Gulf to be central hub for coatings company

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Michael Osborne, Nukote’s CEO, sees Dubai as a hub, providing easy access to key markets.

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Nukote’s pipe coating machinery costs about a tenth of traditional systems, but the company still has to prove the benefits to customers.

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Specialist coatings can be applied to pipe joins to create a seamless finish.

Nukote's CEO is very clear on one point; his company does not make paint. Nukote Coating Systems makes coatings.

Application is not a bucket and brush operation, but one that requires skilled technicians using the right equipment. The result, says Osborne, is guaranteed to last. The guarantee isn't words, it's insurance, backed by AIG and a manufacturer that says it wants to step-up and take responsibility for its product up to twenty years after it is installed.

"We haven't had a claim yet," he said with confidence.

Nukote was the result of US company American Polymers looking beyond its borders for business. It originally ventured offshore in 1998, moving into Asia. It set up an operating company in Shanghai, where it also built a manufacturing plant.

"We wanted to change the way we did business; we had blinders on about working outside the US," said Osborne.

The change worked. The company's international business has grown to US $65 million from a standing start. In fact, Nukote has been so successful North American customers now want to name check Nukote instead of American Polymers, because of its international reputation and wealth of project references.

The move to the Middle East came in 2004. The company set up in India at the same time, but its Middle East operation has grown more quickly and now has distribution agents in Bahrain, Kuwait, Yemen, Oman, Saudi Arabia and Iran, as well as several in the UAE. It is this success, which has prompted the move of the company's international operating headquarters from Shanghai to Dubai; Nukote will open a limited liability company in Dubai later this year.

The emirate's proximity to Nukote's expanding market base made the choice an easy one. People from the Shanghai office will be relocating to the UAE around June and the new HQ will house around 12 employees. The company is currently searching for a Dubai-based partner and Osborne is optimistic about discussions with one of the largest contracting companies in the Gulf.

"Shanghai is slightly isolated geographically. Dubai, on the other hand, is a hub location allowing easy access to some of our key markets," said Osborne. "We can get a flight to anywhere pretty easily, and the UAE provides a comfortable environment for expatriate workers.

"We're moving our central office here and looking at strategic alliances with a major player to help drive our international business. Africa, Russia and Europe are still big pieces of the equation for us and we need to focus on opening up other areas too, such as Jordan, Syria and Egypt."

The company has already secured some significant distribution partners, including Fosroc, which is acting as a global distribution agent in 26 countries and is budgeting for US $10 million in sales this year, compared with US $1 million last year. Osborne describes the company's focus as targeting three international areas: the Middle East and Iran, India, a new emerging market for the company with a large potential for volume and where it plans to open a plant in the first quarter of 2008, and finally China.

"Everything else is icing on the cake," said Osborne. "We've found the way of doing business internationally is quite different. In the US, the business manufactures and sells a lot of product, which is often rebranded, but that approach doesn't work in emerging markets.

"In these markets customers want you to be more involved. They want to know how the product is applied, what product to specify and what support is needed. So we're not just selling products, we're training and certifying Nukote affiliated contractors. Each one has a region they work in and we insure the installed product, so owners can be sure they have a complete system that will work. Unlike many manufacturers, we're not trying to separate ourselves from liability, which is why we're finding people in North America are keen to use the Nukote name."

As well as moving its international head office to Dubai, the company is also looking forward to the opening of a new manufacturing facility in Dammam, Saudi Arabia. The plant will be up and running by April and will boast a 90,000 tonne capacity, although this won't be put to the test during the first year. Osborne explained that it simply doesn't need to.

"We can meet volume requirements from our other international manufacturing plants," he said. "The new plant is more a demonstration of our commitment to the local economy and reflects our belief that the long-term future for our market in the region lies with Saudi Arabia. But, as we have 73 different products it's also quite hard for our distributors to hold them all in stock. Having a local plant cuts down delivery lead time."

Nukote has benefited from working in emerging countries, thanks to the scale of development and infrastructure work to be found there. The down side, as in many industries in the region, has been the struggle to find enough qualified contractors. The properties of the products themselves mean that application is a specialised process.

"When the coatings come together at the end of the spray gun they can dry in 20 seconds and cure hard," said Osborne. "Our coatings have greater physical properties than the traditional kind, but we sell enough volume that we stay competitive with traditional coatings. However, not everyone can apply them, so we have to increase the technical capability of our customers and applicators to achieve the standards we want."

The products' properties and application process give Nukote some key advantages. For example, in the case of pipe coating, the machine to perform the process costs about one tenth of the standard machinery and a number of the pre- and post-production steps are removed. But despite some significant benefits, Nukote has found it still has to work hard to sell them.

"Oil and gas engineers are the most conservative people on the face of the earth," said Osborne. "They have a reason to be too. A coating failure could stop the flow down a pipeline and cost them millions of dollars a day. While our coatings can increase the operational life of an asset like a pipeline, the engineers are naturally concerned that new products can do what we say they can."

Convincing the right people means going through processes such as Shell's global pre-qualification. Costing roughly 250,000 euros, Nukote has supplied thousands of samples for testing and hosted site visits from Shell technicians, all to confirm the consistency and qualities of its products. Keeping its brand name at a level where its products are associated with long lasting success means sometimes taking a tough stance with customers.

"We will walk away from a job if customers don't understand the way things need to be done," said Osborne. "We have a client operating petroleum bulk carriers.

They don't want to use a primer for their coating, but we feel they need it to be sure it will last 20 years. We would rather not do the job than do it wrong, especially with the guarantees we have in place.

"Getting customers to understand the new technology is the issue. Our competitors may have one product they specify for everything, but we have 73 to choose from, each for specific applications."

Nukote's business model means it has more than 100 companies promoting its products globally. To make sure this network is effective at maintaining its capability is essential, so Nukote helps distributors develop their businesses and skills.

"We invest more than them in the first year," said Osborne. "We look after them. We don't want our product to be available in 1,000 places, or for too many distributors to be in one place."

As the company continues to grow in the region, Osborne sees maintaining the quality of service Nukote offers to distributors as one of the challenges his company faces.

"It's important our distributors don't suffer as we grow," said Osborne. "We need to achieve growth without losing our service edge. Naturally there will be other challenges in getting new plants up and running, and putting vice-presidents and country managers in place."

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