INDIA IN THE WORLD OF THE TWENTY TWENTIES, PLASTINDIA DELHI 2006
Françoise Pardos, Pardos Marketing, February 2006
Plastics trends, strategies of converters
Plastics historical trends
The plastics development and trends, in the last forty years, historically, with the first development and diversification of the plastics industry, 15% a year between 1955 and 1975 was built upon a three-step launching:
Fast economic growth of the Western world after the war,
First investment into new durables, with improved standard of living, housing, cars, appliances,
Substitution of traditional materials by plastics
The plastics consumption forecasts in the developing world will rest, like in the Western world, on:
General economic growth, 5-7% a year, average, often up to 10 %
Building needed infrastructures, buildings, electricity, water, sewage, irrigation, telecommunications
Providing basic requirements in consumer goods, agriculture, packaging
The average annual rate of growth of 8.1% that brought all solid polymers from:
7 million tons in the world in 1960 to 196 million tons in 2005
and to continue reaching over 365 million tons in 2015,
540 million tons in 2020, using a more conservative annual rate of 6.5 %.
Total world production/consumption of plastics, since the beginning, at the turn of the twentieth century, kept an average annual rate of growth of 15 %, or doubling every ten years, until 1975, when this trend was broken at the first oil shock, this high growth rate was never achieved again, the average annual growth rate of plastics was 15% from 1960 to 1974, and 8% thereafter, from 1974 to 2000, and 2005.
Plastics demand growth in the new vast and fast developing markets is another story, averaging more than 10-15 % a year, just like it was in the heyday of the plastics built-up in Europe, USA and Japan, in the 1960-1975 era.
The capacity increases are quite different whether considered in total or relatively. The increases of capacities are small in the already industrialized areas. Even though they also are quite high in Africa, it is not significant as they are on a much smaller base, and to stay small. Middle East and Asia Pacific are the leading areas in new commodity plastics capacities, with heavy investment into new crackers, in Iran, in the Persian Gulf, in China, mainly.
Trends in the converting industries
The converting industries, downstream from petrochemicals and plastics production, are all affected by the geographical shifts of plastics capacity and demand, and deep-sea trade keeps increasing. There are many aspects to these shifts.
New strategies for converters in rich countries
Plastics converters in Europe, US, Japan, the high wage countries, find it increasingly difficult to continue their industrial activity in their former home sites. For the past 20 years, their strategy has been partly outsourcing, and relying on plastics converting in countries and regions with lower labor costs. Pros and cons of outsourcing away must be balanced, because labor cost is not the main component of plastics finished products, it is the raw material, and the logistics of long distance shipping are contrary to the marketing need of immediate availability to the customers, and fast delivery.
When the OEMs, Original Equipment Manufacturers, like the car and telectronics products makers, move to distant countries, where assembly costs are very competitive, and a local demand is emerging, the plastics subcontractors will follow their industrial customers, and move as well.
It started with telectronics, back in the 1975-80s, plants shifted to the then “Asian dragons”, then diversified into much cheaper products like PE shopping bags. In 2005, about 65 % of plastics shopping bags used in Europe and the US were imported from Asia. In some countries like the UK, there is no local bag producer left.
Another strategy, for plastics contract manufacturers, to remain competitive with low- wage countries, particularly China, is to resort to a variety of automation technologies and lean manufacturing techniques to help keep costs at competitive levels.
From robotics that removes parts from the molding presses and forming machines to automatic-eye inspection systems and in-line decorating operations and packing functions, automation is keeping plastics contract manufacturers, and their OEM customers, competitive.
Lean manufacturing is a buzzword, and the rule, in plastics processing plants, trying to do more with less and with fewer people, and to get to the core business. Yet this strategy is just a manner of buying some time, as all converters worldwide, including the locals in the lower cost markets, are quick learners, and able to leapfrog all technical and management innovations, to continue ahead of the flock with their competitive cost advantages.
Outsourcing the plastics converting industry
Now, larger and larger parts of the plastics converting industries have established plants in the lower cost countries, name Asia, essentially, from plastic bags, to car parts, toys, sport shoes, appliances, telectronics, telephones, portable radios, shavers, and every other thinkable consumer products.
The few converting segments left in the rich countries continue to be in markets that create products that must be made domestically, such as building and construction, food packaging, large automotive and appliance parts for those consumer durables still produced there, and for smaller converters not strong enough to move to Eastern Europe or Mexico, or, more drastically, to China.
The plastics industry continues feeling pressure to go where its OEM customers go, and major manufacturers are tending to locate where costs-to-manufacture are low and labor is plentiful.
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