Denka to invest more in S-E Asia to boost foreign sales

Singapore

JAPANESE specialty chemical firm Denka is planning to invest more in South-east Asia, and Singapore - already its largest overseas manufacturing base - will be one of its options.

This is part of the group's target of having overseas sales account for at least half of its overall revenue by 2017, said president and CEO Shinsuke Yoshitaka. Currently, about 40 per cent of the group's sales come from outside Japan.

The fall in oil prices has been beneficial for the group as the commodity is one of its most (if not the most) important cost factors, he said. While this has had a negative impact on upstream production and refineries, for downstream manufacturers such as Denka, it "comes as a relief".

"As a manufacturer, how to produce good-quality products at the lowest cost is always a challenge, and we are always working in that direction," Mr Yoshitaka told The Business Times in an exclusive interview . "So if the downturn in oil prices were to continue, we should be happy for our business, whether in Singapore or in Japan."

Because the group produces specialty chemicals mainly - only a fifth of its operating profit comes from commodity chemicals - it has managed to differentiate itself from the competition and faces less pressure for cost reduction from customers due to the drop in oil prices, he said.

"Denka tries to manage challenges not by facing the challenge head on. We want to focus on the creation of advanced innovative products - those that are so differentiated, that the prices of the products will not be affected adversely by crude oil price fluctuations. We try to immunise ourselves from volatility in the oil price."

Research and development is key to the group, and is an area that Denka plans to spend more on. It is already working with the Agency for Science, Technology and Research (A*Star) to enhance existing products and develop new ones, and could also start working with the research agency on bio-pharmaceutical products.

Life sciences is a sector Denka has identified as its next growth driver. In August, the firm announced that it would acquire a 51 per cent stake in German bio-pharmaceutical company Icon Genetics for 75 million euros (S$115.4 million).

In Singapore, Denka has four plants which generated a total of US$600 million in sales, or half of its total overseas revenue, last year. These produce acetylene black (used in batteries and high voltage cables), styrenic resins (used in DVD case and food packaging), fused silica filler (used in semiconductor encapsulation) and synthetic PVC fibre (used in hair products such as wigs).

The group was one of the first Japanese investors in Singapore and has so far invested about S$600 million in the city-state.

"We produce different products in different locations," said Mr Yoshitaka. "Our business decisions are based on the most optimal location for the product concerned. Each time we pick an investment location, we study the value add and choose the most competitive location to justify the decision."

The group also has its regional headquarters in Singapore. Denka Chemicals Holdings Asia Pacific will be its base for business expansion as the city-state is highly efficient in infrastructure and logistics, and transparent in taxes and government procedures, Mr Yoshitaka added.

To further strengthen its corporate functions in Singapore, Denka two years ago started a management trainee programme. Five Singaporeans have been selected and are now undergoing training at the headquarters in Japan; they will return after 2-3 years to help the group further grow the business out of Singapore.

"When it comes to specialty chemicals and innovative products, what's most important is the availability of human capital and talent. For that, Singapore is the most trusted location in this region," said Mr Yoshitaka.

According to him, there are not yet any concrete plans for future investments in the region though the group has been continuously investing and upgrading the plants in Singapore. It is, for example, now carrying out expansion works at its oldest plant at Merbau to increase its annual production capacity by 50 per cent.

Mr Yoshitaka was in town for an event to commemorate the group's 100th anniversary, its 35th year in Singapore, as well as the country's 50th year of independence.

Expressing gratitude for what Singapore has brought to Denka, he said: "When Denka first invested in Singapore in 1980, it wasn't that common for companies from Japan to invest out of the country. It has proven to be the right decision. We have progressed with Singapore in the past 35 years."