An interview with Mr. Renato Sio, Chairman of Sanitary Care Products Asia
An interview with Mr. Renato Sio, Chairman of Sanitary Care Products Asia
The Philippines is currently one of the brightest stars in Asia with a year-on-year growth of almost 7%. To make sure this growth is sustainable, the government has put in place initiatives such as a 10-point economic agenda or the tax reform. In this regard, what are your expectations towards the role of these initiatives in maintaining sustainable growth?
The 10-point agenda of President Duterte is really very good. Particularly, the amount of money he has allotted for infrastructure is significant given that the Philippines has been lagging behind in this aspect. Thus, it becomes advantageous to the country to have a government putting special focus on infrastructure.
Meanwhile, everyone is looking forward to the tax reform. However, it seems like the subject will require a long time of deliberation in the Congress and the Senate. We are hopeful that it will be passed and the reforms will be implemented. In line with this, we had our accountant analyse the lowering of income tax. It was found that the reform may pose little impact since only the bottom tier was exempted from the tax income, while the rate of the next tier is increased to 20%. Looking at it closely, it may not at all be beneficial to anyone in the middle tax brackets rather it is only beneficial to individuals belonging to the lowest bracket.
How important are the policies of President Duterte in building the middle class and in decentralizing operations to other cities aside from Manila?
Initially, I had a positive view on decentralization. Unfortunately, our experience with the local government units (LGUs) has not been good. When they were given the power, the LGUs inappropriately used and exercised this for politics and for personal agenda rather than considering the welfare of the community. So, we still lack the maturity whether it be in terms of political maturity or of leadership maturity in general. There is still the high tendency of self-centred leadership in the country, which defeats the ultimate goal of helping the community as a whole. Thus, my perspective on decentralization has changed.
In the light of more regional integration and the government’s focus on Asian neighbours when it comes to ODA and FDI, what impact do you see on these foreign players coming into the Philippines?
Of course, having these foreign investors come to the Philippines is fantastic. As projected in the 10-point economic agenda, this will really benefit everyone. The country will especially be able to increase its efficiency and be able to transport goods easier. As we know, one of the major challenges of the Philippines is its archipelagic nature and the lack of quality port, airport, and road systems. If money is allotted mainly to develop and improve these basic services, then it will make things easier for business.
One advantage that we have is certainly communications. The Filipino people are known for being fluent in English and for being able to converse well in this language. Moreover, we are generally good people who are very industrious. This is with the exception of the political aspect where we tend to manifest immaturity, as I mentioned earlier. I honestly do not know how this is possible because it is rather a contradiction. In the industry, we are very good and dedicated people; while in politics, we are immature and self-centred.
Considering the country, our main advantages include our friendly nature, fluency in English, and the growing population. In our company, our growth is proportional to the growth of the population. The more people, the more tissue is consumed for example. In addition to this, our population is very young, having an average age of 23-24 years. Thus, having a population that still continues to grow results in the continuous growth in demand for goods as well. These are the things that make the Philippines competitive in the region.
In the ASEAN, there are three types of countries in terms of growth and advancements—the top tier (i.e. Singapore, Malaysia, Brunei, Thailand), the middle tier (i.e. Philippines, Vietnam, Indonesia), and the bottom tier (i.e. Myanmar, Laos, Cambodia). In this regard, what should be the key areas that the Philippines should focus on in order to be on par with the top tier countries?
First and foremost, we have to do a quick revision of our political system. It is very important that we review the maturity of the local government. Based on our experiences, the LGUs tend to be a hindrance instead of being helpful to companies and businesses.
Secondly, the ownership of real estate is also another big issue that needs to be resolved. Many people have brought this up. Under the current law of the country, foreigners are not allowed to own land in the Philippines, thus proving to be another hindrance. Given that we have so much land anyway, another vision that would allow foreigners to own one could be very helpful.
There should be a major framework revision done in the Philippines in order for us to catch up with the advanced countries in the region. These two items are the major considerations that should be given focus.
As a paper product expert, how would you describe the current situation of the household paper market and its potential in the years up to 2020?
The Philippines is very unique. We are a poor country yet Filipinos are very health conscious. Filipino consumers are likewise conscious about the products they use on their bodies. For example, tissue paper usage in the country is high. If you look at our statistics, it is the high-end products that sell better in terms of these personal care products. So, it is not the low-price aspect that attract people to use our products rather the high-quality aspect of the product.
One of our Malaysian suppliers, who manufactures recycled toilet paper, mentioned that he could not understand us Filipinos. He said that we should use more recycled toilet paper because it is cheaper. Unfortunately, the Filipino consumers are hesitant to use dark-coloured recycled paper.
Another reason why we avoid recycled paper products is because of the chemicals used to process it. High amounts of chemicals and energy is required to make recycled paper usable again. Whereas in the plantation, we just have to pick and borrow from our source of virgin pulp. They have two million hectares with the needed plant to create our product. It is also more sustainable to replant than to deink and recycle paper products. We buy our paper mainly from Indonesia, and our people frequently visit to ensure the sustainability of the paper.
What is the market segment that is going to be most interesting in the near future?
We are moving towards hygiene for children, because there are so many families being created. Especially with the young population that we have, we feel that this sector of baby care has the most potential in the near future. In fact, a Japanese company has been asking us to distribute their diapers. Whether we get into it or not is still for discussion.
What do you expect of the Japanese companies coming into the country and what advantages could they bring not only to SCPA but to the entire sector as well?
The Japanese have a great sense of honour. Filipino businesspeople look at their Japanese counterparts with high regard. In this context, Japanese companies coming to the Philippines already have a distinct advantage given that the people here already respect them. They have a very good reputation in the business sectors of the Philippines.
Could you elaborate on how your business philosophy has led to your current success of outgrowing well-known international players and to leading the sector?
About 10 years ago, our Swedish competitor closed out in the Philippines because they tried to model our products and our success with the consumers that is rooted from the use of virgin pulp. Our paper has an off-white colour—it is not as white as other competing brands which uses an artificial whitener but it is also not as dark as recycled paper. So, we were able to attract the market by bringing a product that is suitable to the consumers in the Philippines.
Seeing our success, our competitors copied the concept of using virgin pulp. Instead of running their own deinking and recycling plants, they decided to import virgin pulp as well to turn into paper. The model that this competitor assumed incurred very high costs. The company lacked the capacity to transform the virgin pulp into a product that is high quality with a low price. Thus, resulting to their closure in the country.
Part of the success of SCPA in keeping down the costs, which lies in the rational use of logistics and warehousing. Can you please walk us through this strategy and what impact it has on the company?
That is true. Instead of converting everything in Manila and shipping the finished products to the provinces, what we did is to have converting plants in key cities such as Cebu, Davao, Cagayan de Oro, etc. In this way, we are able to eliminate our shipping costs. This is probably one of the factors that enable us to maintain our products at a lower price.
Another plus to your cost effectiveness is having automated factories, a subject the Japanese are pioneers in. How do you evaluate possible partnership with Japanese companies in order to take advantage of their knowledge in IoT and automation?
For factory automation, we have Italian suppliers. We also have suppliers from Serbia which we have recently partnered with. So, we have technicians from Serbia who are setting up the automated packaging line we purchased for our factories. We have not tried any automation systems of the Japanese because they have not really promoted their products here in the Philippines. For example, we rarely see any Japanese company represented in trade shows but American, Italian, and other foreign companies are there.
In fact, the reason why we met the Serbian company is because they were in the Milan Tissue World Exhibition. They seemed to be a very promising company in terms of the packaging machines, so we tried.
How is SCPA working towards more Japanese collaboration and partnership?
Aside from the Medicare products, we are also very interested in distributing Japanese food among others. So, we are looking forward to importing finished products from Japan, then distributing them nationwide. We are trying to do this by locating interested companies, but it is not easy to do so. Your job or what you are doing now may be very helpful especially if you are able to highlight companies that have world-class products. Then, we could review these companies and our new products team can check it out. Given our logistics, 22 warehouses nationwide, and our established network, it has become very easy for us to bring in a product and distribute it nationally.
How are you tackling your strategy of diversification?
Only 70% of our product sales is tissue and 30% of the total income is generated from allied products. These allied products are non-paper or non-tissue products. We expect this fraction to further increase.
For example, we found plastic that is oxybiodegradable. It is not entirely biodegradable because it will still take a long period of time to decompose—but it will eventually. In this context, SCPA came into the trash bag market. To help the Philippines, we are using this material that will deteriorate despite the long period of time it could take. When we see a material or a product that is interesting that can be presented to the Philippine market (i.e. starch-based cutleries), we introduce the products.
At the moment, I would like to say that SCPA has 70% of the tissue market. This is only an approximation given that we do not buy data. However, this is what we could deduce based on what the merchandisers and the people who replenish the shelves tell us. We make sure that our products appeal to all social classes, and we do this by segmenting our products. What we are seeing is that we are almost saturating the Philippines with our products and the shelves are almost ours. So, in order for us to continue growing, we are getting these allied products. This only shows that we are constantly trying to source new products. Our team constantly goes to places to find interesting products. In this regard, Japan would really be a good partner since they have really good products.
How do you evaluate the contribution of SCPA as a spearhead of the rainforest preservation in the Philippines? Moreover, how important is it for you to raise awareness that virgin pulp paper is eco-friendlier than the recycled ones?
We partnered with Haribon Foundation which is an organization that promotes the forest here in the Philippines. We try to help them reforest and we buy only from people who reforest. That is why we make sure that our paper is sustainable. Moreover, we try to advertise our cooperation with Haribon as much as possible to be able to raise awareness as well. Sustainability is very important. In the hygiene aspect, we do not use many chemicals to deink. Since we use virgin pulp, there is no need for us to do so. We also advertise our suppliers that promote sustainable forests or tree farms. These are just some of our initiatives in terms of preserving the forests and raising awareness.
In your opinion, what would be the key values of SCPA that will make the Japanese and other foreign investors interested in the company?
One of the primary values that we have is that we are very keen on our products being hygienic. In addition to this, we are a local company that is distributed nationwide. We possess significant logistic advantages in terms of dealing with sanitary care products. As I have mentioned earlier, we have conversion plants and warehouses placed in various key cities all over the country. Thus, if the products of the investors could sell better in Mindanao, we have the capacity to directly import it there. We are able to eliminate the need to pass through the very congested city of Manila. All these factors form part of what could attract the Japanese and make them interested in our company.
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