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China's packaging machine manufacturers eye export markets

The Chinese are coming!, Packaging, Asia, China, AsiaPhile
ASIA - The first sight to greet visitors to Brazil’s premier packaging technology exhibition, FISPAL Technologia, held in June this year in Sao Paulo, was the massive display of Chinese soft-power; a Chinese national pavilion strategically positioned up front and centre, no visitor could miss the message: The Chinese had come to town – in strength.

The 60-booth Chinese Pavilion, comprising mostly small, standard 9sqm booths featuring desktop and poster displays were clustered together under a slick corporate brand banner, reminiscent of the days when the Institute of Packaging was the IOP and proudly took Brand UK to far flung parts of the world.

In Brazil there was no UK pavilion, nor was there a US pavilion, the Chinese had the floor to themselves with only national pavilions at the show – yes pavilions (plural) for not far away, to the left of the main entrance, on aisle B, was a second Chinese pavilion with another 30 booths for the upstream food processing sector.  The Chinese are coming!, Packaging, Asia, China, AsiaPhile

Given the distance from home, it was not surprising there was very little actual kit on display; a small flexo-folder-gluer, a few top-loading dry-hoppers and a phenomenal number of flexible pouch manufacturers displaying their product samples across every square inch of booth wall-space and eager smart smiling bi-lingual, young sales execs in dark suits with order-book in hand.

It was the same story at Korea Pack, in Seoul in May - a slick national pavilion, sharply dressed young staff, speaking the local language - and again in Jakarta in July where the Chinese dominated a small local exhibition.  

The slick, professional corporate operation was a complete contrast with the Chinese showing two years ago, at Interpack ‘08, when the best that could be mustered was a few bare booths staffed by surly looking young men in grubby pullovers - their surliness probably was probably on account of the nine Chinese exhibitors that had just been served with restraining orders issued by the German courts forbidding them to display, market, promote or sell their equipment which infringed certain patent rights. Jumping the gun, the patent protection was due to expire in less than 11 months.

What a difference two years makes; Interpack ’08 is a dim memory, whole global economic collapse away, and Chinese industry has ridden on the back of two world extravaganzas; the ’08 Beijing Olympic Games and the current Shanghai Expo – both platforms for China to demonstrate that it is ready to step up and regain its rightful place as a world player with new-found pride (though some would say hubris!).

Cost Effective?
These days, Chinese exhibitors come not only with a shiny new national identity but also signage reading “Japanese Technology at Chinese Prices.”

Although buyers know that Chinese machines are very much cheaper, up to ¼ of the price in some instances, with less automated features, they are also fully aware of the very much shorter productive life. But does that matter?The Chinese are coming!, Packaging, Asia, China, AsiaPhile

If the ROI is reasonable in the markets of the developing countries where China is parading its new livery in force, then it is simply a question of economics:

If the Chinese equipment is ¼ the price of a European machine, runs a bit slower, but can be financed through a Chinese bank at attractive terms, and being a very much cheaper investment can give a pay off in two to three years, then where is incentive to look to a machine that will still be productive in 15 to 20 years?

As an Indonesian packaging producer told me in June of this year “Why do we need automation when labour is so cheap? I’d rather hire a team of eight to run a production line, than have just two workers operating a more advanced, higher capital cost line. It takes me longer to pay off the loan, then there’s the additional training to factor into the cost, higher qualified workers look for higher wages. Besides, by going for cheaper more basic machinery I’d be feeding six extra families – as an employer, the social responsibility we have to our workforce can’t be dismissed. Besides, the advanced automation will be obsolete in three to four years and then we’ll have a salesman telling us we need an upgrade”.

At the time we were looking at a China-made recycling line for both rigid and flexible mono-layer plastic; fully spec’d, the ticket price was just US$50,000 (before haggling).

Patent Pending

The greatest fear of the modern machine manufacturer, whether German, Italian, or Japanese is the protection of patents and intellectual property from Chinese (or Indian) knock-off artists.

Let’s be clear from the outset, buyers in the emerging markets really don’t give a second thought to whether the seller has officially licensed the technology or has simply reverse engineered it – if it looks like a Rolex and tells the time, what’s the problem.

A salutary lesson

A few years ago when I was in Beijing at an exhibition, an American company displayed the latest in its line of top-of-the range narrow-web label printers and was horrified to discover an identical China-made press on show in a nearby hall.

How had this come about, especially with a machine that hadn’t ever been exhibited outside the USA?

On investigation, it turned out that during the US launch six months previously one unit had been sold to one of China’s 12 Packaging Universities - yes you read correctly, China has at least 12 Packaging Universities – this was done on the basis that by ‘seeding’ the education sector, when graduates enter the workforce, they recommend equipment they had been trained on – the strategy that launched the Apple Mac back in the mid-1980’s.

However, what isn’t generally known is that every Chinese Packaging University has a Faculty of Packaging Machinery conducting research and development and turning out graduate machine manufacturing engineers.The Chinese are coming!, Packaging, Asia, China, AsiaPhile

In addition most Chinese universities have a system, not unlike those in the West, where commercial operations are spun-off if they look viable – Lenovo is a classic case, it is majority owned by Legend Computers, the wholly-owned commercial arm of the Academy of Science, part of the University of Beijing; back in 2004 Lenovo paid US$1.25 billion for IBM’s PC business.

I think you can guess where this is heading, but if you can bear it: The state of the art US press was delivered to the Packaging Machinery Faculty and within hours of its arrival it was in pieces on the floor being analysed.

By the time the genuine US press had reached the Beijing exhibition, a matter of just six months, the Chinese had already sold and shipped 40 units of their version!

A salutary story, but one with a sting in the tail – the Chinese ‘knock-off’ was not an identical copy of the US narrow-web line, it had the bells and whistles, the touch-screen and the servo drives but there was a significant difference; the web-width was 1cm wider than the US machine.

“Gambling is big in China” the owner of one of the local machines later told me “By increasing the web-width the press is ideal for printing playing cards ‘4-up’ – the US version won’t do that, so we can’t use it!”

So was the Chinese machine a ‘knock-off’? Certainly.

Was it a copy? Not entirely, one can only imagine a professor in the Packaging Machine Manufacturing Faculty giving his students a lateral thinking project on how to expand the potential market demand.

The above raises several questions the western machine manufacturing industry needs to seriously consider:

  1. When do your patents expire - if you don’t know, the Chinese probably do
  2. How well do you know the needs of markets outside of your traditional sales territories? Could a modification similar to the 1 cm example above help drive sales in new directions
  3. How appropriate is your technology to a market where factory workers earn less than $1/hr as opposed to $35-40/hr.
  4. What’s the running cost? Does that advanced technology consume significantly more power, always remembering that most factories in the developing world run on diesel generators due to a sub-standard power grid.
  5. Just how much would it take to buy your technology? Not the license, but your company, and with it, the patents?

Think: the US$1.25 billion Lenovo-IBM deal back in ‘04, or more recently the US$1.8 billion Zhejiang Geely-Volvo buy-out, or even the US$2.3 billion buy-out of Jaguar-Land Rover by India’s Tata Motors, were they buying markets or were they buying the know-how and patents?

It isn’t hard to name a handful of the big-brand equipment manufacturers that ran for government bail-outs in wake of the financial tsunami of ’08-09.

Finally, let us not forget that both the Chinese and Indian economies side-stepped the Financial Crisis. Most of Asia avoided recession - none of their banks went belly up and are highly liquid, while their governments’ focus on domestic market stimulus has raised consumer spending to new highs, which of course is driving packaging demand to above 12 percent growth levels - so who is buying machines these days?

So, yes, the Chinese are coming, but possibly not the way we expect them!

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