Sealed Air quietly builds: the company took a careful step-by-step approach to build a profitable presence - Regional Report

Chief Executive, The, August-Sept, 2003 by William J. Holstein

You can tell that Bill Hickey, CEO of Sealed Air, has spent a lot of time in China--he understands,how the Chinese think about food. Very early in my career, one Chinese employee was trying to explain why his people eat chicken feet," Hickey recalls. His employee explained: "You Westerners ask, 'What kind of animal is it?' We Chinese ask, 'How do we eat it?'"

You can also tell that Hickey has spent time in China because he knows how to make money there. Over the past decade, Sealed Air, based in Saddle Brook, N.J., has built a $30 million-a-year portfolio of businesses in Greater China. They've identified two major markets: packaging for goods that China exports and plastic wrap for all that Chinese food, which is often handled in primitive outdoor markets. As Chinese consumers buy more of their food in stores and even supermarkets, it is wrapped in Sealed Air plastic.

In addition to identifying market niches, Hickey and his China team have employed a step-by-step strategy rather than taking the plunge with billiondollar-plus investments, as Motorola and General Motors have done. Sealed Air has two wholly owned packaging factories in Shanghai and Guangdong and a joint venture in Guangdong that makes plastic wrap. The joint venture is with a local municipality, and over time Sealed Air has increased its stake to 90 percent.

The company manages all this activity from Hong Kong, to take advantage of the former British colony's legal infrastructure and higher standard of living. When Sealed Air's operations on the mainland need a technologically sensitive component, the company ships it in from its plants in either Malaysia or Australia. That way, it doesn't have to worry about having its intellectual property misappropriated. "We're generally moving the previous generation of technology into the market, not the most recent," Hickey explains.

Add it all up and the company has different product lines in different parts of the country, with different ownership structures. Some products are intended for local consumption, others for export. By blending in offshore capabilities, Sealed Air has insulated itself from nasty surprises. Sales grew by 14 percent in the first quarter of this year. "We've made simultaneous landings in different parts of the country," Hickey says. "Some of my fellow CEOs took the 'build it and they will come' approach. That's a mistake."

Another interesting twist is that Sealed Air--so called because it was the company that invented bubble wrap as a kind of wallpaper in 1960--doesn't employ any Americans on the ground in China. A Chinese-American runs the Southeast Asian region, which includes China, but he's based in Hong Kong.

China still represents less than 1 percent of Sealed Air's $3.2 billion in total sales, but Hickey says its operations on the mainland are profitable and it has been able to convert the local currency of reminbi to dollars. And clearly, the fundamentals are in place for many years of continued growth in sales and profits. "It's the same model we've followed around the world," says Hickey, whose company sells 45 percent of its products outside the United States. "We go step by step: build it, expand it and develop people along the way."

He acknowledges that the company has had "more than one" problem with its China operations. One has been high turnover of people because the Chinese are not as loyal to companies as Americans might be. Another was the discovery of dishonest employees, all of whom were terminated. The West Coast port strike also interfered with exports, as did the SARS epidemic.

But because of Sealed Air's limited investment risk, it's unlikely that a single problem will derail its China operations. "As the population of 1.3 billion moves along the path toward getting richer, we think we can build a very substantial business," Hickey says.

That kind of long-term perspective is essential for any CEO trying" to fathom China. Since Deng Xiaoping opened China's doors to the world in 1978 and proclaimed that it was all right to "get rich," the Chinese have been barreling down the path of economic development. The Communist ideology has been swept aside and it's difficult to imagine a single event that could halt China's emergence.

That's what Hickey concluded about the SARS outbreak. The company allowed its Taiwanese manager in Shanghai to return to Taiwan, but otherwise kept doing business as best it could. The SARS epidemic "might take some basis points off of China's economic growth rate," he says. "But will it ultimately slow down the Chinese quest to get rich? Not a chance."