In November 2011, the Great Eastern Japan Earthquake & Tsunami destroyed much of the country’s infrastructure and killed more than 400,000 people. Major Japanese packaging manufacturers Rengo, Toppan, Oji Paper, and DNP all lost significant production plants. The quake shut down the Chiba Petrochem Plant with the loss of just under 400,000 tonnes per year of plastics and all hot-melt adhesive production.
For the first time since 1945, there were food shortages in Tokyo, not because there was no food, but due to a lack of packaging. Japan went into recession. The disaster exposed the country’s fragile supply chain.
Government reaction, expressed by a spokesman for the Ministry of Industry and Trade (MITI) prior to the 2012 Tokyo Pack was that industry should invest in developing an ‘external’ supply chain.
Japan has had a presence in South East Asia since the early 1970s, but following the disaster there has been a gradual and quiet expansion of Japanese investment in the region.
For decades brands such as Ajinomoto, Nissin, Kirin, Sapporo and many others have all had shelf presence through complex networks of joint ventures with leading local brand owners throughout the region.
Japanese retailers are everywhere. In Vietnam, Malaysia and Thailand, Aeon dominates the urban landscape as it invests significantly in the construction of new modern hyper-malls. In the mini-mart space, 7-eleven (yes, it is a Japanese-owned global franchise), Family Mart and Lawson fight for prime retail space in major cities. In parallel, Japanese converters and material suppliers have been expanding their long-standing investments in the region.
For more than four decades the major Japanese packaging companies Oji and Rengo have faced-off in the corrugated sector, while Toppan and Dai Nippon Printing (DNP) – essentially printing companies using both paper and film – have ridden-out the rough domestic stagflation. However, the tsunami accelerated their overseas expansion.
By all metrics, Rengo is the dominant player both domestically and regionally, with sales of US$4.67 billion and more than 13,000 employees, with five paper mills, 26 corrugated plants, three folding carton plants, two flexible packaging plants and a cellophane plant.
From 1989, the company launched an overseas expansion programme, entering into joint ventures and focused on building its base from Thailand. Rengo now has 30 plants in the region from Indonesia, through Singapore, Malaysia and Vietnam under its joint venture company Thai Containers Group (TCG).
Rengo’s 70 per cent partner in the joint-venture, TCG, is the packaging arm of one of Thailand’s largest conglomerates, Siam Cement Group, which itself is 31.6 per cent owned by the Thai Crown Property Agency – essentially the Thai Royal Family.
“For Rengo, joint ventures with strong local partners is a proven strategy,” said current Rengo chief executive Kiyoshi Otsubo, in an interview with PBIA in October 2014. “Having identified the strongest and most reliable partner in a particular market, the advantages are obvious: as a Japanese company we can contribute advanced technology, management and know-how, while the local partner can deliver market knowledge, sales and the very important language skills required to run overseas operations.
“Bringing local partners on board in a joint venture, rather than through a 100 per cent acquisition, brings an equity commitment to the success of the business that simply hiring staff cannot.”
Rengo’s main domestic competitor, Oji Paper, with annual sales of US$13.2bn, has a different expansion strategy aiming for 100 per cent acquisitions only. With 78 manufacturing sites in Japan, it began expanding into South East Asia in 1996 with the acquisition of a small Thai plant. In 2011, the acquisition of two Malaysian corrugated companies gave Rengo the lion’s share of that market. Based in Kuala Lumpur, Oji has expanded into Cambodia, Vietnam and recently Myanmar – Oji Paper now has 23 plants in South East Asia, eight in Australia/New Zealand and two in India, as well as forestry plantations in Myanmar and Vietnam.
Oji’s mid-term plan is to build a new paper mill in Malaysia with an annual capacity of 300,000 tonnes. This clearly presents a direct challenge to Rengo and, while continuing to invest in the paper sector, the growth solution is to move laterally into the flexible packaging sector, leveraging its long-term joint venture relationship.
Rengo took a stake in Thai Containers Flexible Packaging Co Ltd (TCFP), a holding company for flexible packaging established by Rengo’s Thai JV Thai Containers Group Co Ltd (TCG). In addition, Rengo’s wholly-owned Japanese domestic flexible packaging subsidiary Howa Sangyo took a 5 per cent holding. Rengo’s interest in the company, including indirect holdings through the TCG JV, totals 47.5 per cent.
As a holding company TCFP, in turn, has a 72 per cent stake in flexible packaging manufacturer Prepack Thailand, with a annual production capacity of more than 16,000 tonnes.
TCFP then zeroed in on Vietnam to take an 80 per cent stake in Tin Thanh Packing Joint Stock Company (BATICO), a flexible packaging manufacturer with an annual production capacity of approximately 230 million sqm.
Back in Japan, as the country’s printing business continues to bottom-out, achieving growth through domestic demand alone has become increasingly difficult. Both DNP and Toppan have grown laterally from their offset printing roots to become mega conglomerates that include processing customer information and issuing electronic cards for banks, credit card companies and chip-embedded IC railway cards.
With sales of US$1.4bn and more than 38,000 staff, DNP was first into the South East Asian market, having entered Indonesia in 1972. It now has two flexible packaging plants with sales of about $176 million.
Until 2015, the Indonesian plants were servicing customers throughout the region, when demand in Indonesia outpaced production, DNP opened a subsidiary operation in Vietnam to service regional clients.
Toppan, on the other hand, for decades had focused on its original core offset print business – with an operation in Singapore producing diaries and general commercial printing. In Thailand it has a small-scale folding-carton business.
In Japan, with more than 50,000 employees, Toppan operates through three divisions: Information & Communication, Electronics and Living & Industry. The latter includes flexible packaging such as the transparent high barrier GL film, which the company has been attempting to market in South East Asia for more than ten years, but with little success.
That changed last year when Toppan embarked on a major acquisition spree in Thailand, India and Indonesia. With a war-chest of more than $1.5bn to spend on new businesses and buyouts over the five years to March 2022, the first move was to take an eight per cent interest in a subsidiary of TPN Group (Thailand), teaming-up with Japanese trading-house Itochu, which takes a 2.7 per cent stake.
Between them they plan to increase their shareholdings to more than 50 per cent by 2022. One of their goals is to boost TPN Food’s annual sales to the local currency equivalent of $44m in 2023.
Itochu aims to sell TPN Food’s output to local supermarkets and food manufacturers through the sales network of its Thai partner, Charoen Pokphand Group (CP Group), one of the country’s biggest conglomerates.
In India, Toppan also ponied-up $29m for a 49 per cent stake in food packaging company Max Speciality Films (MSF) in a joint venture, as the Japanese company seeks to capitalise on the ‘enormous opportunity’.
MSF is a supplier of speciality packaging, labels, coating and thermal lamination films for the Indian and overseas markets. Toppan will serve as a strategic partner in MSF and share its expertise in managing a global speciality films business, as well as leverage its global sales network.
Toppan entered Indonesia in 1973 and currently produces general-purpose paper products, but is set to become the country’s largest producer of packaging materials by sales having spent about $90m to buy Karya Wira Investama Lestari, an Indonesian manufacturer of food packaging materials with annual sales of $114m. A holding company has been established, with Toppan owning a 51per cent stake. Karya’s operating company will also be owned by the holding company.
The stakes to dominate South East Asia’s market are high, and we can expect more Japanese investment in the flexible packaging sector in 2018.