Amaret Sila-On
AMARET SILA-ON is General Manager of the Siam Kraft Paper Company Ltd., Bangkok. This article is adapted from a paper he delivered to the FAO Expert Consultation on World Pulp and Paper Demand, Supply and Trade, held in Tunis in September 1977.
A Thai experience and the growing pains of a pulp and paper industry under foreign and home management
Handmade paper had been manufactured and used fairly widely for hundreds of years but modern papermaking only came to Thailand in the early part of the 20th century. A small paper mill was first established in Bangkok by the Army Mapping Corp. in 1935. Some four years later an integrated pulp and paper mill with a capacity of 10 tons/day started operations in Karachanaburi, a province west of Bangkok where bamboo, the main raw materials grew in abundance. But the first real paper mill of commercial scale and with modern equipment and manufacturing process was first established in 1958 at Bang-pa-in, about 100 kilometres north of Bangkok and commenced operations in 1962. This, again, was an integrated pulp and paper mill based on rice straws with a productive capacity of 40 tons/day. This mill also has its own chemical manufacturing facilities. Therefore, an up-to-date paper-making technology really came to Thailand only about 15 years ago. Fortunately or unfortunately, this mill was initiated, owned and still being operated by the Royal
Thai government. The project started off with a total investment of $17 million. During the past 15 years it has managed to accumulate losses totalling $8 million. Perhaps this is the real cost of acquiring modern paper-making technology during our early years.
However, we have come a long way since then: In 1962 there were six paper mills with a productive capacity of 18000 tons per annum. Today, Thailand has 34 paper mills with annual production capacity of 330000 tons of paper, an 18-fold increase in 15 years. Among these, the Siam Kraft Paper Company has the largest pulp and paper mill in the country and turned out some 25 percent of all paper production in Thailand or 50 percent of industrial paper output.
One of the main problems - arising time and again during the transfer of technology from enterprises in the developed to those of the developing countries - is the misunderstanding which comes from the failure to match perceptions. For example, when an entrepreneur in a developing nation plans to set up a pulp mill in his own country he may or may not understand the nature of the pulp and paper industry, and he may try to find someone who can give him composite technology on pulping. Usually, he gets in touch with a pulp and paper consultant; after lengthy discussions, feasibility studies, detailed reports, and so forth, a pulp mill is established, based on the consultant's findings and recommendations. But once the plant starts operating, the entrepreneur may find that the results do not match his expectations.
It is important, then, that expectations of the party acquiring technology should be clearly spelled out from the beginning. What exactly does this party expect? Is it a pulp mill barely good enough to satisfy indifferent requirements of a protected market? What type of manufacturing process or technology is being bought, rudimentary or sophisticated? And what type is being offered? Also, the technical consultant may have certain shortcomings, not noticeable at the initial stage when negotiations about feasibility studies are being conducted - because, frequently, technical consultants are not the people who know how to run a mill for profit. They may be able to compare various manufacturing processes and advise a client on the best choice available within the constraint of budgets, available infrastructure and general level of technical competence. But once the mill starts operations and runs into trouble, the consultants may not be in a position nor have the necessary expertise to untangle the mess, and this may lead to a lot of general unhappiness and even recriminations.
It is therefore very important that, as early as possible, attempts be made to match perceptions between the donor and the recipient of technology on what is required and what is being offered and, if possible, that terms and conditions as well as the type of technology being asked for or proposed, be spelled out in writing. As in most business transactions, particularly those requiring the two parties to work together for a long period, it is always a good policy for both sides to ensure that each gains some benefits from the transaction. In an agreement of this type, much depends on good faith and good will, and good will could be quickly dissipated if either party has a different perception on the exact nature of the object being bought and sold.
In a new manufacturing venture, success or failure may also depend on the structure of the package being offered or acquired. For example, the type of technology to be transferred: is it a manufacturing process, a special licencing agreement or is it composite technology? In most cases of transfer from enterprises in developed countries to those of developing countries, this would be composite technology or package technology. The more knowledgeable party in this deal has a moral responsibility to ensure that the structure of the package is sound and complete. The important elements in the package should be spelled out: what is the time frame, the type of know-how, the process technology, the technical assistance after installation and start-up, as well as the management services such as purchasing of spare parts and other essential materials overseas. And what compensations the party performing these services is entitled to.
A MODERN EUROPEAN PAPER MILL The best partnerships are those based upon complementary expertise
Other aspects which frequently become sore points at a later stage are training of local staff, and type of foreign personnel assigned to the project in the developing countries. It is understandable that the industrial enterprises from the advanced countries would find it difficult to persuade their good people interrupt their careers in the home offices to go to work and live for an extended period of time in a developing country, or perhaps the company offering technology may find it difficult to spare their good men. And this could lead to all sorts of problems. Because the not-so-good man transferred to work in a developing country may develop after a while a taste for the easy life and seemingly style of living available to foreigners in such a country. And although he is supposed to train local staff to take his place after a certain period of time, he may find it more convenient to forget it; indeed, he may find all sorts of excuses, consciously or unconsciously, for delaying the training of local personnel in order to postpone his departure. The good men normally set their sights at a higher position in their home country and are not likely to exhibit such behaviour. In many projects requiring relatively conventional technology and where the overseas experts are supposed to train the local staff to take over their jobs, it often happens that after five or ten years the experts claim that "the natives are not as intelligent as previously envisioned" and that "the native engineer will not be able to take over the mill within the foreseeable future" - which means that the expert must stay on for the good of the project. Meanwhile, the local staff become understandably restless and this will probably lead to a deterioration of relationship between the principals.
At this point it is also useful to stress that the enterprise with technology to offer should also pick and choose the recipient of its technology fairly carefully. Most developing countries abound with brokers, that is, the people who use their ability as contact men to buy technology from reputable companies in industrialized countries, and then try to peddle it to industrial companies in the developing countries who are not so fleet-footed at contact work. In such hands, things could become very messy. So, if it is at all possible, the owner of technology should make sure that the people who buy it are the people who are going to use it, and even more important, that the people who buy the know-how are capable of using it. It is not very useful - but unfortunately not unheard of - to sell a nuclear power station to people who don't even know how to operate a steam engine.
Perhaps we should now look at Siam Kraft. Siam Kraft Paper is a company which has been in operation for about eight years. It has a 200 tons-a-day kraft paper and board mill at Banpong, 86 kilometres west of Bangkok. It also has a pulp mill with a capacity of 60 tons-a-day based on bagasse. The original project envisaged the manufacturing of kraft paper from mixing imported kraft pulp with locally-produced bagasse pulp and some recycled waste paper. During these eight long years, the company has been on the verge of bankruptcy three times; during the first five years, the company remained alive because it was granted an absolute monopoly on kraft paper manufacturing in the country. Toward the end of this monopoly period the government even came to its aid with a total import ban.
Many experts have gone through this mill and pronounced it to be a generally well-built plant with good equipment; and yet, the mill could not make money. During the first period, from the feasibility-studies stage to a period twelve months after start-up, Parsons & Whittemore was the managing and technical partner. During the second period of about four years a group of American technicians - mainly former W.R. Grace personnel assumed the responsibility of running the mill. Both of these groups have come to grief. The first group managed to build the mill, but the company became insolvent within a year after start-up. The second group came in after the financial reorganization and have made a lot of technical improvements including balancing of various equipment and bringing the mill up to its projected capacity. But four years later, the company again became insolvent. Many of Siam Kraft's problems had little to do with technology transfer; most of them were the result of structural weaknesses in the project itself, especially from the business viewpoint. Its financial structure was too weak and its commercial management aspects lacked firmness and direction. But still, it is also true that although the company possessed good equipment, it could not produce paper of acceptable quality to many of its customers - much less that meeting international standards. This is clearly a matter of technology; and some seven years after it had been in operation a great number of expatriate staff still had to be retained because it was felt that local people would not be able to handle the responsibility. So, in a sense, technology had not been transferred. Such was the experience that Siam Kraft, a Thai company, had with two sets of technical and commercial partners who are from probably the most technologically advanced country in the world, the United States.
At the end of 1974 when the company was on the rocks for the second time, a group of creditors, comprising several major bankers both locally and U.S.-based, persuaded Siam Cement Company, the largest industrial enterprise in the country, to take over the management function. But Siam Cement had the good sense to realize that it did not possess pulp and paper technology. The company has been in the manufacturing business for some 60 years, and had a wide and diverse experience in such manufacturing fields as cement, construction steel and other construction materials (asbestos-cement sheets, PVC pipes, concrete products, refractory bricks and so forth). But since it had no experience in the pulp and paper business, Siam Cement persuaded Honshu Paper of Japan to become its technical partner. Although a technical assistance agreement had been concluded between Honshu Paper and Siam Kraft, it is recognized in the practical sense, that this was really an "international rescue mission" mounted by a large local company which supplied the commercial and industrial management expertise together with a group of Thai and U.S. bankers, who provided the financial back-up, while the Japanese pulp and paper company contribute the necessary technical know-how. Thus began the third life of Siam Kraft Paper in November 1975.
When the present management of Siam Kraft took over the company it encountered all sorts of problems: to put it briefly, if you can think of any business problem that a pulp and paper company could face, Siam Kraft had it - from pollution problems to marketing and inventory management, from labour unrest to cash flow problems. You name it, Siam Kraft had it. On the technical side the company could certainly make paper but it could control neither quality nor costs. The manufacturing staff were capable of operating the mill but they lacked the depth of understanding necessary to uplift the general standard of performance from the mediocre to the efficient - and this is always the critical factor that makes the difference between just-getting-by and profitable operations.
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The terms relating to acquisition and transfer of technology can be defined in various ways. Borrowing from a United Nations pamphlet published in 1973, entitled "Guidelines for the acquisition of foreign technology in developing countries," it can be stated that the concept of technology or know-how discussed here denotes the sum of knowledge, experience and skills necessary for manufacturing a product or products and establishing an enterprise for this purpose. In developing countries, technology needs to be viewed in fairly comprehensive terms covering not only the specific process or manufacturing technology but also various other types of knowledge and expertise necessary not only for setting up a plant but also in successfully operating it. This is "composite technology." Enterprises in developing countries generally prefer to acquire composite or package technology rather than specific know-how covered by patent or trademark which is the usual form of technology transfer taking place in industrialized countries. This is because the general level of knowledge and expertise in manufacturing is usually much lower in developing countries. Therefore, the transfer of specific process or production technology must often be accompanied by technical assistance. This transaction encompasses both the establishment and operation of an industrial enterprise. A project to establish a manufacturing enterprise in a developing country passes through several stages: · First, a pre-investment study including the preparation of a feasibility study followed by a detailed project report. · Second, if the project is judged to be feasible, then basic and detailed engineering design including preparation of machinery specifications, plant design and factory layout would follow. · Third, the project owner with the help of the technical partner will have to go through equipment selection, plant construction, erection and installation of machinery and start-up of the plant. · Fourth, the manufacturing process or technology will have to be acquired or transferred to enable the project to start working. · Fifth, technical assistance will probably be necessary during the post-installation period, including training programmes for local personnel as well as various forms of management assistance. The establishment of manufacturing enterprises in developing countries frequently requires foreign technological expertise at one or more of these stages. Frequently, in starting a new manufacturing industry, feasibility studies have to be undertaken by foreign consultants while the basic engineering services and even rudimentary process technology must usually be obtained from abroad. Also, at the construction stage, local expertise may suffice for the civil works but installation of plant and equipment may have to be undertaken by foreign experts. The basic infrastructure may also be lacking and this could only be built up with deliberate efforts by the public sector. |
At this point I must give a detailed account of how the new arrangement was planned.
A few months after Siam Cement took over the management of Siam Kraft, Honshu Paper, the fourth largest pulp and paper company in Japan was persuaded to conclude a technical assistance agreement with Siam Kraft under which Honshu would provide all necessary technical know-how to operate Siam Kraft's pulp and paper mill. The contract was for a period of one year and after this twelve months' trial period, Honshu agreed to enter into a longer term contract to last until the end of 1981. The terms of the contract were simple: Honshu would provide all necessary know-how and technical assistance in running the mill and would assign a number of experts to be based in Thailand, as well as a series of specialists on various facets of operations who would come in on a temporary basis when needs arose. And for this contract, Honshu was to be paid on a standard cost-reimbursement basis plus a nominal consulting fee. For the long-term contract, Honshu would also be entitled to an incentive fee which would be based on the level of Siam Kraft operating profits.
The division of labour can be clearly seen. While Honshu is responsible for providing manufacturing know-how on pulp and paper, Siam Cement takes care of all operational matters and other non-technical management, such as costing and the internal control system, personnel, legal services electronic data processing and so forth. It is believed that such a combination does utilize each partner's respective strength to the best advantage. This Siam Cement/Honshu tandem has been at work for almost two years and so far things have gone fairly smoothly. Although both are Asian, there is a large cultural gulf between the Thai and the Japanese. This gulf is no narrower than the gap between an oriental and western culture. The cultural differences have, to a large extent, been overcome through the strong determination on both sides to make a success of this challenging venture. And, thanks to the determination of these two diverse groups of people, Siam Kraft is now well on the way to recovery. To be sure, there are many more bridges to be crossed and many obstacles ahead, especially on legal and financial aspects. But, operationally, the company can now be certified to be in a healthy state; and with time and a sensible capital improvement programme, the operations should prove to be quite profitable within the next few years.
It is true that the present management had the advantage of hindsight on those problems which brought Siam Kraft to its knees twice within the last decade. But that is a way the world achieves progress: people learn from past mistakes whether committed by themselves or by others. We have indeed learned a great deal, not only from past management mistakes, but also from our own during the last two years; and from this rich pool of experience, we hope to build a sound and viable company - a company which will provide a firm foundation for future developments of the pulp and paper industry in Thailand.
We should now ask ourselves - is there anything we could learn from Siam Kraft's bitter experience which will be useful for other developing countries in their quest for the development of their own pulp and paper industry? I believe that packages similar to those provided by Siam Cement and Honshu could be a vehicle for a relatively painless technology transfer within the pulp and paper industry. I believe that the critical factors are the matching of perceptions between the partners in the various countries as well as the dovetailing of special skills and complementary expertise. In pulp and paper, a basic and capital-intensive industry, the will to succeed is not enough; it must be matched with skills and resources from both sides of the fence.
Particularly in the developing countries, where the pulp and paper industry is still at the infant stage, it is always better to buy a composite technology rather than specialized know-how. It is also preferable for aspiring entrepreneurs or owners of industrial enterprises new to the pulp and paper field to get whenever possible technical partners who are practitioners in the industry, that is, pulp and paper companies rather than specialized consultants who may be very knowledgeable on certain aspects but lack the all-round ability to solve complex and inter-related problems, on a continuing basis.
And now, I would like to propose a new vehicle for technology transfer between the developed and developing countries which I would like to call the "Big Brother Programme." In solving problems of technology transfer in the pulp and paper fields I believe that the best qualified people for helping companies in the developing countries are the larger pulp and paper companies in the developed countries.
This help should be offered on a commercial basis but perhaps initially the rate to be charged for know-how could be a concessionary one, on the principle that nothing of value should come free. But in a free economy, nothing works better than good old self-interest, and therefore such a programme must also contain some elements of material advantage to be gained by the "Big Brothers," the pulp and paper companies in the developed countries. It could be international prestige, it could be the opportunities to give their own staff more diverse training opportunities and a wider base of knowledge and experience, or it could be the opportunity to secure a foothold in a hitherto inaccessible market.
Take ASEAN for example: it is a regional grouping of South East Asian countries - Indonesia, Malaysia, the Philippines, Singapore and Thailand. This is an area rich in natural resources with a population of 250 million, reasonably good infrastructure and a tradition of free enterprise. These 250 million people now consume about one and a half million tons of paper a year and will need a lot more in the near future. So, to the industrial giants in the OECD I should like to say: surely, you can spare your conventional process technology, surely, you can spare some of your good men for a few years. And therefore I would urge them to pick themselves an area in which they would like to have a "presence" in the long run and, finally, to pick their younger partners in the chosen areas.
One of the problems which delay transfer of technology between developed and developing countries is that so far the main contact points have been through government channels or international organizations. More direct contacts among the private sectors of developed and developing countries would, I am sure, significantly reduce the time lag. And, taking the long range view, it is quite conceivable that some synergistic effects will result from combining western technology and its large demand base with the developing countries' cheap labour pool and fast-growing tropical forests which could prove to be significant factors on the supply side by the end of the century.
In any case, I sincerely hope that a way could be found to make this programme, or something similar, work, because it will be in the long-term interest of both the developed and developing countries. But to our "Big Brothers" in the advanced economies, I would like to make an appeal: in effecting technology transfer or offering help and support to your counterparts in the less developed countries, please do not treat us as charity cases, do not spoonfeed us, but instead do teach us first to stand on our own feet and then to walk and even to run under our own power. And I hope you will give serious consideration to this proposal so that transfer of technology will happen in reality and with effectiveness and will not remain just a beautiful concept on paper.
