View from City Road: Courtaulds' hand is strengthened

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The Independent Online
Sipko Huismans, Courtaulds' chief executive, observed: 'If you want to be in Eastern Europe, you have to start by positioning yourself in Germany,' as he announced the group's decision to merge its European fibre interests with those of Hoechst. Courtaulds is scarcely about to storm the Urals in pursuit of profits, but Mr Huisman's point about the importance of geographical positioning is well made.

Size brings not only savings of scale but makes it easier to exploit new products. One of the main reasons Courtaulds concentrated on the US rather than Europe when it came to releasing Tencel, its latest fibre, was that its stronger base in the US made for a safer launch-pad.

So Courtaulds' neat alliance with its German competitor, in which it will clearly be the dominant force, strengthens its Continental hand considerably, catapulting it into near pole position - aptly enough for a company that sponsors Ayrton Senna's Marlboro McLaren racing team.

The deal may also illustrate the beginnings of a more general trend on the European mainland. The traditional pattern has been for large conglomerates to hold a disparate mix of sometimes poorly related interests. But in the economic climate of the 1990s, the buzz word is 'focus', both in geographical and product terms. The Courtaulds/Hoechst pooling of complementary interests may herald a number of such rationalisations. This is a merger that looks to the medium term. For the time being, the fundamental outlook for European markets, with the exception of the UK, remains bleak, especially in chemicals.

Only the Far East provides some alleviation of the gloom. Asia-Pacific was the single region where Courtaulds' underlying operating profits strengthened significantly last year. As yet, this area may be responsible for barely 11 per cent of total turnover, but growth rates are impressive, especially in China, where sales doubled.

As Mr Huisman pointed out, just as the Germans have the advantage when it comes to the markets of Eastern Europe, so the Anglo-Saxons may have the edge in the Orient.

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