JEAN-FRANÇOIS TREMBLAY/C&EN
BUSI NESS
Ritzert says that Evonik will perhaps agree to relocate the Lynchem facilities within Dalian, make additional investments in Nanning, or decide to build and acquire facilities elsewhere in China. “We are very confident that we will resolve the situation for Evonik Lynchem in Dalian in due time,” he says.
RURAL DRAMA
Farmland surrounds the Evonik Lynchem site in Dalian, which is currently being shuttered.
FOR FORMER and current employees
LOST OPPORTUNITY FOR CHINA VENTURE EVONIK’S INVESTMENT in a Chinese pharmaceutical
ingredients firm takes a turn for the worse JEAN-FRANÇOIS TREMBLAY, C&EN HONG KONG
JUST FOUR YEARS after Germany’s Evon-
ik Industries bought a controlling stake in Lynchem, the Chinese firm faces a most uncertain future. Once a highly regarded producer of intermediates and active ingredients for the pharmaceutical and agrochemical industries, Dalian-based Lynchem is now shuttering its manufacturing facilities. From a peak of about 1,250, headcount has dwindled to 450 and is still shrinking. Evonik Lynchem, as the company is now called, halted manufacturing after an explosion on June 30, 2009, that killed two contractors. According to Evonik, Lynchem would have resumed production months ago were it not for a decision by local environmental authorities to no longer approve the Lynchem site for chemical production. But former and current employees, former customers, and local competitors assert that Lynchem’s problems under Evonik’s management run deeper. The company, they say, became dysfunctional long before last summer’s accident. It’s too early to claim that Evonik’s investment in Lynchem has been a failure, counters Hans-Josef Ritzert, a senior vice
president who heads Evonik’s exclusive synthesis and amino acids businesses. “We’ve been ordered to relocate, but we’re still getting new orders in China,” he says. He points out that Evonik is successfully running a second custom manufacturing facility in Nanning, in southern China, where in April the company inaugurated a new production facility. And in Dalian, the company continues to conduct some R&D. Custom synthesis for the pharmaceutical industry is a core business for Evonik, Ritzert notes, and one that it operates around the world. In addition to Nanning, Evonik owns custom synthesis plants in Germany and France, and last September, it bought a U.S. plant from Eli Lilly & Co. Running facilities in China enhances the company’s competitiveness from a cost and geographical perspective, he says.
of Lynchem, however, it’s clear that the company is closing down permanently. One Chinese manufacturing manager still employed at the Lynchem site tells C&EN that many key people have left and that he himself will join a new employer shortly. Technical managers from Germany are overseeing the mothballing of production facilities. Among the 450 people that Lynchem still employs, most have only a few months of employment left, he says. But Ritzert insists that the level of employment at the site depends on the outcome of negotiations with Dalian. When Evonik acquired a 51% stake in Lynchem early in the summer of 2006, it was a case of one of Germany’s most prominent chemical companies teaming up with a Chinese producer of intermediates and active ingredients known for its excellence. “Customers have been waiting for the opportunity to get the best of both regions from a single supplier,” said Rudolf Hanko, Evonik’s head of exclusive synthesis at the time. He called Lynchem a “leading force in the Chinese custom manufacturing industry.” One of Lynchem’s former customers agrees. He asked not to be identified to avoid jeopardizing his dealings with Evonik. “Lynchem was probably the most impressive company I ever visited in China—and I have been to many,” he says. According to this Europe-based manager, Lynchem was superbly managed by its founder, Yuncai Wang. Another former Lynchem customer, a China-based executive who does not have his company’s approval to talk to the media, says Lynchem’s sales tactics changed
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BY SOME ACCOUNTS, the work atmosphere got even worse after Evonik took full control of Lynchem. Not long after, several Chinese managers applied for jobs at competitors, both foreign and local. A more pragmatic longtime employee who still works for Lynchem tells C&EN that the Evonik takeover was not entirely bad. “We got a nice increase in salary, but our responsibilities lessened because all decisions were taken by German managers,” he says. This Lynchem employee estimates that Evonik brought about 15 foreign manag-
ers and technical experts into the Dalian reau investigated the dead fish claim and operation. “We stopped being consulted found it groundless. Another villager says on big decisions, as if they didn’t trust the a chemical plant should not be located in Chinese,” he says. Evonik’s Ritzert says what is clearly an agricultural region. salary scales at Lynchem were adjusted in Although the explosion stemmed from line with Chinese and global norms. He work that was not approved by Evonik, losays that the 15 foreigners were brought in cal authorities told the German company over a three-year period, and in most cases that it couldn’t resume operations at its for a limited period of time. Most of the site in Dalian’s Jinzhou district. Accorddecisionmakers at Lynchem did not change ing to a longtime former customer of when Evonik took over, he says. The reLynchem, Wang, the company’s founder, sponsibilities of Chinese staffers did not offered to plead with the officials to allow diminish, he insists, and local employees the company to restart, even if he had no participated in decisions. official role in Lynchem anymore; Evonik In June 2009, contractors started upturned down the offer of assistance. Ritzert dating a gas-flaring system that had been says that Wang never made such an offer. installed to reduce a noxious smell that Evonik executives apparently expected to nearby villagers had been complaining prevail, because they kept announcing—and about for some time. On June 30, while the then pushing back—an estimate of when contractors were working on the flare, a they would be able to resume production, waste liquid tank exploded. Two contraca former Lynchem customer tells C&EN. tors died, and 10 other people were injured, Ritzert says Lynchem still has a business none seriously. Ritzert points out that Evonik spent more than $13 million on Lynchem since 2006 to bring its operations in line with Evonik’s global standards, particularly in the area of environment, health, and safety. He says the operation the contractors were performing at the time of the explosion had not been approved by Evonik managers, a contention endorsed by local authorities. Evonik nonetheless had to pay a $30,000 fine. The Lynchem facilities are not located in an industrial park CHINESE ASSET An but rather amid farmland and license and has passed a near a small village. The June 30 operator at the Lynchem safety audit, but the enfacility in 2006. blast was huge, breaking glass vironmental protection and damaging homes in the vilbureau has ordered that lage. One year later, residents operations be relocated. still vividly remember the date and time it “The development plan for the region where occurred. They say the compensation they Evonik Lynchem is located does not foresee received from Lynchem after the blast was chemical industry on a long-term basis,” he not enough to repair the damage to their says. houses. Ritzert says the total compensation Many companies, foreign and local, have paid to villagers was more than three times been forced to shut down or relocate their the assessment made by a government-apmanufacturing operations in China in the proved company that inspected the damage. face of official decisions that can appear Even before the accident, tensions were arbitrary. In Lynchem’s case, however, the high between Lynchem and some of its style of management that Evonik brought neighbors. One farmer, surnamed Ying, to Dalian may have contributed to its curkeeps a photo of dead fish in his pond that rent predicament. Says a former Lynchem he says were killed by Lynchem emissions. customer who still interacts with Evonik, “Of course it’s Lynchem; there’s no one “This is a story of how a Western company else around that could do this,” he says. was able to wreck such an amazing comRitzert says the Dalian Environmental Bupany in a couple of years.” ■ EVO NI K
shortly after Evonik bought the 51% stake. “Evonik had kept Wang to look after existing customers, but they also paired him with a German sales guy, and it was strange,” he says. “Whenever you asked, they would talk about sourcing from their other global sites.” This former customer says he and other buyers clearly sought a Chinese supplier, not a higher cost European one. Ritzert says that Wang was a member of Lynchem’s board of directors during that time, not a salesperson. Evonik, he says, was leaving it to customers to choose whether they wanted to buy materials made in China or elsewhere. Beyond the change in sales techniques, the work atmosphere within Lynchem took a turn for the worse with the arrival of Evonik, customers and employees say. A manager at the site tells C&EN that from July to September 2007, more than 1,000 employees were not paid their salaries, although they were eventually paid in full. This manager believes that dysfunction in the management of Lynchem stemmed from its status as a nearly equally owned joint venture. “The Evonik people were trying to manage Lynchem in the way that was best for Evonik, whereas the Chinese side wanted what was best for Lynchem,” he says. In March 2008, Evonik acquired the other 49% of Lynchem. The German company said it was expanding the exclusive-synthesis business in line with the concept of “horizontal integration,” under which China would supply intermediates and starting materials, and Europe would produce refined intermediates and patent-protected active ingredients. Ritzert, the current head of Evonik’s exclusive-synthesis business, insists there wasn’t any rift in the management of Lynchem. He tells C&EN that Wang and Evonik always shared a clear vision for the company, as documented in a mutually agreed-upon business plan.
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