Bobst Group Strategy

P. Laurent

BOBST GROUP STRATEGY

Research project

Patrick Laurent

October 2008

Abstract

The packaging industry has various sectors such as folding carton, corrugated, flexible, plastic and more. BOBST Group is active worldwide in manufacturing and selling machines to packaging suppliers. Printing, Die cutting, folding and gluing are required to process packaging. In addition, packages are required in multiple industries, food and beverage, computer and electronics, toys, mechanical industry, pharmaceuticals, biotech, perfumes, etc… The combination of all these potential customers and processes give an opportunity of diversifying strategies while remaining within the packaging industry.

P. Laurent

Table of Contents

Introduction to the Research Topic...... 3

BOBST Group history...... 3

The Packaging Industry...... 4

Rationale of Topic...... 4

Hypothesis(es): Null and Alternative Form...... 5

Assumptions and Limitations...... 6

External Factor Analysis...... 6

BOBST Group’s strengths...... 7

Bobst weakneses...... 9

BOBST Competitive Strategy …………………………………………………………….9

Recommendations……………………………………………………….……………….11

Works Cited...... 12

P. Laurent Introduction to the Research Topic

Worldwide use of packaging is getting more and more demanding as to quality of printing and especially the quality of the folding and gluing of the boxes. Historically, boxes were glued and folded by hand, which allowed a perfect quality and virtually zero defects. However, since the 1930s, boxes have been more and more printed, die cut and folded by machines, thus improving productivity and optimizing costs. BOBST Group is involved in the manufacturing of machines for the packaging industry and has an international group strategy which represents an interesting research subject.

BOBST Group history

In 1890, Mr. Joseph Bobst founded the company which was involved in selling printing equipment, lithographic furniture, paper and miscellaneous parts for commercial printers. A small store in the middle of the town of Lausanne in Switzerland was used as the main business.

From 1925, BOBST started to develop small machines and equipment for printing paper and board. In 1935, the first big printing machine "Autovariable" was born. The small family business drastically evolved with the children being engineers and developing, in 1940, the first Die cutter "Autoplaten" and folder Gluer in 1942. Once publicly traded, the natural path of acquisitions slowly designed BOBST into and international group.

Today, BOBST group includes more than 16 plants throughout the world and more than 25 sales and service subsidiaries. The company holds more than 15 brand names and is active in 3 fields of the industry such as folding carton, corrugated board and flexible material packaging.

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The Packaging Industry

Since the beginning of time, mankind has always been in need for packaging to transport goods, save food, etc. Packaging was composed of wood, glass, leather and other natural products. Tin cans and glass containers where used in the beginning of the

20th century and finally, within the past 60 years, new materials appeared such as plastic and aluminum.

Today, the packaging industry is structured within the material groups and we can find the following sectors: Glass, Metal, Plastic, Wood, Paper Board, Corrugated Board and flexible packages. In addition, the packaging industry crosses numerous industries in order to package their products. This creates a number of niches within the various industries. For instance specialized packaging for pharmaceuticals is very controlled, with bar codes, special colors and extremely high quantities requiring fast machines. In other hand, the fruit and vegetable industry requires corrugated resistant packaging with low or simple printing and highly resistant gluing. Other food products such as chocolate bars and sweets require high definition printing and flexible packaging of each individual product. According to the Euromonitor International “paper based containers will witness an improvement in sales performances in both packaged food and beverages” (07, 2005 p.15)

Rationale of Topic

Environmental changes and therefore consumer’s choices become more and more environmentally friendly. The changes in the market will see the investment in the converters plants target machines for specific box manufacturing. Producing machines

P. Laurent for the packaging industry requires business intelligence in order to craft proper long term strategies. New processes and equipment take years to develop and tendency in the market that can change rapidly do not allow manufacturers to make mistakes in their

R&D choices. M. Schenone confirms that “While faster and easier setups are necessary, the reduction of waste must always be considered. Consequently, quality, squareness and minimal "fishtailing" are expected by all converters” (Page 1, June-2008). By developing a device helping solve this problem is a good example of long term business strategy.

With 118 years of experience in this industry, BOBST has a good know how and experience but must make the right strategic choices.

Hypothesis(es): Null and Alternative Form

The main research objective is to focus on the relationship the external factors and the forecasted economy and the actual strategy of the BOBST group worldwide. In this industry, there are multiple factors pertaining to each local market and of course economies which are also relevant to the geographical sectors. However an international group must have a common strategy to achieve its goals globally.

Null hypothesis (Ho):

There is no significant need to change the actual strategy which is in line with the objectives and environmental factors within BOBST group’s activities.

Alternative hypothesis (H1):

There are major differences between the actual group strategy and the objectives to achieve within the local worldwide economies. From these observations, a conclusive

P. Laurent analysis should present the evolution the strategy should move towards and adapt to the various sectors of its business.

Assumptions and Limitations

The assumptions made in this study include the following descriptions. The analyzed strategy is a global concept which takes into consideration the entirety of the markets. Although some local variations may exist, the environmental factors and economy is being seen globally. We do not take into consideration and limit this study to the folding carton area of the group’s activities and ignore the other factors such as the glass, metal, plastic, etc which are not in this market niche. According to Euromonitor

International, the “paper-based containers grew 13.3% between 1998 and 2003” (2005, p6).

External Factor Analysis

One of the main concerns of both final consumers and packaging producers is the environmental impact of the business. The paper packaging industry is using a significant amount of fossil fuel directly and indirectly. The impact on the forests and C02 released in the air can be a great concern for most consumers. Michael Struges explains that in the packaging Industry, “cartons have a unique advantage as a packaging material as it captures and stores CO2. Cartons continue to store CO2 and prevents it returning into the atmosphere” (June 2008, p54).

Another external factor in the packaging industry is regulations within the various countries. Some countries adopt global regulations such as CE markings for production.

However manufacturing machines for the packaging industry requires a tight control over

P. Laurent thousands of regulations. For instance, the food industry requires more and more that a barrier stops the inks and chemicals penetrating the envelope and leaving traces on the product inside the box. Regulation also puts a constraint on the safety equipment on the machines, where do we start and stop? Serious accidents may lead to regulations imposing safety devices on the machines. In July 2008 The Health and Safety Executive issued a safety alert aimed at employers in the packaging industry. According to HSE,

“employers must follow safety steps to ensure the Hand platen machines can be used safely” (07/2008, p.14). Such warnings may if repeated lead to stricter regulation of the machine industry serving packaging makers.

The packaging industry is technology oriented and requires numerous types of machines. Paper mills, printing machines flexo, offset, litholaminators, platens, autoplatens, folding and gluing etc… The technology evolves every day further and competition is harsh. Research and development is essential and combined with

Intellectual Properties and patents, it is the only way machine manufacturers can survive.

As machine manufacturer, the group must remain in constant contact with its customers also looking for new package designs and possibly patents. Customers such as Medica benefit from this new technology developed by BOBST group and Peter Brassington confirms that” with the new and more powerful technology in place, Medica have already seen an improvement in both running speeds and time needed to make ready a number of their more difficult jobs” (July 2008, p.67).

BOBST Group’s strengths

BOBST group main strength is the technological knowhow with a very strong

R&D which includes more than 20 people per product Line. R&D is proactive and

P. Laurent always looks for new devices or processes which would bring an edge to our machines.

New developments can take from 2 to 36 months and require lots of resources. The VP of product management at Heidelberg Printing Press Company confirms that “the packaging industry wants more creativity, more colors, more finishes, all in search of added value.

The pressure is on us to deliver technology” (08 2008, p. 35) .

Prototypes are placed with our VIP customers as beta versions for trials and this allows BOBST to keep close touch with customer's problems. An engineering team across the product line ensures that the latest technologies and products are use consistently in all of our machines. All of our field technicians and sales people are highly technical and very knowledgeable.

On top of the technology, BOBST has people. There is a significant strength in people. They accumulate years of experience in the field and react quickly to problems.

The turnover is very low and the average career time in the company is extremely high to reach 20 years. A career center/technology school within the group counts 280 students at all time, usually for 3 to 4 years. Up to 70% of them remain in the company for a career after their graduation. Most people even are second generation workers; for example, my father worked 45 years for this company. There is a real feeling of belonging to a big family.

Finally the SWISSTECHNOLOGY reputation and image is very strong worldwide. BOBST Group has build machines for decades building also a reputation of quality. The company’s customers know what they get whenever they buy our products.

Of course a pallet of services has evolved to become a full service company with local stock, personal, etc. BOBST USA in Roseland for example handles the sales, installation, training and service of all of the Group's machines in North America. But the network

P. Laurent also counts the same facilities in Brazil, China, Germany, India, Tunisia, and sales and service office in most of the other countries. The sales and service network is in very close contact with the customers and local economies for better Intelligence.

Bobst weaknesses

With increasing costs of manufacturing, raw materials, wages and other administrative costs, Bobst Group has to optimize the production and assembly to have acceptable margins. All of the high technology that makes its strength has the down size of having a higher price. Wages for qualified engineers are high and to retain its good employees also has financial issues. Customers are willing to pay a premium for a high quality product, but up to what level hen compared to competition which also improves its quality bit by bits. According to the Euromonitor, “ Cost of raw materials such as steel and aluminum has increase 24% in the past three years and will keep increasing due the higher demand of emerging countries” (2005, p. 387).

Old and big groups have a tendency to become very formal with procedure and even if it is split in Product lines, the company is too slow to react. Product lines may want to use the resources in manpower from the other s and the internal competition become a factor of demotivation. For senior management, it is like steering a big boat and having to apply breaks very early on in the process to not miss the turn. This can also in time be viewed by the customers as a lack of flexibility and the image of the Brand may suffer from it. It is the global trends given by consumers which give the orientation to the group’s strategy and corrections necessary. It is imperative to remain in close contact with the markets in the entire product lines in parallel and with the same objectives or the company may miss an important turn in his strategy.

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BOBST Competitive Strategy.

Bobst group has a very definite global strategy which requires very high technology in order to achieve a higher standard than customer expectations. The high level of technology implies long lasting and costly research and development. This situation trigger cycles in the products were the group sees ups and downs in every product. This phenomenon is increased by the numerous countries in which BOBST

Group is involved in business. In order to level these pikes and waves, the strategy is set by product lines allowing for a good degree of diversification within the products as well as within the subsidiaries worldwide. BOBST Group’s web site confirms that “The

Group is formed of companies which complement each other. Its partners share their know-how when seeking quality solutions which enable purchasers to realize the best return on their invested capital” (08 2008).

Bobst is using the latest technologies in the group’s equipment which implies very high costs. The global strategy in place includes some of the manufacturing and assembly of products in emerging countries such as China, Brazil, Tunisia, while keeping strictly high quality standards. Manufacturing and assembly in those countries allow to offer middle level products at very attractive prices and to compete with local manufacturers.

Very few machine manufacturers are international and small companies compete at a national level. The product strategy is organized to have high level high cost machines and mid level low cost machines. By doing so, the Group allows small customer to develop their business until they can afford top of the range equipment. In order to keep a competitive edge on all of its products, the Group must strive to meet expectations. In a technological environment, Mike T. Michelson confirms that “With a new, modern look,

P. Laurent the Bobst brand of production machinery now has enhanced ergonomics, while at the same time showing greater respect for the environment. Of course, innovation and the creation of new functionalities are among the duties of a world leader”

Recommendations

When strategies are oriented towards goals, technology, competitive advantages, it is easy to forget about other vital aspects of the Strategies. Social responsibility towards employees, suppliers, even customers is also important. Competition within the organization may occur as well as reduced motivation from those working within the various Group’s companies. Code of conducts and ethical guidance may not be the only answers. An internal strategy needs to be organized to lead all of the activity sectors toward a common goal with social events and incentives not only to the best ones, but also to those working hard in the shadow. Bobst Group’s wants to recognize its employees, as we can read on the Web Site, “the quality of the personnel and management is recognized as one of the main assets of the Group. For this reason, the organization is designed to offer a challenging and dynamic environment and to attract and retain the most competent people” (08.2008).

Competitive advantage remains the spring of the economic growth in this industry. New technologies are easily available on the market and cheaper copies appear every day on the market. It is imperative to generate an evolutionary team spirit of inventors within the product lines allowing developing new aspects of the technology to create more IP and patent revolutionary tools and processes. The evolution of existing products is imperative, but the discovery of new processes is of greater importance to sustain competitive edge.

P. Laurent Works Cited

BOBST Group’s Web Site, (08.2008), Bobst Group, Digital Download

http://www.bobstgroup.com

Euromonitor International, (July 2005) Packaging World, Global Market Insight.

Health and safety Executive HSE, (July 2008, Vol. 35, p.14) Hand Platens safety Alert, Folding Carton Industry, Brunton Business Publications.

Kilian Renschler, (08 2008, p 34 – 42) Drupa 2008 what did it offer the carton converter?, Folding Carton Industry, Brunton Business Publications

Michael A. Schenone, Digital Download (06.2008) Corrugated Specialty Folder-Gluers Where Short Runs & Fast Setups Meet High Technology, Flexo Magazine. http://www.flexography.org/flexo/article.cfm?ArticleID=50

Michael Struges, (June 2008, p52-56), An Industry Issue, International Paper Board Industry, A Brunton Business Publication.

Peter Brassington, (July 2008, p.64-68), Braille Alpina Unleashes Medica Tiger, Folding Carton Industry, Brunton Business Publication

Mark T. Michelson, (June 26, 2008), Bobst Gives the Folding Carton Industry a Boost with its Customized Technology, Printing Impressions, Digital Download http://www.piworld.com/story/story.bsp?sid=110565&var=story