Eleven years ago, as Indian plastics packaging giant Essel Propack Ltd. was first entering the Chinese market for toothpaste tubes, it faced a dilemma.
The traditional market strategy favored by overseas packaging companies entering China was selling to the local operations of big global brand names like Crest, with their premium products and higher margins.
But all of that business was locked up by competitors, forcing Essel to go after much less profitable business with local Chinese toothpaste companies.
Fast forward to 2008, and what was initially an obstacle seems to have turned into good fortune. By starting with local firms, the company has grown into China's largest maker of toothpaste tubes, with more than 30 percent market share, and it counts some of the biggest local and foreign brands among its customers.
Essel's Guangzhou, China, factory is its largest toothpaste tube plant worldwide, churning out more than 1.3 billion tubes annually. In a recent interview at the factory, Edward Luo, vice president of the tubes and laminates business for the East Asia-Pacific region, talked about Esssel's experience in China and what the company sees for the future.
Luo said the company knew it was taking a risk setting up in China without contracts.
The only toothpaste companies at the time in China using Essel's technology, for multilayer laminated plastic tubes, were the multinational brands with their own multinational suppliers.
But Essel saw opportunities to convert the Chinese toothpaste brands, which were then 80 percent of the market, away from their aluminum tubes and into the laminated plastic variety.
``We had no option but to focus on local brands,'' Luo said. ``We were happy to focus on local, because it represented 80 percent of the future market,'' he added. ``That's a huge opportunity for us in conversion.''
The company made small gains initially, but its first big break came in 2000, when it convinced large Chinese brand maker Masson to try plastic laminate tubes.
At the time, plastic laminate was several times more expensive than aluminum, but plastic allowed for much better printing on the package. Aluminum also had the potential to react chemically with the toothpaste, while the plastic tubes did not, Luo said.
He said Essel focused on reducing the costs of the laminate tube to make it viable for local firms. He said the company has some cost advantages because its operations are vertically integrated.
There's another cost advantage in the Mumbai-based company's Indian background, Luo said. Essel's experience in manufacturing for India's price-sensitive, developing market helped it make gains in China's price-sensitive market. A company from a more-established and higher-cost market might not have been able to do so, according to Luo.
Today the company has 25 factories in 13 countries, including the United States, Russia, Indonesia and Colombia. But in the mid-1990s, Essel was just beginning its global push, and China was one of its first three ventures outside India, along with Egypt and Germany, Luo said.
He said it has been important for China to pursue a strong policy of localized staff. All top management at the Guangzhou operation are Chinese, said Luo. He joined the company as a sales executive in 1997, one of its first five hires in Guangzhou.
Today Essel employs 600 there, and has operations in blown film, lamination, slitting, printing and tubing.
``We have this local expertise in dealing with local customers, and in the meantime, we are part of Essel and continue our strategy of serving multinational customers,'' he said. ``We are very entrepreneurial. That is important for a market like China.''
The company's customer profile has changed quite a bit from the early days. About 60 percent of its business today is with major multinational brands selling in China, compared with about 40 percent five years ago and none at the beginning Luo said.
Its growth in China mirrors its rise globally as well. Today, the company claims to be the world's largest maker of laminated tubes, with a global market share of about 33 percent.
The firm made inroads with multinationals in China because it worked to get tube prices down and because multinational firms in recent years have lowered their prices in the country in an attempt to take market share from local brands, Luo said.
That has made the local toothpaste tube market even more competitive, and is a factor in Luo trying to steer the China operation into new markets, such as pharmaceutical, personal care and food packaging.
The company last year formed dedicated sales teams in Guangzhou in those markets, and this year it launched a small, five-person product development team in China, Luo said.
Previously, research and development on processes and materials had been done at Essel's extensive research operations in India. But Luo said he's trying to bring more R&D expertise to Guangzhou, partly to speed up the implementation of innovations developed in India and partly to beef up development in new markets.
In those new markets, the company is working to convert a range of product packaging to laminated plastic, including for wasabi, hand cream, hair conditioner, shoe polish and traditional Chinese paints.
``Our customers [in the toothpaste market] are competing so intensely,'' Luo said. ``That is one of the reasons for us also to look at other sectors.''
He said Essel also is considering bringing technology for tube extrusion, rather than lamination, to China because extrusion technology is popular in packaging for the cosmetics industry, which is growing there.
East Asia is the only region in which Essel doesn't use both extrusion and lamination technology in tube making, he said.
The company also is trying to move toward more sustainable packaging by developing plastic barrier laminate tubes, which are simpler to recycle than tubes with an aluminum barrier.
And Luo said the company has focused heavily on reducing the amount of material used, a response to China's extremely cost-sensitive market that also yields environmental benefits.
For example, he said, the Guangzhou operation will make a tube that is 220 microns thick for China, while a similar tube in a market like the United States might be 275 microns thick.
``China is more price competitive, so that's one of the reasons the customer is willing to look at cheaper options,'' he said.
``At the same time, [the thinner tube] is more environmentally friendly.''
Luo said he feels that the company brought the right strategy to China at the right time.
``If we came here five years earlier, we would have had to struggle for survival for five years,'' he said.