Worldwide demand for packaging equipment is expected to escalate in emerging markets. However, the market for end-of-line machinery will likely be softened by the abundance of manual labor.
The packaging equipment industry can anticipate growth spurts of 4.6 percent a year through 2017, translating into a $41.8 billion international market, according to a report by The Freedonia Group Inc. Developing nations will drive growth. Demand in the Asia/Pacific region is expected to expand 5.7 percent annually, with both India and China as the jewels in that region’s crown.
Capitalizing on the growing demand will require a deeper understanding the trends in the target regions. PMMI – The Association for Packaging and Processing Technologies has been tracking three specific trends to identify growth potential in developing markets: population growth, disposable income, and expansion of retail channels. The latter is a critical consideration. While many products in developing nations were traditionally packaged at the point of origin to standards that were “good enough,” according to a United Nations report, more products are being sold today through retail chains, and these stores as well as their customers demand quality packaging and labeling.
Charles D. Yuska, president and CEO of PMMI, told IMT that regional differences cause variance in packaging processes, and therefore in equipment needs.
“The Asian and South American drivers for investment in packaging equipment are increasing production capacity first, and then innovation,” said Yuska. “These and other developing markets also tend to delay demand for end-of-line equipment — these are functions that can be carried out manually, and labor is readily available.”
Still, rising standards of living in Asia and South America have led to greater demand for consumer products, packaged food, and pharmaceuticals. As demand for these types of goods grows, so too does the need for modern packaging, which is good news for the $33.4 billion global packaging machinery industry.
China and India will account for an astonishing 21 percent of global packaging machinery demand by 2017, according to the projections of Fredonia’s report. South and Central America also represent significant growth, though the report notes that opportunities in these nations will derive from a much smaller existing market base. While the U.S. remains the world’s largest market for packaging equipment today, the report forecasts that China will rise to the top of the market by 2017.
Food manufacturing remains the single largest user of packaging equipment, accounting for about 40 percent of total sales. The demand for packaged food is rising sharply in nations such as China that are seeing increased urbanization. China’s urbanization rate is expected to rise to 60 percent by 2020.
But equipment used to package chemicals, pharmaceuticals, and personal care products will see the most marked growth, as higher household incomes free up more discretionary funds for the purchase of non-food items.
All this growth represents a powerful opportunity for manufacturers of packaging equipment, particularly for labeling and coding equipment for product and shipment tracking, which will see growth of 5.5 percent annually through 2017, according to the report. Despite this growth, equipment for filling and form/fill/seal machines will continue to take the largest share of sales.
The report’s authors note that outside of the “big six” companies that represented 21 percent of the global packaging equipment industry in 2012 (Krones and Robert Bosch, both of Germany; Illinois Tool Works in the U.S.; Coesia of Italy; the Tetra Pak and Sidel subsidiaries of Tetra Laval in Switzerland; and Industria Macchine Automatiche of Italy), the rest of the industry remains quite fragmented, especially in developing countries, where much of the production capacity is owned by small companies that each make a few types of basic units and aftermarket parts.
Ultimately, China may be the nation to beat when it comes to the actual manufacturing of packaging equipment.
“China isn’t alone in this; other developing countries in the region are also entering the market, and they’re also making significant improvements,” said Yuska. “But that’s with hardware. There are still significant gaps in know-how and experience.”
So while U.S. and European firms may eventually face competition in the developing world in the manufacture of packaging equipment, experience gained during decades of serving a sophisticated customer base may prove to be invaluable.