Foreign entrants to market will increase competition levels

SA converting operations assessed more favourably by foreigners than by ourselves

THERE have been even more ‘invasions’ in the local converting industry than reported and it’s reached the stage now when you’ve got to ask: ‘Have we missed something?’

Besides the most recent purchase of Boxmore group by Alpla of Austria and that of Astrapak by RPC of England earlier this year, that of Nampak Flexible by Amcor and Afripak by Constantia Flexibles last year and … the list goes on and on, there have been at least two other purchases of local converting businesses by international players recently (which we hope to report about). This suggests that there are others besides and leaves little doubt that there will be more.

With few exceptions, South African convertors have not been outward looking. This does not come as a complete surprise, as doing business in Sub-Saharan Africa is not easy and the opportunity to test cross-border business activity close to home has not been that attractive. But the boot is now on the other foot and we have a situation where many of the country’s top converting businesses are foreign-owned. Coming to terms with this may prove more challenging than expected: what we are seeing here is almost certainly a ratcheting up of competition levels.

The new entrants to the market are leaders in their own countries and have proven that they can survive and thrive in foreign markets. They have successful operational formulas, have reduced costs (by activities such as building their own machines) and increased per employee output to levels with which we are not familiar. So tough times lie ahead.

One aspect that is going to come as shock is employee numbers. Although the total number of workers in the local plastics, composites and rubber sectors has declined, we are by international standards still employing too many people, which is not going to wash well with BEE criteria.

And the new foreign entrants know their game. Plants we have visited reveal how the planners know the exact position where every machine needs to be placed, and where the chillers and silos should go and so on, down to every little detail. Often these plans are drawn up in design departments in the northern hemisphere, so these guys know what they are doing.

There are plusses too: personnel at groups that have ‘gone foreign’ may, if they put their hands up, get opportunities to gain global experience. And, as in the automotive market, there may be potential to supply global markets with locally manufactured goods (with the exception of containers). Let’s hope for that.

This goes back to our suggestion previously that South African converting operations are assessed more favourably by interested foreign parties than by many people in our industry themselves, which is, well, incredible! From this writer’s perspective, and I’ve visited about half the converting businesses around the country (something like 500-plus companies over the past two decades), the standard of our operations is high and the quality of goods produced is of a very high standard, maybe even too high. But we have been out-competed by suppliers of inferior quality products, mainly from the Far East. That should never have happened, but it did.  Now we face competition from the other end of the spectrum. Let’s not kid ourselves that this problem is going to go away: many of our convertors face serious challenges.

Martin Wells