Paints and coatings – an industry undergoing transition

Paints and coatings – an industry undergoing transition
The Indian market is projected to grow significantly from EUR 3.5 billion in 2010 to EUR 22 billion by 2030, with leading players almost doubling their market share in Asia
Although sometimes believed to be a mature industry with limited potential, the global paints and coatings industry is currently seeing several trends that have significant implications for all players. These include:
Demand shift Significant changes in end-consumer industries’ geographic footprint will directly affect the paints and coating markets. Mature markets will remain flat, emerging markets are bound to experience strong growth.Changing business focusThe paints and coatings market will become more (end-) consumer-driven; manufacturers are expected to more closely align with their customers for R&D and product co-development. Hence, companies of European origin will remain among the world’s leading paints and coatings manufacturers, but face difficulties as they try to fully capture the potential of the Asian market. Asian players benefit greatly from staying in close touch with the customer – but they lack innovation capabilities
InnovationInnovation will play an important role in paints and coatings – with differing impacts over the upcoming decades. The Western world will leverage its capabilities in technical innovation, while Asian companies will lead with innovative business models that meet the market needs more effectively. As each group is trying to acquire strengths in local reach and technology, interesting innovations are likely to emerge. On the other hand, certain developments such as solar cell embedded paints and easy clean surfaces have been major technological breakthroughs, but largely disappointed in terms of business success.
Paints and coatings market development: global and AsiaThe global paints and coatings market is expected to grow by 3.5 per cent p.a., i.e. from EUR 68 billion in 2010 to EUR 134 billion in 2030. Asia is expected to drive this growth among all regions, dominating the paints and coatings market with an average long-term growth of 5 per cent p.a. On the other hand, the mature markets of Europe and North America will shrink (Exhibit 1).
Among Asian countries, Japan is projected to lose its leadership, while China and India are expected to drive market growth. The Indian market is projected to grow significantly from EUR 3.5 billion in 2010 to EUR 22 billion by 2030 (Exhibit 2), with leading players almost doubling their market share in Asia.
Indian paint industry – dynamics and driversWhere does the Indian paints industry stands today and where is it headed? Its size is currently estimated at EUR 3.5 billion and is set to grow at about 14 per cent over the next few years. Organised players are serving 60 per cent of the market, but a substantial share of the market is covered by small-scale manufacturers. The major regional players include Asian Paints, Kansai Nerolac and Berger Paints.
The industry can be broadly classified into two segments: decorative and industrial paints.
Decorative paints make up 70 per cent of the Indian paints market and cater primarily to residential and commercial buildings. Enamels are most widely used, followed by distempers and emulsions (Exhibit 3).
Industrial paints include paints used in automobiles, automotive accessories, consumer durables, etc. This segment requires technical expertise and hence is served largely by organised players. It accounts for 30 per cent of the overall paint market.With the market gradually recovering from the economic downturn, the paint industry is expected to grow at a healthy rate. Some of the key growth drivers of the industry are:• Low per-capita consumption − India’s annual per-capita paint consumption is a mere 1.4 kg, whereas other emerging economies such as China consume 2.5 kg and the global average is 11.5 kg. This indicates huge growth potential.• Growth in among end-users in the automotive and commercial/residential real estate industries.• Changing demographics − Growing middle class and rising disposable income. • Increasing demand in rural markets due to a shift from cement paints to better quality paints.
Indian paint industry – the way forwardOrganised players are entering into low-cost distempers and enamels, thus gaining additional market share at the expense of the unorganised segment. While solvent-based enamels are still popular in India, consumption is shifting from solvent-based to water-based paints. Due to environmental concerns, and catching up with a development that has long since taken place on mature markets, companies are introducing newer lead-free paints and products low in volatile organic compounds (VOC). Also, there is a perceptible shift toward the use of organic pigments in premium paints while heavy-metal pigments are being phased out.
Additionally, we can observe that there has been a gradual change in the strengths and market approaches pursued by various players (Exhibit 4). While global multinationals have particularly high innovation capabilities aimed at the high end of the segment, they need to adapt to local market needs. On the other hand, many small Indian players operating in the low end of the market still lack specialised, innovative, high-quality products and will lose market share. However, certain large Indian players like Asian Paints have aggressively explored all segments of the market, leveraging their distribution strength and proximity to customers to drive growth.
Case study – Asian PaintsAsian Paints has retained its market leadership and has grown at a fast pace. This is a big achievement for a chemical company in India. To draw a parallel, Ranbaxy was a similar Indian company in pharmaceuticals, where the promoters sold their stake to Daiichi of Japan, to boost its innovative drug portfolio. The Japanese company, in turn, gained access to India as a large future market and to low-cost manufacturing capacities it could leverage through its technology leadership. Asian Paints needs to remain at the very cutting edge of technology and innovation in order to strengthen and extend its market leadership, as multinationals such as Akzo are increasingly entering the Indian market. Akzo has recently invested in local manufacturing capacities to extend its reach and competitiveness. Asian Paints is most likely to successfully adapt to the changing business environment and remain market leader in India, given its history and investments in capability enhancement:• Bold introduction of innovative concepts to the Indian market, expected from a market leader, being the first to come up with colour/shade matching at distributor/dealer end, co-branding with DuPont, initiating quality home colour solutions in a fragmented home colouring market that depended upon local contractors, etc.• Cost-efficient supply chain in a business where margins were thin and depended greatly upon efficient logistics and warehousing.• Focused application development with alliances for technology and application development.  • Premium positioning through appropriate advertising spends, support of locally relevant products.• A well-established distribution network in India, built by the best marketing professionals recruited from top business schools, who have grown with the company, also making it a preferred employer.• A professional culture with matching remuneration to attract the best talent in India.
In summary, Asian Paints has so far done the right things and has done them well. The stock market bears testimony to this, with market capitalisation increasing more than five-fold over the past five years.
OutlookIn contrast to many other chemical industry segments, the Indian paints and coatings industry has managed to establish a number of regional players. These players not only occupy certain niches but compete sustainably and successfully against global competition. In doing so, they grow faster, are more profitable and have in many respects a better chance to capture future market growth in India as well as in other developing markets. But going forward, these companies will succeed only if they offer innovative and differentiated products that are customised to the needs of the local market. This requires innovation not only in terms of products, but also as regards operations and the business model. Companies need to leverage their strengths in technology, application development, competitive manufacturing and market access. It is expected that innovative business models will emerge as they leverage their strengths and close their skills gaps.About Roland Berger Strategy ConsultantsRoland Berger Strategy Consultants, founded in Munich, 1967, is one of the world’s leading strategy consultancies. It is our European background that makes the difference. We have a deep understanding of diverse cultures and markets. We combine European roots with pragmatism and entrepreneurial spirit. Our results turn visions into reality. This is how we create real value for our clients.
Roland Berger’s India operations kick-started in early 2012, and we are today one of the fastest growing management consulting firms with offices in Mumbai, Delhi and Pune, having consulted and implemented solutions for many renowned local and multinational companies in India.
AuthorsDr. Alexander KellerPartner Roland Berger Strategy Consultants GmbH
Dr. Wilfried AulburManaging Partner Roland Berger Strategy Consultants India Pvt. Ltd.

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