language people speak here is Russian (a cold-war legacy). But we are working around this. People in Erla are taking English classes just as Ramdas is taking German classes. They take a while to open up. It happened to me when I moved in here. Even the dialect was different. But given time, they see we mean what we say, they open up and the relationship thus built is more solid.