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Findings – Logoplaste has gained a leadership position and has successfully managed to achieve a relevant position in the international landscape by seeking
Logoplaste: innovation in the global market From packaging to solution The Authors André Morgado, AESE – School for Management and Business, Centre for Marketing Studies, Lisbon, Portugal Acknowledgements This case was written under the supervision of Professor Teresa Correia de Barros Abstract Purpose – The purpose of this paper is to describe a case that looks at how an innovative plastics packaging company in Portugal integrates itself into the value chain of company clients The pedagogical objectives are: to present a success case in technological, processes and business innovation; to present a success case in business strategy, based on the build-up of partnerships; and to construct a platform for discussion of a first mover strategy, and precautions to be taken in its pursuit Design/methodology/approach – A range of evidence, including primary and secondary data, was used in the writing of this case, namely: direct observation, interviewing, press releases and press cuttings, annual reports, customer records and organization charts Findings – Logoplaste has gained a leadership position and has successfully managed to achieve a relevant position in the international landscape by seeking a vertical integration of its activities, in order to obtain a better value proposal for its clients, which, at the same time, allows it to capture a part of that value for itself This practice has permitted this company not only to grow overseas but also to reveal a customer loyalty performance of 100 per cent These results are deeply connected with their innovative value proposal, e.g product innovation, process innovation, marketing innovation and business model innovation Originality/value – This study provides insights into the nature of a company, which has successfully developed its activity based on a strong investment in innovation since its genesis Logoplaste's strategy can be considered distinctive as it combines and integrates the following strategic vectors: integration of the client's logistical and value chains, based on a process of partnership developments; investing in R&D of packaging engineering, with the offer of an “vendto-end” solution; and production process based on a “wall-to-wall” model Article Type: Case study Keyword(s): Innovation; International marketing; Plastics; Packaging; Portugal Journal: Management Decision Volume: 46 Number: Year: 2008 pp: 1414-1436 Copyright © Emerald Group Publishing Limited ISSN: 0025-1747 Introduction The Logoplaste Case looks at a Portuguese company in the area of plastic packaging, which has successfully developed its activity based on a strong and sustainable investment in innovation This emphasis has allowed it to support a strategy of international growth, rising to be the European leader providing integrated services of rigid plastic packaging Globally, Logoplaste's strategy can be considered distinctive as it combines the following strategic vectors: • • Integration of the client's logistical and value chains, based on a process of partnership developments; Investing in R&D of packaging engineering, with the offer of an “end-to-end” solution; • Production process based on the “wall-to-wall”[1] model Its clients are mostly leaders in their market segments Nestlé and Yoplait stand out, with a relationship established 28 years ago The management believes that these results are associated with the practice of total integrated service, through its technological centre, Logoplaste technology, the independent business unit which specialises in packaging engineering[2] A breakthrough in the English market Launched in 1999, Sunny Delight quickly reached yearly sales of 160 million pounds, becoming a great commercial success, immediately behind well-known giants such as Coca-Cola and Pepsi Nina Sandler, a lawyer and mother of three children, said in an interview to BBC News (Clayton, 2003): “I was taken in by the shape of the bottle and by the way the product was placed next to the real 100% fruit juices It all suggested freshly pressed orange juice, and not an artificial product.” This example shows the importance of the packaging for Procter & Gamble's sales strategy The success of Sunny Delight was based on a strong brand positioning obtained through a strategy resting upon three pillars: intensive publicity, a deliberate placing in the refrigerated display and compatible packaging, although the product did not actually need such care, given the preserving substances that it contained Just like many other products aimed at children, it also included additives that enabled characteristics connected to taste, texture and duration This positioning of the brand allowed Procter & Gamble to charge a considerable premium on the price of a product belonging to a substantially lower average sales price category To implement this strategy, especially through a package, which might embody the correct integration in the desired positioning, the partnership with Logoplaste was decisive This Portuguese company already occupied an outstanding position as a specialised producer of plastic packaging However, Procter expected more of Logoplaste than the latter was used to offer its clients The connection which developed was crucial for the changes of Logoplaste's commercial practices Thus the paradigm of a commercial relationship evolved from that of mere supplier and service provider associated with the core business, to a form of partnership through the provision of a complete service, from the concept of the package to production and quality control Logoplaste ceases to be a mere product company, and accepts a new role as a company, which sells solutions On the other hand, there is also the fact that it now looks upon the success of its clients as its own success, beyond sharing the risk in the business projects The value proposal The solution adopted by Logoplaste since it was created consists in the production of packages in specialised production units, located close to the producer's plant, or even within it This methodology is known as a hole through the wall Here, production is planned exclusively for the partner, guarantying supplies in adequate quantities within the desired schedules The advantage of this solution is obvious, as it permits, at several levels, considerable economy for the buyer, reducing packaging transportation costs, which are a very significant part of the total cost In professional jargon it is said that “empty packages don't travel well”, as they are carrying air This is a particularly important factor in the case of rigid and semi-rigid plastic containers, for which there is no efficient transport solution, as they occupy a good deal of space In a simple way, Logoplaste eliminated transport costs by situating its production unit next to the client's production line The use of plastic blow-up packages (preliminary forms of the final condensed product) also helped On the other hand, placing the production units next to the client's production line allows for the adoption of a JIT[3] model, avoiding the accumulation of unnecessary inventory (which reduces the necessity for ready cash of clients and suppliers) This model also provides additional benefits, such as, eliminating the uncertainty of supplies (an important factor, as an entire production line may stop as a result of a delayed delivery) and a greater speed of communication and information within the organizations involved in the production process, so as to away with stocks of obsolete packages and to increase flexibility in the reaction to sudden changes in demand Finally, the wider range of products and solutions, which Logoplaste brings to the market allows its clients to reduce the cost which was traditionally associated to multiple contracts, as well as the elimination of redundant control systems and internal transfer prices Partnership as a new value proposal For Logoplaste, the partnership concept came with the association with Procter & Gamble for the development of the Sunny Delight package It was quickly adopted as a source of added value for all its clients In practice, this new proposal appears at three different levels In the first, the company shares the objectives of the partners, as packaging is an essential factor for the market success of their brands Second, the technical staff and other professionals of Logoplaste work as a team with the technical staff and other professionals of the clients, without relinquishing their personal and independent relationship with each one Finally, the desired link is not built due to a mere buying and selling relationship, but also through the strengthening of a relationship, which desirably should be stable and long-term This intention is obtained through win-win practises, such as the application of transparent price-policies and decisions of joint growth with the partner, among others (Table I) Thus Logoplaste now assures total integrated service (formal designation of the value proposal based on partnerships) at the level of package development and production according to the prerequisites presented by the client, integrated JIT production quality control and technical consultancy However, the package development and production, research and management, are centralised at the main office, in order to maintain an on-the-spot operational structure, which is light, agile and fast The advantages Logoplaste tries to offer through the building up of a relationship based on this format are the following: solutions technologically adapted to each client, high quality packaging, competitive prices and the guarantee of long-term supplies These advantages allow the producers to concentrate on their main activity, and also to reduce the need for investments in plant, which are partly covered by Logoplaste The key success factors identified for the establishing of new partnerships, that is, obtaining new clients, were: availability, flexibility, and capacity for innovation From the operational point of view, success in establishing this concept was grounded on the capacity to promote structural change within the organization, through investments in more recent and dependable technologies for the development and production of packages, and in the certification of the quality of processes used (ISO 9001) Logoplaste Technology, as an instrument intended to make this new concept operational, is the group company responsible for the development of new products and for package design, including product engineering, prototyping, making moulds and testing The organised sequence of these activities is the foundation for the Logoplaste 360° concept which assures the partner, not only integration of the above tasks through a single supplier, but also reduction of times and costs, thus optimising the whole development process for a new package (Figure 1) This company allows Logoplaste to assume the role of consultant for the development of new ideas, with an outstanding role for innovation as a differentiating factor Beyond these activities, its services include production of two and three dimensional drawings, development of “protomoulds”, making tests of industrial moulds, technical evaluation and dimensional control, as well as support for the development and start-off of new production units (Figure 2) The company origin The founder of Logoplaste began his activity as an entrepreneur in the glass industry In the late forties, Marcel de Botton developed commercial contacts with Marinha Grande companies and from these arose several business deals His connection to the pharmaceutical industry came later and this, in its turn, led him to develop a special interest in plastic, as a substitute for glass Working with both these materials, in 1956 he founded Titan, a company working with plastics, whose first important product was the famous Bic Cristal ball-point pen In 1974 Titan became unmanageable This was mainly due to the fact that almost all its 630 workers belonged to democratic movements of popular unity According to Marcel Botton, “there was a total loss of manufacturing control.” He on until 1975, when he resigned as executive manager, and later sold his position Following these events, Logoplaste was born in 1976, with a starting capital of 500 euros Initially called Vasotermo, the company was the forerunner of the initial concept which even today is still the essence of the group's activities, producing packages in a dedicated unit placed next to the client, with a medium and long-term perspective In the words of its chairman, the creation of Logoplaste was due “to the incapacity of the Portuguese market to find a satisfactory quality.” The commercial proposal presented was original and, after a detailed analysis by Yoplait, proved to be the best alternative to modernise yoghurt packages and to ensure production according to the client's needs In the first year, Logoplaste started off with two integrated production units, one in Guarda, with Yoplait, and another in Avanca, with Nestlé Later, this concept was accepted by other reference firms, such as the best-known brands in the world markets for food and cleaning products Among the former, the outstanding markets are those for mineral waters, soft drinks, yogurts, food oils and margarines (Figure 3) Towards the end of the seventies and above all during the eighties, Logoplaste set up several industrial units in Portugal while it searched for new clients, diversified its portfolio of products, raw materials, and transformation technologies In the late eighties the group managed about a dozen industrial units in Portugal and achieved a leading position in the national market of plastic packaging for waters and liquid yoghurts This diversification later led the company to start up integrated units for the production of packages for the soft drink industries, margarines, edible oils and cleaning products In these market sectors, the company also took an undeniable leading position as an important supplier for the segments of domestic hygiene, personal hygiene, food products and lubricants (Figure 4) Nowadays, Logoplaste's activity continues to be wholly orientated towards the global providing of services in the area of rigid plastic packaging, with the integrated units system The entry into new businesses, which took place later was always related with the support of the core activity These businesses, called complementary, include the areas of recycling[4] and trading, and also include a share in a buying consortium[5] Here is a brief chronology of the most important dates of the company's history: 1976 Founding of Vasotermo Start-off of operations with Yoplait (yoghurt packages) and Nestlé (lids for glass bottles) 1980 First large-scale PVC operation with Luso (bottles for mineral water) 1989 First PET operation with Coca-Cola in Portugal 1993 First thin skin operation with Unilever in Portugal 1994 Logoplaste goes international with mineral waters, in Spain 1995 Start of the Brazilian operation together with Danone 1997 Logoplaste enters the French market with an integrated unit for Coca-Cola It also opens the first factory for PET pre-forms in Portugal, now producing over nine hundred million units a year 1998 Logoplaste enters the British market, with a large plant for packages in Procter & Gamble A similar plant is built in Barcelona, Spain 2000 A complex plant, including injected and insufflated PET pre-forms, is set up near London, producing Fairy Liquid for all Europe 2002 Beginning of manufacture of aseptic packages for UHT milk in France, and large size packages for lubricating oils in Brazil; 2003 Start of operations in Italy, with a thirteen-machine plant for Unilever domestic cleansing products The role of plastics in the production of packages The use of plastic materials in the production of packages is due to a combination of advantages and characteristics that cannot be obtained through the use of other materials such as, for example, aluminium, glass or cardboard Packaging has four essential functions To contain and protect the product against physical damage during transport and storage, to preserve the characteristics of the product, thus prolonging its useful life, to inform the consumers and to promote the sale of the product Beyond their functions for packaging, plastics have advantages from the environmental point of view, as they allow the product to be packed using less material, and they also permit recycling Plastic materials allow for a greater freedom of form and presentation The possibilities for colouring, decoration and printing, allow the packages to receive not only all the necessary information for the consumer, but also all the essential aspects in order that both product and brand can be easily recognised by the customer 6.1 Industrial plastic and the package production processes The real roots of industrial plastics are in the nineteenth century, with the discovery of ebonite in 1851 This is a modified rubber, which may be considered the first plastic which can be hardened by heat The widespread use of plastic materials began in the thirties, with the discovery and commercial launching of the first thermo-plastics, such as vinyl polychloride[6], polystyrene and low-density polymethracrylate The need to find substitution materials for metals and for rubber led to the development of many applications and variants Polypropylene and high-density polyethylene made their appearance later Plastics quickly took over the markets for packaging construction materials and domestic electrical appliances, which opened the way for the large-scale production of resins More recently, the discovery of polycarbonate, of ethylene polyefthalate[7] and low-density linear polyethylene, opened new perspectives in the markets for packaging plastics, due to their physical and chemical characteristics That's why the need to create and maintain scientific and technological structures permitting the anticipation of industrial capacities and potentials which the new compounds may prove to have, and delivering to clients genuine custom-made solutions and not mere industry standards The production process occurs after work on the packaging development[8], with the setting up of the production unit, using one of several different industrial processes, such as injection, extrusion, insufflation, combined processes and thermo-moulding Injection is based on the introduction of plastic material into a chamber, where it is submitted to the combined effects of pressure and temperature The mass of plastic is then pressured through a beak, which injects the material into a mould, where it is cooled and become solid Opening the moulds, the plastic object may be extracted This process is used to produce technical parts, toys, boxes, crates, capsules, lids, and other packaging accessories Extrusion consists in the plasticization of material within a tubular unit, through a specially formed screw, which moves the plastic mass in a draw-plate The latter may be circular (to produce rigid or flexible tube) or linear (to produce flexible film, sheet, or rigid plate) The cooling of the plastic mass occurs after leaving the draw-plate and may be by air or water, depending on the use the product will have Insufflation (blowing) is used in combination with extrusion On leaving the circular draw-plate the tube is transferred to the interior of a mould The pressure of the air blown into the closed mould allows one to obtain hollow objects Examples of these are packages and containers of various shapes such as flasks, jerry cans, bottles and so on Sometimes a combined process of injection, stretching and insufflation is used, allowing the production of PET packages In a first stage, preliminary moulds are produced by injection In a second step, these pre-moulds are softened by heat and introduced into the final mould Within this, the pre-mould is submitted to a stretching process by the action of a piston A blast of air follows, the mould is cooled, and finally the package is extracted The two stages may be separate (two steps) or integrated (single step) Thermo-moulding is used for the transformation of flat sheet or plate, moulding it by a combined action of mechanical pressure and temperature The plate is softened by heat and pressed by the mechanical action of the mould itself or with the help of compressed air or vacuum Thermomoulding is the process used in the production of packages for margarines, yogurt containers, trays, etc The competition Logoplaste faces competition at an international level, as in the home market no other company is operating with the same context of innovation and partnership Portuguese companies with plastic packaging needs traditionally use their own production facilities, and not turn to out-sourcing, as there were no available suppliers The main international competitors are Nampak, ALPLA, Amocor, RPC and Graham Packaging Company Nampak has annual sales of 2,200 million euros It is the largest African packaging producer and exports to over 60 countries from its headquarters in South Africa ALPLA was founded in Austria in 1955 Today it employs over 6,000 people dispersed over 28 countries, with 85 production units Sales reach 1,350 million euros For Logoplaste, this is the most redoubtable competitor Particularly to be feared is the possible copying of the Integrated Total Service, until recently a Logoplaste exclusive Amcor is an Australian player operating in the global packaging market with sales of 6,400 million euros RPC is an English company, leader in the European market for production of rigid plastic packages It sells 580 million euros per annum By last, Graham Packging Company is a competitor based in the United States of America, with global presence in several markets of blown plastic containers Its yearly sales reach 775 million euros (Table II) The rigid plastic packages sector is characterized by strong competitive pressure The large average size of the several players in the market conditions the stance of the others, and imposes scale economies as a way to maintain competitiveness within the sector Being a smaller sized player, Logoplaste attempts to go around this situation through a heavy investment in what makes it different, such as R&D (with a stress on investment in the development of scientific and technological structures supporting this activity), and the service rendered to clients, as a source of competitive advantage The internationalization path Growth, experience in working with important brands and the evolution of the markets towards globalization, led the group to define its own internationalization strategy While other groups looked for this through association with suppliers, Logoplaste decided to become international through association with clients For reasons of geographical proximity, Spain was the first destination (1994), followed by Brazil (1995), France (1998) and finally Italy (2003) The English market option was linked to the opportunity created by the partnership with Procter & Gamble, within the concept of Integrated Total Service Several factors confirmed the correctness of this decision, such as the optimization of processes and, as a consequence, the re-designing of logistical chains in the industry On the other hand, Logoplaste wished to obtain synergies with other partners who also have important operations in the UK market Investment in the UK was of some 27.5 million euros The rationale for Logoplaste's entry into this market was based on the model followed in other countries where it had operations So, legally independent local companies were started, 100 per cent owned by the head company (Figures and 6) The history of the relevant facts of Logoplaste's investment in the UK can be divided into three basic phases The first occurred with the building and start of the first industrial production unit in the first quarter of 1999 This unit, called Sunnyplast Ltd, was set up in partnership with Procter and Gamble Food & Beverage, for the production of Sunny Delight, and was situated in the Southwest of England, presently supplying exclusively the whole of the British market The second phase dates to the first semester of 2000, with the setting up and start-up of the second industrial production unit This unit is associated with the Procter & Gamble Home Care plant in West Thurrock, on the outskirts of London The product is the new package of Fairy Liquid, and from this single location all of Europe is supplied The third phase came with the setting up of a central Logoplaste UK Ltd office, a company, which holds the entire capital of the two former companies This back office became operational in January 2001, and supports all the administrative and financial operations in the UK, beyond promoting commercial activities, furthering the expansion of Logoplaste in that country Considering the necessary steps for carrying out the investment, two aspects stand out clearly Administrative and financial affairs on one side, industrial matters on the other For the former, contacts must be established with the proper authorities for the setting up and registration of companies, which is normally done through law firms, which handle such matters While financing is being negotiated, local banking operations of the companies are made operational For recruiting in a highly specialized industry, local consultants represent an enormous added value The same kind of outsourcing can be used for setting up information systems, as well as the necessary hardware and communications In the industrial sector, the initial logistics represent a critical moment, including transport, insurance, and various movements of equipment, materials and people It should be noted that in the UK matters concerning safety have priority over any others As for the installation process costs, these are estimated globally for each project and are very different, depending on the nature or the location of the operations Participation of Logoplaste's own installation teams is a critical factor, for local sub-contracting may bring with it significant additional costs Setting up in new countries has provided distinct experiences from the several difficulties encountered The company considers the context of UK standards as being on quite a different level from Italian burocracy or the multiplicity of Brazilian solutions In the former, strictness prevails, schedules are complied with, and all activity is regulated in a clear manner In this particular case, the greatest difficulty lay in the cultural adaptation to a different reality, and this had the merit of raising standards in some organizational areas Beyond this, the complexity and logistical sophistication of the operations are in themselves a strong challenge, with the added responsibility of these being the first and third largest industrial units of the whole Logoplaste Group Today, Logoplaste is the European leader in the installation and management of integrated units It is present in six countries, with 38 factories of plastic materials, producing about 4,300 million packages a year, representing an annual consolidated turnover in excess of 130 million euros (Figures and 8) The domestic market has evolved in relative value Portuguese clients now contribute some 36 per cent of the company's EBITDA with a marked tendency to decline (Table III) The recent years In March 2005 Logoplaste set up its first in-house operation for the production of PET bottles for mineral water This plant, called Logopet, is within the industrial area of Águas Vimeiro, and has been in operation since June 2005 The PET bottles, of 0.25, 0.50 and litre capacities, are blown from pre-forms made in Plastikit, a Logoplaste company in Mealhada, specialized in the injection of pre-forms, which converts 30,000 tonnes of PET resin each year The production of packages for fresh milk in Leeds started in June 2005 The factory, called Miplaste, provides 80,000 packages per hour, in a unit integrated in the dairy products factory of Figure 1Logoplaste Technology: the 360 degree concept Figure 2Logoplaste Technology: time of response (an example) Figure Figure 4Presence in Portugal (2003) Figure 5Group organisation (2003) Figure 6Management structure (2003) Figure Figure Figure 9Leading innovation at Logoplaste Figure 10Logoplaste value chain Table ICustomer relationship history Table IIBenchmarking (2003) Table IIIEconomic and financial information (2003) Table IVConsolidated balance sheets (in thousands of euros) Table VResults (in thousands of euros) ... logistical chains in the industry On the other hand, Logoplaste wished to obtain synergies with other partners who also have important operations in the UK market Investment in the UK was of... pressure The large average size of the several players in the market conditions the stance of the others, and imposes scale economies as a way to maintain competitiveness within the sector Being a... have Insufflation (blowing) is used in combination with extrusion On leaving the circular draw-plate the tube is transferred to the interior of a mould The pressure of the air blown into the closed