Strong presence: KHS in the growth region of Africa and the Middle East

KHS provides quality made in Germany and local service teams on the African continent and in the Middle East. In doing so, the Dortmund systems supplier scores both with global key accounts and small and medium-sized companies and startups. We talk to Markus Auinger, executive vice-president for Market Zone Middle East/Africa, and Jörg Thomas, managing director of KHS South Africa.

What significance does the market zone ofAfrica and the Middle East hold for KHS?

Auinger: Thismarket zone makes up 15% of KHS’ total sales. The region is the most importantmarket for us as regards PET lines in particular thanks to the strong growth inthis segment. Unlike empty cans, PET is readily available throughout the wholeof Africa – and PET systems require much less capital than glass lines as thesum of investment is lower. Small and medium-sized startups thus focus on PET,allowing them to generate turnover very quickly. The glass segment is firmly inthe hands of our financially strong global key accounts, among them AB InBev,Heineken, Coca-Cola, Diageo, Pepsi and Groupe Castel, that have been presentand established in Africa and the Middle East for decades.

How has KHS’ business in Africa and the MiddleEast developed over the years?

Thomas: KHSenjoys an excellent reputation here for good reason. After all, we were thefirst engineering company to sell filling systems on this continent. We openedour own branch office in South Africa as early as in 1971. Some machines havebeen in operation for over 30 years – and are still running round the clock sixdays a week. On average our installed base is about 17 years old. The machinesare serviced by KHS engineers and we can supply the necessary spare parts,regardless of how old the machines are.

Which particular challenges does the regionpose?

Auinger: Inorder to understand the challenges presented by our market zone, you have tobear in mind that on the one hand – take the Emirates, Saudi Arabia andMauritius, for instance – it includes some of the richest countries in theworld. On the other, it also has most of the world’s poor and poorest nations.There’s thus a big economic divide. There’re a lot of underlying problems thathave to be dealt with here, too. These include incalculable climatic, economicand political risks, wars, terrorism and famine but also import restrictionsand the sugar tax, to name but a few examples. We have to constantly adapt tochanging situations and come up with new ideas. It’s therefore all the moreimportant that we’re always accessible for our customers at a local level andable to give them the support they need at all times.

In which countries is KHS particularly stronglyrepresented and why is this so?

Auinger: A fewyears ago there were still a large number of regions we hadn’t yet covered. Oursystems and solutions are now installed in every single country in our salesregion and looked after by our engineers. We’re extremely successful where ourbranch offices are. However, we also have very good business relations withcustomers in Cameroon, Tanzania, Mozambique, Iraq, Afghanistan, Pakistan andother countries with a turbulent history. At the moment, we’ve a lot to do inthe Maghreb states thanks to the strong market growth there. In relation to theentire region, the overall market growth is less strong that you might imagine,however. This is due to the fact that on the one hand you always have countriesthat are booming. These are juxtaposed by nations on the other that suffer asetback following a very positive development. One example is Angola that for along time underwent a very good development. But for four years now there’sbeen more or less nothing doing. Saudi Arabia is investing little at themoment, too.

Which types of machine are in particular demandin Africa and the Middle East? What kinds of beverage are KHS systems used for?

Thomas: In ourmarket zone we do about 95% of our business in turnkey lines – unlike in salesregions such as the USA where up to 50% is attributable to single machines.

Auinger: Whilenon-alcoholic soft drinks in cans and PET bottles are chiefly consumed in theMiddle East, on the African continent returnable glass bottles for carbonatedbeverages have a long tradition. This is clearly changing: in North Africa andthe Middle East, for us we see a rapidly growing market for still water in PETbottles. Combined with the increasing demand for soft drinks in the Sub-Sahara,the PET container segment here now has a market share of about 80%.

How do the requirements of bottlers here differfrom those in other regions?

Auinger: Ourcustomers need more advice on project planning and implementation. In Africaand the Middle East we’re seen as a guarantee for the success of the beverageproducer. This explains why turnkey lines are procured instead of singlemachines: with these, the responsibility for the functioning of the technologylies with a single source. Our customers value the stability and highefficiency of our machinery and reward this quality with great loyalty. Ourcustomers also require much more support with the maintenance of their planttechnology. In Central and East Africa especially we thus conclude extremelyhighly devised service level agreements, in which we define a certain level ofefficiency for our systems over a period of many years.


Which strategy has KHS adopted in this marketzone?

Auinger: In 2013the decision was made to strengthen our sales regions and build up technicalexpertise and capacity on a local scale. In the same year we founded our ownregional center in Kenya. Since then we’ve been continuously checking wherebranch offices or service hubs would be prudent in line with our marketdevelopment and then establishing them. In 2016 we split the market zone intosix clusters, each of which is managed by a regional center (RC). West Africaand the Maghreb states have been supported from Europe to date but here, too,we’re soon to show local presence by setting up a separate branch office forthis region.

Thomas: The aimof these regional hubs – apart from sales organization – is to transfer ourlocal service knowledge to the KHS Group’s entire product portfolio. Thisallows us to provide proximity to the customer and establish a level ofexpertise in the region which enables local teams to also install andcommission our machinery besides just servicing it. Part of our strategy ofregionalization is training, this offered not just to our own employees butalso to many local customers. We’ve already opened a KHS training center inSouth Africa to this end. East and Central Africa are to follow, so that by2022 we’ll have a training structure in place that covers the entire continent.

Auinger: We’vealso set up a uniform SAP system. This not only facilitates administration andcontrolling but also functions as a platform for communication to coordinatework locally between the various KHS subsidiaries. Because we’ve identifiedregionalization as the key to our success, our endeavors have by no meansstagnated but instead continue to be permanently further developed andoptimized.

What role do employees play in your strategy ofregionalization?

Auinger: Upuntil ten years ago engineers had to be sent out from Europe; we now employover 250 people throughout the entire region. This number has more than tripledin the last five years. Ninety-five percent of our workforce is comprised oflocal specialists. There are lots of people here with ambition who have greatpotential. We’re always nurturing our local personnel by inviting them toGermany for a few weeks each year to take part in training courses, forinstance.

What role do the prevention of waste andprotection of the climate play on your markets?

Thomas: InAfrica people are used to working with returnable bottles in the glass segment.In the fast-growing PET segment it’s often not possible to set up a closed-loopsystem. More action needs to be taken here. Our big customers practicesustainability only if costs remain neutral for them. The willingness to makeimprovements is limited as long as governments don’t intervene. That’s whyinternational politics needs to bring pressure to bear on the countries of Africa.There are a number of positive examples, however. In Kenya, for instance, theproduction, import and use of plastic bags have been prohibited since August2017. The recycling rate for PET bottles is over 70% in South Africa, with muchof the recycled material going to the clothing industry.

Auinger: Ourinfluence as machine manufacturers is limited to the provision of suitabletechnologies. We’re actively forging ahead with reductions in bottle weight andpackaging materials, for example. And the high efficiency and low consumptionof our KHS systems also actively contribute to the protection of the climate.

How is the corona crisis affecting Africa andthe Middle East in particular and what does this mean for KHS’ business?

Thomas: Thewave of infection hit our regions later than Europe. Despite this, veryextensive measures were adopted early on in some places, such as in SouthAfrica. This not only introduced one of the world’s strictest lockdowns butalso prohibited alcohol and tobacco – not only for consumption but also inproduction.

Auinger: Thecorona crisis has hit us hard in our market zone. While our global key accountshave suspended their investments for the time being, our more regional privatecustomers are continuing to invest. We’re also affected by travel restrictions.We’re therefore left to our own local devices much more than before. We canhave greater confidence in ourselves and simply get on with the job using ourlocal teams. Our service engineers in Nigeria have thus installed complexmachinery and passed the acceptance tests without any outside help. In SaudiArabia and Mozambique customer employees have completed the commissioningprocess on their own with the help of our remote support unit. We feelconfirmed in our strategy of regionalization adopted over the past few years.It enables us to provide equipment and support to our customers locally despitethe current situation.