Greatview takes on world leader in packaging war
When a headhunter asked Jeff Bi Hua whether he was interested in joining a packaging company called Tetra Pak, he took a visit to the local supermarket to see their products. What he saw convinced him that the company was probably a safe bet to join - row upon row of Tetra Pak packages of milk, juice and tea on the supermarket shelves.
The dominant Swedish conglomerate commanded some 80 per cent of the world's aseptic packaging market and 70.2 per cent of the mainland market in 2009. Aseptic packages are sterilised to ensure the safety of the drinks they contain.
Now Bi is engaged in a David and Goliath battle with his former employer. After serving for six years with Tetra Pak, Bi left the company and is now chief executive of a small rival company called Greatview Aseptic Packaging, which is being sued by Tetra Pak for patent infringement.
'Tetra Pak was dominating the market, and it's still dominating the market. Our value is to provide an alternative to the customers,' said Bi. 'The law of gravity is there. The customers want to switch to us as long as we can give them good quality and a good price. We have grown to a market share of 9 per cent from zero eight years ago. We took away Tetra Pak's share.'
Greatview began operating in 2001 under the name of Shandong Tralin Packaging. Its first factory in Shandong province produced packaging materials for beverage companies and in its initial public offering prospectus to a Hong Kong listing completed in December, the company admitted to having had 'limited success' due to low barriers of entry and intense competition.
In 2003, Bi and Hong Gang, the current Greatview chairman, joined the company and, drawing on their long years of experience in the industry, they started an aseptic packaging business. Between 2005 and 2006, Bain Capital invested in the firm.
'I provide an alternative. I lowered the customers' costs by 5 per cent instantly. We are still cheaper than Tetra Pak by five to 10 per cent. Eight years ago, Tetra Pak was 30 per cent more expensive, but now their price is converging with ours and China is one of the few countries in the world where packaging prices have been dropping over the years.'
In this respect, Greatview is typical of many mainland manufacturers that beat Western rivals on price. But will rising wages of mainland workers hurt its price competitiveness? Bi did not anticipate this happening. 'We are not worried about labour costs. We are technology-intensive. We have only 700 staff,' he said.
Tetra Pak's senior vice-president of communications, Jorgen Haglind, said the company viewed Greatview in the same way as all other competitors. 'I don't know if they are cheaper. What I know is that they build their business primarily on selling packaging material made with machines we have developed,' he said.
Greatview entered the European market in 2006, and plans to build a factory in Germany within two years, which would be its first factory outside China, said Bi.
'A lot of people say we are taking the fight to Tetra Pak's home turf (in Europe). That is a free service we are giving Tetra Pak - to make them become more competitive.'
Bi hastened to add that he thought Tetra Pak was a fair competitor. 'After the anti-monopoly laws became effective in China in August 2008, Tetra Pak sent a letter to customers in China telling them they were free to choose any supplier. We have to give them credit as a company that operates in a professional, legal way.'
Presently, less than 10 per cent of Greatview's sales are international, but Bi has set his sights on doubling this contribution in three years.
'We have never aggressively promoted ourselves. Our international customers approached us. They switched because they wanted a choice.'
Greatview is currently being sued by Tetra Pak in Germany for an alleged infringement of one claim of a European patent related to aseptic packaging material, it said in its IPO prospectus. Tetra Pak's subsidiaries filed a complaint in a court in Dusseldorf, Germany, on July 23, seeking damages. Greatview potentially faces maximum damages of 20 million yuan (HK$23.45 million) plus Euro140,000 (HK$1.41 million), according to the disclosure in the prospectus.
Tetra Pak's Haglind said an injunction had been sought to prevent Greatview from using the patent-protected invention. 'Our patent portfolio is the result of the dedicated work done by many skilful engineers in Tetra Pak and the investments we made in research and development. Given this, we will relentlessly defend our proprietary technologies from copying,' he said.
Haglind dismissed speculation that Tetra Pak launched the action to slow down Greatview's business. 'This is totally unfounded. We have taken this action as we think we are in our rights to protect our innovations from being copied.'
Bi said Greatview had filed its defence with the court and believed its chances of having the Tetra Pak claim dismissed was high.
Born in Beijing, Bi was one of the Chinese students lucky enough to study in the US after China opened up in the late 1970s. He attended the School of International Studies at the University of Denver, whose alumni included former US secretary of state Dr Condoleezza Rice. 'The university offered me a scholarship. I didn't have enough money. Beggars can't be choosers. So if someone offered me a scholarship, I had to take it,' he said. In 1992, he graduated with a master of arts.
From 1992 to 1997, he worked for EchoStar, which is now called Dish Network, a high-definition television company. After a brief stint in Singapore, he was mostly based in Hong Kong to develop EchoStar's China business. In 1993, media mogul Rupert Murdoch boasted that satellite television was 'an unambiguous threat to totalitarian regimes everywhere' and shortly after that the Chinese government blocked satellite TV on the mainland.
'You can imagine our business was going nowhere. We were not allowed to sell systems in China. Happily, a headhunter asked me if I wanted to work for a company called Tetra Pak and suggested I pay a visit to a supermarket. I saw how dominant Tetra Pak was and I didn't think the government was going to block people from drinking milk and juice,' Bi quipped.
He went on to work for Tetra Pak from 1997 to 2003 and, after an initial posting in the US, was sent to Shanghai in early 2002. 'Tetra Pak is a good company. It plans the career path of key staff. It wants international experience for key staff. It sent me to the US and short-term stints in Europe,' Bi said.
He left Tetra Pak to join Greatview in March 2003.
Greatview's biggest hurdle was to convince customers it could deliver a high-quality product because food safety was very important, said Bi. 'When we came into the picture in 2003, customers were sceptical. They told us Tetra Pak had been around for 50 years, how could we compete. But after many trials, they believed our quality was good.'
Bi said the second question customers asked Greatview was whether it could be relied upon for supplying big orders.
'Customers told us if they jumped ship from Tetra Pak, they would crash if we failed to supply them. We had to demonstrate our ability to grow and we have done so by increasing capacity every year,' he said.
From 2007 to 2009, Greatview's sales volume increased from two billion packs to 3.8 billion packs, according to its IPO prospectus. Last year, it built two factories in Shandong province and Helingeer county, Inner Mongolia, and with the addition of the Inner Mongolian plant, its annual production capacity will increase to 9.2 billion packs by the end of this year from 5.1 billion packs a year ago. By 2012, with the setting up of its German plant, annual production capacity is expected to rise to 15.2 billion packs.
Not to be outdone, Tetra Pak announced in September that it was investing Euro53 million in a second production line in Inner Mongolian.
Greatview's plant in Inner Mongolia is five minutes by bicycle from a plant of China Mengniu Dairy, Bi said. Mengniu, listed in Hong Kong, is China's second-largest dairy producer. The biggest Chinese dairy producer is Shanghai-listed Yili Group, also headquartered in Inner Mongolia. The two dairy giants, with Huierkang, a tea product company based in Xiamen, Fujian province, are Greatview's three biggest customers, accounting for 62.9 per cent of its revenue in the first half of 2010.
China-based customers also include international giants like Coca-Cola and Nestle.