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China's Label Market



China is a huge and potentially profitable market, but there are many obstacles to overcome.



By Steve Katz



Published October 6, 2008
Related Searches: Label printer Label printing Label converter Label industry
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The global spotlight has been shining on China. Playing host to the Olympic games, the Chinese were thrust front and center onto the international stage, opening its doors for the world to see how far this country has come. By many accounts, the opening and closing Olympic ceremonies were stunning displays featuring cutting edge technology, grandiosity, and people – lots and lots of people. With a population in excess of over 1.3 billion, almost 20 percent of the earth's people live in China, thus creating the world's largest potential workforce. This massive workforce provides the basis for China's continuously growing economy.

With more than twice as many people as the US and Europe put together, China can boast having the fastest growing major economy in the world's history. And speaking of history, China is home to one of the world's oldest continuous civilizations. British scholar and biochemist Joseph Needham talked about China being the birthplace of four great inventions: paper, the compass, gunpowder, and printing. Which brings us to the discussion of the current state of label printing in China.

Westerners doing business in China know that there can be a vast cultural gulf separating the two cultures, and that it is not alway easy to communicate or exchange information. Fortunately, for those who seek understand China's label market, there are several Western companies that have penetrated the region, and provide insight into China's fast growing label industry.

"Right now the label market is so huge, and there are just so many opportunities," reports Mike Martin, president of LGInternational, Portland, OR, USA. The company designs and manufactures a wide range of labeling systems used for product identification and decoration, manufacturing processes, product packaging and security.

"The label market is massive, and the way things are done, anyone can start a label business in their garage," Martin says. "There are a ton of converters there, and many of them are really startups – there are lots of mom-and-pop type of label shops."

According to Martin, LGInternational's business in China mostly involves supplying Chinese converters with functioning parts, as opposed to graphical.

"We get involved in providing specific solutions depending on the application," says Martin. He says that one trend in China he's seeing is label applications becoming smaller, thinner and cheaper, with Chinese converters constantly trying to replace components as a way of simplifying the manufacturing process.

Steven Fan, general manager of GIDUE (China), also notices the trend. "Printers are looking for cheaper solutions. For example, they're using water based or alcohol based inks as a way of reducing running costs. Final products are much cheaper in comparison to Europe. The price is anywhere from one tenth to one twentieth of European prices," Fan says.   

In 2006, GIDUE surveyed 427 label converters in China. Its findings support the reported trends of many small companies producing labels without spending a lot of money. Fifty percent of the surveyed label printers are small in size with under 50 employees. Only 13 percent of the surveyed companies have flexo equipment installed, the majority of these installations being inexpensive, locally manufactured equipment. In addition, the survey found that only very few label printers have clear intentions to adopt imported flexo equipment in the near future.

Western equipment suppliers like GIDUE and label companies alike have taken the time to conduct extensive research in learning about China's label market. As far as printing presses go, the consensus is that letterpress is most dominant. The GIDUE survey reports that the label market consists of 65-70 percent letterpress, 10-15 percent offset, 9 percent flexo, and 11 percent gravure and others.

Mike Martin of LGInternational says that despite the efforts of a lot of European and American companies, they have had limited success, and Asian built equipment is most prevalent. Martin talks about factors that contribute to this: "Speeds and throughput are not nearly as much of a driver as labor costs. Labor costs are nothing in China. Chinese label converters don't care so much about the speed of the machines. There is so much available in terms of labor resources – so many people."

Another contributing factor is costs. Martin characterizes the press market in China as somewhat of a wild "anything goes" type of scenario. It's long been thought that Chinese engineers are experts at copying machine technology. "There's nobody in the world better," says Martin. "The Chinese-made machines are substantially less expensive. They don't have any regulations like we have. For example, there are no regulatory safety committees overseeing the machinery. Like we have OSHA in the US, they don't have anything like that."

While China's label market trends point toward frugal manufacturing practices, the country's growth is happening at an extraordinarily rapid pace. China's gross domestic product (GDP) over the last 15 years has increased between 7.5 percent and 11 percent per year. In 2007, China's GDP was 11.4 percent. The 2007 CIA World Fact Book lists China's GDP as US$3.25 trillion, which ranks China fourth behind the USA, Japan, and just slightly behind Germany.

For the label market, these figures translate to the self-adhesive label industry increasing over 20 percent per year for the last five years, according to the GIDUE survey.

Sustainability, market drivers, communism and risk


While the Chinese had their backs to the world for so many years, label companies didn't so much concern themselves with environmental issues. As is the trend with most developing countries, economic growth had been emphasized over environmental issues. However, thrust into the global limelight of the Olympic games, environmental issues are now on the radar.   

"Environmental protection in China has become a hot topic, and there has been a push to align with global standards," GIDUE's Steven Fan says.

Evidence of this can be seen in the efforts China put forth in procuring agreements with eco-friendly packaging suppliers prior to the Olympics. Before the games, Biograde, headquartered in Melboune, Australia, secured a deal to provide biodegradable packaging materials to the Beijing Olympic Organizing Committee. The materials supplied by Biograde met or exceeded all global biodegradable standards, including those set by the European Union.

"The deal will extend beyond the Olympics, with Biograde partnering with the Beijing Advanced Materials Development Center to further educate and work with the Chinese manufacturing sector to help improve standards in sustainability," says Martin Ferguson, Australia's acting minister for trade.
So while China's label industry addresses issues of efficiency, cost and sustainability, the country's communist government can sometimes provide roadblocks to the production process.

"We'll be running a job, and all of a sudden there will be a change in the law," Martin says. "It's really the biggest shock when it comes to operating a business in China. There are day-to-day changes, and you can't fight them."

The Chinese legal system can have adverse effects on the economy and the work force. For example, the country's "one child per family" policy, implemented to curtail overpopulation, is the cause of China's rapidly aging population – and workforce. It is estimated that in 2010, 34 percent of China's population will be over 50. In the near future, the massive workforce will be a massive elderly populus, and it remains to be seen if the country's economic structure is equipped to handle it.

CCL Label, headquartered in Toronto, Canada, is the leading global label supplier, and currently has two manufacturing facilities in China with more on the way. Its Guangzhou plant started operations in 2006 and focuses on personal care products. The Hefei plant, located in central China, opened in 2004 and is devoted to battery and beverage labels.

Jim Anzai, vice president, managing director, CCL Label Asia, talks about drivers in the Chinese label market, as well as the company's current and future enterprises in China. "A main driver for label demands is growth in the hair and skin markets, targeting working females in urban settings. Another fast growing sector is beverage. To this end we feature CCL's "Wash-Off" technology for returnable bottles. In fact, China is the largest beer production country in terms of volume," Anzai says. "We have global end user producers existing in China seeking business in its domestic market. Also, we've seen major global players in Japan and Korea move their manufacturing facilities to China. They manufacture in China, and then export back to their countries. So export is another key economic driver."

CCL reports that sales from both facilities increased from 2006 to 2007. Estimates for 2008 also show increasing sales, particularly a significant jump at the Hefei facility.

Anzai says CCL is expanding its Hefei plant and completion is expected later this year. Construction of a new facility in Tianjin for personal and health care labels is expected to start in 2009.

While the company is optimistic and enthusiastic about its business ventures in China, Anzai does acknowledge risks associated with the Chinese market. "Inflation is as high as 8.6 percent and that will make costs expensive in a short period. Also, the RMB (Chinese currency) exchange rate has increased 15 percent over the last two years," he says. Anzai also notes the aging population as a potential risk factor as well as policy changes in taxes, regulations and laws.

Yet taking the risks into account, Anzai believes that China is still a very attractive, growing market. "The CCL Asian team is striving to make the CCL business model successful in emerging markets."
Evonik Goldschmidt, headquartered in Düsseldorf, Germany, is currently very active in China. The company is a producer of UV silicones for a variety of pressure sensitive applications.

Mikko Meyder, global marketing manager RC silicones, discusses Evonik's appeal to the Chinese label market in regard to cost and sustainability drivers, as well its future endeavors in the region. "For label stock producers, our products offer immediate cure, stable release values, low energy consumption for silicone curing, and a significantly lower initial investment for UV equipment compared to a thermal drying oven. Chinese printers and converters have the possibility to use our UV silicones with a converting line supplied by our partner, ETI, and yield various advantages out of this. They can produce their own, tailor-made label stock at very low cost, and the combination of the ETI line with our silicones allows them to produce label constructions that cannot be made with standard labelstock.

"Our current efforts in China concentrate on a transfer of our UV technology to the Chinese market. We are sure that the advantages of UV curing, especially on the cost side, will convince many labelstock producers, printers and converters in the region to adopt this technology. In order to support our customers in the technology shift that is necessary, we are currently building up a technical center in Shanghai. On an overall floor space of 500 square meters, we will install a narrow web siliconizing line and have sufficient lab space to do all relevant testing of label stocks and release liners. The technical center will be operational in the second half of 2009. We will use it to demonstrate the advantages of our UV technology to our existing and potential customers. We will also use it to adapt silicone formulations to customers' needs and conduct all relevant tests with labelstocks," Meyder says.

Trade show


Adsale Exhibition Services, based in Hong Kong, along with the China Foreign Trade Group, has organized the China International Exhibition on the Label Printing Industry, also known as Sino-Label. The event is one of the largest international exhibitions of its kind in China. It will be held March 3-6, 2009, at the China Import and Export Fair at Pazhou Complex, Guangzhou PR, China. The show will cover label printing machinery, bar code printers, RFID, anti-counterfeiting technology, label security applications, self-adhesive materials, testing equipment and accessories, label design, and more. Conferences and symposia are also part of the event.

"China's label market has achieved a growth rate of 15 to 20 percent over the last 10 years, higher than the global market growth rate of 3 to 6 percent. South China (Pearl River Economy Delta) progresses by leaps and bounds and is the largest region for the printing and packaging industry. Statistics show that there are a total of 1,000 label printing enterprises and over 10,000 packaging companies in the region. A large number of well known international and local suppliers of label materials cluster in South China. Guangdong Province and Hong Kong alone account for 67 percent of the country's total label printing production," says Sini Liu, assistant manager, marketing communications department, Adsale Exhibition Services.

Liu predicts China's label market will only continue to grow. "China's label market is growing at a vigorous pace. Vast opportunities are being generated by the wide range of applications and increasing demands for advanced label technologies from different industries, such as food, beverage, pharmaceuticals, cosmetics, and electronic products. It is estimated that in the forthcoming years, China's label printing industry will grow at a rate of 30 percent," she says.

Sino-Label 2008 exhibitors included Mark Andy, AVT, Lintec, Avery Dennison, Pantone, King Label and Labelmen.

'Guanxi'


Chinese culture is distinguished from Western culture in many ways, and how business is conducted is no exception. The Chinese term "guanxi" translates to mean "relationships," and in the Chinese business world it is understood as the network of relationships among various parties that cooperate together and support one another. Mike Martin compares the guanxi concept to the colloquial "Good Old Boy" network that exists in American business culture. It is an important concept to understand if one is to effectively conduct business in Chinese society.

The Chinese prefer to deal with people they know and trust when it comes to doing business. While this doesn't appear to be much different from doing business in the Western world, the heavy reliance on relationships means that Western companies have to make themselves known to the Chinese before any business can take place. Furthermore, this relationship is not simply between companies but also between individuals at a personal level. The relationship is not just before sales take place but it is an ongoing process. The company has to maintain the relationship if it wants to do more business with the Chinese.

"A lot of business is conducted over meals, on a personal level," says Martin. However, he notes that there are roadblocks along the way that arise when two cultures clash. It shouldn't be understated that one needs to learn and respect Chinese mannerisms, customs,  and etiquette, in order to succeed in China's business environment. Considering China's growth, it's probably a good idea.


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