4C Interview
Douglas T. Dietrich From Alcoa

Douglas T. Dietrich

Alcoa, Inc.        

Q.    Briefly describe your products and services

DD. We provide extruded aluminium products to the Building and Construction, Automotive, Industrial Products, and Aerospace industries in South America. 

Q.    What cultural trends are affecting your customers and end users (if different)?

DD. Many large manufacturers in North America and Europe are faced with increased competition from competitors in low labor cost countries (i.e. China).   Faced with this new competitive threat, they increasingly look to reposition their production off-shore and/or source inputs for their production from low labor cost countries in order to compete.

Being that our business operates in South America, we are seeing an increase in new market  opportunities – Automotive, Aerospace, Industrial Products – as  North American and European manufacturers look to make or buy products from South America. 

Q.    What other market trends are impacting your business?

DD. There is a very high correlation between per capita GDP and per capita aluminium usage in a particular country.   As the economies such as India, China and Brazil grow, so will aluminium usage in these countries.  We have seen a number of new opportunities in these rapidly developing regions as building and construction projects, automotive production/usage and industrial production that use aluminium grow.

Q.    How is your company reacting to these opportunities/challenges?

DD. Alcoa is a global company with operations in 35 different countries.  We organize ourselves to leverage this geographic diversity in order to bring value to large global customers  as well as  small regional customers.   

Q.    Can you expand on what ‘end user’ trends are driving demand for your products?

DD. There are two major drivers of aluminum usage which create opportunities.  The first is what I call inherent usage (more in developing countries)  and the second is value usage (more in developed countries).

1) In developing countries – growth is driven by "inherent demand" – that is, aluminum usage increases as the GDP per capita grows.  Many products are currently made from aluminum and as an economy expands it begins to use more of these types of things.   For example as an economy grows building and construction increases – people move from rural to urban settings.  Buildings/homes are built  to support this that require aluminum facades, windows/doors, etc.  As people’s income grow, automotive and commercial vehicle use and production grow and therefore the volume of aluminum needed to make these vehicles grow – subways are built, cars replace bicycles, etc.  Also, with increased disposable income to travel and with increased business activity more airplanes are needed/built to support this.  Airplanes are made from aluminum.

There is a very clear correlation between level of economic development and the volume of aluminum consumed in any country.  As regions like China, India, and Brazil develop quickly, we see a number of opportunities for "inherent demand" for our products.

2) In developed economies – growth in aluminum usage is due more to the value that aluminum brings to the end user.  For example, the % of total automotive and commercial vehicle content that is aluminum is growing due to fuel efficiency and safety.  As oil becomes more expensive and greater focus is given to safety and environmental improvement, customer’s demands change for specific products.  For example, aluminum usage in cars increases because it is lighter than other products and therefore brings fuel efficiency savings to the vehicle.  Also, because of its light weight and specific mechanical properties, aluminum is also a really good energy absorber – meaning that a vehicle designed with aluminum can more effectively absorb and displace the energy created in a crash around the passenger.  This makes the car safer – something valued by the end user and something they are willing to pay for.  Also, recycling takes a much more prominent role in developed countries – the demand for everyday products made from aluminum (100% recyclable) grows.

In developed countries, increased aluminum consumption is driven by subtle shifts in end user demand for products that benefit from the increased value that aluminum brings to current products.  Increased safety, increased fuel efficiency, recyclability, home appliance use – microwave, refrigerator, dishwasher, iPods, etc. are values and products demanded by consumers in more mature economies.

Alcoa Inc.

The ‘4C Interview’ is a new regular section on PSFK where we ask senior
execs in a myriad of industries what cultural trends are facing their
business today. If you know of someone who’d like to participate in this column, then email Piers at piers@psfk.com. Thanks.