Edana Outlook, Monte Carlo: 8th-10th Oct. 2003

300+ delegates attended this second EDANA “Outlook” Hygiene Plus conference, almost twice as many as at the first, which was held in mid-September 2001. The 2001 format of few papers, many being peripheral to the main themes of the nonwoven industry, was repeated. It attracted a large audience of senior people who appeared well satisfied with the opportunities for increased networking in very pleasant surroundings.

Key Points

• The new environmentally-driven chemical safety regulations in the EU (REACH) will, if implemented, cost industry €20-30billion, cause 600,000 job losses and have a “de-industrializing” effect on the EU.
• Panel testing of tampons in Russia correlates well with similar testing in Austria despite the relative inexperience of the Russian panel and other cultural differences.
• According to a Euromonitor global hygiene survey, deodorant wipes are the fastest growing wipes category; Eastern Europe, where private label products are growing fastest, will grow sufficiently to offset the North American slowdown; training pants growth will benefit from reluctance to tackle potty training.
• Spiders make a range of high-tech multicomponent fibres from their single hole spinneret that man-made fibre companies can only aspire to – thanks to a 400 million year arms-race with flying insects.
• Twenty years of comparisons of reusables with disposables in the operating theatre fail to show a significant benefit for either.
• “Systems shape people, but people must act in and change the systems that shaped them” (Paul Hartmann’s CEO)
  

World Trends in the 21 st Century

Prof. Dr Claus Kernig opened the last Outlook conference with forecasts based on a demographic model of the world. This time, after updating the demographic arguments (See Outlook 2001 summary), his model had a technological bias.

• Globalisation is the key to the future but a multinational company with operations dispersed around the world is not necessarily global by Dr Kernig’s current definition.
• Real globalisation is new and unique and cannot be planned by extrapolating past globalisation trends.
• This is because the Internet is changing the way of doing business. A global company is now a global cooperative operating 24hours a day through low-cost outsourcing in different time-zones.
• With time zone overlap, the business day can be extended to an effective 36hours.
• The Internet is creating a “brain drain” without emigration. For example the talent of India can be harnessed for the good of the USA, thereby preventing India’s best people from alleviating the lot of their poorer compatriots.
• This is possible because the engine of technological growth is driven by the 2% of the workforce involved with R&D and Innovation, and it is technology that drives “progress” in the political sense.
• Given an R&D breakthrough, it takes 12 to 18 years of applied research before a mass market for the breakthough, which now usually involves high technology, can develop.
• In the wealthy countries, consumers of these high tech products learn about them and become better producers through feedback (people have a dual role as both consumer and producer).
• This “Western Growth Pattern” is no longer possible in the poorer countries because the well meaning West has introduced Welfare before Industrialisation. So Welfare now absorbs all their wealth. In the West, industrialisation came first, and the resulting wealth allowed the population to expand. (“The Economy determined demography”). In the poorer countries, welfare has allowed the population to grow without the industrial base to support it. (“Demography will now determine the economy.”)
• Wars and political distubances (such as communism) apart, technology can be shown to increase GNP on a smooth upward curve.
• Politicians and the opinion-forming commentators can only disturb this natural growth negatively. (they neither innovate nor create, nor can they predict future technological change)
• Politicians demonstrate either potent incompetence or impotent competence” and create prejudices against nuclear, GM, Nano, or Chemistry advances.
• In morality-regulated Agricultural societies, Institutions last longer than Individuals and Age=Wisdom.
• In legality-regulated Western (i.e. post-industrial societies) Individuals last longer than Institutions and Age=Incompetence.
• The period of transition from agricultural, through industrial to post-industrial societies is a critical period characterised by breakdown of the old order and risk of revolution and religious fundamentalism.
• China will be a risky place for investment for another 15 years.

World population Growth 1750-2025

US Aid for Europe?

Camille Sailer of the US Embassy in Brussels outlined the services and aid they could give to US companies wishing to set up in Europe. She described the Embassy’s commercial activities as the “best kept secret” of the US government.

• US-EU trade flow is, at $2trillion, the biggest in the world.
• 3.5 million people in the EU work for US companies and vice-versa.
• Current issues on which the EU and USA are collaborating are TRIPS (Trade related aspects of intellectual property), Frankenfoods (Biotech and GM crops: here the EU is 3 years late in implementation of acceptance), Pharmaceuticals (Here the US is growing at twice the rate of EU), and REACH (the safety of chemicals white paper – see later)

For an American company seeking to do business in Europe, the US Government can help with:

• Export financing through the Ex-Im bank. Goods or services must be >50% US made and their export should not effect the US economy adversely.
• Investments through OPIC, the Overseas Private Investment Corporation. OPIC charges for its services (no cost to the US taxpayer) and “goes where others fear to tread” for those investments with a major US involvement.
• Finding Partners
• Partnerships in high priority projects through the TDA (Trade Development Agency: funded by Congress) which funds studies to ascertain the likely technical, financial and economic success of a project.
• Export Licencing for country-specific documentation and policy considerations
• Sector and Industry Specific Help from for example the USDA or OTEXA (Office of Textiles and Apparel
• Market Research general and specific studies are carried out and these are available free of charge at www.buyusa.gov (“We always try to stay a step ahead of what US companies know about a particular market”)

How does a company tap into these resources? Go to the US Embassy and ask for it.

The New EU Chemicals Policy

The head of the “Chemical White Paper Team” at the EU, Nick Burge, did not present as advertised due to the Chemical policy people at the EU deciding that they should not allow public papers ahead of the the policy being finalised. Prof. Kernig stepped in with a prepared presentation on REACH, officially the Registration, Evaluation and Authorisation of Chemicals in the EU. Under this scheme, established chemicals will have to be tested as if they were newly developed, and 30,000 existing chemicals will have to be processed before 2012, with the highest volume products (not the riskiest!) coming first.

• Registration will require producers and importers to test the chemicals they provide and send the data to the EU.
• Evaluation of the data will be managed by EU States and may lead to more testing.
• Authorisation will apply to substances of high concern.
• A system of rapid restrictions will apply to bioaccumulative or persistent toxins.

REACH owes much to environmental pressure groups (WWF,FOE,BEE) and is intended to shift regulatory pressure from new substances to those which have been used for decades: i.e. 95% of the current chemicals market. It also shifts the burden of proof of safety and safe use from State authorities to Industry, while preventing the unauthorised production and use of any chemical of “high concern”.

Based on the first draft of the white paper, an Arthur D Little study (Oct 2002) estimates that if implemented it will diminish EU growth rates and cost 600,000 EU jobs as companies relocate to avoid the regulations. Blair, Schroeder and Chirac wrote to Prodi (Sept 2003) criticising REACH as too bureaucratic, complicated and “de-industrialising”.

A modified version appeared on 25 th Sept 2003 which is still being assessed, important changes being that registration will now apply to all chemicals produced in quantities above 10 tonnes/year rather than above 1 tonne/year, and that polymers are now excluded. The revised document is due to be delivered to the EU parliament on Oct 29 th 2003 for ministerial discussions prior to a first reading in April 2004.

Dr Kernig warned that the nonwoven industry as downstream users of chemicals would be affected. He cautioned that the polymer exemption was not final, and that polymers could be added-back at a later date if new information, e.g. on monomers, suggested it would be worthwhile.

One (EU) proposal for reducing the collosal amount of unproductive testing required was that similar industries should form Consortia to share the workload and the resulting data. This is of course tantamount to sharing commercially confidential process data and will not readily happen.

If after a reasonable time the EU has not been provided with data on a chemical, the chemical will be regarded as “non-existent” and its production, import or use will be automatically forbidden.

Testing costs have been estimated at €20-30 billion, the burden on small and medium size chemical companies being insurmountable.

Can Testing Go Global?

A panel of six speakers presented papers on diaper (5) and tampon testing (1) losely structured to answer:

• Can identical products be tested in different countries with comparable results?
• Do cultural differences between countries affect consumer panel test results?
• Can panel and lab testing be correlated?

Consumer panel testing was carried out France and Russia using 14 brands of diaper and 135,000 individual diapers in total. Maxi Size diapers were used on 364 babies and mothers questioned regarding leakage, comfort and convenience.

Uwe Assimus of the Institut Fresnius ( Germany) described the statistical design and analysis fo the trial. A sequential monadic format was used, the same babies using all the brands one after the other, and a multiple rather than pairwise comparison was used to evaluate the data. Null hypothesis; 95% significance; test power 0.7; Std. Dev. of panel testing taken as 0.8).

Svetlana Solovieva of Russia’s Centre for Testing and Certification supervised the Russian testing. Russian mothers try to reduce the costs of diapering by changing less frequently and potty training earlier than French mothers. Despite these differences, the Russian panel gave an exactly similar ranking of the 14 diapers and tended to be less critical than the more experienced French panel.

Ms Solovieva pointed out that despite the diaper packets being over-taped to conceal the maker, branded diapers were generally recognisable as such by the designs and printing on the diapers themselves. These products appeared to be favoured and given a “brand bonus” in the minds of the consumer.

Frank Courtray of Courtray Consulting – Labservice (France) conducted the laboratory testing of the 14 diapers and the comparison of lab and panel testing. He concluded:

• The overall correlation of the raw data, panel versus lab was poor.
• However the main anomalies were due to the panels rating 3 of the 14 diapers much more highly than merited by the performance data, and one much worse.
• The 3 over-rated diapers were identifyable by the consumers as leading brands.
• The under-rated diaper was a brown eco-friendly product.
• Sporadic effects, i.e. the possibility that the 16 diapers tested in the lab were not representative of the 1000’s used by the panels could account for the remaining error.

Dr Edgar Hermann of Hygiene Technologie GmbH ( Germany) made a case for lab testing of diapers using two examples:

• A client wished to check overall diaper performance prior to launching a new retail brand product. The tests showed the rewet was too high and the retention too low compared with the leading brands so HT recommended redesign before launch. Consumer testing confirmed these conclusions, but the launch went ahead anyway. The product suffered high complaint rates and had to be withdrawn.
• A Client was introducing new stretchable tapes and wished to get a lab assessment. HT checked tear resistance and peel force, showing that the new tape was deficient for tear, separation from backsheet and internal detachment c.f. the competition. Panel testing did not confirm these conclusions but showed up other problems (stretch not noticed, could be larger) which led to redevelopment.

Nancy Dravis of Shuster Labs Inc (USA) had not done any consumer panel testing recently but concluded that “international testing of diapers is a viable and meaningful possibility”. The basis for this appeared to be the observation that without prior consultation, Shuster’s 150 baby test looked at the same 6 diaper features as the Stiftung Warentest 100 baby method. (The features were leakage, fit, appearance, dryness, tape function and overall perference.)

Dr Remco van Willige of TNO Holland compared tampon testing in Vienna ( Austria – 22 tampon types) and St Petersburg ( Russia - 10 tampon types). Despite the fact that pad usage exceeds tampon usage by 10:1 in Russia and that only 72 of the 100 women on the Russian panel had prior experience of tampon use, they ranked the 10 brands similarly and their total test scoring correlated well with the fully experienced Austrian panel. So despite the cultural differences, international panel testing looks useful for tampons too!

Dr Konrad Giersdorf of Stiftung Warentest (The German consumer reports organisation) concluded from all this:

• Yes, testing can go international.
• Russia and Europe give identical rankings on diapers and tampons
• USA looks as if it ought to be similar
• Lab testing correlates with panel testing if you ignore the results which don’t.

Global Hygiene Product Trends

Irina Barbalova of Euromonitor Plc (UK) said that hygiene products dollar value grew 3.1% globally between 2000 and 2001, to $41 billion, or $6.6/capita worldwide, compared with $34/capita in the USA, $22/capita in Western Europe and $2.5/capita in Asia Pacific. The key trends were:

• Increasing growth in emerging markets.
• Trading up to higher value products in established markets
• Increased product segmentation
• More shelf space for private label
• Larger pack sizes/bulk buying
• Less time for housework: more convenience products e.g. wet-wipes
• Intense competition

Hygiene products were mainly diapers and pants (46%) with 35% femcare, 11% wipes, 5% incontinence products and 3% “cotton wool”.

Wipes had shown the highest CAGR: 19%/yr since 1997, followed by incontinence at 5%/yr, femcare at 1% and diapers/pants at about 0.5%.

• Within Wipes , the fastest growing category was now “deodorant”. New dishwashing wipes in the “Swiffer” category would also be important.
• Within Diapers/Pants , the pants segment had grown by 7.1% to $2.2 billion, and was likely to grow most in future due to mothers having no time to potty train their offspring.
• Within Femcare , fashion and convenience were the main drivers, innovative design and packaging was crucial, and the most growth could be expected in ultrathin and micro products (SCA Bodyform mentioned).

With regard to the main players:

• P&G has done well, expanding agressively into emerging markets. (“Baby Stages” mentioned as a particular success.)
• K-C has declined in most key markets due to heavy dependence on the US and difficulties in Latin America.
• J&J has suffered due to increased pressure from P&G and K-C in femcare and wipes.

Other points of interest:

• Discounters were the fastest growing outlets for diapersa, with all other outlets excepting supermarkets losing share.
• Private label products were growing fastest from a low base in Eastern Europe (50% 2001-2002)
• Retailers names are becoming strong brands in their own right (Aldi and Marks and Spencer mentioned).

For the future:

• Growth of 2.7%/yr expected globally
• Eastern European growth will offset the North American slowdown.
• Expansion of mass market retailer distribution channel
• Innovation leading to greater sophistication, increased segmentation and better value for more demanding consumers.

Selecting the best Inco Pad

Dr Alan Cottenden (University College London Dept of Medical Physics and Bioengineering) and Hakan Leander of the Swedish Handicap Institute reviewed the challenges faced by those who bulk-buy incontinence products for national health services. In essence they had to find the right balance between saving taxpayers money and improving the quality of healthcare.

Within the EU the Public Procurement Act provides guidance on all aspects of tendering, the key technical issues being:

• Classification of products: exactly what is being bought. (there are 9 different classes of body-worn incontinence product on the Swedish list)
• Qualification. Products must have a CE mark, fulfil applicable standards e.g. ISO 11948-1 (Rothwell) for absorbency, and must not contain any latex.
• Evaluation: Purchasers can select the cheapest item or the most economically most advantageous item, this latter option requiring the criteria of choice for be listed in order of priority e.g. Function, quality, price, environmental impact. These criteria must now be weighted.

Where do purchasers turn for reliable information to guide their choice? After the product producers and distributors they turn to independent sources such as the Swedish Handicapped Institute, the UK Continence Foundation and websites like Pricerunner.

The fundamental problem is that by the time independent test data comparing products becomes publically available, the products have either changed or been withdrawn. So, the World Health Organisation and the International Incontinence Society have joined forces to write a book to summarise the established knowledge on all aspects of incontinence, one of the objectives being to make the available “generic wisdom” easily accessible to purchasers.

The Ethics of Value Creation

Taking generic wisdom to a higher plane, Dr Ulrich Hemel, CEO of Paul Hartmann ( Germany) said Values are a product of the fundamental tensions between individuals and systems or organisations. The tensions are aggravated by Change which creates Conflicts, and the conflicts require Ethics for their resolution.

Values are also part of a Value System which leads to a World View. They give an individual Orientation, but their differing interpretation leads to more conflict. (e.g Freedom versus Safety)

Value conflicts are the source of most factual and relationship conflict, and the way these conflicts are dealt with defines the ethical standards and lifestyle of an organisation. An organisation’s values should be communicated clearly in its vision or Mission Statement. For example Hartmann’s includes:

• We treat each other with respect
• We care for our clients
• We concentrate on supporting health care and well-being
• Our target is to transform our company into the best working environment in the industry.

Other aphorisms of note:

• Capital is stored Labour.
• In the long run, long-term thinking is right.
• The market values future potential not current substance
• Success is professional management and luck.
• Doing business requires the creation of meaning
• Value creation requires changing the system.
• Systems shape people, but people must act in and change the systems that shaped them.

Realising the Value of Intellectual Property

Dr John Pollaro (Consultant – USA) used to be the VP for IP at P&G. He pointed out that innovation creates intangible assests which in 1998 amounted to 30% of the value of corporations. A lot of this value is unrealised and 90% of IP remains unproductive. It should be possible to convert this unproductive IP into cashflow by licencing, and Dr Pollaro proposed that generating a modest 1% of turnover from licencing would be a reasonable objective for most IP VP’s.

Why doesn’t this happen?

• Companies take a restrictive view of IP
• They have a conventional approach to extracting value from IP
• They need to be organised to see how to extract maximum value from IP.

Some success stories:

• P&G recognised their marketing know-how had value and formed an on-line JV with Magnifi (Emmperative) to sell their know-how to other large multinationals.
• Amazon noticed that 65% of their on-line orders were abandoned before the final click. They patented a one-click ordering process which dramatically increased sales (USP 5960411). Barnes and Noble followed, were sued by Amazon and now Amazon licence the technique.
• George Lucas devised a standard for theatre sound and patented a system to meet this standard. He set up a lab and now tests “home theatre” equipment to provide a certificate of compliance with his standard (THX) to save hi-fi suppliers the problem of getting round his patent.

IP has two value components, its value in use and its inherent value. Companies tend to focus on value in use and neglect inherent value. Retaining exclusivity may not yield the highest return e.g. Apple Computer (market leader in the early 1980’s with a closed system) and IBM or Microsoft (open system). In another celebrated example, American Airlines were forced by an anti-trust case to open up their exclusive Sabre reservation system to other airlines flight schedules. They charged for this service and made more money from the booking system than from flying planes.

The bottom-line? Don’t leave IP to the R&D and Patent professionals. It has a commercial dimension and needs commercial management.

VAT rates and Absorbent Products

Joris Pollet, Associate Director Corporate External Relations for P&G Europe was concerned that the EU’s need to harmonise VAT rates will result in diapers and femcare costing more. Most countries now apply zero or reduced rates to these absorbents but a revision to the Sixth VAT directive proposes a minimum standard rate of 15% and a minimum reduced rate of 5%. If implemented this would increase diaper prices in the UK, Ireland and Luxembourg and increase femcare prices in Ireland. The case for maintaining the reduced rate for these “compulsory” items where consumers have no choice but to use them was eloquently made. Asked if the price to the consumer would be cut if VAT rates were reduced, Mr Jollet said P&G’s products would but he could not speak for others.

Natures Nonwoven: The Spider Web

Prof Fritz Vollrath of Oxford University (UK) described the elaborate processes by which spiders are able to produce a range of silks based on protein polymers.

• Diameters range from 20 to 7000 nanometers.
• Radius threads have up to 40% extension and high tensile strength (6x steel)
• They are spun from liquid crystal solutions in water and have a bicomponent structure formed by co-drawing at least two different feedstocks through a single die (“spigot”).
• The toughest filaments are like miniature climbing ropes with strands of microfibrils interspersed with filled inclusion channels and covered with several layers of coating.
• The same spider can spin up to 7 different fibre types from 7 different glands for different uses, including the very elastic capture silke (a superabsorbent fibre) which capture insects by becoming sticky and tough through water absorbtion.

Prof Vollrath mentioned the Canadian project (Nexus) involving cloned silk genes expressed in goats milk. Acordis Speciality Fibres are collaborating with them on spinning the silk protein extracted from the milk. Like Acordis he sees medicine as the likely first use of these extraordinary polymers.

Private label opportunities

Krzysztof Malowaniec, VP Strategic Development for Paul Hartmann AG ( Germany) reviewed the 2001 Stiftung Warentest comparison of 16 diapers in both performance and consumer testing, pointing out that one of the 5 products rated “Very Good” was a private label product (“Babylove”) costing €0.18 per diaper compared with 0.24 to 0.31 for the other 4 branded products. Not surprisingly given such price differences, the brands continue to lose share to the PL products and in a 2002 survey (305,047 German consumers) , only 54% agreed that branded products are better than private label compared with 60% in a comparable 1992 survey. Furthermore private label “brands” are achieving growing recognition, mainly in Germany and Spain, but less so in the UK. Italy and France.

What are the key requirements for making a successful PL product?

• Develop a product concept having studied all the products in the market.
• Prepare protypes and test them against the competition.
• Identify the key patents infringed and avoid them or licence them.
• Calculate manufacturing and licencing costs.
• Partner with a retailer and keep him fully informed of the developments.
• Be prepared to undercut other private label offerings to the same retailer.
• Target half the price of the leading brand: this ought to be possible given the absence of R&D and Marketing expense.

How will the brands respond to the success of PL? They could licence their technology to increase the return on R&D and serve the PL sector directly with unbranded versions of their products.

Mr Malowaniec expected the current situation to be transient. A break-through technology will soon provide either a totally new diaper design or a new manufacturing route with extreme cost savings.

One slide apparently unconnected with the main theme of the talk showed that P&G’s patenting activity had declined dramatically since peaking at ~670 absorbent product patents published in 2000. The 2002 figure was ~490, the same as Kimberly Clark (up from ~370 in2000).

Calvin Woodings 26/09/03

Philip Preest (R) - the organizer