(Yicai) Jan. 9 -- Eric Chung, chief executive officer of Nippon Paint China, laid out the company's roadmap for navigating through a challenging market, where it ranks as the top paint maker, grappling with shifting dynamics after two decades of uninterrupted growth with an eightfold surge in income.

Chung methodically broke down Nippon Paint China's business segments, analyzing current headwinds, future opportunities, and how the company plans to reinvent itself yet again in an exclusive interview with Yicai.

This was the first time Chung directly addressed growth pressures since joining Nippon Paint and spearheading its transformation from a paint supplier with an annual revenue of about CNY3 billion (USD428.2 million) into a solutions platform generating over CNY25 billion (USD3.6 billion).

Analyzing the Earnings Dip

From a business structure perspective, Nippon Paint China's challenging business performance stems primarily from decorative coatings, which account for more than 80 percent of its revenue, Chung said. Drilling down further, the segment splits into retail, known as the TUC (Trade Use Consumer), and engineering, known as the TUB (Trade Use Business), he noted, adding that while the former, which has the larger share, has held relatively steady, the latter shows a pronounced decline.

"For many years, the TUB segment focused too heavily on residential real estate while neglecting industrial real estate," Chung stressed.

The decorative coatings sector is a classic post-cycle market tied to real estate. According to data from the National Bureau of Statistics, new residential construction in China fell 18 percent to 332.73 million square meters in the nine months ended Sept. 30 from a year earlier after tumbling 23 percent to 536.6 million sqm last year from 2023, which has led to demand for residential architectural coatings to contract sharply, leaving even industry heavyweights like Nippon Paint vulnerable. 

Yet in stark contrast to the residential slump, China's industrial real estate continues its upward trajectory, with new construction area expected to hit 700 million sqm next year, so pivoting toward industrial real estate has become a structural shift that Nippon Paint China's TUB segment is aggressively pursuing. 

Whether for building new factories or upgrading old ones, Nippon Paint's products and services deliver "full scenario coverage," Chung pointed out.

Even with the retail business holding steady, Chung remains level-headed about the path forward, noting that to return to growth, Nippon Paint China must launch a fresh wave of transformation. "In recent years, we've overemphasized tier-one and tier-two cities while underinvesting in lower-tier markets. 

"On the product side, we've leaned too heavily on the success of latex paint categories, with insufficient innovation in new segments," Chung said, stressing that “We must transform.”

Strategic Pivot

Over a decade ago, Chung relied on sharp instincts and decisive judgment to steer a pivotal transformation at Nippon Paint. In 2014, the company introduced its "More Than Paint" strategy, gradually moving away from the Nippon Paint label to emphasize “not just coatings, but comprehensive solutions.”

It launched the brand proposition "Refresh Your Life" while simultaneously rolling out refresh services. The "More Than Paint" strategy propelled the firm to become the world's fourth-largest and Asia-Pacific's top paint maker by 2020.

Chung has now set another transformation in motion, saying that "past success hinged on 'channels plus brand,' but our strategy has since shifted toward 'innovation plus service,' no longer simply selling products, but driving sales through services, order by order." Nippon Paint China's Magic Paint embodies this comprehensive approach, he noted.

Launched in 2022, Magic Paint is an artistic coating that mimics the textures and visual effects of natural materials such as stone, leather, and fabric. Yet the concept itself is not entirely new, as back in 2014, when Nippon Paint China rolled out refresh services, special-effect applications like feature walls relied on imported Italian art paint, completed project by project, but never achieving scale.

To address the three key trends of younger consumers' demand for premium products, rising environmental consciousness, and the industry's pressing need for standardized delivery, Nippon Paint undertook a comprehensive standardization of art paint. Magic Paint became not just a standardized product but one that must be applied by certified "magicians," a title given to the firm's trained coating workers.

The Magic Paint-plus-magician model tackles a persistent industry pain point: inconsistent application results. By ensuring that certified professionals apply the product, Nippon Paint guarantees that Magic Paint's distinctive effects are precisely achieved, delivering standardized services that match consumer expectations.

To make this happen, Nippon Paint allied with the China National Interior Decoration Association and the Ministry of Human Resources and Social Security, setting up training and certification centers in over 40 regions nationwide. The number of certified magicians has exceeded 6,000.

The move represents a fundamental shift from "coating product supplier" to "integrated product-and-service solution provider." Through Magic Paint, Nippon Paint aims to pioneer and dominate the emerging artistic coatings segment, building competitive moats around proprietary product standards and professional services to cultivate new growth engines amid intense market competition and lead industry evolution.

Shifting from selling standardized products to service-driven sales to sustain previously high growth rates "is indeed a challenge," Chung said, adding that the crux lies in how quickly workers can be trained and scaled. 

Magician certification speeds are expected to accelerate substantially next year through systematic training combined with artificial intelligence and other technologies, with targets of reaching 60,000 certified workers to drive Magic Paint's market penetration, Chung pointed out.

Nippon Paint China recently obtained Shanghai's first foreign-owned vocational training school license under new regulations, with similar authorization pending in Hebei province's Langfang. The strategy combines centralized product delivery centers for cost efficiency with decentralized local service capability.

Nippon Paint China's future direction centers on providing localized services and strengthening regional capabilities, which requires balancing "centralization" and "decentralization," Chung said. Deliveries must be centralized through establishing delivery centers that significantly reduce costs and optimize resources by configuring factories across multiple regions nationwide, while operations at the edges must be decentralized to enhance organizational agility and responsiveness, he added.

New Growth Engines

Despite revenue pressures, Nippon Paint China maintains double-digit profit margins, an impressive feat in an industry engaged in fierce price competition. 

"Globally, few companies maintain high margins amid price wars, and what appears as Nippon Paint's involution' is actually internal refinement," Chung noted. Industrial coatings show promising momentum, he said.

While decorative paint demands contracts, industrial segments, including automotive, marine, container, solar, and packaging coatings, demonstrate robust growth, he pointed out. China's industrial coatings market topped CNY302.4 billion (USD43.2 billion) last year, with the auto, marine, wind power, and container segments standing at CNY43.6 billion, CNY11.5 billion, CNY2.7 billion, and CNY6.6 billion, respectively, he added.

Nippon Paint's automotive coatings business maintains double-digit growth, with the company building a "three-electric ecosystem" around new energy vehicles, expanding into motors and energy storage.

Nippon Paint showcased solutions targeting emerging sectors, including the low-altitude economy, NEVs, and advanced manufacturing, at the eighth China International Import Expo last month. Making its global debut, the Low-Altitude Aviation Comprehensive Coating Solution addresses aircraft protection and landing facility standardization needs. 

Other standout products included New Energy Power Battery Pack Coating Solution, the Radiative Cooling Coating, and the low-carbon, energy-efficient solutions for both complete vehicles and components in automotive coating manufacturing. Nippon Paint also showed full-scenario housing coating solutions alongside products for engineering machinery, bridges, tank trucks, and maritime vessels.

In addition, Nippon Paint inked joint research agreements with leading institutions, including Tsinghua University, Fudan University, Shanghai Jiao Tong University, Dalian University of Technology, and East China University of Science and Technology, while forging technological ties with industry players Zhanxin Paint, Covestro, and Clariant.

"Many were surprised, 'Is this Nippon Paint?'" Chung noted. “Actually, we've been cultivating these fields for years.”

Nippon Paint's industrial coatings expansion aligns with China's industrial transformation. The country's 15th Five-Year Plan emphasizes emerging industries, including new energy, advanced materials, aerospace, and low-altitude economy, potentially creating trillion Chinese yuan markets (billion US dollar markets). 

Quantum technology, biomanufacturing, hydrogen energy, brain-computer interfaces, embodied intelligence, and other future industries will drive the next decade's high-tech industrial development.

To support new growth, Nippon Paint opened its largest global automotive coatings production base in Tianjin in May, investing over CNY700 million (USD99.9 million) in the plant with an annual capacity of 133,000 tons, boosting China's automotive coating output by 30 percent. In addition, its Asia-Pacific Research & Development Innovation Center broke ground in Shanghai's Pudong district in August last year.

"We supplied automakers with car paint but never addressed their factory wall and floor coating needs because we only offered vehicle products," Chung said. Over four years, Nippon Paint evolved toward a front-middle-back office model, breaking down business silos, he said.

Chung projects modest performance next year but significant progress by 2027. “Looking at the entire coatings industry, B2B will outpace B2C globally -- that's the trend. Our B2B business is expanding, so opportunities definitely exist.”

Despite growth pressures and intensifying competition, Chung stressed that China remains Nippon Paint's most important and promising market. "Without competition, Nippon Paint China might not run this fast or feel compelled to proactively transform. In the Chinese market, you must maintain this state."