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Business

A Chinese Chemical Supplier Matures

Intermediates provider Kingchem adds capabilities to withstand competition

by Jean-François Tremblay
August 16, 2010 | A version of this story appeared in Volume 88, Issue 33

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Kingchem’s Chinaheadquartersand its manufacturingsiteare locatedinLiaoningprovince, in northeastern China.
Kingchem’s Chinaheadquartersand its manufacturingsiteare locatedinLiaoningprovince, in northeastern China.

When it started operating 16 years ago, Kingchem had a modest strategy of exporting moderately priced Chinese-made chemicals as a trader into the U.S. and European markets. But over the years, as overseas buyers became more familiar with Chinese manufacturers and more comfortable with their wares, Kingchem has built on that foundation and evolved into a sophisticated custom manufacturer of chemical intermediates.

“China is now a well-known source of supply, and customers know what the reputable manufacturers are,” says Stephen Wang, the New Jersey-based president and founder of Kingchem, whose China headquarters are located in Dalian. “Many customers still come to us with the idea that they want to buy from China, but we’re also attracting business because of the capabilities that we’ve built up.”

Kingchem has enhanced its trading operations by expanding into fluorine chemical manufacturing, a business that Wang thinks differentiates the firm in the custom manufacturing marketplace. In addition, Kingchem offers chlorination, high-pressure hydrogenation, and phosgenation, dangerous chemistries that are easier to perform in China than elsewhere, Wang says, primarily because of lower labor costs. Today, he adds, growth in Kingchem’s annual sales of about $30million comes more from the products it makes than those it merely trades.

Oliver Ju, president of Porton, a Chong­qing-based custom intermediates producer that operates in the same market as Kingchem, cautions that unique technical know-how is not a sufficient selling point forChinese companies. When major West­ern firms, especially those in the drug industry, buy chemicals from China, they are mostly concerned with health, environment, and safety issues, as well as with sound manufacturing procedures. “Tech­nology is the major differentiator for custom manufacturers based in Western countries, but for China, it’s mainly about com­pli­ance and project management,” Jusays.

Mastering a few differentiated production capabilities can help a Chinese supplier, but customers care more about the “total technical toolbox,” Ju adds. For its part, Porton has positioned itself as a custom supplier of chiral compounds that also offers other capabilities.

Wang notes that Kingchem doesn’t only perform difficult chemistries but also is a reliable and responsive supplier. In that regard, one of the company’s strengths is its U.S. presence. Its corporate headquarters are in the U.S., where the firm has a staff of 15 people.

The company’s customers include multinational firms from the electronics, pharmaceutical, and agrochemical industries. “So far, Kingchem has reliably followed up on our inquiries,” says a China-based purchasing manager for a major European firm that has been buying chemicals from Kingchem for several years. He asked not to be named because he’s not authorized to talk to the media.

“They quickly set up their new triphosgene chemistry processes and also resolved more difficult hazardous chemical processes,” the purchasing manager says. He notes that Kingchem added several capable senior managers over the past year after an accident forced the closure of Lynchem, another Dalian producer of custom intermediate chemicals.

Kingchem’s plant is in Fuxin, which, like Dalian, is in Liaoning province but is easier to access from the airport in ­Shenyang. For the past few months, the plant has been run by an executive with 25 years of manufacturing experience in the fine chemicals industry and who was formerly the head of environment, health, and safety management at Lynchem. Dalian-based Lynchem, which was acquired by Evonik Industries in March 2008, stopped operating about a year ago after it suffered an explosion at its wastewater treatment facility.

The appointment of a new plant manager is one of several changes that have taken place in Fuxin in the past year. Kingchem initially operated the plant as a joint venture with a state-owned company, but last year it bought out its partner’s 49% stake. Since then, Kingchem has acquired enough land to triple the size of the Fuxin site and has invested $5 million in capacity expansion. “It’s much smoother without our partner,” Wang says. “We can grow much faster now with a better management team and operate more like a Western company.”

Meanwhile, in Dalian, Kingchem is upgrading its R&D capabilities. “We keep hiring more experienced people to beef up our technical expertise,” Wang says, pointing out that in the past year he has hired several senior scientists who used to work at Lynchem and other companies. In Dalian’s high-tech park, Kingchem has a staff of about 30 people who develop manufacturing processes and new technologies. The company has submitted patents in China for inventions that it made in Dalian. A pleasant seaside city, Dalian is a better location than Fuxin to attract and retain highly skilled scientists.

Although he acknowledges that competition from other Chinese companies aiming to supply U.S. and European customers is increasingly acute, Wang predicts that Kingchem will grow by 25 to 30% annually in coming years. He thinks that’s a realistic number considering the growth his manufacturing operations have experienced so far. Since Kingchem opened the Fuxin facility in 2005, the staff has expanded from 50 to 250 employees. Wang is confident that more growth is in store.

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