Packaging firm offers lessons in innovation

Leading packaging supplier Tetra Pak's progress in China has been eye-catching in recent years, despite monopoly accusations.

But on closer inspection, the company offers the observer many valuable lessons. As a family business, its history of modern management is not long, but this hasn't compromised its success.

Business positioning

While positioning seems fundamental to any business, many companies differ in their ability to position themselves. But it's important - positioning actually determines a company's competitiveness.

Innovation is key for Tetra Pak and this is reflected not only in terms of technology, but also in service. Tetra Pak's value-added services are comprehensive. Its client managers take a central position, working with customers in all links of the value chain - from orders and technology to marketing. It also advises customers on strategies from a third-party perspective.

Tetra Pak was one of the early multinational companies to tap opportunities in China, entering the market in 1972. It is also one of the few that's won a dominant position in the market - a share of about 95 percent - thanks to well-established partnerships with China's top three dairy producers Mengniu, Yili and Bright.

This all comes down to innovation. The company's experience in this respect is worth studying.

Tetra Pak was wise to identify its brand image and business coverage differently from its counterparts, and this has sharpened its competitive edge.

Generally, traditional packaging service providers focus on processing, packaging and sales and marketing. Tetra Pak is more ambitious. It positions itself as a "strategic business partner" of its clients, extending the business it provides into consulting services like offering marketing and sales support by leveraging its corporate network worldwide.

Emotional bond

The result is a strengthened emotional bond with clients - and more profit.

Tetra Pak has set up unusually intimate business relations with its clients' management teams. Take Mengniu for example. Tetra Pak was reportedly very supportive when the local dairy company successfully listed in Hong Kong.

I believe the success of Mengniu and Yili, China's top two dairy producers, cannot be separated from the value-added services coming from Tetra Pak.

Tetra Pak's innovation drive includes technology. It may not be a leader in one technology, but overall it is strong. So even if it is not the first to develop a technology, it is usually the best in the use of the technology.

Tetra Pak does not pursue pure leadership in technology, but systematic leadership. Technologies are usually utilized according to the needs of its businesses, This brings competitiveness, and also higher profit.

The company has placed priority on technology innovation since it began. Ruben Rausing, the founder of the company, actually invented Tetra Pak packaging. Rausing had a unique idea when he saw his wife making sausages, which is how the first Tetra Pak packaging came about.

Culture of change

Tetra Pak has a well-known tradition for change. It doesn't shy away from trying different approaches, as reflected by a remark made by new chief executive officer Dennis Jonsson during his inaugural speech: "Cost is the name of the game."

In the past decade, the company has relocated its worldwide headquarters three times and changed its name. Its corporate business position has accordingly been reworked three times. Each time its business structure has become more logical and reasonable.

Tetra Pak is also keen to learn from other companies. This approach gives it greater access to innovation and the impetus to make itself better. My own observation is that the company learns not only from its competitors but also from its clients and suppliers.

That explains why Tetra Pak spent a massive amount inviting its clients to report to its global management team - and why it always gives a warm welcome to its staff who return after working for its competitors.

Of course, there are challenges ahead for Tetra Pak. It needs to find a way to continue being innovative and to work out how to sustain this approach long-term.

The author is the deputy general manager of Xi'an Yinqiao Dairy Group's liquid milk division

(China Daily 10/31/2007 page15)