- January 01, 1996, Simonsis, Yolanda
Joint ventures in foreign lands are one way to capitalize on an emerging market. In India, lowered import duties and revised foreign exchange regulations mean new opportunities for converters and suppliers alike.
One of the biggest opportunities in the field of converting technology today may be India's growing market for flexible packaging. Consumers in that country are stretching the current capabilities of manufacturers by demanding more packaged goods and expecting high quality. After decades of towering import duties, India has changed its policies and now encourages international investment
There are plenty of companies looking east to expand their horizons as well. The Society of the Plastics Industry Inc., Washington, DC, is so interested in developing new business opportunities for its members, in fact, that it recently joined the US Dept. of Commerce in sponsoring a trade mission to India Oct. 28-Nov. 7, 1995. Participating supplier companies included Eastman Chemical Co., Kingsport, TN, (mission leader); Air Products, Allentown, PA; The Conair Group Inc., North Franklin, PA; Fast Heat Inc., Elmhurst, IL; Group Dekko, Kendalville, IN; and Improved Blow Molding Machinery Co., Bedford Park, IL. Both SPI and the Dept. of Commerce plan additional missions throughout the next two years, including a mission to China, another to Chile, Argentina, and Brazil, and others to Vietnam and South Africa.
In theory, the consensus is that the most successful ways to make inroads into India include setting up technology transfers, joint ventures, investments, franchising, exports, and imports.
India Establishes Open Market Economy
When India's Prime Minister, P.V. Narashimha Rao, and his finance minister, Dr. Manmohan Singh, opened their country's markets to western participation and technology. Although foreign exchange regulations haven't relaxed, foreign companies can now have joint ventures, including a majority holding.
Although high import duties in the past were designed to encourage domestic development, the barriers often produced adverse results, Tariffs as high as 120% on air shafts, for example, meant that the country had to make do with less sophisticated machinery. Today's duties, half that amount, should drop to 25% or below in the next year or so.(*) (See footnote at end.)
In the past, as a result of higher duties, modem equipment has been expensive and difficult to locate. Those few who installed the equipment found little support for the new technology, with service and spare parts rare. Reportedly, no one in India manufactured air shafts until 1993, although the Indian markets had long been aware of the technology and had been requesting it from their suppliers. The domestic product did not thrive, and lack of competition drove the price to a level too high for many Indian firms.
The past scarcity of affordable new equipment is but one factor creating an unprecedented demand for technology in India today. India's emerging market is in the "early stage of a very dramatic transition," according to Jeffrey L. Garten, undersecretary for international trade in the US Dept. of Commerce, as reported in Business India. To make the opportunities more available, the governments of the two countries are working to strengthen economic ties, encouraging improved communications and commerce between medium- and small-sized firms.
Also, commerce secretary Ron Brown recently toured India with US corporate leaders.
S.K. Bangur, chairman of India's Joint Paper Industry Committee, has pointed out that "India, with her vast natural resources, very skilled technical manpower pool, and plenty of water and sunshine, has all the potential of becoming a gateway to Southeast Asia - the industrial dynamo of the 21st century. All that we need is state-of-the-art technology."
Packaging Industry Growing
Despite fluctuations in India's economy, the packaging industry has grown in the past two decades. India's gross domestic product (GDP) averaged 3.6% through the 1970s and climbed to 5.2% for most of the 1980s. Although the Rao government eased its restrictive duty and excise levels, economic growth in 1993 slowed the GDP to just 1.6%. Yet, despite the economic slump, the packaging industry is growing by 6% to 8% per year, according to the Indian Packaging Institute.
Indian converting plants are also enjoying an increase in business.
To compete in both the domestic and international markets, India's industry will be forced to modernize its larger papermaking and package manufacturing facilities. Labor that is inexpensive in the international perspective has substituted for new equipment in the past, leaving technology at least five years behind by western standards. Today, manufacturers must improve the quality of their products by installing new machinery that will produce what customers demand.
Cultural changes are among those driving the consumer demands. For example, as India's population becomes more sophisticated in its buying habits, demands for quality increase. Also, as more Indian women enter the workforce, they have less time to fulfill traditional domestic roles. One result is a higher demand for prepackaged convenience foods, creating, in turn, a new demand for food packaging.
Pulp Shortages Boost Film and Foil
India's converting industry primarily manufactures packaging that can make consumer products more attractive, convenient, and sanitary. Film and foil packaging technology is in high demand, in part, because India's pulp and paper industry is limited by a lack of raw materials.
The Indian Pulp & Paper Trade Assn. ranks India's paper and board manufacturing capacity as the nineteenth largest in the world, and one-half of the paper production is used for packaging. The country's pulp and paper market is growing, but manufacturers cannot meet demand. India has a shortage of pulp fiber compared to the growing requirements of the market. Although the capacity of the paper industry has grown from just under 1 million metric tons in 1971 to 3.5 million metric tons in 1993, production has lagged by one-third due to lack of pulp fiber.
The supply of wood fiber is so tight that more than half of the paper produced in India is made from jute and post-agricultural fibers such as sugar cane pulp. To compete in the world market, larger paper mills must modernize using Western technology. New, smaller facilities can succeed if they are fitted with modem equipment.
As India's economy encourages more firms to participate in international trade, Indian companies are becoming more aware of the expectations of foreign firms and consumers.
"Demand for quality packaging and printing is being driven not only domestically but also by India's ever-growing export markets and the quality demands of this sector," Boren Biswas says. "To attract the foreign buyer, packaging and printing has to exceed current Indian quality expectations."
Flexible packaging is quickly replacing paper bags as the container of choice. Films are also becoming more popular for pouches, envelopes, and garbage liners. Yet, despite this, about 70% of the packaging producers are small; only 5% to 10% are considered large. Both need ongoing modernization.
Western technology is in demand as the fastest way to help India's converters both meet new volume levels and provide high quality products. India's new open-market economy makes this the right time to consider entering the Indian market. The best way to proceed, according to Biswas, is to look for the right partner. "First, I think the partnership has to be financially equal so that both parties have the same vested interest in making the venture a success. And second, you need an established, experienced business that's done manufacturing of this nature before."
For facts, figures, and more resources, contact: (Within the US) Indian Trade Development Authority (TDA), New York, NY; ph: 212/753-6655; fax: 212/319-6914.
(Within India) Federation of Indian Chamber of Commerce & Industry, New Delhi, India; ph: (91) (11) 331-9251; telex: 0312546.
* According to the 1995 edition of the Dun & Bradstreet Exporters' Encyclopedia, India's 1996 budget proposes a phased cut in the maximum import duty from 65% to 50% as well as reduced duties in a wide range of sectors. Other duty reductions will include the duty on machinery and capital goods to be reduced to a uniform 25%, with paper to be cut from 65% to 40%.