Powerpack: How to be global No 1

We cheer Indian companies that hold their own against multinational corporations. But, to the best of my knowledge, only one Indian company is No 1 in the world in its field. It is not Reliance, nor any Tata or Birla company. I wonder how many readers can guess its name: Essel Propack.

It belongs to Subhash Chandra. He is famous as the owner of Zee TV, but despite its prominence and glamour, Zee is a global pygmy.

By contrast, Essel Propack is world No 1 in laminated tubes, used to package toothpaste, cosmetics, drugs and foods. Essel has 30 per cent of the world market, more than the share of its two biggest competitors (Cebal and Betts) put together.

Essel is a multinational with 12 foreign plants in China, USA, Germany, Philippines, Indonesia, Mexico, Colombia and Venezuela.

Back in 1983, Chandra was a rice exporter looking for plastic packaging. He came across plastic laminates at an industrial fair in Germany, and immediately saw their potential for India.

Traditional toothpaste tubes were made of aluminium. But plastic laminated tubes were cheaper, more hygienic and better looking. Laminates had plastic layers at the top and bottom, adhesive layers in between, and a thin aluminium layer in the middle to preserve fragrance and taste. Chandra launched Essel Packaging to make laminated tubes.

The initial years were tough, and losses almost wiped out his equity capital. His customers were MNCs like Colgate and Lever, who tested rigorously before accepting a newcomer with a new product. But once Essel was accepted, it swept aluminium out of the market.

By the 1990s, Subhash Chandra had conquered the Indian market and decided to go global. He started with a factory in Egypt and then moved into China.

Most Indian manufacturers dreaded Chinese competition, but Chandra saw it as an opportunity (1.3 billion Chinese using toothpaste!).

Having met the needs of top MNCs in India, he saw himself as globally competitive. Today he has 55 per cent of the Chinese market.

By 2001, Essel Packaging had become No 2 in the world market. It then acquired Propack, a Swiss firm. The merged entity, Essel Propack, became a clear No 1 in the world. It has now built its first US plant to supply Proctor and Gamble.

If Essel could become No 1, why not other Indian companies? Reliance is No 1 in India, but does not have or plan a single plant abroad. Most companies hide behind high tariff barriers, fearing MNC and Chinese competition. Why was Essel different?

First, Essel was never spoiled by undemanding Indian consumers. The licence-permit raj created passive consumers willing to buy any rubbish available.

But MNCs are demanding, and Essel was lucky to start with a culture of meeting the needs of demanding customers. Only demanding consumers can prepare you for global competition.

Second, the same MNCs operate globally. Having satisfied them in India, Essel could hope to service them abroad too. Few other Indian companies could follow the same strategy.

Third, plastic laminates are capital intensive, and use little labour. So Essel never got saddled with bloated, slothful workforces like the Tatas and Birlas.

Fourth, Essel realised early that even as humble a product as laminated tubes required constant R&D to beat the competition.

Essel has reduced laminate thickness without loss of quality. Innovations include a transparent middle layer replacing the usual aluminium; soft laminates that feel like human skin; laminates with a metallic look; and fully holographic tubes that cannot be copied by fake producers making spurious versions of Colgate et al.

Such innovation should enable Essel to diversify out of toothpaste tubes into tubes for cosmetics, drugs and foods.

Many other producers of plastic products (luggage, pipes) found themselves undercut in price by small-scale units that paid no taxes and escaped labour laws.

Their quality was poor, but Indian consumers typically valued price over quality. Essel had the advantage of catering to MNCs who insisted on high quality to safeguard their global reputations.

Essel had to cut costs to outbid aluminium tubes, but never had the option of doing this at the cost of quality. This mind-set prepared it for the global market.

Auto ancillaries are now following the same path. Having been obliged to meet the demanding standards of MNCs like Ford, GM, Hyundai and Suzuki, many auto ancillary companies have become globally competitive.

Some like Bharat Forge and Sundaram Fasteners are now setting up plants in China. Like Essel, they see China as an opportunity, not a threat.

Thirty years ago, George Fernandes asked me irately why India needed Colgate and Lever to make something as rudimentary as toothpaste.

I now know the answer: they made possible the creation of the first Indian company to became No 1 in the world.

What do you think?