Keeping up appearances

Having become a significant consumer market, China is a prime target for packaging industry companies. Department stores and supermarket shelves are stacked with an array of colourful and sophisticated-looking bottles, boxes and carton containers. This represents a transformation since the days of the planned economy. Back in the 1970s, few daily necessities were actually selected for purchase by consumers ?most were distributed to individuals holding coupons. Brand selection was not an option. As a result, few people paid attention to the packaging of commodities such as oil, flour, rice and cotton so long as they could put them in their baskets. "Previously, we bought food wrapped in paper," remembers Xie Rongquan, Vice-President of the China Packaging Association. "But soon, because of hygienic concerns, people started to ask for a plastic bag or a box."

The nascent Chinese packaging sector end-product was chrysanthemum tea.

In 1985 Tetra Pak and three other Swedish companies helped to set up a Dairy Training Centre in Beijing to pro-vide technology and high calibre training to executives in the dairy industry. This body has since been incorporated into Beijing Dairy Corporation. Two years after starting this project, Tetra Pak started concluding licence agreements with Chinese companies. The first was signed in 1987 with Beijing Paper and Pulp Experimental Mill, the second in 1991 with Foshan Huaxin Packaging Company.

By the early 1990s, the industry was expanding at a healthy rate. According to the packaging association, output rose from Yn7.2bn in 1980 to Yn126bn in 1996. The number of producers has also risen. In 1980 there were only 2,556 packing and printing enterprises; today 2.5m people are employed by 103,000 enter-prises, of which 60,000 are devoted solely to packaging and package printing. "The expenses of these companies on materials, equipment, maintenance and technical transformation amount to nearly US$10bn each year," says Wang Xiaolun, President of the Guangzhou Printing & Iackaging Centre of Science, Technology and Trade.

For the China Packaging Association, has progressed enormously over recent years, although some of the big names have had a presence for some time. The Swedish company Tetra Pak was among the first, organising an exhibition of its carton containers in March 1972 ?just one month after US President Nixon's historic visit to China. The market at this stage was still very immature. "After this first exhibition, we won no business whatsoever for the next seven years," remembers Mr Kenneth Wu, chief representative of Tetra Pak China. "We had to wait until 1979, the year of the open door policy."

Accelerating growth That year Tetra Pak sold its first filling machine to China ?one making its card-board 'brick' cartons commonly used to package items such as milk and fresh soup. The first client for the Tetra Brick Aseptic machine was the state-owned enterprise Guangzhou Canning and the experience has been one of accelerating growth. "With an annual growth rate averaging 15 per cent, the Chinese packaging industry has grown from a backward to a developed industry and it has adapted to the needs of the market," says Xue Rongquan.

"In 17 years China has travelled the same road that Western countries took 40 years to complete."

However the market remains, highly fragmented and most enterprises are small-scale.

Around 30 per cent of the Chinese companies operating in the sector ire state-owned, while eight to nine per cent are foreign-invested. "In my opinion, the share for foreign investment is still insufficient," says Xue Rongquan. "We have a large potential to absorb foreign investment and I think a 20 per cent share would be more suitable for the industry." According to the association, contracted foreign investment between 1979 and 1991 stood at UUS$245m. Hong Kong companies were the most prominent, with 138 companies and an investment of US$141m. Then came Japan and the US.

Search for expertise

Most of the early foreign investors in China's packaging industry have adopted a strategy of increased engagement. Tetra Pak, for example, has purchased shares of two companies with which it had a licence agreement, turning them into joint ventures in 1994, one year after opening its first representative office in China. In 1995 the first Tetra Pak wholly-owned company opened in Kunshan, with an investment of US$30m.

Later foreign arrivals however have found it difficult to become established. The medium-sized French packaging machinery company SERAC, for instance, decided to review its strategy after a joint venture failed, with the lack of a suit-able local partner hampering its efforts to sell its machines to local companies.

Chinese consumer goods manufacturers have been relatively slow to invest in packaging, but things are starting to hange. "There is huge work waiting to be done because a lot of companies are asking for expertise in this field," says Mr Henri Lemarie, area sales manager of SERAC. "Many pro-duce the same type of cans and they are trying to use packaging an to set themselves apart from their competitors and enhance their brands. Chinese companies have plans to produce new types of bottles." For example, a Chinese company recently approached SERAC requesting a medium-sized mineral water bottle of three litres, instead of the 1.5 litre bottle deemed too small for family consumption or the five litre size which is too heavy for the average housewife to carry.

Packaging design is also becoming more important, although few Chinese companies seem yet to have realised this. For that reason, Tetra Pak is focusing more on multinationals than on Chinese companies. "We have found that the image of packaging is not good," explains Kenneth Wu. "The quality of the products is very low and few companies understand branding and marketing."

The China Packaging Association is aware of the gap. "Chinese producers are now starting to realise that packaging is important not only to protect the goods but also to lure consumers," explains Xue Rongquan of the association. "But there is still a big gap between Western and Chinese design. In China the image and the decoration of the packaging are more important than its structural design and external design is therefore exaggerated."

To counter this obstacle, Tetra Pak is providing packaging design assistance free of charge so as to its customers, the image of its products. Big companies tend to associate the design and marketing gap with a lack of corporate image in China, a country where for a long time factories and companies used to be called by a number instead of a name. "I think it is going to be a huge undertaking in trying to tackle this challenge," says Kenneth Wu.

Environmental threat

Another challenge is also looming: the environmental threat. Says Xue Rongquan: "We recognise the environmental pressure on the packaging industry and the association is now encouraging green packaging with two types of plastics ?one is biodegradable plastic and the other is light photodegradable plastic that can be broken down in two to three months."

Although only 10 per cent of Tetra Pak products are deemed to have an 'environmental impact', the Swedish company has invented a technology called CHIPTEC to help recycling used Tetra Pak materials. "We use waste package to produce a concrete board and recycle it by washing and threading to produce furniture, floorings and decoration materials," explains Hong Gang, Tetra Pak's environmental specialist.

Two Chinese factories have been collaborating with Tetra Pak for two years on this programme. After winning an award last year from the Chinese environment agency NEPA, Tetra Pak is having talks with three more factories in Shanghai, Fujian and Guangdong, the province where most of China's packaging industry is concentrated.

The company believes the recyt cling tradition in China will accentuate this approach, especially because the value of the packaging materials makes it an evolution driven by market forces: in Beijing, the Kaifa Environmental Protection Technology Consulta-tive Centre and six producers of containers already pay Yn2 to collectors for every kilogram of food containers.