Ecolean Pakistan is the regional subsidiary of Ecolean, a global packaging brand headquartered in Sweden. The company has a manufacturing plant in Sundar, Lahore and is catering to domestic as well as export demand for food packaging products, particularly liquid foods. The plant has been operational since last year. BR Research chatted with the MD Peter Hauggaard on the company’s existing plans and potential in Pakistan and its prospective outreach into exporting markets. Peter has an illustrious management career working in leadership positions in Estonia, Indonesia, Turkey, India and Sri Lanka among others. Here are edited transcripts from the virtual sit-down.

BR Research: Tell us about Ecolean’s journey in Pakistan so far, particularly since the manufacturing plant became operational. What is Ecolean’s investment.

Peter Hauggaard: Looking at the great potential of the Pakistani market, we decided we wanted to set up a manufacturing plant in Pakistan back in 2015. The plant was established in January of this year and we have a very aggressive plan for it. I believe, we can easily do almost 7-8 times as much packaging as we are doing today. The plant can accommodate up to 5 billion packs and existing production is nowhere close to that yet. We made the biggest foreign investment in Pakistan in 2018 and we plan on supplying to the whole region –the Middle East, Turkey, Eastern Africa, possibly even Indonesia—with Pakistan at the center of manufacturing.

Earlier, we used to import ready-made material for onward sales and contracts but since the factory was opened, we import raw material, which we convert into customized packs to be sent to our customers. We are customizing locally and tailoring our product to the specific demand of domestic customers.

The investment is a continuous process but so far, we have invested at least 40 million euros.

BRR: It is usually South East Asian countries, China, India, even Bangladesh becoming the factories of the world from where products are supplied to other regions. Pakistan has never been chosen as the manufacturing hub. What made Ecolean pick Pakistan as the market with such investment potential.

PH: First of all, as you know, Pakistan is a huge powerhouse when it comes to dairy production and milk consumption, so of course, this is the market to tap. Secondly, for us, it is strategic. We are geographically well-positioned to be here, we have the customers, we've built a knowledge base, and we have a very skilled labor force here. We can apply these learnings to tap our regional markets and Pakistan is the easiest way to do it.

BRR: What kind of raw material do you import and what process of value addition does it go through to become the finished product for onward sales. Walk us through the value-chain.

PH: The material that we are importing is completely unique. There’s no one else other than Ecolean that can produce a material like ours. It is unique because there is no aluminum in it which is common for packaging products. Our material is very safe. There are eight different layers to it—the product is recyclable and from a sustainability point of view, our product is stronger against competitors because we don’t need to separate any material from our packaging product such as plastic or aluminum—its directly usable.

We import this material as a film; we print it and then convert it into packs based on customer requirements which then goes into filling. We have multiple options for tailoring. The important thing to remember is, our material is not a substitute of any other product available in the market, and we convert that to the customized needs of our clientele for different packaging needs and applications.

BRR: What fraction of capacity are you currently utilizing and how much of that is being catered to by the Pakistani market and how much abroad—how do you hope that share to grow?

PH: I would say about 20-25 percent capacity and right now, we are supplying 95 percent of it to the local market and the rest to foreign. In the future, we hope to majorly expand our outreach to exporting markets particularly the Middle East where there is a huge potential to grow.

BRR: Where do you see the capacity going from its current 20-25 percent in the Pakistani market as incomes rise over the next 5-10 years; do you have estimates?

PH: There is enormous potential. The government’s focus toward changing the regulatory structure and introducing minimum pasteurization laws will change the way food products are consumed—in a secure, safe and nutritious way. Once the focus is shifted toward consumer health and safety—whether it happens this year or the next—we would see Pakistan moving away from loose milk, that dominates the market, toward packaged milk. Right now, 92 percent of the milk consumed is loose milk which can be packaged. We can develop many packaged food solutions once consumer awareness evolves and the total prospective demand makes this market constantly growing and very attractive.

BRR: Minimum pasteurization laws will slowly come in and package demand growth is a continuous process as awareness comes, but what does the government need to do from the perspective of attracting foreign investment as the current government is very keen on it. What can we learn from the Ecolean experience?

PH: It is very important to understand this—the government needs to provide a level playing field to all players. This is a challenge for us at the moment as we need to be treated similar to other packaging companies in the country but we are not. This hampers our ability to grow and as a global company, we are constantly evaluating where we should put our volumes—should it be China, Vietnam, Europe. We have a great manufacturing facility here in Pakistan but if we cannot operate from a financial and economic point of it, a prudent decision would be to move capacity elsewhere.

BRR: Could you be specific about the challenge here?

PH: The biggest challenge is that we don’t have the same import duty structure on packaging raw material as our competitors which gives us a cost disadvantage, ultimately affecting our ability to give a competitive price in the market. We incur significantly higher duties than our competitors which when we started our plant here a few years ago, we had a completely different view from the government on it. This creates a playing field that is not the same for all players.

There are a lot of good competitors in the market. We compete with them globally. Our objective is to provide a safe and reliable product to the consumer but we need to given the same tools for operation and be on level terms with our peers. It is important to distinguish that we are not a threat to any local manufacturing business since we are also manufacturing, using local facilities and labor force. We are creating jobs just like any other packaging business operating here.

I think it should be interesting that the most modern and the best manufacturing unit that we set up globally was decided to be put in Pakistan. We need the government’s support to help us develop that and make Pakistani market the fastest growing. It is a huge investment from a brave company. Help us to continue to be brave.