Making the Indian elephant fly
I recently grabbed a copy of The Economist magazine on my way back to India from London. Just from glancing through some of the articles I saw the following headlines: Europe – Population and recession; Britain – The Troubled Coalition; Libya’s election; Egypt’s president; Trouble in Kuwait; Unrest in Sudan; and United States – Stockton’s bankruptcy.
The world has changed in the last few years and reading these articles got me thinking about what the future has in store.
A couple of years ago one of the world’s leading economists published a report on where the world would see real growth. This report was compiled after considering several macro and micro economic factors such as population growth, demographics of a country, middle class population, GDP per capita, Whole sale Price Index (WPI), Purchasing Power Parity (PPP) etc.
However, the report that changed the focus of most of the global multinational organisations and global business leaders was called the BRIC report. This suggested that the next growth markets of the world would be Brazil, Russia, India and China. The report stated that the economic potential of the BRIC countries is such that they could become among the four most dominant economies by 2050. The thesis was proposed by Jim O’Neill, global economist at Goldman Sachs.
The metal packaging industry followed this path and witnessed robust growth in Brazil, Russia and China. However, one fact still puzzles everyone in the can industry and that’s the growth of the Indian can market. Through this article, I am going to decode the story behind the Indian market.
The economic indicators for India are just right. 1.21 billion population and 377 million of urban population, which is expected to grow rapidly to 1.52 billion and 590 million by 2031. The expectation is that by 2031 India has the potential to become the third largest economy in the world after the US and China. The country has a high English speaking population, low labour costs, no import/export barriers, it has a favourable FDI (Foreign Direct Investment) policy and a stable political system. In fact a cost comparison carried out by UBS showed that India has the lowest cost of manufacturing in the world – even lower than China.
Looking at these factors I remain puzzled as to why the developed nations only think of China when they look for low cost sourcing. Today Indian can makers are using the world’s best technologies and practices to make cans and components with the same equipment, which can makers from developed markets would use. I think that Indian can makers have done a bad job in marketing themselves on how they can deliver high quality and economical solutions and actively become long term strategic partners to can makers around the world. With Chinese costs going up and the highly regulated Chinese currency bubble about to burst, I see India as an export hub for the world. Recently, Hindustan Tin Works (HTW) bagged an export order from a company in China and is regularly shipping can ends to China for one of its global multinational customers. This re-emphasises and supports the claim that if India can sell in China, it can be more competitive and provide consistent quality solutions to the world.
The Indian can market has shown a fair amount of dynamism in recent years.
The two-piece can market has seen fantastic growth. The first two-piece can plant in India was started by HTW in 2005 in Mumbai. This was later hived off to a joint venture company called Rexam HTW Beverage Can (India) to formulate a joint venture with Rexam UK. Following the move, both Toyo Seikan and Ball Packaging announced plans to install two-piece can plants in the country, but these plans were eventually shelved. However, the market did see the entry of CanPack of Poland. In 2005, the two-piece can market stood at only 50 million cans but this is expected to be close to one billion cans in 2012. Both Rexam and CanPack have announced aggressive expansion plans and want to grab a large share of the two-piece market, which is expected to grow between 15 to 20 per cent year-on-year. The market, which was a 30/70 per cent split between steel and aluminium cans, is expected to move to 100 per cent aluminium. This would be a big loss to the steel industry. It’s a shame that the steel producers were not able to support this growth.
The three-piece can market is growing at a humble rate of around four to five per cent annually and employs about 100,000 people. It is very fragmented with few players in the sector.
The food can segment does have a few organised players who follow world class manufacturing standards and have imported the best can making technologies from around the world. For example, HTW has several Soudronic lines, Crabtree printing with UV cure etc. HTW has a long relationship with Nestlé India which goes back over two decades. Even with the presence of medium sized can makers who can provide world class solutions in the food can segment, the food can market in India is limited and has not grown due to the country’s culture. Culturally, Indians still prefer to cook so called “fresh foods” and believe that canned food is not nutritious or tasty. Most of the canned food made in India is exported to other countries and not domestically consumed. Primary export markets include the US, Middle East, UK and Europe. Being an export dependent segment, the food can sector has suffered from the European crisis and the recent disturbances in the Middle East. Initiatives like Canilicious, which was carried out by HTW, aim to make consumers taste canned food and spread the awareness of nutritious canned food in India. This could help push the segment forward and make it more dependent of the domestic market. A lot more needs to be done in India to change the mindset of consumers.
Recently, environmental concerns have become a factor which the government has started to look into. Any legislative changes that drive brand owners to use environmentally friendly packaging will help grow the three-piece can industry because steel cans are 100 per cent recyclable. HTW runs an annual campaign called Canvironment Week, which promotes the sustainability of cans and is now celebrated across 11 countries from five continents. Such initiatives are necessary to drive the can industry in India forward.
With the growth in middle class population, the changing lifestyles and choices of the Indian consumer, and the government’s vision to make India the food factory of the world, it is important to try and position India as the export hub for the metal packaging industry. Often referred to as the elephant economy of the world, India has huge potential which is still to be tapped.
The introduction of new technologies and value added solutions that differentiate brands in the eyes of the consumer, coupled with the above factors, will be key to putting wings on the Indian elephant.