Katon Manufacturers: A Leading Manufacturer of Packaging Solutions in Uganda

Interview with Dr. N. Venkata Krishnan, Managing Director of Katon Manufacturers Ltd

You are number three in the market. You have been growing a lot and very quickly over the last seven years. You are now closing in on the number one and number two groups in the sector. What makes you different? What are your competitive advantages?

My other competitors have shareholders which means that 60 to 70% of their business is from in house. The other 30% of their business they pick up in the market. That 70% is also made up of the leaders in their markets who make soap, cosmetics, and other kinds of products that require packaging. These monopoly groups are now growing very quickly. If they have a shareholder that requires a few hundred tons, they can do it in house. This means they can save on cost and make a good profit. In packaging, there is a lot of profit. From the paper material, you do not want to waste a single product. The manufacturing sector is growing and new investors are coming in and the demand is also increasing. Before, we had only seven companies and now, within two years there are twelve companies. Out of the remaining five companies, three are a monopoly. They have their own factories. This cuts off the market. They run their own product and save a lot of money. For example, what I put into the profit margin, my competitors can save that cost directly. They also save on the overall cost because they have labor already in house. However, I do not have anyone in house. At Katon, I am 100% dependent on my customers only. If I handle those customers properly, they will stay with me and not go to my competitors. There is a lot of money in the sector. But still, I am managing in that critical place. It is simple. In the last two years, the bigger competitors have also been struggling because of cost cutting. Everyone is changing from standard packaging material to shrink wrapping. Everyone wants to make a profit margin in the business. Packaging is a very big market and has become a very competitive market in Uganda now. Everyone wants a cheaper price and top quality. For example, there are many local manufacturers for recycled paper. But for virgin paper, I normally import from Canada, the US, India, China, Singapore, Sweden, wherever the availability of materials is there for the right price. Everything is competitive in the market. I always search the market for where I can find the best materials at the best price. Only then can I compete in the market. Currently, the market is making too much of the price issue. They are playing with the credit basis. People will tell you that we have a standard price in the market. But, when you actually go into the market, the price is completely different. Who benefits? One customer may buy from me at one price and from another competitor at another price, but we as manufacturers are buying from the same mill. Only the manufacturing company name is different. Some people have invested in a lot of very big machinery, but how they are able to give a very cheap price is unbelievable. I have done a lot of in-depth research into price. I analyze why my price is high, where I am lacking, how to correct it, how I can bring it to the same price. This is very important in the market. Pricewise, everyone is playing. In the packaging industry, making a profit is very tough. I am making a profit, but it is very small. Still, I am happy. I have my customers. I supply on time. Up until now, I have never suffered a failure. Therefore, I am able to stand strongly at third place. I am making a good profit while supporting my customer. I do not want to disturb other people. I do not want to become number one. For them, their manpower is very high, their expenses are very high, they must make a very big investment. But I have made a small investment for how I can recover my money and supply to the customer and get a better profit. That is how I am moving in the market. The reason I am still standing is that I supply on time to my customer. If there is any quality issue, first, I accept what the customer says, then I try to find out where the problem came from: was it a paper issue, negligence, or another problem? We analyze in depth. I salute the number one and number two companies. They have made very good investments, but they are not dependent on the market 100%. They supply the top manufacturers in house. Only three manufacturers are dependent 100% on the market. The three of us are comfortable and moving forward.

How has the sector and the economy changed with the recent COVID-19 global pandemic?

My aim is to become number one in the market. I am not bothered by my competitors. I do not fear my competitors. I do not think about my competitors when I choose my target. It is because the customer giving me the order is the most important thing.

Today, big companies as well as small scale companies are also coming to us. Now, they are coming to the market because they do not have orders. Production is down in all the big industries because of COVID-19. The government has put in place many restrictions. For example, in the liquor industry, they must get approval for each product. They must have a digital sticker and registration for each bottle. The government will then know how much material you have imported, what you have done for production, sales, and what you have in house. They are bringing everything online now. It is a very good system. However, the market has come down so much and so many factories have closed. Firstly, they put in place a system that they are unable to manage. Secondly, COVID-19 has disturbed the economy not only in Uganda but throughout the global market. But here, things are moving slowly, unlike in other countries. Farming is doing very well. In Africa, we have very pure organic material. Most of the fruits and vegetable products are exported from Africa, particularly avocados, pineapple, garlic, ginger, etc. At the moment, farmers are very happy. All their products are being exported, but they do not have capital. Those that have capital are doing well. But those that do not have capital are buying small amounts of land and increasing their capacity. Many foreign investors are coming to Uganda because they can get good organic fruits and vegetables and it is easy to export. We have hard working people here that will farm well. You invest and you will get returns and you will make a lot of money. In the current situation, only farmers have a good future. Other industries are being hit very hard. The WHO just yesterday put out a message that they do not know when COVID-19 will be over. I am afraid, but God is always with us and we try our best. Even through COVID-19, I have managed to keep up my stock, and supply to my customer, and take care of my employees. Bigger companies have all stopped their production. But, what about the small scale? The small-scale farming industry needs us every day. It is the most important thing. So, I had to plan for that. COVID-19 has had a very big impact on us. Everyone still needs to get paid and needs money for their families. Most of the big companies have declared that they will only pay 50% of their employees’ salary. They have removed so many jobs. It has happened all over the world, but it is worse here in Uganda. Some people have been out of work for three or four months. At Katon, I made a plan and I have done my best to manage the situation. Up to now, no one has been turned away from my factory. My people know that safety is everything and I have set out the safety policy very clearly. The company never closes. I have made sure that someone can always step in because every person knows the process and the technology. They can run the machines and do all of the work.

In this very competitive market, what are the investment opportunities?

In the packaging sector, there is always demand. If you want to invest in Africa, there is a procedure to investing. Some people follow the procedure, but others want to start small. It depends on your capacity. For example, if you want to invest one million dollars, the law will tell you how to move, how to get approval, how to submit to a project, and the government will give you some tax facilitations and an initial plot of land. It depends on what kind of investment you are putting in. But in packaging, everyone needs us. For example, a small soap product uses what is called flexible packaging which uses a poly bag. We also offer labels and printing and cardboard boxes. It is a very large and technical industry. Packaging is a good avenue for anyone to invest. However, they want to research first what the market requirements are in Uganda, what kind of packaging they need – paper bags, cardboard boxes, etc. If you go in blindly, you will lose money.

Is there growth potential in the Ugandan market this year and the following year?

This year will be the worst. 2018 was alright. In 2019, new competitors entering the market rotated their business so they were able to cost cut. Now, because of COVID-19, everyone is being squeezed. If my competitor reduces his price by even one shilling, my customer will run to him instead.

Is the competition dying? After this crisis, will these new, young competitors not survive? Will we go back to a smaller number of players in the next few months?

In Uganda, we have twelve players. Five players entered in the last two years. Two players are in house monopolies. We also have the Chinese companies coming into the industry here. Pricewise, it is quite bad for us. You cannot beat them. But still, I am beating them. I do not have another option. If I lose my customer tomorrow, how can I survive? I am reducing my overall cost where I can, raw materials, and counting each shilling. If I go through my supply in 24 hours, I can get a new order tomorrow. Time is very important. If I use less time with my production, I will automatically make a profit.

You supply on time and give support to your customers. What else is important to retaining these customers over your competition?

For example, I have one customer that began with me a number of years ago with only a few boxes and he has increased his order 100 fold and has stayed with me. We grow with the customers. They are comfortable with us as their supplier, despite the price. It is the same with my competitors. They have their customers that are very happy with them, too. If a customer wants to change from one supplier to another, what benefit will they get? The most important is price discount, then credit flexibility, and only third is the quality. 30% of customers feel that quality and service are a must, and the price is not an issue. Those customers are a good opportunity for me. I offer a slightly higher price, but I get their business because I deliver on time and my quality is good.

Where is your improvement area? How can you achieve this? Will you look for a partnership with financial institutions?

It is in the credit facility area. My capacity is most important, how to manage my business. I must do in depth research of whether new business is worthwhile for me, what percentage the profit is, and if the payment will be made on time. If the customer is already comfortable with the other competitive players, why is he coming to me? The first reason could be that he does not pay, so he is not being supplied. Most of the customers here are running with our money only. But the market is now collapsing because of credit. Before, everyone got their money held up with the customers. It is a dilemma. Now, there is no business and everyone is realizing this problem. Only a few people are not bothered. Those that have money and a lot of capital are supporting everyone else. At the end of the year, no matter how much money you invested, how much money is in the market, how much has been collected, you may be doing a lot of business, but if you do not collect 60 to 80%, you will collapse within one year. Everyone is playing on the credit basis.

What awards and recognitions have you received?

Over the last two years, I have received many awards. The first is the Commercial Printing and Packaging Doctor Award in Chennai, India. The second is in the packaging industry. I develop very poor people who do not have the capacity to study. I sent some students abroad on a fellowship where they were able to gain experience. I never expected that award. Katon has also been listed as one of the Top 100 Companies in Uganda for the last three years. Because of COVID-19, we are not sure what will happen this year. I won three awards. I received the CEO Global Award in both Uganda and South Africa. I was the only country and regional winner in Uganda 2019. Then, last year, I won the regional award in South Africa.

What are your expansion plans? How do you see yourself as a company and as a manager in the future?

My aim is to become number one in the market. I am not bothered by my competitors. I do not fear my competitors. I do not think about my competitors when I choose my target. It is because the customer giving me the order is the most important thing. In terms of investment, I think of what I am lacking in terms of machinery, materials, etc. What I have done previously, I now bring to a higher level. I think in a positive way of how I can move forward. If I need funds within the month, I go and sit with my supplier and sit with my customer and then take the rest as credit. Surely, I will reach my goal. If I pay my supplier on time, surely, they will support me. At the same time, I want to supply my customer on time so I can get my payments from them on time. There are two things that are very important. Firstly, the customer is always king. Whether he is a small customer or a big customer, I need to give him respect. The same is true for suppliers. They are your bodyguard. When you do not get your supply on time, you will lose your customer. You must maintain them both equally and only then will you succeed.

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