A Sea Change in Print Buying
In the last year or two, the topic of offshore printing—particularly in China—has gone from being industry background noise to a headline-making concern for many U.S printers, observes Dr. Joe Webb, president of Strategies for Management. By mid 2004, the need for a comprehensive research initiative to report the facts and dispel the myths became clear, Webb says.
"A Critical Look at Offshore Printing"—a 138-page report published by the noted industry researcher with the help of Vince Naselli, Deborah Papineau and Joe LiPetri—is the result.
For the purposes of this study, "offshore" printing is defined as domestic print demand sent outside the U.S. and Canada for production. Competition with Canada and Mexico is classified as "nearshore."
According to the report, the printing trade surplus historically enjoyed by the United States has eroded over the past two years, and the decline picked up momentum in 2004. "For the first eight months of 2004, the total surplus in printed-materials trade for all countries with whom the United States trades declined by 82 percent compared to 2003. Imports and exports each currently comprise roughly 3 percent of total U.S. print shipments. This may not seem like much, but domestic printers will increasingly be subject to offshore competition in the future for products that were formerly impractical to produce overseas. This small percentage is expected to grow." …
Advances in technology deemed to be key enablers of this market trend are desktop publishing, digital proofing, Adobe's PDF file format, high-speed telecommunications, color management and computer-to-plate (CTP) systems.
Cost savings, of course, are the overriding economic factor driving production offshore. Overall cost savings, even with shipping charges factored in, are said to typically be in the 30 percent to 40 percent range.
"The offshore printers we spoke to said virtually all of the savings are achieved through the far lower cost of labor in overseas countries. … On top of that, these businesses do not have other significant costs related to environmental and worker-safety regulations and other compliance requirements," the report reveals. It also notes cost savings of up to 50 percent from using printing stocks manufactured in Asia rather than purchased in the United States.
Low costs don't come at the expense of quality, according to the researchers. "Most of the print buyers interviewed for the report said that the offshore printers they use produce print quality levels comparable to U.S. print vendors."
Strategies for Management explored several measures to gauge the scope of this challenge to domestic producers. For one, it notes that a survey done by Printing Industries of America (PIA) found 29 percent of respondents lost a print project to a foreign competitor in the first nine months of 2004, with 49 percent of those jobs going to China. The results were published in the December 2004 edition of PIA's "Economic & Print Market Flash Report." …
Other Side of the Coin
The report also considers the supply side of the equation in defining this challenge. "By the end of 2003, it was claimed that China had more than 92,000 printing companies. However, this includes all kinds of printing beyond commercial printing, such as textiles, packaging, sign making and all other things than can be imagined. Only about 5 percent of Chinese printing firms have fixed assets of $2 million or more. This is an indicator that the number of printers that can export in China is very limited.
"Much of China's printing industry is based in the Guangdong province, which has more than 15,000 printing firms—900 of which have foreign funding. Hong Kong has been a high-quality producer of print for quite some time. Now a large percentage of the printing plants in Hong Kong (and Taiwan) have relocated to Guangdong and improved the quality of Chinese printing overall.
"India is currently a small player in offshoring, but from what we discovered the country is poised to become a major offshore print competitor. … Since India's middle class is educated (and often technologically adept and English-speaking), Indian printers can offer graphic design inexpensively (at 30 percent or more savings), and in timeframes unheard of compared to U.S. standards."
The researchers say foreign competition roughly follows a U-shaped curve where short and long runs of the volume spectrum are not affected to a great degree by offshore competition. The heart of the commercial sheetfed business is the prime offshore target.
There are physical, economic and functional barriers providing some checks on the encroachment of foreign competition. The report examines about a dozen of these at length. For most buyers, distance and language barriers are likely to be the top concerns.
Shipping times—"For large print projects shipped via ocean freighter, sailing time from Asia to the West Coast ranges from 10 days to 2.5 weeks; Asia to NYC is roughly three to 3.5 weeks. Shipping times for air courier range from one to three days, or three to five days for air cargo."
The barrier of geography also comes into play by limiting print buyers to collaborating remotely with print suppliers and introducing time-zone differences into the process that can cause a lag in communications.
Language barriers/miscommun-ications —"The language issue is one of the reasons why so many offshore jobs are still handled through print brokers and, increasingly, U.S. sales offices owned by offshore printers."
One issue that could be easily overlooked by potential buyers is the ready access onshore printers have to the U.S. Postal Service.
In their final analysis, the researchers conclude that offshore competition is here to stay and it has to be met with permanent changes in the structure of the U.S. printing industry. They contend there is more going on here, though. "Offshore printing is not the most important threat to the printing industry, electronic communications is. It's the economics of using print that are unfavorable, not the economics of producing print."
The "What Should U.S. Printers Do?" section of the report outlines a number of steps that printing companies can take to blunt foreign competition. In summary form, among the top steps are:
Optimize operations—"… Investing in IT infrastructure is essential to remove costs from the entire printing business."
Seek partners overseas—"… Overseas suppliers are producing goods at lower cost and increasing levels of quality. It is important to work with some of these suppliers …"
Invest overseas—"The idea of investing overseas may be beyond the financial or management capabilities of many print firms, but it should be considered."
In closing, the researchers expand their focus to offer a holistic prescription for the U.S. printing industry. "Market forces and consumer preferences require that print's prices continue to go down. This is not a capacity issue; it's a fact of a highly competitive market for all media, in which print is one choice among many. Instead of being focused solely on trying to quote the lowest print prices, printers should be able to communicate the value print offers for particular projects." …
This article was reprinted, with permission, from Printing Impressions, March 2005.
About the Report
• Executive summary with key report findings
• Discussions of economic trends and enabling technological and other factors
• Recommendations to printers and suppliers about competing and navigating the new global market for print
• Industry trade data
• Hyperlinked bibliography
• Private Web site for latest data and news updates
• Hard copy of final report
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• Price: $2,875
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