Shane Michael O'Malley

 Paint Manufacturing NAICS 32551 Contents Early American Paint History2 Paint Industry Definition2 Industry performance3 Safety Concerns4 Coating Industry Legislation6 Category Segmentation9 Emerging Technologies11 Geography Segmentation13 Emerging Markets14 Market Rivalry16 Early American Paint History The industrial revolution sparked the beginning of the first U.S. paint mill in 1700 by Thomas Child. Dr. Averill of Ohio in 1867 patented the first “ready mixed” paints in the United States. By the 1880’s paint companies were established in populated industrialized centers mostly near oil refineries. It wasn’t until the mid-1990’s that larger paint manufacturers dominated the market. Prepared paint is heavy, which makes it expensive to transport so smaller companies spread out across the country gave the best value to consumers. The Model T Ford personifies the industrial revolution with the creation of the assembly line.[ CITATION Abo15 \l 1033 ] With this newly developed market came the need for large amounts of paint. This is just one of the newly developed markets that sparked the need for a robust paint industry. By the 1950’s when the threat and hazards of lead paint was made known manufacturers voluntarily began a campaign to remove it from household paint. It wasn’t until 1978 that the Consumer Product Safety Commission banned the use of lead in consumer paint. Paint Industry Definition Today the paint and coatings market is identified by liquid and powder based paint, varnishes, industrial, automotive, and specialty purpose coatings. All of these coatings designed for both decorative and protective purposes. Key products include paints, varnishes, lacquers stains, fillers, putties, paint thinners and removers. [ CITATION Joc14 \l 1033 ] Industry performance [ CITATION Glo14 \l 1033 ] As of 2013 the global paints and coatings market was worth according to one estimate, $121.9 billion and is expected to reach $176.5 billion by 2020, this represents a CAGR growth of 5.5%. One of the key economic activities that drive demand for the paint industry is construction for both interior and exterior paint. This includes both residential and non-residential construction. One key external driver that determines the level of paint output is the World price of crude oil. IBIS world predicts that the price of crude oil will continue to fall and when this happens all other industries down and upstream of the paint industry will see positive growth. Because of the previously high oil prices paint companies where forced to increase the price of paint to protect from losses. When the price dropped paint companies did not drop their prices to protect from volatile global economic conditions. The price of Raw materials constitute almost 60% of total revenue in 2014. The single most expensive cost is pigments fallowed by epoxy’s and other resins. Many of these raw materials are petroleum based and as stated early as goes the price of oil so goes the price of manufacturing paint. The primary reason for the expected paint industry growth rate is a global population increase. There will be a demand for new housing as well as more fuel efficient automobiles. Many industries have rebounded from the recession that was triggered in 2008. The durable goods industry grew from $958.7 billion in 2010 to $1096.4 billion in 2013. The construction industry faced a similar trend, $539.1 billion in 2010 to $611.4 billion in 2013. Primary industries like these are what fuel the growth for the paint and coatings market.[ CITATION Per14 \l 1033 ] Safety Concerns Environmental regulations are paramount not just for the environment but also for worker safety. But before examining this important factor in production of paint, we must first understand the causation of increased regulations. The fact is when using products like pigments, extenders, solvents (toluene, xylene, ketones, alcohols, esters, and glycol ethers) along with additives, and binders. The effects inevitably reach the workers. The predominant risk associated with paint manufacturing is cancer, with the primary types being lung, bladder and pancreas cancer, and lymphatic and hematopoietic tumors. These finding were actually issued by the 1989 report by the International Agency for Research on Cancer. This report also goes on to say that occupational exposure in paint manufacture is not classifiable as to its carcinogenicity. In Brazil a study was conducted by the Brazilian National Ethical committee on Research. The study included 58 male workers of a paint manufacturing company where workers were exposed to organic mixtures. The control group contained 30 healthy males. All factors were taken into consideration: age, gender, and exposure to x-ray, vaccinations, medications, smoking, coffee, alcohol, diet, number of hours worked per day, and time exposed to organic solvents. Groups were broken down into nonsmokers, and smoker (more than five cigarettes per day). At the end of each day blood and urine samples were collected along with periodic medical examinations by nurses. To measure toluene exposure 50 mL of the urine samples were analyzed for hip uric acid (HA). For the blood test leukocytes, erythrocytes, hemoglobin, and hematocrit was measured.[ CITATION DeO11 \l 1033 ] The results to this study to say the least was inconclusive. Between the two main study groups (smokers, and nonsmoker) no significant differences were shown. Analysis reveals that all paint workers used silicone gloves to prevent skin contact along with glasses and breathing masks along with ventilation devices within the facility. When performing a test on blood leukocytes data showed DI and DF were significantly greater than the nonsmokers. The main point of this test was to use blood cells as sentinel cells to provide early warning signals. The fact is paint workers are exposed to complex ingredients including organic solvents, heavy metals and other compounds with mutagenic properties. The primary data shown contrast with nonsmokers was a higher concentration of toluene metabolite appearing in the urine of workers of the control group but still of acceptable levels. The biological effects due to exposure to organic solvents result in decreased production of red blood cells, white blood cells and platelets. Comparing their test group with that of another company in Sweden no hematological differences were shown.[ CITATION DeO11 \l 1033 ] The main attributing factors to health problems within the paint industry are well known. Age, sex, and smoking on DNA damage were all excluded in this study. In the end it was concluded that smokers did not represent a significant factor in terms of chromosome mutations. The exfoliated cells tested are useful biomarker from monitoring Geno toxins inhaled or ingested. As a result, the epithelial cells that are primary influence on 90% of cancers are monitored. “Moving forward with this study it is important to monitor exposure to organic solvents because the results are not clearly quantified.” [ CITATION DeO11 \l 1033 ] The EPA (Environmental Protection Agency) identifies what pollutants are emitted from paint and coatings manufacturing. Hazardous air pollutants (HAPs), volatile organic compounds (VOC) and particle pollutants (dust). Not only does the EPA monitor these pollutants for worker safety but for also their families, and the community. As a result of this all companies must be in compliance with regulations. [ CITATION Uni15 \l 1033 ] Coating Industry Legislation The American Coatings Association has identified eight priority area they believe congress must address to increase growth in the coatings industry. Infrastructure and investment is the first issue the ACA believe the 114 congress must act on. This includes coatings for water transmission which improves the pipeline infrastructure. Also coatings that are applied to steel structures that slow or delay the corrosion process by at least 15 years. The railroad industry is also vital. Coatings that can reduce the potential for derailment and prevent steel structures from corrosion is a necessity. The last segment of infrastructure investment that must be addressed is Traffic marking paint; it provides safety to millions of motorists. The ACA believes meaningful reform is needed in regards to the immigration policy. They believe that not only would this improve the paint industry but would revitalize the nation’s economy. Post 2008 recession the economy has recovered at a slow pace. An increased workforce would lead to increased agriculture, housing, manufacturing, tourism, engineering, and technology. After three decades of a broken immigration system the ACA believes the country has suffered enough.[ CITATION Ali15 \l 1033 ] Chemical management is also addressed by the ACA. Among other things the Toxic Substances Control Act (TSCA), needs to be modernized from its inception 37 years prior. There are two core standards they believe regulations should be based on. First it should be “based on sound science, protection of health and the environment, and consistent throughout the country.” And second, “a risk-based, scientific approach to chemicals management, an integral foundation that will enhance public trust in government agencies that protect people and the environment.” [ CITATION Ali15 \l 1033 ] The next issue that has hindered coatings industry is the rapid growth of class action law suits. When the justice system functions as it is intended it benefits all citizens but instead frivolous lawsuits have threatened the nation’s economy. As a result of this new product research and development has been hindered. Product manufacturers are reluctant to introduce new products which in turn effect the suppliers and distributors. The fallowing is federal legislation the American Coatings Association would support: Authorize federal courts to hear class actions when they have a significant interstate character Limit attorneys' fees to a reasonable percentage of actual damages and plaintiffs’ costs Impose mandatory sanctions against attorneys for filing frivolous lawsuits Establish clear conditions under which a manufacturer or retailer is liable for defective products Disallow the repeated sanction of punitive damages against the same corporate defendants in different cases. [ CITATION Ali15 \l 1033 ] Their stance on Energy is comprised of two main issues, energy efficient technology and support of the keystone XL Pipeline. The residential, commercial, and industrial sectors of the economy must have increased investment in energy efficient technology. This technology could pay for itself through energy savings. The second objective, is their stance on the Keystone XL Pipeline. The policy statement states that jobs would be created across the construction and manufacturing supply chain and enhancing the nation’s energy security that results robust economic value.[ CITATION Ali15 \l 1033 ] The price of oil is a very important determinant of the profit margins of paint sold. In term of a good sold paint is a low price high volume product. In its present state form the American Coatings Association deems it pertinent to address regulatory reform; in particular more congressional oversight be placed on federal agency regulations. This oversight should determine cost and benefit with policy analyses including scientific and economic implications. The current condition has poorly designed regulations that lead to delays in production and high compliance costs. The cost of additional labor as well as administration burdens result in less innovation stifled productivity, and distorted private incentive. [ CITATION Ali15 \l 1033 ] With a majority of the top multination paint companies residing in the United States it is deemed necessary to place importance on the nation’s trade policy. By ensuring a level playing field for U.S. exports. Some countries impose tariffs on our exports while the U.S. is more open to imports. The Trans-Pacific Partnership (TTP) and the Transatlantic Trade and Investment Partnership (TTIP) are two free trade agreements that would strengthen ties with key partners Canada, China, and India. President Obama has places “Fast-Track” authority but requires bipartisan agreement. The final major issue affecting the paint manufacturing industry is related to tax reform and the Federal budget. Tax extenders that were directly connected to the manufacturing industry where passed at the end of the 113th but have already expired. Major points of emphasis for new legislation would include encouraging investment by making a permanent R&D tax credit and a modern tax system that does not contain disincentives to U.S based manufacturing. The only way for paint exports to increase would be to formalize trade agreements and strengthen tax incentives. As it stands the only viable way to compete in foreign markets is to move manufacturing closer to point of sale. Category Segmentation Segmentation in the United States paint industry is extremely diverse with the largest segment, architectural coatings, being only about 15% larger than the other three. The products produced have a wide variety of end markets which can clearly be seen by the “others” segment having 19% of the market segment. The industry relies heavily on Business to Business marketing with its largest purchasers being car manufacturers and residential builders. Businesses such as these are the reason the on average every year. [ CITATION Joc14 \l 1033 ] Producing such a wide variety of products for so many different end markets ensures that they do not rely heavily upon one fluctuating industry, allowing revenue to steadily rise at all times. According to the U.S. Department of Commerce the United States consumes around 800 million gallons of architectural coatings per year, giving it 38.5% of the architectural coatings segment. [ CITATION Uni12 \l 1033 ] Its major product categories include interior and exterior waterborne paints, interior and external solvent –borne paints, and architectural lacquers. Due to a rise of non-wood exterior siding in new housing production, the amount of products offered has continued to decrease. Although with new environmentally friendly solvent-borne technology, in house products are gradually increasing. Contractors consumed about 57% of architectural coatings in 2012; causing segment is especially business to business heavy. [ CITATION Uni12 \l 1033 ] This percentage has been growing steadily since the depression making b2b marketing extremely important. Do-it-yourselfers purchase 61% of their architectural paint from home centers, while contractors purchased 90.2% from paint stores giving businesses two distinct distribution strategies. [ CITATION Ame11 \l 1033 ] Unfortunately this industry is also extremely dependent on the United States Housing market, which has been unstable in the last decade. Industrial coatings, typically produced by business’s original equipment manufacturers, is the broadest segment of the paint manufacturing industry containing about 14 individual product markets. The largest of these coatings markets consist of automobiles, coils, wood, radiation cured, and appliance finishes giving this segment consistent stability and growth with such a wide variety of major markets. Although like most industries this market segment was hurt by the recession, which caused a major decrease in automobile sales. However, the segment continued to remain profitable and with the automobile market just beginning to rebound it should see major growth in the next decade. The majority of products are most often factory-applied making this segment almost entirely business to business. Production of OEM finishes totaled about 350 million gallons of paint in 2011.[ CITATION Uni12 \l 1033 ] While the production compared to architectural coatings is substantially less, products are also much more specialized causing the price of products to reflect this. Similar to Industrial coatings, the special-purpose coatings segment has a wide variety of markets giving it stability from any shifts in demand. Its products are specifically intended to increase durability in markets such as industrial maintenance, marine paints, automotive refinish paints, and aerosol paints. This durability factor causes strong product competition, with product effectiveness usually being the distinguishing factor. Therefore research and development is very important in remaining competitive in this segment. Product specialization is also high in this segment increasing the products’ price. The final “other” segment contains a variety of secondary industry products that rely heavily on major industry products. Examples of these products include paint removers, thinners, brush cleaners, and pigment putty. The volatility of these products makes it an extremely small market with consistently fluctuating profits. It also causes the segment to keep its portion of the industry consistent over the years. Emerging Technologies With a continued importance of producing environmentally friendly products by both consumers and the government, paint and coating manufacturers have invested heavily to produce these products. Soy Based chemistry has emerged as one of the best solutions to this problem, producing less odor along with easier use and clean up. The very successful progress being made with this technology has allowed it to spread to a variety of products throughout all segments of the industry. Some examples of these products are soy- based reflective paints in roof coatings, water-based coatings and stains for wood, oil resins used in radiation cured systems, and solvent free soy alkyd resins and CPP on bridges. Sherwin Williams has been one of the major researchers in to this technology producing acrylic and polyester water-based resins, which contain soybean oil producing very low VOC levels. All of these products also contribute LEED points for the government’s eco-friendly certification program, which contributes very positive marketing for businesses. Nano Technology is another major area of research by businesses, allowing chemists to produce coatings with different chemical and physical properties. The technology is primarily intended increased durability for the special-purpose coatings segment. The chemicals being added to a variety of outdoor products are primarily in the form of pure metals, mixed metals, and metal oxides. Results from nano technology have shown improved coating hardness, corrosion protection, faster UV cure, along with water and dirt repellence. Smart coatings are the final major emerging technology, representing the most futuristic of the group. It incorporates electronics in to coatings to produce products that functionally detect and respond actively in their environments. Some of the responses the coatings can have are to changes in temperature, a structure’s stress, corrosion, light, atmospheric pressure, and biological growth. Although they are very young, they have the most potential to completely reshape the industry. The smart coatings showing the most promise to date are self-cleaning and healing products. The self-cleaning coating is able to break down and remove dirt and debris over time, while the self-healing coating can release monomers and other additives from capsules to heal cracks and fissures.[ CITATION Lee09 \l 1033 ] Geography Segmentation The United States market in the paint and coating industry was severely affected by the depression, because of a collapses in their two most profitable markets of residential construction and automotives. Although the housing market has rebounded to produce the highest number of starts since 2007, the 960,000 in 2013 is still far off from the- million and is not expected to return. Steady growth is ideal for United States’ businesses though as PPG V.P. Michael McGarry puts it “We are optimistic that there is going to be continued growth in housing, which is beneficial to a number of our businesses, especially our architectural paint store business.” The key sector for profit in the United States though lies in a rebound from the automotive sector, which “is expected to grow by 4% per year from 2012 to 2017, totaling 10.7 million units in 2013 and 11.8 million units by 2017” according to IHS chemical a leading data researcher in the industry. These numbers from one of the industry’s largest markets would mean steady profits in the segment for the next decade. The auto industry is also one of the quickest to embrace new technologies, providing businesses with an opportunity for increased research and development of new products. Another key factor for businesses’ success has been stabilization in raw materials, creating a decline in product cost and in turn an increase in sales. This stabilization along with a rebound from two of their major markets has produced solid profits and a positive future outlook for the industries future in one of the wealthiest countries. United States businesses’ are content with stability and a steady profit from their home market as they continue to invest in emerging markets throughout the world. Unlike the United States, Europe has yet to experience a rebound in many of their main industries. The lack of construction projects being produced because of the continued recession has really hurt the regions’ revenues. PPG and AkzoNobel, the two major businesses in the region have restructured their European branches by reducing manufacturing and staffing in order to continue to produce a profit. With the housing market in such a decline, economists predict a very slow but steady growth as things begin to stabilize for the region. Emerging Markets While traditional markets such as the United States and Europe are experiencing slow steady growth after the recession, emerging markets are where the paint and coating industry is showing the most promise. These markets emerged from the depression six months earlier than developed countries, showing a much more resilient economy. These countries also now own about 5 trillion in foreign reserves and are much less dependent upon foreign loans from developed countries.[ CITATION DrM10 \l 1033 ] The major attraction for foreign businesses is that equity markets have jumped more than 100 percent from 2009, causing businesses seeking new investors to take interest. The first of these major emerging markets is China, whose paint industry is expected to grow by around 8% per year from 2012 through 2017 according to IHS chemical. With housing markets in China beginning to mature businesses have looked automotive, refinishes, and consumer electronics markets for profits. This is clearly working for them because Chinese paint production has doubled to 13.9 million tons since 2005, but is only slightly lower than their 14 million consumption. Trade regulations play a major role in this statistic, driving businesses to localize their production rather than export it. With all of these benefits the major draw to the Chinese market is their growing middle class which has greatly expanded various markets including cars, industrial products, and home appliances. With all of these factors benefitting the paint and coating industry Chinese investments should continue to grow over the next decade. The second major emerging market is India, although their market is completely different from that of China’s. India’s housing market is just starting to take off, accounting for a 75% architectural segmentation and 25% industrial. With India’s 1.25 billion people and paint consumption of only 1 kg of paint per Capita it might seem like an extremely lucrative market. For this reason foreign businesses such as ICI, Kansai Paints, and Sherwin Williams have heavily invested in the market to get very poor results. The reason being that they operations were based offering a wide assortment of paint to wealthy customers, however that is not what the vast amount of Indian citizens are. They came in to the country missing the target market of cheap low-end products, which was taken advantage of by India’s own Asian Paints who now control 40% of the architectural market. Their strategy was to produce the lowest cost product available while hiring managers that knew the country. They succeeded in this by producing their paint locally with the cheapest formula and packing as well as building an extensive distribution network. After instituting this plan in 2009 their domestic sales saw a 27% increase. Asian Paints knew its country’s market for what it was “thousands of scattered retailers, illiterate consumers, and customers who want only small quantities of paint that can then be diluted to save money” and because of this took advantage of its competition.[ CITATION Nir99 \l 1033 ] Market Rivalry Concentration of the paint and coating industry in the United States is rather large with 2,214 businesses in 2014, 93% of those being small businesses. While there are many players in the industry, the top four businesses combined for half of the industry revenue. According to IBIS world success factors of this industry tend to be: effective cost controls, control of distribution arrangements, access to the latest available and most efficient technology and techniques, access to niche markets, provision of superior after sales service, and establishment of brand names. The major ones being effective cost and brand name, which the consumer typically holds the most value in. Distribution is also an interesting factor, due to the different strategies taken by each company to achieve this. Small businesses have been on a decline in this industry with heavy competition to produce a cheap effective product. These businesses are having trouble with rising raw material costs and government regulations that they do not have the resources to absorb. These raw materials accounted for about 56.8% of total industry expenses last year, because they are petroleum based. Due to this decline consolidation has occurred providing the larger businesses with new technologies and various segmented markets that small businesses specialized in. As this industry becomes more globalized businesses will begin to face competition on a local, regional, national, and international level. This globalization will only increase competition, especially along the supply chain as different strategies are taken to distribute their product to the consumer. Price will also become increasingly important because the consumer is beginning to perceive products to be relatively undifferentiated. The path to success among competition is very well summarized by IBIS world “industry operators must become major players in key product markets through cost advantage, or they must differentiate their products and become market leaders in a niche segment where consumer recognition is of key importance.” Works Cited About Our Industry: Historical Contex. (2015, April 10). Retrieved from paint.org: http://www.paint.org/about-our-industry/historical-context.html Agency, U. S. (2015, April 26). http://www.epa.gov/oaqps001/community/details/paint_manuf_addl_info.html. Retrieved from www.epa.gov: http://www.epa.gov American Coatings Association. (2011). Paint Consumer Research Program. Dawar, N., & Frost, T. (1999). Competing with Giants: Survival Strategies for Local Companies in Emerging Markets. Harvard Business Review. De Oliveria, H. M. (2011). Occupational risk assessment of Paint industry workers. Indian Joural of Occupational & Environmental Medicine, 52-58. (2014). Global Paints and Coatings. London: Marketline. Keane, A. (2015, April 25). Federal Priorities. Retrieved from www.paint.org: http://www.paint.org/find-your-issue/federal-priorities.html Moukwa, D. M. (2010). Indian Paint Industry. Chemical World. Orr, L. (2009). Paints & Coatings. Omni Tech International. Phillips, J. (2014). Paint Manufacturing in the US. IBISWorld. Research, P. M. (2014, October 21). Global Paints and Coatings Market Will Reach $176.5 billion in 2020. Retrieved from http://www.persistencemarketresearch.com/: http://www.persistencemarketresearch.com/mediarelease/paints-coatings-market.asp United States Census Bureau. (2012). NAICS: 3255. United States Department of Commerce.