Perstorp AB
Background
Perstorp AB was started in 1881 by a young chemical engineer, Wilhelm Wendt, building a small plant for carbonisation of beechwood. Within a few years the company was producing a small variety of products, including charcoal, tar, pyrolignic acid and acetic acid. In 1905, Perstorp AB built its first formalin plant, and a modern, world-class chemical industry was created. From the start the company was characterised by the strong emphasis on product development and eagerness to branch out, both in areas of activity and geographically. In the early 1900s Perstorp AB produced its first plastic products, making it Scandinavia's first plastic industry. Perstorp AB also pioneered in the development of laminates, formaldehyde technology, polyalcohols and material technology for an increasing market.
Modern History
In the 1970s Perstorp AB was introduced on the stock exchange. It was also then the high degree of internationalisation started. By its creative development philosophy the company diversified in fields as Pharmaceuticals, medical technology, noise abatement, materials handling, Pergo flooring etc. Perstorp's modern history has been characterised by a niche strategy striving for world leadership.
In 2001 Perstorp AB merged with Neste Oxo. The new company focuses on two main areas, speciality chemicals and materials technology. Half of the work force is located in Perstorp and half is located outside Sweden. They have production facilities in eight countries in Europe, North America and Asia (What's so special about Perstorp?).
Interview at Perstorp AB
We interviewed Mr. Lars Eric Johansson, Vice President for Penta/Merchant Formaldehyde in Speciality Chemicals at Perstorp AB.
Markets
The degree of internationalisation of Perstorp AB is very high since 90 % of the turnover comes from abroad, and the internationalisation of the market is also high. Existing sales offices are located in Russia, Great Britain, France, the U.S., Brazil, Argentine, Japan, China, Korea, Singapore and India. Perstorp AB has production in eight countries: Sweden, Germany, the Netherlands, Belgium, Italy, India, Korea and the U.S. Factors influencing the choice of location of production are the structure of the market, access to raw materials and gas, and closeness to harbours for easy transportation and low cost of shipping. Export includes as much as 100 countries. Europe accounts for 50 % of export, NAFTA for 20 % and the rest of the world for the remaining 30 %. In the 1950s Perstorp started to export to Great Britain, Germany and Italy. In 1955 as a result of the Second World War and the threat of Russia, Perstorp sent four agents to Morocco, Egypt, Singapore and Brazil to explore new markets. One of them succeeded, and the Brazilian market was entered. Perstorp AB started in 1955 a production facility in Sao Paolo with 450 employees. In 1975 Perstorp made the first acquisitions in Great Britain, Germany and the U.S. in the form of expensive chemical facilities. During the 1980s the investments were concentrated within the walls of the European Union, and this was the decade Perstorp expanded the most. Perstorp started to niche within all business areas that lead to greater intemationalisation. The most specific asset of Perstorp AB is technical know-how and the long history of the company. According to Mr. Johansson, Perstorp AB is able to produce anywhere in the world. It is the production costs that determine the location of production.
From now on we concentrate on the product Penta, in the business area Perstorp Formox, within Specialty Chemicals, to be able to reach a deeper focus on the intemationalisation process. Penta is produced in Perstorp, Germany, the U.S and India, in Perstorp ABs' own facilities, and serves the whole world market from these locations. Perstorp chose to expand internationally through export from an existing facility. Then, if the market has potential, the company acquires a local facility abroad since it is less expensive than setting up a new facility. A smaller part of international sales consists of licensing of formalin, an ingredient of Penta.
New Market Entries
When it comes to acquiring market information Mr. Johansson states that Perstorp AB has agents all over the world. Today they posses knowledge about all markets, but earlier they used studies, agents and sales offices abroad to acquire market information. Sometimes they hired a third part to examine new markets. The main market information Perstorp AB is interested in is the costs of raw materials, energy and transportation costs. Factors of minor importance are low labour costs, tax and customs duties. Perstorp AB's main competitive advantage is economies of scale since fixed costs are divided on many products.
Problems and Possibilities Connected to Market Entries
Psychic distance, language barriers and culture differences were a problem 50 years ago when new markets were entered, but today this is a very global industry! Many of the customers are global and many business actors operate for example both the on European market and the Asian market. Perstorp AB can exploit the knowledge and experience from its home market when going abroad. One of the reasons is that they use standardised products not adapted to different markets. It is easier to transfer knowledge from the home market to similar markets such as the U.S, the Great Britain and Italy. It is more difficult and it takes longer time to establish facilities in India where more adaptations have to be made. To keep transaction costs low, for example for transfer of know-how there are internal transactions through hierarchy within the company, and external knowledge is seldom bought. Perstorp AB does not sell their know-how other than in joint ventures when prices are kept high.
Networks
Perstorp AB is engaged in different national and international networks, mong them the organisation Cefic, the European Chemical Industry Council that represents, directly or indirectly, 29,000 large, medium and small chemical companies. It is an international association with scientific objectives. A national network Perstorp AB engages in is "Svenska kemiforetagens intresseorganisation." Mr. Johansson states that the main reasons for engaging in networks is cost savings, lobbying and common rules for health and safety preventions for the industry. Some R&D is commonly developed within networks. Perstorp AB is not engaged in networks so much due to production. Perstorp AB is engaged in networks with organisations authorising and controlling the industry for zero environmental effluent, zero injuries of employees, 'green' production and ISO-standards. The disadvantages with networking are democracy since the company sometimes has to obey decisions not always in favour to the company. It also takes time and effort to be involved. According to Mr. Johansson, Perstorp AB participates in social networks such as local industry organisations.