Central & Eastern Europe label markets: the Central and Eastern European label industry is young, but it should not be underestimated.

In the late 1980s and early '90s, the world saw the collapse of communism in Eastern and Central Europe and the dissolution of the Soviet Union and Yugoslavia. Several years later, the privatized label industry in this region emerged.

And so, while North Americans and Western Europeans began to tackle complex printing technologies, people like Vladimir Kurciev, Sterin Boris and Drabyk Volodymyr began a complex job of a different sort: launching the label industry in their own countries.

In 1993, Vladimir Kurciev founded label converting company Moniko in Skopje, Macedonia. He started out printing simple labels using flexography and says he was the first to bring the labeling industry to his country.

In Belarus, "I was one of the people who in 1995 first brought flexo technology and the first label printing machine to Belarus," says Sterin Boris, who is now joint owner of three companies related to the labeling industry: Printstar, Flex-n-roll and Label Express. He works out of Minsk, Leshinskogo, Belarus.

And in Lviv, Ukraine, Drabyk Volodymyr, general director of Ekko, says his 11-year-old company was first in Ukraine to manufacture self-adhesive labels in reels. "At the first stages of our activity we started purchasing labels in Poland and Slovakia and sold these products in Ukraine. In 1995, we bought the first, machine from the USA."

Compared with developed nations, the label industry in Central and Eastern Europe is young and inexperienced. But it is growing quickly, and with this growth has come the desire for increased capabilities. While there are still hurdles to get over, experts predict that the label industry in this area is looking up. Way up.

Growth

Several studies have documented the growth of the label industry in this region of the world. This includes not only growth in sales for label printers in the region, but increased opportunity for world suppliers to the industry. Here's a sampling:

* In a study titled World Labels, published in November 2001, The Freedonia Group Inc. in Cleveland, OH, concluded that "the best gains are expected in the world's emerging economies, which already account for almost one-third of global label production." Specifically, the report stated that "Eastern Europe will also log double digit annual gains as greater self-sufficiency in label production is achieved."

* In regard to the Russian self adhesive roll label market, The Russian AWAreness report, published in 2001 by AWA Alexander Watson Associates, in Amsterdam, concluded that "Although the market in Western Europe is expanding at an annual rate of 5 to 6 percent, the Russian market in its developing stage is growing at +25 percent."

* A study named Packaging Machinery in Poland--February 2003, conducted by International Business Strategies in Gaithersburg, MD (www.internationalbusinessstrategies.com), concluded that "the packaging machinery market represents a very good opportunity for American producers. Although the import value from the US is not substantial, it has been growing considerably during the last three years. According to preliminary data for 2002, imports from the US rose by 1100 percent in 2002."

These studies offer glimpses into the dynamic growth and increased opportunities in this region. It is important to note, however, that the growth varies depending on the country. The growth is primarily dependent on the strength of the country's economy and the stability of its banking system.

Consequently, some regions are doing better than others. Klaus Bachstein, CEO of Gallus in St. Gallen, Switzerland, differentiates between countries expected to enter the European Union and the ex-USSR countries that are not yet expected to attain membership.

As for the nations that will be joining the European Union, Bachstein says, "It's quite easy to predict that these countries will follow EU regulations. That means they will be much more stable, and will create much more confidence in Western investors." In the ex-USSR, "there is more business risk in these countries, even though the fundamentals are without a doubt positive."

Certain niche markets are also growing faster than others, and this too varies according to the country. Ronaldas Vaitiekunas, marketing manager for PakMarkas in Vilnius, Lithuania, says the food market dominates his home country. Concerning other countries, "throughout all of Europe the situation is very different. Czech has a very strong car manufacturing industry and a strong market for industrial labeling. But Poland and Hungary are dominated by the food industry also. Poland also has a strong cosmetics industry," he says.

Others agree that food packaging is a growing market, especially in East Europe. "The growth is generated by home market growth in the packaging, food industry which is around 23 percent per year, and the fact that still about 80 percent is imported from the West and Central Europe," says Walter Eitner, export manager for Mark Andy AG in Allschwil, Switzerland.

While Eitner sees huge growth for the food industry in Eastern Europe, he points out that "Central Europe is loosing some of their orders now as the East has better quality machines to produce better labels."

A long way in a little time

The growth in most countries is impressive, but perhaps more newsworthy are the complex products produced in this region.

"It has taken the labeling industry--label stock manufacturers, press and ancillary equipment manufacturers, printers and packaging technologists--over 60 years to reach today's high levels of competence in developed markets (Western Europe and North America). It has taken the Russian labeling industry less than 10 years," states the Russian AWAreness report.

While the report follows only the Russian label industry, this trend proves true throughout much of Eastern and Central Europe. "The majority of label converters in Central Europe are new, modern companies, equipped with the latest technology," says Vaitiekunas.

"In many cases, the machinery and raw materials in East European countries are state-of-the-art, so technically at the same level, or even higher than in Western Europe," says Mika Sillanpaa, senior vice president, strategic development for Raflatac in Tampere, Finland.

Many of the converters interviewed for this story have moved far beyond their humble beginnings in a short amount of time. In fact, their capabilities rival that of their Western counterparts.

Introl SA, for instance, located in Tarnowo, Poland, has eight Gallus presses, three Arsomas and one Ilma. Owner Romuald Szperlinski says he has the ability to print letter-press, screen and flexo, can apply hot and cold foil, and also has the capability to create booklets.

In Ukraine, Volodymyr owns four presses, possessing flexo, screen and hot stamping capabilities. He says, "Beginning with the year 2000, we enhance our pace yearly and every year we buy the next machine." His company is also preparing to meet the ISO 9001 standard.

Flexible packaging and shrink sleeve technology is also gaining ground among Central and Eastern European converters. "We think flexible packaging will increase in the near and middle future," says Nicoleta Vasiliu, managing director of Royal Edimex in Bucharest, Romania.

In general, the range of capabilities continues to broaden. However, similar to the trends in industry growth, different countries are increasing capabilities at different rates. "Central and Eastern Europe are two different markets. Central is in some parts highly developed and they will/can compete with the West. The growth is in the quality label business and new label business such as in-mold labels, shrink sleeves, new fill applications, etc. Eastern Europe markets are very dynamic and they grow in all areas, but it is very difficult to define which way it will go," says Eitner.

The reasons behind the success

Despite the variations in growth and capabilities, the future of the industry is looking very promising. Although a number of factors drive this success, one of the larger drivers is the influx of large, multinational companies to the regional scene.

As the economy grows in this part of the world, large international manufacturers have moved in to capitalize on the increase in consumer spending or on the decrease in manufacturing costs. Either way, these companies need packages for their goods.

"They are producing locally, or at least filling locally, so they obviously would like to have packaging locally as well so that attracts some of the increases that we see in the Eastern part of Europe," says Bachstein.

Packaging for these large companies must meet certain quality standards. "West European market players such as Danone, Nestle, Procter & Gamble, Coca Cola, who have local production, will buy local if the quality is right. Central Europe can provide these labels already. Eastern Europe is going in this way," says Eitner.

There is a lot of business to be acquired for a printing company that can comply with the standards of the West. In fact, some converters rely completely on business from Western companies. "I print for companies that come from Western Europe to Hungary," says Csego Csepregi, owner and general manager of Bar Code Label in Szekesfehervar, Hungary. His company was started three years ago. "We based our label converting on the local customer--IBM Storage Products," he says.

Growing pains 

While the outlook for the label industry is positive, there are also some significant barriers to breach.

The largest obstacle is economic and political instability. The economy in various parts of the region can change dramatically from one year to the next. For instance, "Macedonia is a politically unstable country, and that considerably affects the whole industry," says Dejan Petrovski, owner/manager for DEKO Inc. in Skopje, Macedonia.

The instability carries a significant amount of risk. "To be an entrepreneur in this region is more difficult," says Angelo DiPietri, general manager, Eastern Europe and International South for Avery Dennison Roll Materials Europe, in Sorbara di Bomporto, Italy, in an interview with L&NW last year. "The banking system is weaker, and there is political instability."

Weak banking systems, among other problems, can lead to lack of financing. This has been a major problem for converters looking to invest in new equipment. "You have different financing and banking systems. In Russia, it's much more difficult for almost anybody to get proper financing compared to Western systems. For people like us, and all our colleagues, it is a challenge to see how our customers can get proper financing," says Bachstein.

Many converters are also concerned with the decreasing price of labels and therefore, shrinking profit margins.

"The price level in Romania is much, much lower than the price level in West European countries, and this slows down the quality increase rate," says Cezar Cuc, manager and owner of Eltronis SRL in Oradea, Romania.

This is a problem not only in Romania, but throughout many of the countries in this region.

Petrovski traces this problem in his country to unqualified raw material suppliers. "In Macedonia, there is one paper importer who is buying papers from stock ... That means no quality certificate, no guarantee and half price from the normal paper. They are also selling plastics in prices even cheaper than papers," says Petrovski.

"Label printers in Macedonia are using these materials and sell labels at half the price, compared with the past. The label end user doesn't mind about the quality or doesn't have enough time to check it. And this is a problem because we earn half of the money that we earned before."

The issue of attaining and maintaining quality also remains a barrier. While the equipment is often state-of-the-art, and global companies continue to push for high standards, many converters are new to the industry.

"In some cases the experience is not always there and therefore the quality variations can be rather big. With experience and time, this gap will disappear," says Sillanpaa of Raflatac.

The road ahead

Despite the challenges facing converters in this region, many remain hopeful about the success of the label industry. The capabilities are there, the market is there, and the momentum is growing.

"I would put it very simply: Don't underestimate them. If you think they are at a stage like we were after World War II, you are definitely wrong. There are some excellent people over there who want to drive the industry and who will come to leading positions, not only in Eastern Europe, but they might even take nice positions in being competitive in Western countries," says Bachstein.

A look inside DEKO's plant in Skopje, Macedonia, courtesy of owner Dejan Petrovski.