Global companies already are reaping the benefits of their latest pursuits. In its 2006 annual report, Procter & Gamble announced that Tide's net sales in China increased 10 percent to $15.8 billion. Coca-Cola Corporation's unit case volume in China grew a whopping 22 percent in 2005. And Unilever, in its latest annual report, says that sales growth in the Asia/Africa region was up 9 percent.
Asian consumers are buying in droves. Joining the global brand owners in racing to meet insatiable demands are a growing number of national and local brands. This frenzy of activity has jolted the package industry in Asia. The label segment is no exception.
"The world brands are producing locally for the [Asian] market and for a consumer base of three billion people. The driver for packaging and labeling is the creation of a supermarket distribution of goods rather than selling local product at the town market," says Jakob Landberg, sales director of Nilpeter. "I would estimate that the largest growth is from world brands sold in Asia, followed by organic growth of Asian brands sold in Asia."
And where there are more products, there are more labels. Asian Pacific label demand last year was 23 percent of the world total, according to Labeling Markets: Asian Market Study & Sourcebook 2005, published by AWA Alexander Watson Associates. The region already captures a large chunk of the world total and growth is not slowing.
"Overall, the Asian market shows stronger growth than the leading European and North American regions. However, the growth in demand for labels varies widely across the region, reflecting general economic conditions, being highest in China (18-20 percent) and lowest in Japan (0-1 percent)," states the report.
Also of note is the increased importance of shelf appeal in the Asia-Pacific region, which is fueling the need for sophisticated-looking packaging.
"Both the local Asian and the multinational brands have exhibited strong growth," says Andrew Crawford, marketing manager in Asia Pacific for Avery Dennison, headquartered in Pasadena, CA, USA. "Shelf appeal via high-quality packaging has been demanded by multinationals. This has flowed to the local brands in an effort to compete on retailer's shelves."
Impact on The West
While sales growth has been exciting for consumer products manufacturers, Asia has not served only as a consumer. The region has also played host to various manufacturing sectors. Often the growth of manufacturing capabilities in the East has come at a price for manufacturers in the West. But is this the case with the packaging, and more specifically, the labeling industries?
While much of the packaging produced in Asia is used for Asian brands, some brand owners are sourcing packaging in Asia for export to Europe and North America. The main benefit for brand owners is financial.
"Consumer products companies are constantly seeking to save costs on primary packaging (closures, containers, cases, etc). There are definite cost savings to be found via sourcing projects in China, not only on the actual cost of the final product, but also huge savings on start-up costs such as tooling, engineering drawings and overall project management," says David Alexander, president of BaySource in Tampa, FL, USA. BaySource is a company that helps brand owners source quality packaging from China.
While Alexander has helped brand owners source products such as plastic bottles, he does not source labels. "Today, and I mean this in the very short term, the quality of print items are substandard to that of the US and Europe. However, it will not be long before you have companies that are able to match domestic printing in both quality and service," he says.
Outsourcing may be a concern for other parts of the packaging industry. For the moment, however, Asian converting activity is not worrying label converters in North America and Europe.
"On the whole, converters in the United States and Europe have not lost business to their Asian competitors unless the end user has moved operations to Asia. The label business in North America and Europe is still growing, at slower rates than Asia, but off of a much higher base as applications that are new to pressure sensitive labeling come into the market," says Crawford, citing beer as an example.
|Coca-Cola recently launched Minute Maid juice and juice drinks under the Splash brand name in Thailand and Vietnam.|
The trend to source overseas and export the packaging back to developed countries has had little effect on the labeling industry to date, say converters in the industry. In fact, sometimes labels are exported to Asia. While that is the case today, converters are also preparing for a shift tomorrow.
"Spear has not seen any business from our core markets (beverage, food, personal care) produced off-shore in Asia. To the contrary, we are seeing our customers take our products to Asia. Ultimately, our label products need to be produced in the country of use, which is why Spear is aggressively expanding with future production sites in South Africa, Russia, China, Mexico, and South America," comments Dan Muenzer, marketing manager for converting company Spear in Mason, OH, USA.
"Most customers want their printing needs filled locally and will not be ready to import them from overseas," says Terry Fulwiler, CEO of WS Packaging Group in Algoma, WI, USA. "If it does become a large segment then there will be an opportunity to invest in a facility overseas and expand business there."
While there is little exporting of labels alone, increasingly common is the movement of the entire manufacturing process to Asia. It is logical that if formulation, filling and packaging are taking place in Asia, the labels will be purchased in Asia before the entire product is exported.
"We have so far seen rather little direct export of printed labels to other parts of the world," says Jussi Vanhanen, senior vice president, Asia Pacific, UPM Raflatac, Tampere, Finland. "Secondary export — i.e., export of the labeled product — is a growing trend, for example, in the pharmaceutical business from India, and to some degree in consumer goods mainly to Australia."
For large label converters in developed areas that want to keep their most lucrative clients, this means they would be wise to establish a presence near their global brand owner customers. "Global brand owners increasingly request their suppliers to be present globally. Therefore we see more converters starting new businesses in Asia either with a local partnership or by setting up their own plant," says Rene Abaecherli, vice president Asia Pacific, for Gallus, St. Gallen, Switzerland.
Because of an immature flexo industry in Asia, established converters have an opportunity to set up shop on a new continent. "There are only so many local printers that have [quality flexo] capability. In many cases, people who specialize in supplying consumer products companies will set up shop locally. We can go in there and call on the local Chinese plants, but if it is a joint venture, chances are the decisions are being made or heavily influenced by American companies," says Mike Russell, international sales manager for Mark Andy, headquartered in St. Louis, MO, USA.
And while some Western converters have invested in Asia, global brands will also use local Asian converters. "Asian converters have a chance to produce labels for global brands. Brand owners who have plants in Asia intend to order from converters who bring benefits to them — specifically, money and/or convenience," says Toru Tsunakawa, a representative for Heidelberg in Tokyo, Japan. Gallus and Heidelberg have set up a partnership in order to service the Asian market.
For Asian converters, landing a global brand owner account is incredibly important. "The power of the brand owners in the supply chain seems to be stronger in Asia than in Europe or America. The best known brand owners are coveted customers because they are extremely important references in gaining business from smaller brands," says Vanhanen.
Move to Flexo
A paradox exists in much of Asia. The Asian printing segment has been around for a long time. Asians are capable of exceptionally high print quality and truly beautiful reproduction.
"The quality of labels is outstanding. That's the thing most Americans don't realize. A lot of the quality standards are tougher in Asia than they are in the United States. In Asia, they want a masterpiece," says Russell.
"Sometimes, the required quality and elegance are higher than western countries, while the cost must be controlled," says Lee.
But others see a different picture when it comes to flexographic reproduction of packaging for consumer goods. Asian converters have mastered the flatbed letterpress process, but long runs and high volumes from global brand owners have necessitated the growth of flexography.
"Although high end printers use flexo presses for label printing, many converters are still using letterpresses — Ko-Pack, Labelman, Taiyo, etc. Still, there is a trend away from letterpress toward flexography," says Tanya Du, executive assistant for Omet China, located in Pudong, Shanghai, China.
"Nowadays, the main processes are letterpress and offset. However, things are changing and becoming much more professional. Flexo printing is getting popular, especially UV flexo printing," comments Ramon Lee, director of Nilpeter China, Shanghai, China.
The increasing popularity of flexography and the fast growth in orders has put a temporary blemish on the otherwise clean record of the Asian printing industry. "There are not enough quality [flexo] printers in Asia. It's not like us where you can go into every city and find someone making good quality labels. You are not going to find it there. The flexo infrastructure is just not there yet, but it's going to happen," says Russell.
The Flexo Challenge
As with anything, a fledgling industry doesn't come without its challenges. Infrastructure remains an obstacle, and many Asian converters are still importing such necessities as rotary dies and presses. But while the flexo infrastructure isn't fully developed, it is improving, especially in China and India.
China has seen tremendous development. "The label infrastructure in China is fairly well developed. All major ink suppliers and substrate suppliers have a local presence. Prepress availability and quality is considered to be good. Chinese converters buy all consumables locally," says Abaecherli.
"All major global labelstock, ink and coatings suppliers have a presence in China in addition to a wealth of local companies. For printing presses the most modern ones are still imported, but the quality of local presses is constantly improving too," agrees Vanhanen.
India is also showing great potential. "India has adopted flexo better than anybody else. They weren't set on any one process. They've taken to flexo very well, but they are very, very price conscious," says Russell. He adds that heavy duties have had an impact on flexo in India; flexible magnetic dies are popular because they are easy to import.
High duties have also encouraged local Indian suppliers to spring up. "The infrastructure in India is not yet quite at the level of China or Southeast Asia, but it's catching up rapidly. Due to the traditionally high import barriers, in all categories, there are also respectable local suppliers available," says Vanhanen.
And while India's local flexo infrastructure continues to grow, it's still young. "The local manufacturers of inks, dies and liners are limited in terms of sophistication. To be sure, this will change during the next five to seven years, but the manufacturing infrastructure has a long way to go. There are definitely sales and supply offices in Mumbai and Delhi. If you go further east and south, however, you're back to the 1950s and 1960s," says Calvin Frost, CEO of Channeled Resources Group, Chicago.
When business people in the West think of Asia, they think low labor costs. It might come as a surprise, then, to learn that the cost of labor is a challenge for the Asian flexo industry. Trained press operators are difficult to find in Asian markets. As a result, their salaries are disproportionate to the rest of the Asian workforce, thereby driving the cost of flexo up.
"Flexo press operators are hard enough to come by in the United States and are sure rare in most Asian countries. When you do develop a good operator, he will jump around from company to company. That's a big fear, and these operators are learning to jump and make more than market value," says Russell.
Abaecherli concurs: The scarcity of flexo-trained employees is creating "more frequent employee turnover and thus an increased need for training."
"Staff retention can be a real challenge as new opportunities open up on an almost daily basis," says Crawford.
With time and further growth, the scarcity of flexo employees will hopefully heal itself. In the meantime, it is a challenge that Asian flexo converters must learn to overcome.
East Meets West
The Asian label market shows huge potential, both from organic growth and from an infiltration of global brands. The Asian converting industry is adapting to accommodate its customers. Many Western converters have also landed on the map in an effort to remain competitive and successful.
And so, the label industry enters a new level of globalization. While United States and European converters have not lost much business to Asia in the past, many say investing in Asia is an important move for the future. "I believe partnerships in Asia-Pacific are a useful structure for immediate growth," says Frost. "Globalization is here. If you are serving an international client you must be prepared to make an investment in Asia-Pacific. The West will lose business to competitors in Asia-Pacific if they do not follow their clients to the region which enables just-in-time service capabilities."
If Western converters do decide to set up in Asia, it is important to know about the Asian culture, and how it relates to business. "There are two label industry worlds on earth. One is European/ American and another is Asian. People need to understand the difference," says Tsunakawa.
A proper understanding of cultural anomalies can mean the difference between a successful venture into Asia and a failed attempt. Education is crucial. "Companies that want to do business in Asia need to be exposed to Asian culture. It's a big market with lots of opportunities to expand into. Yet Asia is a very complex area with many discreet cultures," says Abaecherli. "But that should not stop other companies from setting foot on the Asian continent. Embassies, trade councils and dedicated literature will be able to offer professional advice on the business protocol and 'do's and don'ts' during negotiations."