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"China is the factory of the world" - ABB interview

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"China is the factory of the world" - ABB interview

October 17, 2012 - 20:37

SHANGHAI, Oct. 18, 2012 (RISI) -PPI interviewed Sim Boon Kiat, Group VP, and head of ABB's Global Pulp & Paper Business during ABB's Automation World event held in Shanghai.

Currently, 3,400 people are dedicated to ABB's Pulp and Paper business world widely in 40 countries. The Pulp & Paper Competent Centers are located in China, Singapore, Finland, France and United States.

The group's Pulp & Paper business in China was established in 1994 and has offices in Shanghai, Chongqing, Guangzhou and Suzhou, with around 300 employees fully immersed in the industry.

The company moved its Quality Control System (QCS) and Web Inspection System (WIS) plants to Shanghai in late 2010. They have become delivery centers for automation and control for China.

Boon Kiat, who joined the group in 1981, has worked in various locations around the world. He was promoted to this position in 2011, and has served in three of the five divisions at ABB including regions and system groups, as well as functions.

PPI: We understand that ABB took over Lorentzen & Wettre (L&W) recently, which provides advanced equipment for quality control and process optimization for the paper industry. Could you please tell us what's behind the move and your plans for China?

Boon Kiat: I think the most important image for ABB is that we are a Total Solutions supplier. We want to be as comprehensive as possible when it comes to providing solutions to the paper industry. Of course, L&W is a very well known name, very successful with tremendous market leadership. By having L&W as part of the ABB family, it reinforces ABB's ambition to be a comprehensive player in the pulp and paper industry.

Over the years, ABB has acquired a lot of experience and has developed a good approach to integrating companies. L&W is already in the same office with all of our colleagues. We operate as one. Clearly, we still want to maintain the ethos of L&W. They are still the undisputed market leader for what they do and there are many elements that L&W can bring to ABB, for example, its strong distribution network.

PPI: You also mentioned earlier, that the Chinese market is very important for ABB. We would like to know your comments on the trends in the pulp and paper market in China as well as Asia.

Boon Kiat: At the moment, there are evidence of an overcapacity, even in a huge country like China but these are short-term market responses and adjustment. There are still a lot of regions within China that need to grow and to consume. It is and will continue to be the biggest market for pulp and paper in the world for many more years to come. Clearly, this is a very important market for ABB.

PPI: You were talking about the general picture; can you specifically comment on paper grades, for example, newsprint, graphic paper, packaging or tissue? Do you think they are all going to grow rapidly or are there some paper grades that will not?

Boon Kiat: Today, China is the factory of the world. There is a huge need for packaging from the various industries and, correspondingly, a growing demand for containerboard and corrugated paper.

At the moment, the economic uncertainty in Europe and its corresponding slowdown in activities is one of the main reasons for the overcapacity situation in China. However, the overall demand is somehow compensated by the continuing investment climate in China as well as other parts of the world such as South Asia, North and South America.

In the next 20 to 30 years, China is expected to grow, albeit at a forecasted slower rate of some 8%. Being the second largest economy in the world today, this growth rate will still translate into a huge demand for paper for a long time to come.

The impressive economic growth in China sustained over the last 15 - 20 years has also created a large group of effluent middle income population and their insatiable demand for Tissue. Ten years ago, my family only used handkerchief. Today, they can be found in every corner of the house.

Of course, when we speak about tissue, we are also referring to tissue towels for wiping and cleaning within the home. Three years ago, we were still using traditional towels in our kitchen but this has been replaced by tissue towel for hygiene reasons. I am sure my home is a typical one. Therefore, we see tissue as another potential for growth.

PPI: You just said that certain grades of paper, for example tissue, will go up quickly, so what's your strategy to cater for the market trend in China. Are you going to put more investment in manpower, for the growing demand?

Boon Kiat: When we started to build our capability in China 15 years ago, the primary intention was to support the rest of the world. However, due to our huge successes within the Chinese market, these resources were barely sufficient, even to cope with the local demand. China is still an important source of reasonably costed competence. Hence, today our investment decisions are taken with both local and global support in mind.

On the other hand, Tissue is a very competitive market. To be more successful, our objective is to be as local as possible, ie., in terms of supplies, logistics and resources to deliver comprehensive solutions. Despite the short-term global uncertainty, we will be continuing to increase and develop our Chinese resources, including sales, engineering, service and logistics. In addition, we look to strengthen and expand our current concentration in Beijing, Shanghai and Guangzhou to other regions as well. We have a lot more to work on.

PPI: Can you tell us your plans, in terms of investments in services?

Boon Kiat: Our goal is to serve our customers well. To achieve this end, we are looking to expand our presence to more regions within China. Today, ABB is already present in many places within China but we have plans to enhance these locations in terms of numbers and capabilities. For instance, in Chongqing, despite our small pulp & paper group, there is already a large team of ABB competence present. We intend to exploit and synergize this team.

China contributes more than a quarter of the profits to ABB's pulp and paper group. Clearly, there is still a lot of potential to improve and grow. Within the short term, our focus is to provide our service resources and capabilities to serve our customers better. This includes helping our existing customers to upgrade and improve their productivity.

Many of the paper mills in China are small. It is not difficult to envisage that quite a few will give way to much larger, modern and efficient plants. This is one of the core competences of ABB Pulp & Paper - supply of highly automated, efficient, and environmentally friendly equipment and solutions for sophisticated modern plants.

PPI: You talked about upgrading services. We would like to know what percentage of ABB's whole operation does service account for? What is your plan in China?

Boon Kiat: Service accounts for more than 30% of ABB's pulp & paper business on a global basis.

The development in China has a lot in common with that in the US and Europe, for example, increasing importance placed on sustainable and efficient operation, including popularity of Full service contracts. A good example is the Full Service contract and collaboration between the APRIL Group in Rizhao and ABB. Most of the Service personnel based within the plant are under the employment of ABB.

This collaboration includes a localized competent team of service and supply chain resources, guided by a professional process and supported by an in-house integrated service maintenance software solution and logistics. The result is improved plant availability, productivity and ultimately enhanced profitability for our customers. This concept has been practiced in Europe for more than 30 years.

PPI: ABB has transferred its QCS and WIS manufacturing to Shanghai. Do you think your customers are satisfied with the products produced in the QCS and WIS center in China? Is ABB going to add more investment in China in the future?

Boon Kiat: ABB's reasons to relocate the QCS and WIS production to Shanghai are several fold: to be nearer to one of the largest potential market; to exploit the low manufacturing costs potential; to tap competence R&D resources as well as to be near to our sizeable installed base in China.

Within a short period of a year, we have been able to stabilize our production and improve on our productivity. This will be ABB's only factory for QCS and WIS. Hence its output is delivered to China and the rest of the world.

Overtime, we will enhance our R&D resources and capabilities in Kangqiao. This team will collaborate with existing competence in other parts of the world to develop and produce even better products for our customers.

PPI: In addition to the manufacturing, we would like to know whether you are going to move ABB's R&D center to China?

Boon Kiat: Over the years, ABB has already established a sizeable team of R&D resources in China in various technological fields and products. In addition, the Chinese R&D team will collaborate and become an important contributor together with ABB's existing strong competence in the rest of the world.

Clearly, the presence of R&D and manufacturing facilities will be an added boost for our customers in China as we develop and understand the needs of our Chinese customers even better.

PPI: China has launched its 12thFive Year Plan for the paper industry and would you please let us know your view of the impact on the paper industry in China? Also, will this affect your business in China?

Boon Kiat: ABB looks forward to continuing to be a keen player and contributor in supporting China's endeavor to improve its infrastructure and local capabilities.

Within the Pulp & Paper sector, we foresee that, within the next decade, the current 3,000 paper mills will be reduced to 1,000 or less. In addition to helping these plants produce three times the capacities compared to today, ABB's technologically advanced solutions will also ensure that they are highly efficient as well as meets the most stringent environmental standards of the world.

Over the last few decades, ABB is proud of its strong local presence and small contribution towards the development of China. We are confident that ABB will continue to enhance our presence in China in order to support China's growth for many more years to come.

Thanks for Liv Zhong's contribution to this story.