China and India have dominated the industry over the last few years with massive sales and imports. However, the twist of events seems to have tossed these massive markets into an economic tailspin. Christel Lee from Print World Asia reports.
Intellectual property battles
China is deemed (without a doubt) the world's factory. However, counterfeiting issues have brought so much bad press that many big names have decided to cut their losses and exit. In 2010, China announced plans to require Western companies doing business in China to turn over sensitive technologies and patents to Chinese competitors in exchange for access to the country's markets. According to a 2010 American Chamber of Commerce report, U.S. businesses were losing Chinese sales because of rules to support homegrown technologies.
In late 2012, Chinese companies were busted for producing fake wines in Chateau Lafite Rothschild's name. Some 10,000 bottles of the questionable liquor were uncovered in the eastern city of Wenzhou in Shanghai, China. The owner denied any involvement in the counterfeit production and was appalled his property was a place to stash the loot. Analysts have estimated some 70% of wines sold in this name are fakes. To date, legal actions against Chinese firms over fake wines have been successful.
Foreign companies doing business in China lament instances of unpaid bills, piracy, counterfeiting and theft of ideas and technologies. The policy of having to surrender patents has proven disastrous for developers and certainly played a part in foreign companies reassessing their dealings with Chinese companies.
A case in point is Ryan Lee, a Singaporean who invented a mini speaker that could fill a room with music. Reportedly six months into production under Xmi (company name), Lee received calls from European clients asking for a discount. The European clientele has been offered a dead-ringer at a cheaper price.
The counterfeit was personally verified with a similar looking speaker with no serial numbers accompanied by different packaging, not to mention the world's apart difference in sound quality. Despite the intellectual property theft, his product reaped S$33M in revenue.
Loss of market share
In 2012, several multinational companies retreated from China. US consumer-electronics retailer Best Buy closed all of its outlets in China. Next, the US soda-maker Pepsi Cola sold its bottling operations in China to the China-based Taiwanese company Tingyi. Shortly after, global food giant Danone suspended operations of its Shanghai company, followed by Nestlé, which suspended the sales of its ice cream in eastern China.
With the withdrawal of overseas companies, foreign direct investment in China has slowed as well, reports the China Economic Weekly in Beijing, citing statistics edited by the Ministry of Commerce, which show that foreign direct investment grew by 9.72% in 2011, compared to 17.4% in 2010.
One of the notable withdrawals includes Time Warners in 2006, a global leader in media and entertainment with businesses in television networks, film and TV entertainment and publishing. The American multimedia conglomerate cited policies in the republic, such as disallowing the holding of controlling stakes in the set up.
Many foreign companies were also losing their market share to domestic companies, which are familiar with local consumers' habits and concentrate their efforts on producing cheap substitutes for foreign goods. Yet this may seem ambiguous for obvious reasons.
Consolidation sting
India – one of the top four economies in the world has also suffered some speed bumps. Bloomberg reported (quoting the Commerce Ministry) output at factories, utilities and mines dropped 0.4% from a year earlier after a revised 2.3% gain in August, the Central Statistical Office said in a statement in New Delhi. The median of 28 estimates in a Bloomberg News survey was for a 2.8% increase. The trade deficit was $20.96 billion in October, the Commerce Ministry said in a separate report.
Press reports state that factory production has been subdued for most of 2012, hurt by moderating consumer demand and a drop in exports as the global recovery falters. The Reserve Bank of India had signaled it may lower interest rates in the first quarter of 2013 to aid growth as inflation cools, after resisting calls from the Finance Ministry for a cut.
Manufacturing dropped 1.5% in mid-2011, while capital goods output decreased 12.2%. Mining rose 5.5 percent and electricity output increased 3.9 percent. India's exports merchandise shipments fell 1.6 percent in October from a year earlier to $23.3 billion, while imports climbed 7.4 percent to $44.2 billion, according to the Commerce Ministry.
Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. in Mumbai, admitted there has been a weakness in demand.
One of India's packaging giants, Parikh Packaging, recently announced that Austria-based Constantia Flexibles Group headquartered in Vienna will acquire 60% of its stake. Pranav Parikh, director at Parikh Packaging, said, "World over, we are witnessing consolidation. Today, Indian firms are looking to expand their business and also their presence in countries which have huge potential. This acquisition will help Parikh Packaging to cater for domestic and international markets."
A top official of Constantia Flexibles said, "This acquisition will help Constantia operate in a highly attractive growth market. India has an ever-increasing middle class with growing demand for packaged food and health care products, which we want to address with top quality products and services. We also want to support the growth of our international key accounts in this market. The acquisition is part of the international growth strategy of Constantia Flexibles and constitutes another important step for further growth and expansion in Asia."
Parikh Packaging, which has been a regular participant in the annual Asian Flexo Excellence Awards, was started in 1999. The company caters to flexible packaging for pharmaceutical and food sectors and has clients in India, UK, US, South Africa, African Continent, the Middle East and Far East, Sri Lanka, Canada, New Zealand, UAE, Egypt, Yeman, Nigeria and Kenya.
Incidentally, the newspaper which published this coverage is also a renowned media company in India and is to be acquired shortly as well
