B-To-B

By Alex Gutierrez

Larger Players Lurking in the Shadows for Composite Materials

It is a well known industry fact that composite materials today are a small share of the overall materials market. As we look at traditional materials, we see long histories for these to achieve the volumes they have today. Wood has been around forever. Steel was first developed in 250 B.C. but did not get ample use in Europe until the 400’s and 500’s A.D. Aluminum was first developed in 1825 and refined over the 19th century. Modern fiber reinforced plastics got their commercial start in the 1930’s, with solid investment into the technology and the industry not really starting until the post World War II era. So composites are still the “new kid on the block.”

Anyone who has ever sold highly technical products, such as composite materials, realizes that business development and sales cycles are long. Converting a customer using traditional materials to new composite materials takes a lot of time, information, and persistence. Having outstanding prod¬ucts, creativity, and even luck are also factors. I am proud that as a whole we have been succeeding. Composite mat¬erials continue to penetrate new applications. With a strong presence in the marine and transportation markets in the United States, the composite materials industry has established itself. With the booming growth for composites in the global wind energy sector, needs in infrastructure, and the new programs in aerospace, it seems as though we are only at the beginning of big changes to becoming a much larger industry.

We celebrate the growth, the new applications, and pat each other on the back for moving the industry forward as a group. And we should. But we are not the only ones keeping an eye on this growth and success. As composites growth continues to outpace other traditional materials, and composite materials come “above the radar,” there are larger eyes now looking at the industry. Composite materials already have some large dominant players, but they are few. The industry is characterized by a fragmented supplier base with a variety of different material and processing solutions. You can clearly witness this at the major industry trade shows.

But in the last few years, specialized international Private Equity investment groups have been looking carefully at companies, and buying them one by one in a strategic manner. Now large multi-billion multi-national companies are developing an appetite for the composites industry. Among many types of large companies, these include metal, chemical, textile, packaging, nonwovens, and film companies. They are examining their core competencies, analyzing composites as a future avenue for growth, and proceeding to implement their plans through a series of developments and acquisitions. I expect this trend to accelerate, where investment groups and/or large companies acquire promising composite technologies and push their commercialization aggressively.

In recent years, we have seen this initial trend through the consolidation of distribution, acquisitions and partnerships within fiberglass, buy-outs with resins, and acquisitions in the core materials niche. The goal is to grow revenue and reduce costs, thus maximizing profitability. The fastest way to do this is through acquisitions and consolidation to achieve a synergistic effect.

The industry will continue to evolve – be it for the better or just different. Larger companies and investment groups bring resources, discipline, and a certain level of organization that is needed to continue to pursue growth. Does this mean that the entrepreneurial spirit of the industry will die? I do not think so, as innovations in composite materials seem to be a never ending pipeline. But smaller companies must focus on offering something truly different which presents high value by fulfilling unmet market needs. Trying to compete on cost or efficiency against established products led by professional companies will provide no sustainable competitive advantage. Having an efficient manufacturing process and good delivery will become the “minimum admission fee” to being able to participate in the composite materials market. The differentiation will be in the technology itself, the strategy, and the sales and marketing focused efforts.

A smaller company will always be more nimble, so it must move into spaces where it can clearly distinguish itself. The products and services it offers must offer a unique quantifiable advantage. They must seek niche spaces that are not large enough to attract the large companies (at least not initially), yet provide tremendous value to a select group of customers. Small composite material companies must differentiate themselves and offer a well defined solution to the market.

The good news is that the large companies bring a lot of money, brains, and capabilities to the market. Overall they will “grow the pie” and we all will benefit. They will force the rest of the industry to become more competitive, benefiting composites against traditional materials. Some talented, small companies will be purchased by these larger players, which will provide them with the resources and tools to grow.

The business world has learned over the last ten years that change is coming at us with an increasingly accelerated pace. The internet age, globalization, technology development, communication – it all has caused drastic changes. With these changes, some composite material comp¬anies will thrive and others will not sur¬vive. It is the survival of the fittest.

Alex Gutierrez is the president of Agata LLC, an international business development and marketing firm focused on engineered materials. www.agatadev.com