Globalization: What’s the Deal?

The term “globalization” has become one of the package-printing industry’s favorite things to talk about. It’s important enough that the Flexible Packaging Association (FPA) devoted an entire study on the effects of globalization on flexible packaging, and in 2007, PLGA Global made globalization the theme of its annual operational conference. Domestically, the economic impacts of globalization are sometimes negative. But, some experts and converters believe that there are new opportunities opening by globalizing their businesses. More importantly, there may be no choice in the matter.

What does it mean to you?

Globalization means different things to different people. Merriam-Webster defines globalization as “the act, process, or policy of making something worldwide in scope or application.” For printing and converting, it can be translated into more tangible terms. Globalization in the package-printing industry takes the form of changing supply chains, customers shifting their manufacturing facilities to other countries, and overseas competition from other package printers and converters. It can also encompass printing packaging materials domestically for overseas customers.

To Andrew Weitz, customer service for Anchor Printing (Bloomfield Hills, Mich.), globalization is “a worldwide arena of ideas and technology. You must have an open mind and welcome the opportunities that arise.”

Anton Dahbura, corporate vice president for Hub Labels, Inc. (Hagerstown, Md.) adds that “globalization means there are few safe havens for us, even if we have loyal customers for whom we’ve done everything perfectly and with whom we have developed strong relationships over many years. When the manufacturing moves, there’s virtually nothing that can be done to preserve the business.”

From a folding carton standpoint, Joe Elphick, president and CEO of Colonial Carton Corporation says, “Globalization means my global customers, customers that have manufacturing facilities throughout the world, are trying to find global partners where they can leverage the requirements of all their plants with one purchase, with one buy, from a vendor that has locations globally.”

Globalization can also pose a challenge for converters aiming to produce accurate packaging for overseas consumption. “In this context, globalization can be defined as the process of designing packaging or a range of packaging that is suitable for global markets, i.e., the design physically conforms to the regulatory and logistical requirements of each of the targeted locales and can render all the required languages accurately and consistently,” says Gordon Husbands, a member of the Globalization and Localization Association’s (GALA) Advisory Council. “And, all the content displayed on the packaging is accurately and idiomatically localized to ensure correct communication of the messaging and information to the desired target audience in the target locale or locales.”

Pluses and minuses

Like the idea or not, globalization is a reality for a majority of businesses in the United States, not only package printers. “If we do not wake up soon, we will see a large part of our U.S. market being supplied by foreign plants much like the furniture industry is today,” says Mike Nowak, CEO of Coating Excellence International (CEI). The trick is to know where the opportunities are, but to be vigilant of the threats globalization poses.

In 2007, the FPA issued a report titled, “The Impact of Globalization on the U.S. Flexible Packaging Industry.” The report identifies opportunities and threats to U.S. flexible packaging converters resulting from the global market.

It defines opportunities as external (global) and internal (domestic). For example, external opportunities exist for large- and medium-size U.S. converters to establish presence in emerging markets by one or more business models including manufacturing or commercial presence, technology transfer, license deals, and so on. Small and medium U.S. converters will mainly see internal opportunities such as supporting large converters as they develop new global business.

Awareness will play a key role as converters work to adjust their businesses in light of globalization. Michael Richmond, cofounder of Packaging and Technology Integrated Solutions (PTIS) states that converters “really need to understand the global packaging network. There is [a lot] of importing and exporting going on, and brand owners are looking for converters to be close to them when they start up facilities abroad.”

Dahbura adds, “While it’s not an especially optimistic picture, U.S. converters will do well by recognizing that we are part of a rapidly maturing market and that the basic, common-sense manufacturing practices need to be maintained to survive.”

Dahbura states that the most obvious opportunities are for the large multi-national converters that are seeking new markets and the smaller niche players that have markets overseas. But for general converters, opportunities are fewer. “There are fewer opportunities because the pressure-sensitive industry has rapidly matured and has become quite sophisticated around the world, especially with the availability and affordability of aftermarket presses and related equipment,” he says. However, he cites security labels and packaging as potential opportunities for converters to “counter the explosion of counterfeit products from overseas into the U.S.”

Buying power is an aspect of globalization that provides an opportunity if converters can partner with their offshore counterparts. “I am in the process of trying to form alliances globally very similar to the alliance we have formed in the United States, the Independent Carton Group,” says Elphick. “We do have some global customers and I am soliciting them to see if they have any privately held converters that would like to form a global consortium.”

Nowak’s take is somewhat different. “I think that it offers U.S. converters minimal opportunities unless we want to build plants overseas. One of the key aspects that we offer customers is service, and being weeks away by boat eliminates this advantage,” he says. “If we compete only on price, the cheap foreign producers can beat us. In addition to service, the more lax environmental rules in foreign countries make it cheaper to produce there than in the U.S.”

Unfortunately, converters had more to say about the dangers of globalization than the opportunities. “I think we will see globalization become a bigger and bigger threat to U.S. converters,” says Nowak. “We are already seeing printed markets where foreign competition is dumping product in the U.S. at dramatically lower prices. They seem to be lower quality, but print buyers are ­accepting this because of the lower ­prices. I think we will see this spread to more U.S. packaging markets and become a major problem for U.S. converters.”

Dahbura cites the migration of brand owner manufacturing facilities as a serious threat. “A large portion of pressure-sensitive label production tends to follow the manufacturing of the product being labeled, so it is natural to have a concern that as production migrates overseas, the label demand follows,” he says. Although converters feel more secure about their customers in the perishable food business, according to Dahbura, in time, there will be a way of shifting more of that overseas as well. “In addition,” he adds, “there will be increasingly frantic competition among converters in the U.S. as the domestic opportunities tend to dry up.”

Husbands concludes, “As global economic power shifts away from the west, sales organizations will have to be increasingly active in the countries where demand is growing. This will require either new channel partners or setting up and managing local sales representatives across the major growth regions.”

The supply chain

Operating in what is becoming a global market means your supply chain will be affected by globalization. Converters worldwide are now competing for the same raw materials, and for U.S. converters, these raw materials are getting harder to come by. North American paper mills continue to close or be consolidated. Oil prices affect how much converters pay for films. With many suppliers now overseas, prices have been impacted.

“The most affected part of the supply chain has to be within the raw materials,” says Weitz. “Films are changing all the time, and with the drastic increases in oil, it brings much opportunity for foreign film suppliers and also domestic suppliers. Converters from all over the world are now competing for the same materials.”

“Our material suppliers have been kept on their toes by increased competition from overseas rivals,” adds Dahbura. “We don’t have a lot of insight into the supply chain beyond that since our paper and film materials suppliers keep us buffered from their own upstream supply chain management.”

On the flip side, the global supply chain has helped Anchor Printing gain new business because “it has given us opportunities to buy materials and raw goods at prices way more competitive than the U.S. suppliers were able to give,” says Weitz.

Dahbura echoes Weitz’s comments. “On the positive side, new raw materials vendors have entered the U.S. market and have created an unprecedented level of competition for our business, which has helped us keep our prices lower and more stable,” he says.

Where are we?

Globalization really is that big a deal, whether or not all converters have felt its impact yet. “Converters are in a position to hear the giant sucking sound of manufacturing heading overseas,” says Dahbura. “The irony is that we have seen obvious inefficiencies in the way some of our former customers managed their label purchasing programs, and have experienced how difficult it was to get them to change their wasteful ways.” He says Hub Label reasoned that the customers had relatively painless efficiencies that could be gained, but instead, the easy short-term solution for them was to move operations offshore. Hub Label’s main strategy has been to target markets and customers that are less likely to pick up production and move it overseas.

CEI filed a trade action and tries to keep a high level of service so that the advantages it offers are greater than the price differential of the products, according to Nowak. He contends that, “globalization can be a good thing for a large company that will invest overseas, but for typical flexible packaging companies, it will be a constant battle against low-cost, government-supported entities to maintain our business.”

For Elphick, globalization is simply a scenario that has to be dealt with. “We are dealing with it the same way we deal with it in the United States. We have centralized purchasing, we have companies that we are dealing with that have manufacruting sites further than we normally deliver to, but we are able to get our prices in line where we can absorb the freight [cost],” he says. “And we are also part of the ICG where we pooled our resources, where we get some very good discount purchasing. And if I could get that same net effect with some global partners, I think we will have the same leverage that our integrated friends would have.” pP