Plastics companies in East Asia are fighting for their own survival this year. But smart North American companies will see this not as something to fear, but as an opportunity to work with some cash-hungry Asian tigers.
First, understand that not all of East Asia is in the same desperate situation. The economies of Malaysia, South Korea and Thailand have suffered, but are nowhere near the crisis in Indonesia. Somewhat better off are Singapore, Taiwan and Japan.
Problems in the region mean companies in those countries will look to export markets for their bottom-line salvation.
The 1994 devaluation of the Mexican peso offers a good case history. Interest rates skyrocketed, and banks cut off lending to all but their top customers. That made it nearly impossible for processors to invest in new equipment. Hyperinflation and ultrahigh unemployment rates made local markets shrivel — Mexican consumers simply didn't have money to spend on most consumer (read ``plastic'') goods. About 800 of Mexico's 2,500 processors shut down shortly after the currency fiasco. You can expect to see similar numbers from the East Asian basket-case countries.
But the Mexican plastics industry had a bright spot — the companies that had strong exports managed to survive. In fact, some thrived, as the devalued currency made Mexico-made products significantly cheaper for U.S. consumers.
East Asia has something that makes its plastics industry much different from Mexico's — a large machinery sector. In this week's issue, senior reporter Bill Bregar explores how those companies are faring during the panic.
Many South Korean and Taiwanese firms already had significant, if not substantial, North American sales before the Asian devaluation. Now they're really pushing exports. Most firms have slashed prices — 10 percent was the discount cited by most North American plastics machinery sales representatives. The numbers could be higher, but in many cases the East Asian suppliers still need imported machinery components, which now are more expensive when measured in the local, deflated currencies.
Some firms are trying creative financing or special deals for first-time buyers. There's a real used-car-lot feel in the market. But the smart firms know they can't sell an expensive piece of capital equipment on price alone.
Taiwanese and South Korean equipment already was cheaper than competitive machines before the devaluation, yet those nations shipped only 176 thermoplastic injection presses to the United States in 1996, according to recent trade data. In comparison, Japan and Germany imported nearly 3,000.
So what sort of opportunities exist for North American firms as a result of the East Asian meltdown?
The first is obvious, to take advantage of the cheaper products and labor created by devaluation.
The Mexican scenario offers another possibility: A number of U.S. firms partnered with local companies during that crisis, providing capital and technology that were in desperate need.
Is it a risky bet? Of course. But the fundamentals that gave East Asia a strong plastics industry before the crisis are likely to return. Wise North American firms can turn this crisis into an opportunity.