Great equipment, great ideas and great customers, but you also need good people to maintain growth
July 2008
By Annie Zhu, Features Editor, PPI magazine, RISI
I Interviewed Thomas E. Gestrich, president, International Paper (IP) Asia and senior vice president, IP at RISI’s Asian Pulp and Paper Outlook Conference held in Shanghai during June 2-4.
Thomas E. Gestrich is responsible for the company’s business in the Asian region. He joined IP in 1990 and has served in general manager positions with Nicolet, Thilmany, vice president and general manager of Bleached Board and vice president and general manager of the Beverage Packaging Business and senior vice president, Consumer Packaging. He began his career in 1972 with Procter & Gamble in paper manufacturing, where he held various manufacturing positions.
PPI: You have been with IP for around 19 years now and also have had three years in Asia as senior vice president. How is it going so far in the Asian market and do you notice many differences when compared with North America?
Gestrich : We really look at our business as a global market. So when describing the western market versus Asia, it’s more consumer based, a lot more paper moves around in the financial world, and there’s more postal marketing, with a lot more promotional activity going on. Also, the way the West goes to market is quite different primarily going direct to businesses, as well as through direct to customers and through our own distribution system. Here in Asia, it’s a combination of going direct to large business and we also use distributors who help to move products. The consumer side of China is growing very quickly and the distribution chain in the market is evolving very fast, so we modify our approach as the market shifts.
PPI: What’s your biggest achievement in the Asian market so far and what are the biggest challenges you are facing?
I think the biggest achievement is the people we have employed here. You can have great equipment, great ideas and great customers but you have to recruit, develop and retain people to help grow the business. So 30% of my time is spent on people -- who we bring in, how we develop them, and how we move them around. We recognize that people in China have lots of opportunities. We try to create opportunities that we think are unique and have potential for growth. Because we are an international company, we have broader career opportunities to offer than some others. When you focus on helping people to get engaged, and ensure that their point of views are heard, they make a large difference to the business. That may not always be the answer, but you can’t grow your business without having solid people that you can delegate to. Another achievement we are proud of is that we have tripled the size of the business. In two and a half years we have gone from five converting plants to 15 this year, and the paper operation is up to 850,000 tonnes.
PPI: What’s IP’s strategy in Asia?
Globally we organize our strategy according to what our customers are doing. If you look at our footprints over the last two years, you will see that we have made a major acquisition in Brazil, we are the largest uncoated free sheet producer in Brazil today and we have made major movements in Russia. We have expanded some of our operations in Eastern Europe, and are making major changes and acquisitions in North America.
We believe that some of the compelling cost issues going on in China will make exports more and more difficult over time, we are also focused on how to be competitive in southeast Asia and India, using very similar strategies. Each country has their tariffs, unique legislation and requirements.
PPI: IP has set up two joint ventures with Sun Paper for cartonboard production in China. How is the cooperation going so far?
Any joint venture has hurdles and it’s a fact that we all have different cultures. In the process, we have put in a lot of effort to select the right partner. It is often the case that our partners bring something we don’t already have, and it also works the other way, where we have expertise or knowhow that they don’t have. When this works well, it’s like making two plus two equal eight, the two companies together can be much better than either of us individually. The joint venture is going very well, but that’s not to say we haven’t had a few bumps along the way, but we both are used to each other’s style, trust each other, understand how we think and act. Both of us are demanding of each other at the same time and there is tremendous respect on both sides.
PPI: Is it safe to say IP is leaning more towards joint ventures in Asia?
We have different models around the world. In certain countries, we don’t know enough about the government policies and cultures and we are quite possibly clumsy, the key is that we tailor joint ventures in countries where we see the opportunity to accelerate earnings and growth and create value for both companies and their shareholders.
PPI: How would you describe your management style?
I think I am a fairly steady and predictable person. I am a strong believer in developing people and particularly, future leaders within IP. To me, it’s a legacy, very important. I’m very driven and competitive, and I play to win. I believe that is important because it’s a very competitive world. I think I am a fairly good listener particularly in drawing out and understanding others’ points of view. This doesn’t mean I don’t have my own point of view, but particularly when we come to Asia, where there are so many different cultures. We have people who are highly skilled and capable of what they are doing; it’s important to listen and try to understand why an approach works, how it differs from my experience and what the pluses and minuses are... It’s safe to say that we are learning a lot by being actively engaged in China and Asia.
PPI: China’s paper and pulp industry is booming amid challenges, including wood and fiber shortages, higher fuel and labor cost as well as environmental concerns. What’s your response to the situation?
The first thing is you must be pretty adaptable, you have to be much more dynamic, you have to observe what your competitors are doing, and what your customers are doing, and be prepared to change and react quickly. Being a low cost producer is obviously a big part of the game, and being organized around your customers is important. If your customers are moving somewhere else, then you have to prepare to move. It’s not a simple answer, as a converting mill is quite different from a paper mill. Let me give you an illustration, if you are a 5 km runner, you are may be the best in Shanghai, and how about China, and now how about Asia, now how about the West, and then what about the world? So understanding how good you are at all levels is extremely important and we try and build that understanding into the business, whether that be lowest cost production, highest efficiency, best quality and service, lowest waste. We constantly benchmark to see who is the best, what the gaps are and why and how to improve. Regardless of where we are.
PPI: Could you please enlarge upon IP’s strategy in Indonesia?
In IP, we look at global as well as regional strategies. We’ve been International Paper company for 110 years, and a large part of our business focus is on forestry. Several years ago, we began a transformation process and part of that was selling quite a lot of our forests, as well as non strategic businesses.
The purpose was to generate cash that would be used to pay down debt, return value to shareholders and make broader international investments where high growth was occurring. Asia has been and will continue to be one of those areas. Opportunities like forestry depend on government regulations, climates, local tribes, so lots of things you have to put together. To start a project may take us 12 to 18 months before we really feel comfortable. Once we agree to a deal, then we have to plant trees and so on, so it’s seven to eight years down the road before we have our first year’s harvest. We are not interested in mixed tropical hardwoods; we prefer land that is cleared, and we can grow trees and practice sustainable forestry. We believe we can add lots of value to whatever we decide to do.
PPI: What are the long term prospects for IP in Asia?
Seventy percent of economic growth in the world comes from Asia and 40% of that comes from China in paper board and pulp. So that is where the market is growing. We need to position ourselves to be part of the growth. We try to position ourselves in the right place at the right time. We are interested in making investments in Asia. You may not see projects for 2-3 years, but we are constantly looking into the right opportunities. And we will go after them when the timing is right.
PPI: What new areas and scope do you think paper and board has for the long term future?
I think the whole concept of fiber and how to use different fibers, to produce products is very important. Energy is going to be a huge issue in the future. So we have to figure out how to make products with less fiber in them at the same time as using less energy.
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