Syn­thetic leather maker builds ties with trust

JoongAng Daily - - CEO Interview - BY KIM JUNG-YOON kjy@joongang.co.kr

The noise from huge ma­chines pro­duc­ing piles of syn­thetic leather filled the air inside the mid­size fac­tory in An­san, south­ern Gyeonggi.

At the fa­cil­ity run by Dong Kwang Chem­i­cal Cor­po­ra­tion, em­ploy­ees showed off the dif­fer­ent kinds of ar­ti­fi­cial leather pro­duced there, from mi­crofiber to non­wo­ven ma­te­ri­als used to make gar­ments, fur­ni­ture and ac­ces­sories.

“Most of the syn­thetic leather for shoes and mis­cel­la­neous goods are pro­duced from non­wo­ven fab­rics as a base ma­te­rial and polyurethane to coat the sur­face,” said Choi Min-seok, CEO of Dong Kwang Chem­i­cal, as he touched a batch of syn­thetic leather just off the pro­duc­tion line. “Non­wo­ven fab­rics of­ten be­come the ba­sis for syn­thetic leather be­cause they are not made by weav­ing or knit­ting, so they are less sus­cep­ti­ble to dam­age, like real leather.”

When the company was es­tab­lished in 1998 as Dong Kwang Trad­ing Company, it sup­plied fin­ished or semifin­ished ar­ti­fi­cial leather goods ex­clu­sively for mak­ing clothes and shoes.

But after ac­quir­ing Doorim Chem­i­cal Prod­ucts in 2000, the company be­came Dong Kwang Chem­i­cal and es­tab­lished a Chi­nese unit in Shang­hai.

Now, Dong Kwang Chem­i­cal man­u­fac­tures its own prod­ucts and sup­plies ma­te­ri­als to global syn­thetic leather pro­duc­ers, in­clud­ing Tai­wan­based San Fang Chem­i­cal In­dus­try, the world’s No. 1 maker of syn­thetic leather for shoes.

Dong Kwang Chem­i­cal has gained ma­jor clients be­cause of its non­wo­ven fab­ric tech­nol­ogy and years of ex­pe­ri­ence as a re­tailer and man­u­fac­turer.

“We have an ex­clu­sive sup­ply con­tract with San Fang, the largest syn­thetic leather pro­ducer in the world. San Fang sup­plies syn­thetic leather to shoe­mak­ers such as Nike,” Choi said.

He added that Dong Kwang Chem­i­cal’s man­age­ment worked hard to se­cure a con­tract with San Fang and suc­ceeded be­cause of the company’s goal to pur­sue shared growth with core clients.

The CEO em­pha­sized the im­por­tance of build­ing business re­la­tion­ships based on trust.

“We have a sta­ble sales con­tract with San Fang and other ma­jor Chi­nese syn­thetic leather pro­duc­ers,” he said. “They are all ex­clu­sive, be­cause of mu­tual trust.”

While work­ing at Dong Kwang, Choi, a chem­i­cal en­gi­neer, gave weekly tech­nol­ogy con­sul­ta­tions to San Fang, where he learned about the company’s process for man­u­fac­tur­ing syn­thetic leather.

“They had ad­vanced tech­nol­ogy be­cause they were pro­duc­ing their own ma­te­ri­als for syn­thetic leather for shoes, and man­u­fac­tur­ing shoes for Nike and Adi­das as the orig­i­nal equip­ment man­u­fac­turer [OEM],” he said.

San Fang asked Choi how it could im­prove its ma­te­ri­als, and as the company’s ad­viser, he sug­gested it up­grade to Dong Kwang prod­ucts for its shoes.

“That is when San Fang started us­ing Korea’s non­wo­ven fab­rics and so did other syn­thetic leather man­u­fac­tur­ers in Tai­wan and China,” he said. “As San Fang grew, Dong Kwang Chem­i­cal also grew as its part­ner, re­al­iz­ing the shared growth.

“Cur­rently, even though we are not a sub­sidiary of San Fang, we take 100 per­cent of its or­ders to sup­ply ma­te­ri­als.”

As it ex­panded to ac­quire a to­tal of four af­fil­i­ates, Dong Kwang also di­ver­si­fied its prod­ucts to in­clude balls, IT ac­ces­sories and up­hol­stery for car in­te­ri­ors.

“The mar­ket for syn­thetic leather is grow­ing con­tin­u­ously,” Choi said. “Real leather is high qual­ity, but there are var­i­ous en­vi­ron­men­tal is­sues, such as the pro­tec­tion of an­i­mals and wa­ter pol­lu­tion.”

The CEO said that the pref­er­ence for ar­ti­fi­cial leather has helped Dong Kwang Chem­i­cal be­come the big­gest syn­thetic leather trader in Korea, and many Korean and Chi­nese chem­i­cal com­pa­nies out­source pro­duc­tion to Dong Kwang Chem­i­cal.

Choi said that the company can keep in­no­vat­ing and ex­pand­ing be­cause of its small group of about 60 skilled work­ers.

“Most of our em­ploy­ees are en­gi­neers, and they con­tinue to de­velop new ma­te­ri­als and tech­nol­ogy as well as main­tain the high qual­ity of prod­ucts,” he said.

The company makes ma­te­ri­als for spe­cific OEM or­ders at its joint ven­ture fac­to­ries in China and Tai­wan for cus­tomers in South­east Asia and South Amer­ica.

“When we re­ceive or­ders from our clients in Tai­wan, China and South Amer­ica, we make or­ders to our sub­con­trac­tors to pro­duce the ma­te­ri­als for ex­port,” the CEO said.

Cur­rently, to man­age OEM or­ders and pro­duc­tion, Dong Kwang Chem­i­cal has nine em­ploy­ees and three re­searchers at its jointly owned plant in Shang­hai.

Dong Kwang Chem­i­cal’s sec­ond fac­tory in Viet­nam pro­duces the largest amount of non­wo­ven fab­ric for syn­thetic leather in the world, with $15 mil­lion in an­nual rev­enue.

The company has grown 26 per­cent an­nu­ally for the past five years and is pre­par­ing to list on the Kos­daq mar­ket by 2017 after merg­ing its pro­duc­tion af­fil­i­ates.

“We have re­ceived ven­ture cap­i­tal, and this year will be our tran­si­tory pe­riod in shift­ing our fo­cus from trade to pro­duc­tion,” Choi said.

“We have be­come a leader in terms of trad­ing ma­te­ri­als for syn­thetic leather, but hav­ing a small pro­duc­tion line has al­ways been our lim­i­ta­tion. Ac­cord­ingly, last year, we in­cor­po­rated the fac­tory in Viet­nam pro­duc­ing non­wo­ven fab­ric and Doorim Tec, the pro­duc­tion plant in An­san for thin, high­value syn­thetic leather.”

Since its part­ner San Fang makes imi­ta­tion leather for shoes, Choi said Dong Kwang plans to fo­cus on pro­duc­ing thin­ner ar­ti­fi­cial leather for high-end jew­elry tar­get­ing the Ja­panese and Euro­pean lux­ury mar­kets.

“Our goal for next year will be to es­tab­lish strate­gies to fur­ther cut the cost of pro­duc­tion and im­prove pro­duc­tiv­ity. Also we have a tar­get of ex­pand­ing pro­duc­tion to a value of $30 mil­lion from the cur­rent $13 mil­lion by con­tin­u­ing to ex­pand out­sourc­ing from Chi­nese com­pa­nies and pro­duc­ing non­wo­ven fab­rics in Viet­nam.

“I be­lieve it is pos­si­ble be­cause we have a net­work in China and get a large vol­ume of or­ders from them. ... That way, our shares on the stock mar­ket will be sta­ble when we list.”

Choi said that be­cause Dong Kwang has so many af­fil­i­ates abroad, he has found that it’s im­por­tant to trust each business part­ner with their roles and re­spon­si­bil­i­ties.

“Dong Kwang Chem­i­cal has a cor­po­rate cul­ture of trust and unity based on re­spon­si­ble man­age­ment at each af­fil­i­ate,” said Choi. “The af­fil­i­ates ful­fill their man­age­ment roles or­gan­i­cally, based on a long­time re­la­tion­ship of trust be­tween key man­age­ment staff.”

Based on its cor­po­rate cul­ture of re­spect and co­op­er­a­tion be­tween or­ga­ni­za­tions, Choi said he was con­fi­dent the ar­ti­fi­cial leather man­u­fac­turer will be able to in­cor­po­rate all of its sub­sidiaries to pre­pare for a 2017 IPO.

Park Sang-moon

Choi Min-seok, CEO of Dong Kwang Chem­i­cal, shows thin syn­thetic leather for gar­ments pro­duced at the fac­tory in An­san, south­ern Gyeonggi.

Park Sang-moon

The 60 em­ploy­ees at Dong Kwang Chem­i­cal’s An­san fac­tory pro­duce about $14 mil­lion worth of syn­thetic leather a year.

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