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Europapier takes eastern Europe by storm
Austria's Europapier has spent 10 years building up a paper merchanting network in central and eastern European markets. The next decade looks set to continue in the same fashion, with the company using e-commerce as its latest tool
by Caroline Jewitt
Europapier considers itself to be in a strong position when it comes to merchanting activities in central and eastern Europe. The paper merchant is the #1 distributor in its home country of Austria and ranks close to the top in many eastern European countries that were once untouched by western hands. But times have changed for these economies. Eastern Europe is no longer a high risk area with poor profitability prospects. Europapier's two managing directors, Werner Mitteregger and Kurt Schwarz, spotted the potential of eastern Europe long ago and are now reaping the benefits of their foresight. In merchanting terms, the duo have taken the paper industry in the east by storm, and seem determined to continue on their whirlwind tour of the sector, snapping up market shares as they go.
But there is one thing that distinguishes Europapier from other tycoon-type campaigners in the east - instead of exploiting and destroying what the countries have to offer, they are helping to build new businesses. This tactic has the two-fold effect of employing a local workforce and improving Europapier's distribution chain to benefit the end-user.
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Dynamic duo: Kurt Schwarz and Werner Mitteregger hold the fort at Europapier
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Europapier started up 27 years ago and since then, the company has become one of the leading suppliers of printing/writing paper, packaging and specialty grades in most of its markets. At the beginning of the 1990s, Europapier became the first western company to begin the strategic development of eastern Europe's emerging markets. A decade on, and the merchanting giant now has offices in 11 eastern countries - 12, including Austria.
"We have a market share of around 31% in eastern Europe, which should rise to 35% in three to five years," according to Schwarz. Schwarz points out that Europapier's aim is to become the #1 or #2 paper supplier in all of its chosen markets, with a market share of around 30% in each one. As the company has already exceeded its goal in Austria, Europapier's biggest task is to hang onto its sales in the country lest the competition try to play catchup. "We have 40% of sales in the Austrian market, which the company will defend," he says.
In 2000, the Austria-based merchant sold 270,000 tonnes of paper, up from 227,000 tonnes in 1999. The company's Euro 224 million ($188 million) turnover is made up of 53% graphic papers, 25% printing/writing papers, 11% packaging grades and 11% specialties. Main sources include Stora Enso, UPM-Kymmene, Mayr-Melnhof, Arjo Wiggins and Frantschach companies. The Schwarz-Mitteregger duo are far from resting on their laurels, though. They plan to boost the company's sales to over 300,000 tonnes in 2001. One of the keys to this ambitious target is the power of the internet and the introduction of an e-business platform.
E-commerce widens the net
The company has set up "Open Europapier", hailing it as eastern Europe's first e-commerce solution for the wholesale paper trade. The team has certainly done its homework on the feasibility of using e-tools outside western Europe. A survey of printers in the region shows that the number of internet users in central European is due to rise to 15% in three years. "Click rate in low internet penetration areas is actually much higher than in areas with high internet penetration," according to Mitteregger. "For example, Russia has a higher click rate than the US, because it is something new there and everyone wants to try it,"" he explains. Mitteregger maintains that eastern European printers are spending more time on the internet now, as all that businesses need to access the global facility is a PC/modem setup. "It's easy," he says.
Out of 558 printers that were surveyed by the Printing and Media Technologies Association in September 2000, 75% of them either showed interest in business-to-business solutions or said they were checking out the advantages offered by such schemes. Around 78% of the printers considered a business-to-business solution to be important to the paper chain. Some 97% of the printers already have internet access, but an astonishing 96% of them had never used the internet as a purchasing tool. One of the main reasons for not using the internet before now to buy paper was a lack of opportunity to order online. In addition, a small number of printers also think the internet is still too slow or insecure to make such transactions.
Based on the survey results, Europapier has decided to offer these printers the opportunity to buy paper via the internet. This opinion is backed up by Franz Kimberger, head of the business management department at the Printing and Media Technologies Association. "The readiness of printers to use the internet is extremely high," Kimberger says. "However, the offers for printers must correspond exactly to their needs. Just-in-time delivery and ordering procedures to optimize cost are central themes for printers. If the internet can meet these requirements, then it will be quickly accepted," he explains.
Technology provides the answer
Europapier has set out to make the ordering process even simpler for its customers and employees by utilizing SAP's R/3 technology. The company's subsidiaries are already using this system, which has considerably brought down the cost of setting up such a venture. In most cases, all that is needed is a simple language translation for the software to work in each country. The company aims to have all of its branches linked up to the electronic purchasing and order platform network from 2001.
"Success is speed," Schwarz says. By employing SAP technology, customers have quick and easy access to information such as stock levels, order status and online advice, as well as being able to place urgent orders around the clock. Europapier maintains that the company was the first of its kind to set standards in the e-commerce paper arena, as well as educating local people in eastern European paper activities. The company's regional offices all start off with one Europapier manager on site to build up the business. The rest of the office staff are local. Each business is expected to take between five and seven years to reach the point where the branch can run by itself with just local people.
"Success is a mentality," Mitteregger says. He puts the company's speedy progress down to the fact that it is an Austrian-run business. "Austrians understand eastern Europe [...] due to the country's proximity and mix of people."
If mentality is the key to success, then Europapier certainly seems to have it under control. As a ratio, the selling power of German merchants to Austrian merchants is 10 to one. But Europapier remains undeterred and has moved fast to build up its market share throughout eastern and central Europe, to the point where the company thinks it can fend off the larger merchants if they present too great a threat in the region. On a European scale, the competition includes Buhrmann at top of the merchanting list with around two million tonnes/yr, followed by Antalis and then the new Modo Paper/Metsä-Serla outfit. Europapier appears much further down the list with just 300,000 tonnes/yr of sales projected for 2001, but the little fish is still a dominant player.
The two MDs brush off any threat posed by papermakers with the same e-business idea as Europapier. The theory behind their nonchalance is that e-commerce is a relatively new concept for papermakers, while Europapier is streets ahead as the first company to roll out a fully comprehensive online ordering system to its customers. But it is not so much the technological advance that is the crowning glory to the project, but the fact that the company provides several points of contact in each market through its regional offices.
"Papermakers can't compete [using e-commerce]," Mitteregger says. The reasoning behind his bold statement is that paper mills are often located too far from the customer to make efficient and fast deliveries. Merchants, on the other hand, make it their business to be geographically within easy reach of the end-user. "We're convinced that merchanting is a regional business of 50-100 km. If a printer orders two pallets at 8 am and wants them delivered by 2 pm, e-commerce will not help them [the papermakers]. Stock business is a regional business and a supplier must be able to operate efficiently," he continues.
The fundamental issue behind online supplies is that the customer is ordering on his own terms, according to Europapier. An order is no longer dependent on mills' machine programs, or tonnage requirements. For the customer, the overriding factor is being able to specify orders down to minutiae. For the merchant supplier, it is being able to source an order from stock ready for despatch and delivery within hours.
Full of eastern promise
Europapier may have cornered the eastern paper markets, but the company believes the future still holds great prospects for further expansion in the region. Mitteregger and Schwarz base this assumption on the fact that paper consumption in the European Union is currently around 200 kg/capita. In Austria, consumption is 220 kg/capita. But in eastern Europe, the figure is just 65 kg/capita. "GDP is growing there and taking packaging and paper consumption with it, so the potential is there. In fact, the potential is there for another 10 years," according to Schwarz.
The company sees the biggest opportunity in Poland at the moment and the country is Europapier's current target. The Austrian merchant already has a 12% market share in Poland and aims to expand the stake to 25-30% in three to five years. One way of doing this is through organic growth. Schwarz says that Europapier is open to mergers or acquisitions of smaller players in the region. Romania is lagging behind in the popularity stakes, though. It is one of the largest eastern European markets, but the country is held back by its poor economy. Despite this, Europapier has its eye on Romania as a market of the future. The company is steering clear of the Baltic countries - Estonia, Latvia and Lithuania - for now. "The Finns have the Baltic states all wrapped up due to their proximity. Poland is the main attraction for us," Schwarz says.
In the immediate future, Europapier is setting up a new office in Bulgaria this year. "After that, we will look at Turkey with its 20 kg/capita of paper consumption, or Greece, through a takeover of shares or partner," Schwarz adds.
"We are proud of our success in eastern Europe. We have profit in every country and very fast development. We are growing and just waiting for the markets to grow too," Mitteregger concludes.
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