A Small Firm With Big Aspirations

Carus Chemical spent years fighting Chinese competitors. Now the company is planting its feet squarely on Chinese soil, where it broke ground on an office and warehouse last month.

"We're small, but we aspire to be bigger," says Inga Carus, the 47-year-old president and chief executive officer of the Peru, Ill.-based firm. A producer of potassium permanganate with annual sales of about $100 million, the family-owned firm beat out the U.S.-based competition years ago. Now it has only one small European competitor, several in India, and as many as 14 in China.

In 2000, Carus entered the European market when it bought a small Spanish permanganate maker. Today, it supplies all its customers from its plant in LaSalle, Ill., whose capacity it recently expanded by 10,000 tons per year. Inga Carus, who became CEO in 2005, says she wants to double or even triple the firm's size and globalize its business by adding manufacturing in Asia and the Middle East.

Potassium permanganate, the firm's main product, is used to improve the taste and odor of drinking water, explains Carus, who has a B.A. in chemistry and an M.B.A., both from the University of Chicago. KMnO₄ is also used to manufacture pharmaceuticals such as antibiotics and tranquilizers. In addition, the firm manufactures manganese-based catalysts and phosphate water treatment chemicals.

For years, Carus Chemical has accused Chinese companies of dumping permanganate in both the U.S. and Europe at prices below their own cost of production. The scrappy firm's complaints did not go unheard, and it succeeded in wrangling government protection in U.S. and European markets. But duties imposed on permanganate exports from China to the European Union expired earlier this year. And come 2010, U.S. government-imposed duties on permanganate imports will expire as well.

Inga Carus acknowledges that Chinese producers have advantages over her firm, but says those advantages are not as glaring as they once were. About 18 months ago, high energy and raw material prices forced Chinese companies to raise permanganate prices. This move to what she calls "more realistic" pricing does not mean that her firm's beef with Chinese producers has ended.

Carus claims that, despite new environmental laws, the Chinese government continues to allow local companies to operate a highly polluting process. These permanganate makers also receive loans from government-controlled banks that don't operate according to Western standards, she charges. Such loans effectively subsidize firms that would otherwise not be able to compete with Carus Chemical, she says.

The company has looked at manufacturing its own permanganate in China, but it is concerned about protecting its manufacturing know-how from Chinese competitors. "In China," Inga Carus says, "everything is possible, but nothing is easy." For now, the firm will limit its Chinese presence to the warehouse and office now under construction in Guangzhou, Guandong province, and an existing small office in Beijing.

In the meantime, the firm plans to build permanganate capacity in the Middle East from which it can easily supply customers in Asia and Europe. Energy is a significant cost in the manufacture of permanganate, Carus explains, so the company is looking for a partner in the Middle East where natural gas costs less than elsewhere. A plant could be located in Qatar, Oman, or Kuwait, she says.

Carus Chemical became what Inga Carus calls "a big fish in a small pond" because of technical advances that her father, an electrical engineer trained at California Institute of Technology, and his brother, a chemical engineer trained at Cornell University, developed in the late 1950s. According to her father, M. Blouke Carus, he and his brother replaced an energy-intensive, low-yield permanganate process with an electrolytic-cell-based process that improved yields and reduced energy usage.

Those advances lowered the firm's production costs. And they were more environmentally friendly, virtually eliminating any emissions into air and water, claims Blouke Carus. The elder Carus is still chairman of the 91-year-old firm, which was founded by his father, Edward H. Carus.

The firm's process is totally self-contained, he explains. For instance, sumps surrounding equipment allow Carus to recover any leakage from valves and recycle it back into the manufacturing process. While the patents surrounding these process improvements expired many years ago, "90% of our know-how is not patentable. And what we know is based on our experience and equipment," he adds.

If Carus were publicly owned, it would long ago have been sold to a larger firm in a similar business, says Frederick M. Peterson, president of the chemical consultancy Probe Economics. "They obviously have a lot of family pride to stay independent for so long," Peterson says.

Potential buyers have come knocking at the door, admits Inga Carus, a member of the third generation of the Carus family to take a hand in the firm's operations. But "we want to keep the business in the family." Her cousin, Paul Carus III, a chemical engineer with a degree from the University of Illinois, is chief operating officer. If the family were to sell, "I'd have nothing to do," Inga Carus jokes.

Doubling or tripling sales over the next three to five years will give her plenty to do. To get there, she is considering ways to significantly raise the firm's permanganate capacity. Acquisitions could also help. She says Carus is closing in on a deal in either the phosphates or catalyst business. Ultimately, she says, her firm will be an even bigger fish in the small pond it swims in today.