Scouting out Asia
Panelist Kevin Kelly of Union City, Calif.-based bag converter Emerald Packaging Inc., readily describes himself as a ``reluctant internationalist'' and a ``neophyte'' in the global arena. But Kelly, CEO of the 115-employee, 40-year-old firm that his father founded, came to the Coronado meeting just days after arriving back from his first-ever trip to Asia. He was in China to scout out business opportunities, and came away awestruck by the place.
The well-traveled, former BusinessWeek reporter said he never has seen a city with the vitality of Shanghai, where all anyone ever wants to talk about is business. He noted that most U.S. film extruders and bag makers have yet to feel the same sort of foreign competitive pressures as many injection molders. That is partly because the Chinese still are making bags using printing inks that contain environmentally undesirable compounds such as lead and benzene.
Still, that hasn't stopped Chinese firms from trying to sell their bags into the United States.
``We have combated that somewhat by testing their product wherever we come across it and, of course, finding lead or benzene or some other God-awful compound in it.
``We present those independent lab tests to our customers, who go scurrying away, claiming they're never going to buy another Chinese bag - at least for three weeks, until another one [comes along], and then we spend another $2,000 to show it's also not in compliance.
``That does give us a sort of window to adjust, because obviously, at some point the Chinese are going to get their hands around the ink issue, and come after us.
``That's really why I'm looking at China. We probably have a two-year window before they make the transition.''
As part of his 10-day Asian trip, Kelly visited the Nanjing, China, converting plant of Cincinnati-based blown film extruder Ampac Packaging LLC, and praised the facility as ``an interesting model.'' Still, he obviously is wrestling with how best to factor international growth into the plans of his $30 million firm.
Despite the general recession, Emerald Packaging has grown by 40 percent in just the past 15 months, fueled in part by heavy investment in new equipment in the past few years and by its successful, laser-like focus on the produce packaging sector.
``We're operating at [30-40 percent] higher speeds than we were five or six years ago,'' he said. ``We've invested in new printing presses - $2 million to run something that costs $1.60 [per unit] - but it's tripled our production. We're also investing in new processes, [such as] zipper and rolls that allow our customers to take rolls and make bags themselves rather than to use their form/fill/seal machines.''
Kelly, who recently ended a two-year stint as president of the California Film Extruders & Converters Association, is doing his best to identify his Achilles heel and respond accordingly.
``We're heading more toward roll stock, as opposed to bags. ... Labor as a percentage of our costs for bags is about 30 percent, and that's the area I see as most vulnerable to foreign competition.
``For roll stock, by contrast, the labor content is somewhere around 6 percent and somewhat immune to foreign competition. I suspect we'll be moving more of our bag business overseas.''
The final panelist, Hoop Roche of Erie Plastics Inc., is inching his way further overseas as well, while also sharpening the company's edge at home. Erie, with 400 employees and about $80 million in annual sales, specializes in custom injection molding rigid plastic packaging components.
``We're dipping our toe in the pond internationally,'' he noted. ``Our main strategy is to be more efficient and ... to use innovation. So, it's really kind of two-pronged - to invent product that no one else can make, and to be more productive,'' said Roche, who has headed the 43-year-old family company since 1981 and been its majority owner since 1991. The firm's chairman and CEO for the past several years, Roche said he recently vacated the CEO's title, in favor of calling himself ``chief marketing officer.'' This, he explained, better reflects his key role in addressing the Corry, Pa.-based company's most pressing challenges of realigning its markets, products and services to meet the current realities.
Today, the 94-press company makes 30 million plastic parts a day at its three production facilities. In the past four years alone, he said, ``We've doubled our output per person, through automation and technology, and faster cycles and better presses.''
Roche said his staff continues to search for the Holy Grail of ever-higher cavitation.
``My partner was running the numbers last week on doing a 4 x 128 closure mold. I think we're probably within a couple years of having a 512-cavity mold to run closures. At NPE, we saw a 2 x 96 closure mold running. That kind of innovation is more vital today than ever.''
Roche stressed that competitors in this country presently pose more of a threat in his business than do the Chinese.
``We can't be distracted by this globalization, which has become a very emotionally charged issue, and forget our fundamentals.'' Still, Roche is not without strong feelings about the international topic. He is most dismayed by the fact that many foreign competitors do not have to meet similarly stringent standards when it comes to health and safety, environmental and labor laws.
``I don't think we can fight globalization and win,'' he told attendees. ``I do hope that we can make it fair, and slow it down enough so that we can adapt and find ways to be competitive. My only issue with globalization is that it's happening at such a dizzying pace that I think a lot of our industry is going to get wiped out before they realize what hit 'em.''
Erie Plastics, in fact, already has ventured abroad, striking a joint venture in Hungary a decade ago and a cooperative alliance with an Italian firm. Roche said both have been positive, successful ventures upon which to build.
``We'll look at more joint ventures. Russia and India are alternatives. We'll even look at China,'' he said, though he conceded that was his last choice.
``We have to get on the train before it leaves the station entirely,'' he said. Roche praised Nypro for its ``rational'' approach, adding, ``I'm hoping that they'll infect all those countries with profit-sharing and good labor and safety conditions.''
For his part, Nypro's Jones is having fun, having logged 160,000 air miles between July and early November this year.
``I think it's a great time to invest,'' he said, noting that in a recent three-week period, Nypro wrote more business - $50 million - than the company generated in annual sales when he joined it 17 years ago.
``This is a time that's going to reward a contrarian view. ... This is the most disruptive period in some time. Now is when the game is being played. ... Now is the time when the greatest sweeps forward can be accomplished.''
The Nov. 4 panel discussion in Coronado was part of the Society of the Plastics Industry Inc.'s Western Region conference. Plastics News editor Robert Grace moderated the panel.