BRUSSELS, BELGIUM — European plastics processors are being urged to take immediate, genuine steps to consolidate their industry or face continuing "destructive" pricing and even less prospect of viable business in the region. Contracts in Europe's packaging sector "tend to be pitched at a price level that is completely destructive," leading to tighter competition in the longer term, said Ron Marsh, chief executive officer of the region's leading rigid plastics packaging producer, RPC Group plc of Raunds, England.
"Prospects for viable business emerging from some of these contracts just do not exist," Marsh added.
Speaking in a panel discussion on globalization at the Plastics Forum 2000 symposium in Brussels, Marsh pressed the industry to "take a leaf out of our suppliers' book" and restructure the sector.
"We're nowhere near approaching the level of consolidation our suppliers are achieving," Marsh said during a seven-person debate among executives from processor and resin supplier groups on "The Competitiveness of the European Plastics Industry."
The Brussels-based European Plastics Converters organized the 11/2-day conference, in part to celebrate the 10th anniversary of the formation of EuPC, a federation of plastics processing trade associations across Europe. The event attracted about 300 participants from all 15 European Union member countries.
Marsh, a former president of the British Plastics Federation, said the European packaging industry debated the need for consolidation 10-15 years ago. While there have been mergers and alliances since then, few really have brought together competitors, he said. He admits he is pessimistic about the likelihood of real restructuring in the next 10 years.
"I fear that the Holy Grail of the industry has become volume," he said.
Marsh played down the need to operate globally at the expense of national or regional customers.
"Europeanization is a much more practical objective than globalization," he said.
He pointed out that RPC, despite being a European leader in rigid packaging, still commands only a 2-3 percent regional market share. The firm — which in 1997 bulked up by buying Schmalbach-Lubeca AG's non-PET bottle operations, Continental Plastics Europe — today operates injection molding, blow molding and thermoforming subsidiaries across Europe.
Marsh's call for realistic consolidation was echoed by another of the four European processor panelists, Henk Ten Hove, vice president of Wavin BV, a plastic pipe maker in Zwolle, the Netherlands.
Ten Hove predicted the globalization process will continue, although in some sectors he suggested it already has gone too far. He said he expects a string of divestments from groups that have not realized the desired profitability from acquisitions.
"More from the European point of view, I really feel consolidation on our customers' and suppliers' side is going much faster than consolidation on the converting side. There's a tension growing," he said.
Other plastics processing executives on the panel included Jean-Louis Merveille, senior vice president of purchasing at automotive components producer Cie. Plastic Omnium SA of Paris and Hubert Hecker, chairman of window profile and sheet extruder Veka AG of Sendenhorst, Germany. The panel also included executives from polymer suppliers Solvay SA of Belgium, Borealis A/S of Denmark and Targor Ltd. of England.
Much of the discussion centered on the potential of and conditions for operating in Eastern Europe and Asia. Merveille stressed that his company is linked inextricably to the global expansion of its customers and is establishing a network of operations worldwide in response to those automakers' needs.
He spoke of Plastic Omnium's recent entry into production in South Korea and the need to gain experience with the different culture there with its acquisition this year of the leading plastic fuel-tank molder, Polytek Co. Ltd. of Kyongju.
Merveille also mentioned the business and cultural challenges facing a European company tackling the North American market, as Omnium has done.
"The United States is a very difficult country," he said. "The challenge is to manage and win the confidence of the employees," so that they recognize that you are applying sound practices. "It takes time, time and time."
Processors with experience in the former Communist bloc countries agreed it is a mistake to refer to East European states as a single, uniform package. Business conditions for foreign investment vary widely from one state to another.
"We are represented in a number of countries in Eastern Europe and our experiences are very different. ... Poland and Hungary are two very developed countries, very close to being partners in the European Community and not having tremendous financing problems," noted Wavin's Ten Hove.
"There are problems [there], of course, but they are not comparable with the lack of financial resources in countries like Rumania, Bulgaria and to some extent in Russia. The key," he stressed, "is the availability of financial resources, because the potential of [sales of] our products is huge.
"In pipe systems, there is an enormous demand in these not-so-developed countries. But that's not the issue. The issue is: Are there funds available to make it happen? In a number of [Eastern European] countries I feel it will never happen if Western countries cannot help them."
Ten Hove suggested that closer ties between the European Union and those Eastern European states could result in a flow of financial resources into those states, which "will boost business enormously." That is apparent, he pointed out, in the tremendous growth seen in the EU countries of Spain, Ireland and Portugal, all of which benefited from the influx of EU investment funds.
Veka's Hecker, whose firm operates in Poland, Russia and the United States, stressed the importance of committing to an Eastern European country rather than just seeking a location for low-cost production.
Hecker emphasized Eastern Europe's huge potential for plastics-based construction products, and noted that Veka's Polish company is "in very good shape."
"If you travel through the ex-East bloc countries, you can see the demand for every building material" for new construction and renovation.
Hecker termed the East European and former Soviet states as "the market for the future," since those sectors in Central Europe are mature and competitive.
In late 1997 Veka launched a 20 million deutsche mark ($9.3 million) project in Russia to build a profiles plant on a greenfield site near Moscow. After spending about DM5 million ($2.32 million), the firm ran into the August 1998 Russian economic crisis and faced the question of whether to pull out or stay, recalled Hecker.
"Our Moscow operation has some risks ... I can say that business is coming back and I see a future because the current administration in Russia under Mr. Putin may well eliminate the [black-market] imports from foreign countries. They want to strengthen their own economy and will stop the illegal imports."
He said such action would improve the position for doing business inside Russia, rather than simply exporting into the country.
While acknowledging the risks of operating in Russia, Hecker said: "I don't see big growth, but continuous growth, for our industry [there]."
He added that he expects Veka's Russian subsidiary to break even this year.
He also offered some advice to processors considering expansion into those markets.
"At the moment," he said, "there are industrial complexes available to purchase or rent for 49 years, so you can eliminate the cost of the building. I would recommend to go on your own and not with a [local] partner," as Veka has done.
RPC's Marsh also noted that Polish and Hungarian packaging markets are quite strong, but warned against blindly chasing growth in some developing countries.
For example, he noted that while "there is much growth opportunity in the Far East, profit doesn't always go with it." Marsh said other packaging companies have invested in Asian operations and seen sales grow, but with inadequate returns.
"We've avoided the Far East," said Marsh, "and concentrated instead on the very fragmented European market."
