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Essel Propack creates waves in China

Mar 25, 2008
Mar 25, 2008 

The Hindu

Changing the toothpaste tube market in China, the Essel way

March 24, 2008

“Most Indian companies are full of complaints about the difficulties of doing business in China,” said Subhash Chandra, Chairman of Zee Entertainment Enterprises Limited, leaning back into the cushioned comfort of the sofa in his plush hotel suite in central Beijing. “But as far as we are concerned, we have been here (in China) for over ten years and have had great success in the domestic market,” the media mogul continued smugly. “Ultimately it’s about attitude,” he concluded.

When talking of “we,” Mr. Chandra was not referring to his well known media conglomerate, Zee, but rather to his much less well known, albeit more successful company, Essel Propack.

The Essel Group of Companies, of which Mr. Chandra is the promoter, is the global leader in its field with plants in the U.S., Germany, the Philippines, Indonesia, Mexico, Colombia and Venezuela. It has moreover captured a hefty one-third of China’s market.

Despite its huge international success, few people have ever heard of Essel Propack, because the product it creates lacks the sexiness of software or cars.

What Essel makes is in fact the humble, yet revolutionary, laminated tube used by toothpaste makers and increasingly by the cosmetics and pharmaceutical industries.

In less than a decade, Essel has almost single-handedly transformed the toothpaste tube market in China from metallic, aluminium tubes to plastic laminated tube.

The company entered China in 1997, a time when there was virtually no Indian investment in the mainland and several big-name MNCs (multinational companies) had been struggling for years to make a profit.

Most remarkable of all, Essel made its foray into China without a single pre-existing contract.

The toothpaste market back then was dominated by local players who made up 80 per cent of the industry, with MNCs like Unilever comprising the remaining 20 per cent.

No domestic manufacturer of toothpaste used laminated tubes before the entry of Essel, while the MNCs only used these for their premium products. There was thus no mass market at all for plastic laminates.

Rather than a deterrent, this fact served as a gauntlet of sorts for Essel; a challenge to take on.

Edward Luo, now Essel Propack’s China head, began his career with the company as a sales executive.

Ten years later, with the benefit of hindsight he ascribed the firm’s eventual success in China to its crucial decision to focus on local producers of toothpaste rather than attempting to wiggle into the MNC network despite already supplying to these in India and elsewhere.

Essel’s first China client was won in late 1997, a toothpaste company with small operation in the southern province of Guangdong. “The company was small but they were open to new ideas and they valued technology. We were able to convince them that laminated tubes would distinguish them from their competitors and they agreed to give it a try,” recalled Mr. Luo.

By the end of 1997, Essel’s first factory was up and running in Guangzhou, the capital of Guangdong. More than ten years later that factory has expanded to become the largest in the world, churning out a billion tubes a year.

The total investment in the Guangzhou plant is some $45 million, revealed Mr. Luo. Last year, Essel China’s turnover was worth $70 million, comprising around a quarter of the company’s global sales revenues.

Essel China’s fortunes really took off only around 2000 when they persuaded a key local player, Masson, to convert from metallic to plastic laminated tubes. This was a conversion that set off a string of others.

Today, virtually the entire domestic toothpaste industry uses laminated tubes and Essel supplies around a third of the market. Unusually for a country where domestic players are notorious for squeezing out foreign competition once they have learnt the necessary expertise, Essel faces little local competition in China even after a decade of operations. The reason Mr. Luo provided was that laminated tubes were a niche market. “It doesn’t attract serious competition like some other more glamorous sectors,” he said. Essel’s main competitors in China are the British firm Betts and Sanying, a Taiwanese manufacturer.

When asked what other Indian firms interested in exploring opportunities in China can learn from Essel’s success in the country, Mr. Luo was quick to respond. “Trust China, trust the Chinese people and trust the Chindian story,” he said.

“Contrary to what some say, China is a country that can give you a stable environment for business,” Mr. Luo continued. “But you must not fight shy of localisation. For example, Essel has 600 staff in China but only three of these are Indian,” he revealed. Looking ahead, Essel Propak Guangzhou Ltd, the formal name for the company in China, is confident of continuing growth with the toothpaste market still expanding at around 5 per cent annually. The focus going forward however is in branching out into other sectors such as cosmetics, pharmaceuticals and even food.

Thus, Essel is already supplying tubes for wasabi sauce, shoe polish and hand cream among other products.

And while Subhash Chandra may be getting a tad frustrated over the Chinese authorities dragging their heels in granting Zee, TV landing rights in China, Essel’s success should be enough to make sure he has toothpaste-add wide smile nonetheless.

PALLAVI AIYAR

in Beijing