Saturated core markets in Europe and North America are causing many companies in the packaging industry to focus more and more on growth markets in emerging countries such as South Africa, Saudi Arabia, Vietnam, China and Thailand. How can HR secure the business development in these emerging markets?
The German market with a turnover of EUR 32 billion and the production of around 19 million tons of packaging materials is an important core market for the packaging industry, according to the Gemeinschaftsausschuss Deutscher Verpackungshersteller (Joint Committee of German Packaging Manufacturers). Looking at these results more closely, however, it is noticeable that the key figures in the various packaging segments are quite different.
For example, the quantity of metal packaging made of steel rose sharply and packaging made from renewable raw materials like paper, cardboard and paperboard also experienced above-average demand. In contrast, there was a decline in the production of aluminium packaging. This, therefore, resulted in sales growth of 2.1% for 2016 . However, the global packaging market, which has a total value of 424 billion US dollars according to the Packaging Distributors of America , is growing by 3.5% per annum, with the demand for packaging displaying the strongest increase in developing markets.
This is due to not only the mostly young and growing population but also to the ongoing trend towards urbanisation that is particularly evident in the Asia-Pacific region.
Following the most important customers is no longer enough
Up to now, what has always been an internationally oriented packaging industry has often only had to follow its most important customers in the food and pharmaceutical industry in order to generate growth through internationalisation. The plants were built locally but were managed i.e via headquarters in Germany. In recent years, however, a strategic change can be observed. More and more companies in the German packaging industry are no longer focusing exclusively on global players but are rather increasingly working together with medium-sized and smaller food and pharmaceutical companies in emerging markets. However, companies are faced with a number of challenges in tapping into and developing these new market:
- On the one hand, there are the local competitors who, as the top dogs, have an information and competitive advantage.
- On the other hand, there are national regulations that, in addition to environmental aspects, often also pursue the objective of protecting the domestic industry from competition.
In addition, the demands placed on environmentally friendly and recyclable packaging are increasing worldwide - giving especially innovative packaging material manufacturers such as plastics, paperboard and metal processing producers a chance to gain a foothold in new markets.
Likewise, it is an organisational challenge for most companies in the packaging industry, which are usually controlled centrally due to their manageable number of employees, to react flexibly to the different cultural conditions of the respective country. Therefore, it is an essential difference whether to take the first step to venture abroad together with an already familiar customer or whether to open up a new market on your own.
These global challenges require, above all, a rethink in the parent company and the organisation to be adapted accordingly: instead of implementing a strategy dictated by headquarters in Germany as usual, and which may not be suited to the market envisaged, local units now have to be managed more flexibly without losing sight of the set objectives. In addition, the strategies and the brand identity should guarantee the same quality standard and high recognition value as far as possible, regardless of all the local adaptation.
It is both an opportunity and a risk to adapt the technical innovations in the packaging sector that are developed in Germany to the local conditions and requirements on site. Special climatic features, cultural practices and the differing availability of raw materials for the production of packaging can make different packaging solutions or processing methods advisable for similar products in other countries.
The paths to the goal have to be more flexible
In order to build up and simulate international business in emerging markets successfully, the packaging industry also needs the right personnel in addition to strategic flexibility.
Align to local conditions
Looking at companies that are already successful in this regard clearly shows that they align their presence to conditions and needs prevailing in the region concerned and choose the right strategy to establish new markets. That can include a joint venture or even the takeover of a local company. For the step abroad to succeed, the company’s own range has to be subjected to critical examination with regard to its attractiveness and unique selling points. Without any visible difference to existing local and international competitors, the quest for internationalisation usually remains unsuccessful.
Achieving success with mixed teams
From a staffing viewpoint, this means hiring personnel to oversee business development in the countries to be developed in the form of someone who has the necessary experience and skills, e.g. in establishing a national company and arranging joint ventures, M&A transactions or alternative business models. Once the initial steps have been taken and the first contracts have been landed, the second challenge is to secure the investment abroad by recruiting the right staff in the respective country. This includes, in particular, a local General Manager to oversee the contracts from acquisition and ordering to production and delivery of the products. Local market knowledge, expertise regarding the industrial standards in the sector and an understanding of the organisation and cultural features specific to German companies are particularly essential. In addition, it is ideal if the employee has already worked for German or European companies. The demands on staff for local production locations are, in turn, very strongly dependent on the respective local conditions and have to be taken into consideration accordingly.
One way of having all of the required skills available locally is to use mixed teams in which the CEO and sales reps come from the respective country, though with the technical manager, other specialist and executive positions that might be difficult to recruit locally, being brought in from the head office and origin country. Important criteria for the selection of employees from the origin country in this regard is, however, whether they have an international mindset, i.e. the intercultural ability to respond adequately and appropriately to other practices and ways of working.
Foreign experience and open-mindedness in dealing with people from other cultures is an important prerequisite for the work in mixed teams to function as smoothly as possible. An understanding and awareness that local colleagues form a bridge to the new market through important contacts and relations is vital, and therefore an important aspect in making it easier to find business and cooperation partners.
Connecting local markets to corporate strategy is key
Only those who gear their organisational structures and competencies to the target market in a sensitive and focused manner will create the conditions for successfully taking the step into new regional markets.
To make this step easier and overcome the challenges referred to above, an internationally oriented strategy is needed that is not only tailored to the home market but also to the countries targeted for the market entry.
- Rely on both, local knowledge as well as proofed corporate strategy
- Achieve success with mixed teams (train local experts in the HQ <-> send expats from HQ to local markets)
- Constantly secure international networking and cultural diversity
Do you want to discuss the topic further?
Please reach out to Tobias Becker, Senior Consultant, and Benjamin Renk, Consultant at Mercuri Urval´s office in Düsseldorf. They are experts for the process Technology & Packaging Practice, helping clients in filling key positions worldwide.
- Business Development
- Packaging Sector