CASE: Knack Packaging Pvt. Ltd.

Keywords: Packaging Bags, HDPE/PP Woven Fabric, Global Market Entry Strategies, EPCG / AA / DFIA /MDA
Schemes of India’s FTP, GSP, Comparative Advantage, Product Diversification, Global Orientation .

Introduction

Knack Packaging Pvt. Ltd. (KPPL), Ahmedabad, Gujarat (India) a family owned
business was established in 1993. It was one of the eminent manufacturers, suppliers, and
exporters of HDPE/PP Woven Sacks, Fabrics & Multicolor Printed BOPP Laminated PP Woven
Sacks / Bags. It had annual turnover of about Rs. 2500 millions having about 720 employees,
spread in an area of 7,00,000 sq. feet. It was a reputed name in the industry as a reliable supplier
of quality packaging bags and woven fabrics in India and abroad. In a face of stiff cut throat
competition where profit margins were frequently erratic it had to explore suitable options in line
with the global orientation for its sustainable growth.

KPPL’s Vision

From the very beginning the company’s vision had been to attain utmost clients’
satisfaction by timely delivering quality products of its entire product range consisting of
HDPE/PP Woven Fabrics, HDPE/PP Woven Sacks / Bags & Multicolor Printed, Laminated PP
Woven Sacks / Bags, etc.

Evolution and Growth company

The founder of this company, Mr. Ambalal K. Patel was born in 1942 in a small house of
a farmer in the Delwada village of Mehsana district of Gujarat State of India. His father, Mr.
Keshavlal was a poor farmer. From his childhood he was very intelligent student and had strong
desire for the studies. He completed his matriculate in Delwada along with helping his father in
farming. Inspite of his father’s opposition, he came to Ahmedabad for further studies. At that
time was not having any kind of financial support from his father for the studies. He therefore,
managed his studies by taking tuitions. In the midways of his studies his father expired and now
he had to shoulder all the responsibilities of his family members namely three younger brothers
and two sisters. Having all these responsibilities, he managed his studies from the St. Xavier’s
and did his B.Ed. from Prakash College for which he had to borrow money from his relatives and
friends. After completing his studies, he joined as Professor at Prakash B.Ed. College and also
helped his younger brothers for education and settling down in Ahmedabad. However, he was
always thinking for a business.
 Finance was a major problem to start a business, however, he borrowed some money
from this relatives and friends and in 1981, he started company ARBUDA QUARRY for mining
business at Sabarkantha.in Gujarat State of India. This small company progressed well with the
help and support of his younger brother, Mr. Tulsibhai. By this time, he left his job and totally
concentrated in business with full support from his brothers and went for the diversification in
the areas of construction, and mining Company specialized in providing customized solutions to
its clientele through its dedicated team with fullest satisfaction of their customers by using state-
of-the-art production facilities for varied range of products like Black Trap Grit, Kapchi and
Metals. The company had more than 100 reputed clients like Construction Companies, Road
Contractors, Railway Contractors and also many traders for their requirement.

In its efforts of diversification, Maruti Construction company having its headquarters at

Ahmedabad, was established in 1999 to provide general construction, construction management,
and design build services to leading companies in Gujarat. This unit provided a variety of
services to meets its clients’ need and implemented projects such as building a new facility; or
making renovations, modifications, additions to an existing structure; or rebuilt the damaged
properties; or provided emergency water extraction services, etc. This construction company had
now built a solid reputation with working in team approach to pre-construction and construction
services. The team of the company worked with clientele, employed the right architect and
engineers to assure creative and cost-effective solutions. It endeavored to meet and exceeded
expectations of its clientele - every time, on time which was evident from the repeat customers
and industry awards recognizing their commitment to quality projects, creative, fast track
solutions, and functional designs. 

Although the group companies were progressing well and doing good business, the one
more important journey of this business group began in 1993 when Ambalal Patel started another
group company named as Knack Plast a plastic woven sacks and bags manufacturing unit at
Mahesana in Gujarat. Initially, the emphasis was mainly on production of PP/HDPE woven
sacks having manufacturing facility for tarpaulins & tents etc. later it product ranged covered a
wide variety of packaging bags and materials supplied for almost every use such aa Grain &
Pulses Bags, Foods & Spices Bags, Animal Food Bags, Fertilizers & Chemical Bags, Cement &
Wall Finish Bags, Powder & Granule Bags, Mineral Bags, Detergent Bags, Mehndi Bags, Nuts
& Fruits Bags, Specialty Bag for Tea & Coffee, Charcoal Bags, Flour Bags, Milk Bags, Sugar
Bags and Soil Mix Bags, Outer Promotional Shopping Bags (Exhibit 1).

The KPPL grew to its new heights with strong and efficient support by team of experts
having years of experience and knowledge of advanced techniques to handle different processes
of manufacturing and designing so as to ensure the delivery of high-quality products. Owing to
KPPL’s brilliant logistics network, they were capable of delivering bulk orders of the various
types of bags and woven fabric materials within the stipulated time to its clientele in India and
abroad.
 This has been possible with the able and efficient guidance of their Mentor Mr. Alpesh
Patel and Production Head Mr. Rashmin Patel who had years of experience in this field. Mr
Alpesh Patel, did his MBA from Nirma University with the specialization in International
Business and had been instrumental to take the company in such a prestigious position. He
recognized the importance of risk spread and was committed to overseas business along with the
domestic markets.

The industry has many players in small and medium scale sector, there were no entry
barriers, the initial capital investment for new players to this industry was relatively low and
unlike the jute industry which was mainly concentrated in eastern part of the country, this
industry was spread in every part of the country where each and every player in every nook and
corner of the country could approach their target segment leading to a cut throat competition.
Price undercutting has thus become more frequent because of this unhealthy competition.
Therefore, inspite of growth in sales volumes, the profit margins had been rather erratic. This
was affecting the KPPL business adversely and called for some suitable actions for its
sustainable growth.

KPPL’s Infrastructure

The KPPL had well developed infrastructure and facilities comprised of sophisticated
process machinery as well as latest process technology that was being used effectively for
achieving the desired results. Some of the Machines / Equipment were also imported under the
export promotion capital scheme (EPCG) under the foreign trade policy of India. Production
operations were very well supported by services of experienced team of experts enabling the
company to provide its customers a wide range of choice in the HDPE/PP Woven Fabrics,
HDPE/PP Woven Sacks / Bags & Multicolor Printed and Laminated PP Woven Sacks / Bags.
Details of equipment, machinery installed in its factory and operations given in Exhibit 2.

For the benefits of workers and their welfare KPPL has also established a residential
quarter for about 300 workers in the factory premises itself with food facility from the canteen.
These residential facilities provide accommodations to bachelors who prefer to stay alone.

Raw Materials

Most of the raw material is locally available in plenty due to four major polymer
manufacturers like RIL, IPCL, HALDIA and GAIL, however, to meet the export requirement
company had also imported on case to case basis following raw materials which had become
essential to produce the product of very good quality for specified customer and to have a
competitive pricing for the overseas markets. For import of raw materials for export production,
company had also avail the benefits available under the schemes of advance authorization (AA)
and duty free import authorization (DFIA) as provided under India’s foreign trade policy.

 PP Granules
 HDPE Granules
 LDPE Granules
 LLDPE Granules
 BOPP Printing Grade Film with Inside Corona Treatment

Products’ applications or uses

The products manufactured by KPPL have the applications / uses in diverse industrial
applications as given below: 

 Fertilizer industry
 Cement industry
 Chemical industry
 Sugar Industry
 Food Grain, Flour and Maize 
 Agro Products
 Wall Finish
 Minerals industry
 Seeds, Spices
 Salt industries
 Animal Food
 Milk powder
 Detergents

As per the recent survey conducted by TIFAC, almost all manufacturers of fertilizers and
cement contacted during the survey had indicated preference for HDPE/PP Woven sacks over
jute bags because - They were cheaper in cost, they offered better packaging properties i.e. better
appeal, higher resistance towards moisture and insects, lower material seepage and pilferage,
lower cost of transportation, etc.

 
Product Quality
KPPL maintained close control over every process of operations and in-process logistics
and thus practiced virtually every packaging service operated in-house was as per prescribed
standard and specifications. This was a significant point of difference between KPPL and its
competitors and a valuable advantage for its clients. Implicit in their culture was a strict
adherence to GMP (Good Manufacturing Practice) throughout their operation. Therefore, its
clients were confident that their packaging products were manufactured under stringent quality
and procedural guidelines. Every staff member had received supervised training in best practice
processes. The company’s products were ISI approved and offered complete protection from
tough weather conditions. The company had also obtained ISO 9001, a symbol of Best Quality
Products.

The company was also a member of prestigious regulatory and voluntary institutions /
organizations like: PLEXCONCIL (Plastics and Linoleums Export Promotion Council),
AIFTMA (All India Flat Tape Manufacturers Association), CPMA (Chemical and Plastics
Manufacturers Association), DGS&D (Director General of Supplies & Disposal), DGQA
(Director General Quality Assurance), etc. which added to its reputation as a reliable supplier of
its products in national and international markets.

In 2006 company introduced a new Product range, Multicolor Printed BOPP laminated
PP woven bags and Knack Group had now become a global player. With its dedicated
production, the company had earned a name in the domestic as well as international arena and
now it catered to a plethora of clients in countries like U.S.A., U.K. U.A.E. Spain, Chile, South
Africa, Zimbabwe, Sudan, Nigeria, etc. and was exporting to over 45 countries. KPPL has also
been availing of the benefits under MDA Scheme and FOCUS country scheme and interest
subvention schemes as offered by the Ministry of Commerce, Govt. of India. KPPL had also
been participating in various international trade fairs regularly. It was using the flags of these
countries in its website to reveal the names of its export markets. More than 34% of company’s
products were being exported to these countries. For the export production KPPL so far had not
set-up any additional capacity and could manage within the existing manufacturing capacities.

India’s Exports of these products

Most of the items manufactured by the KPPL fall under the broader category of SACKS
AND BAGS OF POLYETHYLENE AND POLYPROPYLENE were grouped under the Indian
Trade Classification (Harmonized System) code no. 39232100. Export opportunities of these
products existed almost in every parts of the world. As per the export data 2014-15, Indian
industry had been exporting these products to more than 140 countries of the world over. Items
being labour intensive, the industry had an in-built comparative cost advantage in production and
exports. As per rankings, the first ten major export markets were USA, UK, the Netherlands,
Germany, France, Ireland, UAE, Korea Rep., and Belgium. These countries belonged to the
group of capital abundance countries and therefore, generally imported the labor intensive
products from the developing countries which had comparative cost advantage in production and
export of labor intensive products.
 In the near future KPPL was expecting more countries coming under its ever widening
umbrella through its increasing network system. However, countries in Europe, appeared to be
very promising markets. According to analysts at Ceresana (an international research and
consultancy company in Germany), in Europe bags and sacks could be found in a wide array of
applications and in the most diverse forms. Depending on the application, they differed in
material, size and their mechanical properties. Forecasted sales volume of bags and sacks in
Europe was the tune of 9.12 million tonnes (approx.) for year 2020. This study covered the
European market for bags and sacks manufactured from polyethylene films, other plastic films,
woven plastics, and paper. Products made from cotton, jute etc. were not included. Polyethylene
was found most common material for the production of bags and sacks. However, individual
materials could account for highly different market shares in various applications. This study
splits the market into the segments like carrier bags, garbage bags and sacks, heavy duty and
industry sacks, food packaging (including beverages) and the group of other applications.

Substitution effects in the segment of Heavy Duty and Industry Sacks

As reported in Ceresana’s, study, yet another important opportunity in Europe for this
industry rested with the substitution of heavy duty and industry sacks as this segment had gained
importance during the past years, as a consequence of an increased exchange of goods between
countries and individual companies. Some segments, however, had substituted conventional
paper sacks for sacks made from plastics. In areas such as animal feed or construction materials,
e.g. cement, paper sacks continued to play an important role, but given the good properties of
sacks made from polyethylene, they had the potential to gain additional market shares in these
segments in the future. Also, development dynamics of individual types of sacks in a country
was partly dependent on the amount of packaged goods that were produced (e.g. cement, sand,
animal feed, dry fertilizers, seeds). Yet, conventional heavy duty sacks made from plastic films
were faced with increasing competition from “Flexible Intermediate Bulk Containers” (FIBC), in
the segment bulk goods in particular. These FIBC were made from stable woven plastics, often
polypropylene, and could reach a capacity of up to 1,500 liters. They were often used as
transport packaging for construction materials, fertilizers, grain or other bulk goods. Ceresana
expected the European market for heavy duty and industry sacks made from plastic to grow by
1.8% p.a. during the next eight years.

Strategical Options

To be successful amidst stiff competition, Mr Patel had underscored following important

factors for company’s sustainable growth
  Commitment: To be in the same business for long run - which in turn required
strict adherence for timely delivery as per customer convenience without
comprising the quality at any level.
 Co-ordination and co-operation: Willingness to see the company as a single
supply source for its customer for their all needs of packaging – which in turn
required maintain good customer relations and product development in
cooperation with client’s various requirements. In this regards, an excellent
logistics network was very important for timely delivery of products to the
customers.
 Company had also known that for its survival and sustainable growth, it had to go
global where tremendous opportunities existed - as the product being labor
intensive most of the developed and advance economies could be their potential
good customers. Exporting was also necessary to get the economies of scale in
domestic market as is it was helping them to get higher level of capacity
utilizations of the plant and machinery.

Although, company had decided to export primarily due to very stiff and dirty
competition in domestic market, soon it found that the international markets also had tuff
competition. The biggest threat to Indian industry for export, as also import into in India rested
with the China. The China being the largest polymer consumer (it consumed about 36% of
world’s polymer production), offered its’ products in the international markets at very cheap
rates.

Thus, Mr. Patel’s strategies of product diversification with global orientation, business
commitments, and its reputation enabled the KPPL to meet the needs and requirements of its
clients in a much better way in providing customized solutions as per their vivid requirements.
This had been possible by establishing the state-of-the-art technology, required infrastructure and
a steady export in international markets which accounted for more than 34% of its products. In
view of the above Mr Patel had been exploring following strategical options:

Its competitive prices, dedicated customers’ services i.e. clients’ satisfaction, its
reputation for quality and intend for steady growth in international markets should be the basis
KPPL expansion strategy. Amongst its options are the following:

 Capitalizing on its reputations for quality products KPPL could appoint agents in
international markets to increase the volumes of exports in the existing as well as
new markets. In this direction it may also consider establishing its own
representative offices with small warehousing facilities in strategic locations.
  To be more competitive in the domestically, in addition to keeping its cost low by
economies of scale, it could consider the value added logistics services which
may give the KPPL an edge over its competitors.

 While continuing exports from India, it may explore exporting with overseas
production for which it had to find strategic locations and partners which may
provide the competitive advantage to its products. For illustration the same
products when exported to Europe from LDCs of African / Asian regions, attract
nil rate of duty in European Union under the Generalized System of Preferences
(GSP) or under any other preferential treatment treaty (Exhibit 3). Besides,
location may work as per the hub spoke model to serve many more markets in the
regional framework.

Each strategic option has its own advantages and limitations. However, for obtaining
sustainable profits and overall growth of the company, some decision had to be taken.
---------------

Questions (Optional – Instructor may like to include or exclude in the case before case
distribution in the class)

 Attempt SWOT analysis of Knack Packaging Pvt. Ltd in view of its future global
expansion perspective.
 Describe the critical factors that have contributed to the success of Knack Packaging
 Do you think Knack Packaging should go for in-depth market research before accepting
any of the strategic option for its future expansion?
 If you were in-charge international operations of Knack Packaging, which international
marketing entry strategy would you recommend? Give reasons
 In which way the facts given in the case are relevant to the theories of international trade?

Exercises
 Visit the websites given under the references to the case to understand the product and
industry knowledge of HDDP/PP bags industry

 To understand of Theory of Comparative Advantage visit

http://internationalecon.com/Trade/Tch40/T40-0.php

 Visit the following websites to understand the global marketing strategies

http://www.fao.org/docrep/W5973E/w5973e0b.htm
http://www.tradestart.ca/market-entry-strategies
http://ondernemerschap.panteia.nl/pdf-ez/h200712.pdf
http://online.sfsu.edu/castaldi/bie/abr.htm
  Identify the ITC (HS) classification of any of the labor intensive product, visit the
following website of Ministry of Commerce, Govt. of India, and select the major export
market for this identified product
http://commerce.nic.in/eidb/ecomcnt.asp

 To understand the GSP Scheme of EU visit

http://ec.europa.eu/trade/policy/countries-and-regions/development/generalised-scheme-
of-preferences/

References
Sources: websites / links
 For company and product information

Knack Packaging Pvt. Ltd.

http://www.exportersindia.com/knackpackaging/
http://www.exportersindia.com/knackpackaging/products.htm
http://www.knackpackaging.in/infrastructure.htm
Accessed on April, 17, 2016

Knack Polymer Pvt. Ltd.

http://www.wovenbag.in/profile.html
https://www.youtube.com/watch?v=USud72-OfTw
Accessed on April 18, 2016

 For India’s Export Data

India’s Export of Sacks and Bags of Polyethylene: Code ITC (HS) 39232100
http://commerce.nic.in/eidb/ecomcnt.asp
Accessed on April 20, 2016

 For market study about bags and sacks information on opportunities, etc.
Ceresana:
http://www.packagingfilms.info/ceresana-new-market-study-about-bags-and-sacks/
Accessed on April 20, 2016
Technology Information, Forecasting and Assessment Council (TIFAC), Department of Science
and Technology, Government of India
http://www.tifac.org.in/index.php?
option=com_content&view=article&id=363&Itemid=205&limitstart=2
Accessed on April 21, 2016
 For Project Reports / Profiles for setting up similar manufacturing units, if needed
http://www.dcmsme.gov.in/reports/hdpeppwovensacks2010ska.pdf
Accessed on April 21, 2016
Exhibit -1: BOPP / HDPP Woven Packaging Bags

Cement Bags, Wall Finish Packaging Bags

 Exhibit 2: Equipment, Machinery and Operational Procedure

Circular / Flat Woven Looms

Woven Tape Line (Extruders)

Roto Gravures Reverse Printing Machine Coating / Laminating Plants

Back Seam Plant Gusseting Machine – Regular and Center

Cutting Machine Stitching Machine

Flexo Graphic Printing Auto converting line
Gusseting - Cutting - Stitching - Easy Open

Bales Press Machines and in-house lamination setup

.
Following are the some of the operational / production procedures involved in the manufacturing
process which were being carried out with the use of equipment as cited above

 PP resins are extruded into PP fibers that help in controlling the tensile strength of the
Fabrics
 Extruded PP fibers are woven into body fabrics through use of circular looms
 The printing process is done through engraved cylinders and Rotogravures reverse
printing technology on BOPP films, up to 8 colors can be printed on the Single Bag
 The Printed BOPP film is laminated on the PP woven Fabrics in roll forms
 Coating thickness calculated and delivered on the fabrics
 Fabrics is cut to length as per the size of the bags defined by the clients
 Stitching of bags done with aid of machines by professional machine operators
 Inspection done of each bag
 Bags bound into bundles and sent for dispatch
 Production units also has an imported online machine for EZ (Easy) Opening & Handle
Inserting, which is very essential for maintaining quality of its products
 Exhibit 3: List of Beneficiaries under the Generalized System of
Preferences (GSP)
EBA (49 partners): Forty-nine Least Developed Countries continue to receive
Everything But Arms (EBA) treatment, i.e. duty-free quota-free access for all their
products except arms and ammunition.

Africa: Asia:

1. Angola 35.Afghanistan
2. Benin 36.Bangladesh
3. Burkina Faso 37.Bhutan
4. Burundi 38.Cambodia
5. Central African Republic 39.Lao PDR
6. Chad 40.Myanmar/Burma
7. Comoros 41.Nepal
8. Congo, Dem. Rep. of the 42.Timor-Leste
9. Djibouti 43.Yemen
10.Equatorial Guinea Australia and Pacific:
11.Eritrea 44.Kiribati
12.Ethiopia 45.Samoa
13.Gambia 46.Solomon Islands
14.Guinea 47.Tuvalu
15.Guinea-Bissau 48.Vanuatu
16.Lesotho Caribbean:
17.Liberia 49.Haiti
18.Madagascar
19.Malawi
20.Mali
21.Mauritania
22.Mozambique
23.Niger
24.Rwanda
25.Sao Tome and Principe
26.Senegal
27.Sierra Leone
28.Somalia
29.South Sudan
30.Sudan
31.Tanzania
32.Togo
33.Uganda
34.Zambia
Source: http://ec.europa.eu/trade/policy/countries-and-regions/development/generalised-scheme-of-
preferences/