Hung Hing Adds US$15 Million in Vietnam: What Export Printing Giants’ Two-Foot Strategy Signals for Packaging

Word has it that Hung Hing Printing Group is raising its bet on Vietnam, yet the move barely made a ripple across mainland printing and packaging circles. Some read it as desensitization after years of the 'boiling frog' effect; others assume the export printing heavyweight—whose output value is around HK$3 billion—no longer cares about mainland opinion.

Still, committing fresh capital to Vietnam while the pandemic is far from over makes this a highly topical development. As an industry observer, I want to examine what it says about the giants' strategic chessboard and the livelihood of printing workers.

Hung Hing Places Its Next Piece in Vietnam

For some time, mainland narratives about Vietnam have centered on the following picture:

Reports said 70,000 businesses had collapsed, the largest port had suspended import and export container handling, and Toyota, Nike, Samsung and Foxconn were facing production difficulties because of lockdowns...

Amid this information environment, many mainland industry players assumed export manufacturing would have little to do with Vietnam and India this year and that orders would flow back to China, causing them to overlook the standout first-half foreign trade figures from Vietnam and India.

Yet the reality is that after only a little more than a year of testing the Vietnamese market, Hung Hing Printing chose to expand with new capital despite the virus, defying those whose perception and judgment had split apart.

Hung Hing's official statement is as follows:

On August 5, 2021, Hung Hing Printing Group (00450) announced a US$15 million capital injection into its Vietnamese subsidiary to expand production scale. The increase took effect after approval by the People's Committee of Ha Nam Province, Vietnam. The announcement said demand for high-quality printed materials is growing and diversifying; to strengthen synergies, sharpen competitiveness and promote sustainable development, the company decided to increase capital to accelerate expansion, develop more product categories and advance its Vietnam business diversification strategy.

The Export Printing Boom Recedes

Three points can be distilled from the announcement:

First, Vietnam's market demand is expanding. Second, Vietnam already has the capability to produce high-end printed materials. Third, Hung Hing Vietnam will pursue sustainable and diversified development.

Financial reports show Hung Hing Printing Group's turnover in 2018, 2019 and 2020 was HK$3.277 billion, HK$2.993 billion and HK$2.554 billion respectively, a clear downward trend.

Hung Hing's annual report noted that higher provisions for employee welfare expenses and a sharp rise in paper prices reduced 2018 gross profit by about HK$100 million. Volatile exchange rates also generated a fair value loss of about HK$46 million.

In recent years, Hung Hing's mainland operations have felt like a hero fallen on hard times. Only by selling two land and plant assets in Shenzhen and Wuxi for a profit of RMB1.3 billion did it manage to preserve its dignity.

The other two giants that have joined Hung Hing in serving global print orders—Leo Paper and Star—face broadly similar conditions.

Leo Paper operates the world's largest single printing plant in Heshan, employs about 10,000 people, and recorded turnover of HK$3.19 billion, HK$3.59 billion and HK$3.06 billion in 2018, 2019 and 2020 respectively.

Star Printing, once viewed with admiration, appears to have lost its shine; its financial straits are lamentable, yet little can be done.

The 'Go Southeast' Momentum in Printing Continues

Older-generation entrepreneurs truly miss the pre-2008 days when export manufacturing was flourishing, almost like flowers on brocade and fire fed with oil.

That nostalgia leads them to tolerate labor costs rising several times over, a gap in industrial workers from one generation to the next, and wild swings in raw material prices—while still investing heavily in non-standard equipment R&D and intelligent upgrades.

Over the past decade, Leo Paper, Hung Hing and Star all spent large sums building smart equipment factories, and encouraging news emerged from time to time. But the results have been limited: a decade of intelligentization has yet to convert into a steady stream of overseas orders and hard cash, while labor shortages, the China-US trade war and pandemic uncertainty have arrived one after another.

After weighing their options, the three export printing giants can only keep a foot in both camps.

Multiple sources indicate the three giants hope to use mainland factories as their cornerstone while extending the other foot into Southeast Asia to cushion the impact of China-US trade friction.

Leo Paper, for example, draws 70% to 80% of its orders from the United States. To avoid additional tariffs from the China-US trade war, Leo Paper Products (Vietnam) Co., Ltd. held the founding ceremony for its paper products factory on July 19, 2019, at Site 02 of Amber High-Tech Industrial Park.

Labor shortages, geopolitical risks and the ongoing shock of COVID-19 have left the three giants anxious, while soaring raw materials have thrown the whole manufacturing sector into disarray.

Making money is becoming harder and uncertainty is growing. Even players as strong as Hung Hing and Leo Paper are rattled.

Merchants have always valued profit over parting. That is why we see Hung Hing's bold advance, Leo Paper's order transfer, and the half-hearted moves of Star, Chun See and GFT. Amid the chaos, the original author predicts that jobs in the mainland printing industry may be shattered across the floor.

Source: China Packaging Network (pack.cn); original link: http://news.pack.cn/show-378009.html