Plastics companies have faced huge challenges during the last 20 years, and sometimes all at the same time.
Globalization. Environmental pressures. Resin price spikes. Consolidation. Wal-Martization has become shorthand for relentless downward pressure on pricing from customers and everyday consumers.
Plastics News turns 20 years old this month. In the early years, our newspaper covered a period of transition, as people who founded their companies after World War II were retiring and handing off to their children, or selling to outsiders.
Leveraged deals accelerated in the 1990s, often fueled by private equity money. But there was a downside, as too much debt took its toll and some companies did not survive.
Overall, however, the U.S. plastics industry boomed during the 1990s. Then came the dot-com implosion, accounting scandals and the terrorist attacks of Sept. 11, 2001. The recession that followed seemed to expose the impact of work lost to China and other low-wage countries.
The U.S. plastics industry has survived, although in a slimmed-down fashion. The old saying, That which doesn't kill me, only makes me stronger, could apply to processors still alive today.
But now the U.S. indeed, much of the world faces severe economic deterioration. U.S.
gross domestic product declined at an alarming 6.2 percent annual rate in an abysmal fourth quarter of 2008.
Today March 2009 from Main Street to corporate boardrooms, a fear of an uncertain future has frozen many people. The global financial meltdown, plunging stock markets and declines in home prices and commodity prices, all combine to make this a worldwide, synchronized recession that is likely to last until at least the third quarter of 2009, said James Meil, vice president and chief economist of Eaton Corp.
Everybody's sitting on their wallets, Meil said in a speech March 2 at Plastics News' Executive Forum in Summerlin, Nev.
As Plastics News celebrates our 20th birthday, we're asking the natural question newspapers ask in an anniversary issue: What Will the Next 20 Years Bring? It's hard to be dispassionate right now. The future is seen through the eyes of today. Most people wonder what the next 20 days will be like, let alone 20 years.
Another economist at the Executive Forum, Peter Mooney of Plastics Custom Research Services, described a widespread loss of faith in banks, brokerage houses, the government, housing appraisers and rating agencies. And the plastics industry has to work through what Mooney called a vast overcapacity. That global glut will continue to drive consolidation, once financial institutions start lending again, Mooney said.
Meil called it a crazy, unpredictable, almost a chaotic world right now.
But what will the plastics industry, and economy, be like in 10 years, or 20?
It's impossible to predict 20 years into the future, but many industry leaders are optimistic about plastics, and U.S. manufacturing in general.
After slipping in public consciousness who in America wants their kids to work in a factory? manufacturing could get more respect. Americans have been consuming more than they produce, racking up a huge trade deficit that gets financed through foreign debt.
Manufacturing accounted for 17.1 percent of U.S. gross domestic product in 1987. By 2007, manufacturing was down to 11.7 percent. Because of that, manufacturing lost political clout. Young people look elsewhere for careers. Like Wall Street.
Stephan Braig, at Engel Machinery Inc., thinks that could change. The bright minds of Wall Street brought things like collateralized debt obligations and credit default swaps until it all collapsed.
Manufacturing brings us cars, laundry baskets, laptop computers. Things you can touch and understand. Unfortunately, when they hear the word factory, lots of people think dirty, he said.
A lot of these kids in the last 10 years, they wanted a job in Wall Street. We as a society let that happen. A lot of those financial firms created nothing of value, so a lot of people are coming back to manufacturing, said Braig, Engel's president and chief executive officer.
Bill Carteaux, who heads the Society of the Plastics Industry Inc., said the U.S. plastics industry lost more than 250,000 jobs from 2000-2007. But he said automation has made today's plastics factories more efficient. He also pointed out that the rest of the economy, including services, has grown. Manufacturers also are outsourcing some functions, such as human resources and design.
Plastics projects with a high concentration of assembly tend to migrate to low-cost countries, said consultant Brian Jones, a former president and CEO of Nypro Inc. When direct labor in the factory gets down below 6 or 7 percent, that's a highly efficient company, Jones said. They would tend to be able to compete very, very effectively with low-cost, offshore competition.
Jack Avery agreed. The way we can keep new projects here is by the use of more efficient processing capabilities, and automation, to take labor out, said Avery, a consultant and longtime GE Plastics technology expert. He cited assembly beside the press, or even inside the mold, in-mold labeling, multimaterial and combining different processes, such as thermoforming a preform and putting it into an injection press.
Carteaux said plastics have a bright future, from lightweight cars to medical products and packaging to hot emerging technologies like bioplastics and nanotechnology. Plastics offer a challenging, exciting career. We believe that plastics is going to play a major role in creating a sustainable future for the United States and also the world, he said.
Avery thinks sustainability is a permanent trend. If not, the U.S. risks falling behind Europe and Japan in green manufacturing. We've got to do a much better job of using our resources efficiently. It's a matter of being cost-effective, he said.
Sustainability also will get legs as public awareness increases about global warming and concepts such as peak oil call attention to limits to Earth's natural resources.
The global recession has pushed oil prices low right now, but many people expect a future of higher energy costs. Future oil price spikes could have other consequences. For example, U.S. manufacturers could pull back their far-flung supply chains and bring more work to home, or at least to Mexico.
Globalization: Here to stay
With economies around the world teetering, free trade is under stress. Capitalism itself is changing.
We could see a period of economic nationalization, where national governments prop up important industries. (See General Motors, Citibank.)
A Buy American provision in President Barack Obama's stimulus package has drawn criticism from foreign governments. Plus, some leaders in other countries say the U.S. financial model has lost its luster.
A widespread belief that free trade is good the globalization consensus could be fraying under protectionism. But plastics leaders say globalization will march on in the future.
I think that's just hollow talk at this point in time, said Jeff Mengel of Plante & Moran PLLC. He points out that the only retailer with even modest sales gains is Wal-Mart, a major seller of low-priced goods. We can talk about the interest in helping the U.S. economy and buying U.S. goods, but the consumer is asking 'What's in it for us?' not 'What's good for the country?' he said.
Avery agrees: The big industries are global, and that's not going to change.
Jones said financial principles will drive globalization: Companies will go to a place where they can get higher growth, because it supports the value creation for their shareholders.
Since the fall of the Soviet Union 18 years ago, the United States has been the world's only superpower. What about the long-term future?
The United States will remain the single most powerful country but will be less dominant, said Global Trends 2025, a report from the National Intelligence Council, a government agency that advises U.S. leaders.
When it comes to manufacturing, challenges to U.S. leadership are nothing new. After World War II, the United States emerged as the powerhouse manufacturing nation. Germany and Japan rose to global status beginning in the 1970s. So did Taiwan, Singapore, South Korea and other nations.
But looking decades ahead, it's clear global economic, political and demographic forces will impact U.S. leadership.
Global Trends 2025 talks about aging populations in the developed world and the challenge of providing energy, food and water to poorer countries. It cites worries that climate change will limit and diminish an unprecedented age of prosperity.
The report said: The international system as constructed following the Second World War will be almost unrecognizable by 2025 owing to the rise of emerging powers, a globalizing economy, an historic transfer of relative wealth and economic power from West to East, and the growing influence of nonstate actors. By 2025, the international system will be a global multipolar one with gaps in national power continuing to narrow between developed and developing countries.
By 2029, the world will be a far different place. One business buzz-phrase will get a real workout during the next two decades: The only constant is change.