During our childhood days, all of us would have read about “Hare & Tortoise” fable. The famous lesson from the fable was “Slow & Steady wins the race” however, most of the times; the first mover advantage holds true (except in some cases). But now there is a slight change in the fable the characters are being replaced by China and India. Now does the first mover i.e China will always be miles ahead of India OR India with its tortoise pace will someday overtake China?
If Yes then how and if No then why? So to get the more clarity on the thoughts we asked the industry experts to present their school of thoughts and the reasoning for the above.
China is in the top spot globally for both demand and production of world paper and paper board with an estimated size of around 100 million tonnes or 8-9 times the size of the Indian industry. It is a significant player in international trade in paper and paper board as well. A good number of foreign firms have also heavily invested in China in recent years. Indian industry has largely been oriented towards domestic market and essentially is indigenous.
Given the low per capita consumption of paper and paper board in India (11-12 kg) vis-à-vis China (69 kg), the size of the Indian industry is much lower. We have good growth demand drivers such as rising literacy, increased consumerism, greater emphasis on education, increased modern retailing and hence high end paper based packaging and digital printing etc. With this we expect to reach 20 million tonnes by 2020 but even then we will be just a fraction of what Chinese industry is today. Also, a substantial portion of this demand will have to be met by imports or else we need to add much larger domestic capacity.
The major constraint in the Indian paper industry is availability of raw materials and its high prices. China also started with a raw material deficit but due to the strong support from its Government it was able to overcome this challenge. What India needs is a progressive plantation policy.
Added to the raw material constraint we have also had problems from lack of infrastructure as also delays in environmental clearance. We need modern technology to remain competitive but this technology comes with high scale of production. Modern technology is also environment friendly.
The average mill size in China is much higher than in India because we have not been able to increase to large scale capacities specifically in case of pulp. This is also true for other segments in the Indian manufacturing sector.
The Indian paper and paper board industry is also seeing a constraint arising from adequate availability of skilled workforce – technicians, shop-floor and managerial staff. High interest rate is another constraint coming in the way of modernisation: the paper and paper board industry is highly capital intensive and has a long gestation lag.
Summing up, Indian paper and paper board Industry can replicate China’s growth story but this requires several enabling factors.
Indian paper industry will strive to grow in alignment with growth of India’s paper demand. However, I don’t think it will match Chinese growth. It is known that China as a country has followed investment led growth and India has followed consumption led growth. Manu-facturing forms over 35% of China’s GDP and in India it’s only 16%. The infrastructure bottlenecks and raw material shortages in India will never support the million ton paper mills in India, which have become common in China. Return on capital employed and EBITDA margins continue to be area of concern for industry as a whole and hence investment decisions need to be taken very carefully. A judicious combination of product mix, furnish, sizing and timing of investment is critical for success. I feel the next phase of major greenfield investments in pulp and paper will commence only after the reforms related to land acquisition for industries take shape and processes related to environmental clearances are streamlined. I do believe the approach taken by GOI in developing national investment and manufacturing zones (NIMZs) needs to be replicated for pulp and paper NIMZs by offering land and environmental clearances and getting triple bottom line commitments from the industry. The opportunity on consumption side is very positive. The industry has a potential to create significant environmental, social (job creation) and economic impact provided the government creates conducive investment climate for this industry particularly by reforming the degraded forestland use policy for sustainably managed plantations.
There are various issues that the India would have to tackle if it wishes to emulate China in any possible way. The first and foremost being governance and then we need a strong, strategic leadership. Government has to take decisions based on the benefit for the nation rather than just vote banks. The industry needs a clear policy for allowing industrial forestry. The government needs to execute long-term leases for degraded lands. Government has to simplify procedures for businesses. A business like ours needs to fill over 500 government forms on a monthly basis to merely comply with many unnecessary checks and procedures. Decisions making in China seem much better planned for the future whereas ours are reactions to current issues. We need to build, keeping at least a 10 year purview. Development of infrastructure, logistics, energy resources etc is the need of the hour. The regime of bureaucracy needs to be reduced and understanding the importance of business & industry should be felt. Build economy in order to increase markets. Develop stronger work ethics. In China workers are completely dedicated towards their job, they tend to concentrate on the job at hand and get much more productivity. We need to utilize our innovative spirit to develop interesting grades and provide the same to the market. We need to focus more on specialty and let China tackle the mass markets. India will need to develop its own niche. We cannot compete with China as the turf is very different. We will need to specialize and develop segments that require much more innovation. We will need to concentrate on smaller quantities and higher margins. We will need to focus more on our domestic consumptions owing to our infrastructural issues. We will need to focus on developing our HR practices to train and develop our teams towards nimble and creative organizations.
Whenever we discuss global economics, it has almost become necessary to compare the growth trajectory of China and India. Though paper industry’s of both the nations are growing at a good pace, one can easily differentiate in the pattern of growth. This difference is somewhat attributed to the nature of political system in the two countries. Indian industry realizes that state is not going to bail it out in case of any eventualities, whereas Chinese industry seems to be following some sort of guided mission by the state. The Chinese capital market is many times matured and bigger than its Indian counterpart. All the constituents of infrastructure in our country, whether be it roads or ports or electricity or rail network, are dwarfed by the mammoth infrastructure of China. The biggest deterrent for the growth of paper industry in India is low availability of all types of fibers i.e. wood, non-wood and waste paper. Due to lack of conviction on the part of state for development of forests in private sector, the paper industry in India is finding it hard to get wood even for its existing capacities. The situation with agro-fiber is worse. The bagasse is getting diverted in much lucrative segment of power generation by sugar mills. The environmental laws in India are quite old and have been so far less stringent for the paper industry. Despite all the above factors Indian paper industry has its own sets of advantages and is set to grow at a decent rate. Some of the factors that will contribute in the sustainable growth of Indian paper industry will be stable political system, highly developed IT system, state emphasis on education, opportunity for overseas ventures, investment in technology up-gradation, improvement in infrastructure etc. Moreover, Indian paper industry will strengthen its position in terms of quality of products and services. Indian paper mills will also benefit from the strong local demand.
Yes, Indian paper industry will definitely emulate Chinese paper industry in the years to come. The main reason for these are the present consumption drivers which includes population growth, better standard of living, improved education and literacy rate which will definitely give push to the Indian paper industry. These strong drivers confirm the growth in the paper industry. Second reason, is the recent foreign direct investment which the GOI has recently approved making it an attractive landscape for foreign investment will be one of the keys to the growing paper industry. Foreign companies like IP, UPM, Stora Enso, MWV, Oji and Marubeni etc also believes in the Indian paper industry growth and are making investment in India.
And with respect to the question regarding India’s similar growth like China, it will be difficult to predict the time it will take to catch up. Presently the Chinese manufacturing industry is suffering, due to strong currency exchange rate and global economic recession. Due to this lot of foreign companies have started looking for manufacturing facilities in other countries like India, Vietnam and Indonesia etc. For faster growth of Indian paper industry we need the infrastructure where industry can start thinking to import the wood chips. Today due to this transportation cost and inadequate port facilities, wood chips import is not economical but due to recent increase in the raw material cost, it will be feasible if we have enough port facilities.
I strongly believe that Indian paper industry growth depends upon the factors like raw material availability, infrastructure and the monetary policies. Moreover, this industry requires huge capital investment and has to comply with many environmental issues. Till we get the answers for all these questions it’s very difficult to anticipate the growth cycle. In this challenging environment, industry has to think about economies of scale and go for better technology in order to be cost competitive. May be the mindset and the attitude of the Indian mills will get changed with the initiative of the foreign companies.
The way I look at it, can India learn from the path chosen by China and probably follow a better path and not fall into the same energy and environment trap that many Chinese mills fell into. Let us also remember that many Chinese mills closed down in the last decade and many more will. Thus Indian paper mills needs to address 3 core issues:
• How do they become more energy efficient and reduce manufacturing costs?
• How do they become sustainable and protect the environment and the communities around them?
• How do they protect their raw material supply cost effectively and also enhance the quality issues that plague Indian paper?
I am a strong votary of the Indian pulp and paper growth story not just because of the per capita paper consumption numbers (which are low and thus indicate potential future growth), but because the Indian pulp and paper mill has the breadth of vision and ambition to be world class and thus despite many obstacles that come in its path, it continues to chart a 6% annual growth. With the 3 factors mentioned above taken care of, Indian pulp and paper mills can become a desirable supplier to the global market and probably we need to have the Chinese costs, European quality and all made with an Indian heart. There are also some cautionary points that Indian mills will do well not to emulate the China path in terms of labor policies and have an all inclusive people oriented strategy that will make the efforts sustainable. Thus to summarize, Indian mills have a very positive trajectory to track if they take steps to improve their approach to sustainability and quality and people approach.
India like China has favorable growth rates projected for their paper industry over the coming years. However there are many challenges facing the Indian industry which need to be addressed in order for it to emulate the rapid growth seen in China over the last 5 to 10 years. These challenges include fundamental issues like infrastructure development to provide efficient logistics, addressing the increasing scarcity and escalating costs of the critical raw materials & natural resources like water, energy and skilled manpower. The Indian paper industry with support from the government has to overcome some of these issues and will need to adopt and invest in increasing high levels of technology to increase its efficiency and product quality. The industry has the added challenge of balancing its short to medium termed profitability goals with longer term investment requirement’s into larger capacity paper mills. Whilst the outlook for the Indian paper industry growth remains positive, the current sizes of paper machines do not have the scale and competitiveness to be global. Overall we feel that the Indian paper industry has many challenges to emulate the growth in China.
China has been a very important market for Andritz, not just in the pulp & paper industry, and we have a strong presence there with our own manufacturing facilities and about 1,500 employees. We also have a strong network of Chinese sub-suppliers to enable us to completely produce some of our equipment in-country – from raw castings to final product.
Despite the presence of “copy cat” equipment suppliers, we have found enough Chinese customers who are willing to pay a reasonable price for our R&D, high technology, and European quality systems. This “premium price” over the deep discounters enables us to maintain and grow our business in this country.
Many of the large mills in China installed these state-of-the-art systems and have been operating them for years. The companies took a longer range view and were willing to invest in this level of technology, and the resulting longer product lives due to the quality of manufacturing. Today they are reaping the rewards with lower maintenance requirements, lower production costs per ton, and higher output.
Contrast this with India. There have been very limited investments for greenfield, or even large brownfield, projects during past years in this country. In general, plant sizes are small. We are lacking a “critical mass” and our pulp & paper infrastructure is less well developed. Many investments take the “near view” – focusing on short-term costs rather than total life cycle costs. For now, our aim and efforts are to use our manufacturing base in China to supply to India. This, of course, can change to reflect the market opportunities and realities.”
First of all we must understand an important fundamental and that is, growth of paper sector dove-tails economic growth of the country. Most part of the last decade presented a very rosy scenario for the domestic paper industry as country’s economy was showing significant signs of buoyancy, coupled with enabling fiscal support provided by the union government. It made industry leaders futuristically optimistic which led to huge new investments that was ploughed in for modernization of mills and expansion of production capacities. In pursuit of growth, technologically savvy machineries and green processes were assimilated by many mills across the industry. Over the recent years while India lost some steam in its strides towards economic growth, China’s economic juggernaut despite a few hiccups continued to chug ahead. Going by scale of economy and size and capacities of paper machines that operate in China, it is quite evident that our domestic players have a lot to catch up with their Chinese counterparts. The story is the same when comparison is made with China in terms of total production/consumption, per capita consumption, degree of FDI participation etc. We cannot overlook the fact that after all China has dug in very deep in the international market as a dominant player. China is calling shots whether it is buying of raw material or consumables or selling of the end-product notwithstanding some slowdown in demand faced by it. As far as India is concerned, though industry’s fundamentals are strong and all the desired growth drivers are in place yet, full potential of the Indian paper industry is still not being tapped and unlocked. The industry continues to grapple to overcome developmental hazards. Availability of raw material in quality & quantity at a competitive cost remains the biggest challenge. The concept of captive production plantation still eludes the imagination of policy makers in our country whereas, China has leap-frogged in this direction emulating models adopted by the rest of the major global players in the Western Europe, North America, Brazil, Chile besides neighboring Indonesia, Thailand, Vietnam, Korea, Malaysia etc. Therefore, in my opinion there is a long way to go for Indian paper industry to emulate China’s growth story and this to happen in the near future. To attain growth of China’s proportion it is imperative for us to have critical and essential enabling policies in place courtesy the GOI, conducive business environment, sound raw material base and economy of scale. Paradoxically, paper industry is the most suited to play an important role in meeting the national objectives of the government like education, literacy and employment generation that too in the rural areas.