Operating through its Shuya subsidiary, which is already a large producer of sanitary napkins, Nanning Sugar is continuing its move up the value-added ladder to diversify from sugar making. The latest project includes a new diaper line from Diatec aimed at the high quality sector.
Hugh O'Brian
Nanning Sugar, a major producer of sugar and associated by products located in the Southwest Chinese city of Nanning, is making a big move to diversify it business by entering the high-quality baby diaper sector. With the installation of a new Diatec diaper line, which is slated for start-up in July of this year, Nanning will become the first domestic Chinese producer of top-quality diapers, competing with the likes of well-known multinationals such as Kimberly-Clark and Procter & Gamble. Nanning Sugar's history dates back to 1956, but the foundations of the modern company started in 1996 when six sugar mills located near the city of Nanning formed Nanning United Sugar Industry Co. Ltd.
Following this, in 1999, Nanning Sugar was listed as a public company on the Shenzhen stock market. The Nanning Sugar Group today consists of two major divisions, with the first division being the sugar business comprised of the six sugar mills and the other division including newer growth businesses such as paper products, cement, hygiene products, paper-based tableware and an airlaid paper operation. Employment in the entire group amounts to around 8,000 people, with 7,000 in the sugar division and 1,000 in the growth companies. Today total annual production from Nanning Sugar amounts to about 500,000 tons/yr of finished white sugar, 80,000 tons/yr of paper and pulp, and 20,000 tons/yr of alcohol. Sales in 2002 carne to RMB 1.5 billion or around USD 180 million.
Paper production today is mainly printing and writing grades, although the company does have one small tissue PM making about 6,000 tons/yr, mainly for toilet rolls. To meet its increased need for fibre raw material, the Nanning Sugar Group invested RMB 200 million last year for construction of a 34,000 tpy bagasse pulp plant, with all of this pulp being used for producing fine paper.
DIVERSIFICATION FOR HIGHER VALUE.
In an effort to grow the company by moving up the value ladder and reducing exposure to the sugar business, Nanning has carried out a systematic diversification program into several new areas in recent years. In addition to the new diaper line, Nanning is also presently undertaking several other projects as part of its diversification plan.
For example, in May 2003 it will start a new plant for the production of disposable tableware such as paper cups and plates, based on bagasse pulp as the raw material. In addition, at the same time as it is adding the new Diatec diaper line, it is also installing a big new DanWeb airlaid line which will make the absorbent core for the sanitary napkin, panty shield and diaper products, as well as for other uses. Nanning Sugar president Mr.Xiong Kemo explains his strategy: "We are now investing in growth business for the future. Since China opened up to the world around 20 years ago, we have seen an enormous increase in the standard of living here. We have also seen a large increase in demand for all sorts of disposable paper products, such as sanitary napkins and baby diapers. We started making sanitary napkins in 1985 using Taiwanese machines and have built a good business based on our 'Shuya' brand name. We are now seeking to strengthen our position in the health care products area with the introduction of high-quality baby diapers and wet wipes to our product line."
DIAPER MARKET GROWING VERY RAPIDLY.
Xiong estimates that baby diaper production in China amounts to around 1.5 to 2 billion pieces per year at the present time. While it is difficult to predict exactly how the market will grow in the future, he believes that annual consumption could rise to around 5 billion pieces in the next five years. That would mean a total increase of more than 200% during this time period. A key part of Nanning's strategy is to make high-quality diapers, to be able to compete with the multinational companies like P&G and K-C.
Heading up Nanning's health care products division is Ms. Wei Li Qing, who has worked with the development of the sanitary napkin business for several years. She has taken the position as general manager of Guangxi Shuya Health Care Products Co. Ltd., which is the company which will be responsible for the diaper, wet wipes and sanitary napkin businesses. Concerning the decision to put in a top-quality, state-of-theart diaper machine, Wei comments: "The diaper market in China is based to a large degree on high quality products. So if we want to compete in the higher value added sector we have to make a good product with the best equipment."
DIATEC WAS THE BEST CHOICE.
Based on this strategy to come into the market at the high end, Nanning began examining diaper making machinery early last year to see what would be the best option for the diaper line. Following a visit to Italy to the Diatec headquarters, Nanning decided to invite Diatec to join the bidding for the project.
In China the bidding process is based on a very highly structured system, so that numerous factors must be taken into account and weighed in a formula before the decision is made. The machine construction is currently underway and the new line is expected to start in July of this year. It is planned to make 350 pieces per minute when running at top speed, which equates to about 100 million diapers per year from a two-shift operation.
EXTENSION OF THE SHUYA BRAND.
Sales and branding of the new diaper product line will be carried out in conjunction with the existing Shuya brand of sanitary napkins. General Manager Ms. Wei says: "We are simply using a brand extension of our already well-known Shuya product line. The package design will reflect the Shuya brand and we aim to take advantage of the brand recognition that already exists. To launch the new diaper product line we will carry out extensive promotions in key cities and market areas where we already have a strong position with other sanitary products. We will be using numerous sales channels, most of them very similar to the existing channels that we have already set up.
"Although Nanning is producing a small amount of tissue, it has no plans to expand in that area. Instead it sees the baby diaper area as a very high growth sector for the future". Says company president Xiong: "Our future growth strategy will very probably include more diaper lines. We are carrying out a very big project with the installation of the new DanWeb airlaid line at the same time as we add the new Diatec diaper line. It is a bit of a test project to see how the market will accept our products. My goal is to use all 10,000 tons/yr of airlaid material coming off the DanWeb machine in our diapers. Of course, that is much more than we can use with the first diaper line but if the market develops as we expect, and our diapers are well accepted, we will certainly be expanding production in the future."