Recognizing and Planning for China’s Impact on the U.S. Print Market

by Fred Antoun  11-21-05

Ask press or printing equipment manufacturers to identify the current “hot market” for sales, and most will answer: "China."

While China does manufacture products for its own domestic consumption, its rapid industrial growth has been based on an export model.  In short, China has become the supplier of almost everything for the Western World.

Printing will be no exception.  Existing and newly formed Chinese printing companies are not buying state-of-the-art equipment simply to produce printed products for China and other far eastern markets.  Chinese printing companies have been quietly and successfully building their relationships with print buyers and customers in Europe, Mexico, South America, and the United States.  Many printers have already experienced the loss of a significant job/s to a Chinese company – and it’s going to become more widespread.

Until recently, the U.S. printing industry has done a fairly good job of ignoring the China problem.  When China began to produce electronic components, such as cell phones, PDAs, and computers for American companies, or companies that distributed significant product lines in the U.S., we accepted the manufacturer’s logic that it only made sense to have the manuals, literature and included 4-color advertisements printed in China where the products would be packaged.  It also made sense that the packaging would be printed in China.  Predictions were that although we would lose that business, Chinese printing companies could never achieve the turnaround times and quality that American buyers demanded.  That was simply wishful thinking.  Today, Chinese companies are buying state-of-the-art equipment, training their workforce, and producing (in many instances) a quality product.  In addition, the production cost differential (due in most part to labor cost differential, but also in part to government subsidies) can support the use of faster shipping methods, making turnaround times shockingly short in some instances. 

The Chinese invasion into the American print market is now receiving careful scrutiny by industry experts.  PIA/GATF Chief Economist, Ronnie Davis, recently published “Bull in a China (Print) Shop:  Update on Chinese Printing,” which is available at www.gain.org.  Considering that the China impact on the American print market is only beginning, and analyzing the impact of other Chinese manufacturing successes, there is cause for concern.

What can be done?  I am convinced that there is no silver bullet.  Congressional imposition of tariffs or duties to protect the U.S. printing industry is unlikely.[1]  The same hue and cry came from other industries when China basically gutted the manufacturing market for their products, but no government relief was in sight.  The effect can be seen by going through a Wal-Mart, or an electronics store, and counting up the number of products made in China.

Likewise, waiting for the economy to fully recover will not solve the problem.  As the U.S. print market grows, typically with the economy (or so goes the conventional wisdom,) there is no guarantee that increased print volume will go to U.S. companies.  It is equally likely that a significant percentage of any increased print generated by economic upturns could go to the Chinese print producers.

What can be done, however, is to first recognize that the industry has a problem with print production in China.  Once we stop denying that the problem exists, we can begin to look at solutions.  Those solutions must be based on recognition that China is a far more dangerous competitor than any printing company you have faced here in the U.S.  

Some methods that bear careful analysis as weapons in the war to keep U.S. Printing produced in the U.S. are: 

     1.  Develop stronger, deeper relations with customers through consultive selling.

2.  Take a “beginning-to-end” service approach that includes meeting the customer’s needs on the front end and back end, making it more difficult to go elsewhere for the printed product.

3.  Propose a long-term contract in exchange for a small (hopefully) price concession, or added service (remember to include a paper and materials price escalation clause, and if possible, a COLA labor and overhead cost escalation clause).

4.  Consider discounting high value-added ancillary services to lower the buyer’s overall cost.

5.  Stop objecting to tight schedules and the combined use of digital and offset printing to meet the customer’s requirements.

6.  Work with your customers to identify products that contain sensitive or valuable information that is being released in the publications.  Remind them that once announcements, financial information, product literature, drawings, schematics, etc. go offshore, they lose all control over the use of, and timing of the release of the information in the printed materials.

7.  If you have a union, encourage them to start a new round of “Printed in America” promotions.

8.  Remind customers that, as a result of our willingness to send manufacturing offshore, we have created an economic giant – China – that now owns over 40% of our national debt, and the percentage is climbing.

9.  Point out the inherent risks of print production in China (language; delays; quality issues; no press inspections; no relationships; no recourse for errors, poor quality, late orders—etc.).

10. Talk to your elected representatives about the trend that is going to harm one of the nation’s few remaining manufacturing industries, and that the printing industry is a major employer in your region.  See if there is anything they believe can be done in Washington to help avoid the inevitable loss of jobs.

11. Finally, remember that you are in business to make money (and stay in business), and consider serving as the prime contractor or outsourcing agent to China for a product that you believe or know your customer will be taking offshore.  Yes, I know it’s blasphemy.  However, if the choice is to lose any profit from the work, or to maintain a decent profit from the work, by serving as a prime contractor and outsourcing the work to a Chinese printer, you may have little choice.  Brokers have already learned that there is a significant markup to be made by outsourcing work to Chinese printing companies.  Several recent projects point out that brokers can underbid a U.S. printer by sending a job with the required lead-time to a Chinese company, and still make 10-15% profit!  In my conversations with buyers that are considering outsourcing to a Chinese company because of the cost savings, the major concern that has arisen is how effectively they will be able to communicate with the producer in China, how they will handle change orders or problems, and whether they will have anybody to complain to if things do not go well.  Hopefully, these concerns will convince the buyer to give up any plans to source print in China.  However, if they do not, the concerns will remain, and the use of an American printing company with a Chinese partner for some or all of the print production on a project can still save the buyer money (even with a reasonable markup), while providing the desired customer service and security

 Now that the problem appears to be in the forefront, I am certain that there will be a number of articles, seminars, and trade association publications with more (and better) suggestions as to how to begin to address the problem.  In the end, the most important factor is not the solution that you choose, but that you analyze how China's print production will affect your company.  Once a company analyzes its particular situation and vulnerability, customized solutions combining a variety of methodologies can be developed.  Simply doing nothing is no longer an option.


[1] PIA /GATF has a project that will work with state and federal government print purchasers to prohibit the offshore printing of not only classified, but also sensitive and “Official Use Only” materials.  In addition, we will work to increase the percentage preference given to U.S. or in-state printing companies where there is an offshore competitor also bidding.  Unfortunately, although state and federal agencies feel they have a legitimate need to control the printing of their publications, due to both the potentially sensitive nature, and the fact that tax dollars are being spent, legislators have a difficult time justifying the same type of restrictions for private sector purchases. 

 

Copyright © 2005  Frederic G. Antoun, Jr.

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