SCA is perhaps fastest growing hygiene products company and Ulf Söderström is President of SCA Asia Pacific. He started at SCA in 2009 in business development based at the company headquarters in Stockholm, Sweden, and in 2011 was named to his current position. We met up with him recently in Shanghai to discuss how things are going.
How did you end up in Shanghai?
I WAS INVOLVED IN THE DIVESTMENT OF SCA’S ASIAN PACKAGING BUSINESS AROUND 2010, AND THROUGH THAT I BECAME VERY EXCITED ABOUT THE POSSIBILITIES THAT ASIA OFFERS FOR HYGIENE PRODUCTS. Shortly thereafter I was asked by our CEO if I would be interested in the opportunity to manage SCA’s entire Asia Pacific business. To me it was a no-brainer. After talking with my family, who were totally supportive, we came out here in April 2011. Honestly I think it’s the best thing I’ve ever done in my life, both professionally and privately. Asia is a great place to live and work, although it does come with significant challenges. It’s a tough environment, very competitive, but also it’s a lot of fun and you meet many extremely interesting people.
What is your mandate here?
QUITE SIMPLY, TO GROW SCA’S BUSINESS IN ASIA PACIFIC. We recognized that if we wanted to grow SCA’s position rapidly in Asia, the organic route would take forever. It was clear that progress via a combination of organic growth and acquisitions would better address our ambitions in this region. We started identifying possible acquisition candidates in the hygiene products business to speed up our growth.Since then we have undertaken two acquisitions with the first being the former Everbeauty business, and the second being a majority shareholding in Vinda, a company that we have had a cooperation with - and a minor ownership stake in - since 2007.
Vinda is a household name that needs little introduction, being among the top 3 tissue companies in China and a renowned tissue brand. Everbeauty was a Taiwanese family-owned company that we bought in 2012. It was the first company to introduce disposable diapers in China, nearly 20 years ago. Their Sealer diaper and Dr. P incontinence product are well-known brands here in China.
How has Vinda progressed?
OUR COOPERATION WITH VINDA HAS BEEN EXCELLENT AND WE HAVE SUCCESSIVELY INCREASED OUR OWNERSHIP TO 51%. Mr. Li Chaowang, who started the company in the mid-1980s, has deep and valuable knowledge of the tissue business in China, which is very helpful to us. He also sees that there is a world outside of China, which we can explore together. So the cooperation and complementary nature of the relationship with Vinda is very positive for us both. We can benefit from Vinda’s extensive distribution network and production in China, with their strong local knowledge and relationships. Similarly, SCA supports the common growth of the company with our global innovation and technology capabilities, as well as our experience and success in managing global and premium brands.
Asia is all about relationships, and it takes time to build those relationships and the trust behind them. So we have increased ownership slowly, stepwise, and I think that has been very good for both of us.
Vinda will become a great platform in China for the expansion of our personal care categories, as well as our away-from-home tissue business. Everyone knows that future growth in the hygiene business will be in Asia Pacific. SCA’s presence in Asia has been greatly strengthened with the former Everbeauty business, and now with our majority shareholding in Vinda.
What are your operations today?
EXCLUDING VINDA, SCA HAS FOUR PLANTS IN ASIA PACIFIC: one in Taiwan, one in Shanghai and two in Malaysia, all producing personal care products. In total we are about 2,700 employees.
Vinda has 9 plants in China and around 8,000 employees. When we now consolidate Vinda we are a much bigger player in China, and China is now one of the biggest SCA countries in terms of sales.
How is the market and competition?
OF COURSE WE ARE NOT ALONE; EVERYBODY SEES THE POTENTIAL HERE AND THE MARKET IS CROWDED. In fact, competition is fierce. All the big multinationals are here, there are some very good regional players and then you have hundreds of small players. This applies to all categories. Just in baby diapers alone there are some 150 to 200 registered brands, and unregistered you probably have the same number. It’s a tough market.
What is your priority now: Growth or Profitability?
DEFINITELY FOR THE SHORT TERM IT IS TO GROW THE COMPANY IN ASIA. And of course that is being done to generate sustainable profit in the long term. We are thus investing a lot behind our brands, which we need to build in China. Vinda is the leading single tissue brand in China, compared to our competitors which have numerous brands. Within SCA we previously had two “billion-dollar” global brands which are TENA and Tork. With Vinda we have SCA’s third billion-dollar brand.
TENA and Tork are right now still small in China, but we will grow them based on Vinda’s extensive distribution network. There are a lot of players, a lot of different brands and a lot of competition. But in tissue Vinda is very strong as the leading brand. So with the distribution capability that Vinda has to reach Chinese consumers, via more than 300,000 sales points, we see interesting ways to grow both TENA and Tork as well as the other brands.
TENA is the world’s leading incontinence brand, and for SCA incontinence is our most important category, so from that perspective Asia is a must for us. TENA needs to grow very fast, and we also have the Dr. P brand that we bought. So we cover the market with a dual brand strategy: Dr. P is targeted at the economy segment while TENA is the premium brand. It’s the same in baby diapers where we have the Sealer brand in the economy segment and then Libero as premium.
So to answer your question, both growth and profitability are extremely important. We know we have to invest in brands today to get the brand recognition, growth and long-term profitability for the future.
What other brands are you developing?
ANOTHER NICE SUCCESS STORY FOR US IS THE TEMPO TISSUE BRAND. Tempo is the strongest premium tissue brand in Hong Kong, with a 70% market share in hankies. We have recently introduced a new Tempo box facial product in Hong Kong where we are at 25 to 30% share. And we have launched Tempo toilet paper where we have 6 to 8%. We also see spillover to southern China where Tempo is extremely strong as well. So it’s a great story.
How do you target which countries to focus your resources on?
GOOD QUESTION! WHEN YOU FIRST COME TO ASIA YOU LOOK AROUND AND SAY “LOOK AT ALL THESE OPPORTUNITIES”. But of course you can’t be everywhere, and we want to be number 1 or number 2 in all categories. Outside of Greater China (China, Taiwan and Hong Kong), our top priorities are a handful of countries in South East Asia such as Malaysia, Thailand, and Singapore. There we are working hard to get deep into the market with all of our categories. And then you have to be realistic and say for certain countries we are not interested in investing in local production, and instead will focus on developing a strong position via exports.
How do you see e-commerce developing in China?
E-COMMERCE IS THE FASTEST-GROWING CHANNEL FOR US, presently about 10% and rising fast. Consumers here love to shop online, it’s so easy and you can get deliveries within hours. More and more Chinese consumers are going online for shopping, as otherwise it takes such an investment in time with traffic and transport.
Taobao, China’s online shopping website, is the size of Amazon and eBay combined, and owns 85% of the online sales in China.That’s the way we started with our Libero baby brand here; we just introduced it online. We did the same in Korea. Consumers like the Swedish story, caring for nature and the high quality of our products. So e-commerce has worked well for us and in the bigger picture, I think we have just seen the beginning of the online revolution.
What about sustainability and environment with all the concern in China about air pollution, contaminated water and food scandals?
SUSTAINABILITY IS IN THE DNA OF SCA. Our employee surveys show that one of the characteristics that they are most proud about regarding SCA are the company’s sustainability activities.
On environmental questions, here in China we follow the SCA way of working and thinking exactly as in any country around the world. The bad environment in China has got a lot of attention in recent years, which gives us an advantage because we have such a strong and credible environmental story to tell. We can’t get a price premium for a good sustainability profile, but we can get a market preference. This is good for us and good for the environment.
Regarding pollution and the tissue business we see that the government is being very tough on many of the small tissue players that are running highly polluting operations. So better environmental regulation, as well as enforcement of those regulations, has closed down a lot of marginal Chinese tissue capacity.
How else are you developing in China?
WE HAVE AN EXCITING HOME NURSING PILOT PROJECT WHERE WE HAVE ENTERED INTO THE SERVICE SECTOR FOR ELDERLY CARE. Together with government support here in Shanghai, we have assembled teams of nurses that each day visit the people in the neighborhood who are in need of care. Activities can include health and hygiene issues such as bandage changing, for example, or a bit of gymnastics and exercise for the elderly. The key advantages that our home nursing offers, as opposed to a domestic helper, is that our nurses are professionally trained and certified, and features a unique patient-centered care approach.
We are also running a nursing home together with the government, where we are responsible for the care.
What’s been the motivation for that?
CHINA HAS A HUGE CHALLENGE WITH AN AGING DEMOGRAPHIC AND ELDERLY CARE. On one hand the elderly population is rapidly growing, and on the other hand the “one-child policy” means there are very few people to care for the them. So these are new businesses for us that we don’t offer in any other parts of the world, and we believe we can find a good business model that also complements and support our existing hygiene business.
It’s all part of a much larger need in China to create a social welfare system that people can truly rely on. This also impacts the entire Chinese economy because people are very reluctant to spend their savings when they don’t feel there is a proper social welfare system to take care of them in their later years. It’s still a pilot that we are testing that fits in very well with our incontinence product lines, the caring and ethical profile of both SCA and Sweden, and the needs in China.
It all hangs together.