INDIA AND THE GLOBAL PLASTICS SUPPLY CHAIN, EMAP, LONDON 2004

Françoise Pardos, Pardos Marketing, February 2006

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 2003, 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.

And looking at a table like a variety of fabricated products and the quantity produced in China and exported from that country is quite revealing. One example, at random:

China, production and export of products using polyolefins packaging materials in 2001
In million units

Source: Sinodata Consulting

Is a similar trend happening in India?

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