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The Printing Industry Under the Loop


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Image Source: Printing Industry


This is another fantastic and informative article from printing industry expert and business author, Colin Thompson... The Printing Industry


Understanding the Printing Industry

Knowledge Framework - Understanding the Printing Industry

The economic facts...

The Printing Industry is a major communications tool and is viewed as a bellwether (the sheep around whose neck a bell is hung and which leads the flocks) of trends in the economy as a whole. This has always was the case from writing on stone up to the present day technology. There will always be history, change and the future.


The key issues continue to hamper the Print Manufacturing organisations that do not change in this global trading environment. These organisations need to wake up to the reality of life, listen to experienced/skilled successful people who can help, take on board business models to help them operate more efficiently and manage the management of change. To be successful in this global trading environment you need all these business tools to survive, so they need to take them on board and find success or not survive!

The Print Industry is undergoing fundamental changes in every aspect of both Technology and Strategy. Also, the current economic climate and the vast range and speed of new technology development ensure the future will be a challenging time.

The Printing Industry is the 5th largest of the global manufacturing Industries, but it is among the least well documented. It is an industry, which serves all sectors of the economy including public authorities, financial services, publishers, and distribution services and manufacturing industries. Its customers range from major institutions to the smallest business.

Its structure reflects the diversity of its products and very fragmented nature of its market with less than 20 UK printing companies employing more than 500 people and only around 550 employing between 50 and 499 people. These companies tend to specialise in a narrow range of products in national and international markets. There is a vast army of small firms, which usually are general printers catering for a local market. The number of organisations in the sector has declined `rapidly` in the past few years. According to VAT registration data there are currently almost 17,500 print businesses, a fall of over 6% from 2002. Nevertheless, this still represents more than a tenth of all manufacturing organisations, reflecting the fact that most printing organisations are very small businesses. Also, it means there are many more print businesses that are under the VAT thresh hold and many who do not class themselves as `print businesses` but do print! The number of print businesses could be as many as 30,000 plus in the UK!

In many of the statistical sources, printing is not classified as a separate industry, so that information about it, is scattered among sources often related to industries of which it forms only a part. The reason to try and `hide` information on the printing industry is due to `very low` profit margins, many loss making organisations and `life-style` firms! , high capital expenditure, deterioration in general state of trade and high impact of technology from non-print manufacturers, which now form a part of supplying customer needs.

It is difficult to measure the size of the printing industry with great accuracy, largely because of the overlap with publishing, packaging and Print Management Service providers . Also, the change of industrial classification by some printers to move into other classified areas so they do not register as `print` organisations. The printing industry contributes only 1% of the country’s total GDP and represents around 3% of manufacturing turnover. Printing provides employment for about 180,000 people in a market that has annual UK sales of around £14 billion.

Despite moves towards consolidation during the 1990`s, printing is still one of the most highly fragmented manufacturing activities. Over 60% of printing businesses report an annual turnover of less than £250,000 (compared to 55% for manufacturing as a whole), and four fifths of printing organisations in the UK employ fewer than ten people. Many printing organisations are single-outlet enterprises operating from workshop units or, to a lesser extent, high street print shops (there are thousands of these operations). A fifth of printers, moreover, achieve annual sales of less than £50,000.

On the other hand, large organisations dominate the sector for the printing of newspapers, magazines and security products. Among the major organisations are, De La Rue, Clondalkin Group, RRD and a few others.

In contrast to other manufacturing industries, printing organisations are geographically spread right across the country. There is little or no training for succession planning in the people arena, therefore the rapid change is to Digital printing with keyboard skills against craft skills. The traditional global printing industry is killing itself by no training/and little use of business models and therefore can only cast blame on the lack of management strategy to see the future.

Key Issues;

Overall market conditions continue to be tough. The corporate market in particular has suffered from the decline in company profitability, lower levels of merger and acquisition activity and from the continuing downturn in manufacturing within the UK.
Customers are continuing to be ever more demanding in terms of customer service and printers who follow a pure` manufacturing` business model will struggle to sustain adequate profitability. In most cases increased losses are at a level, which will not be accepted by lenders/stakeholders. Prospects are brighter for those organisations, which see themselves as a `wider communications chain` and can offer customers an enhanced range of value-added services. The offerings by `Print Management Service` organisations are very appealing to large/medium/ and even SME`s due to a total package of customer service driven activities.
The outlook remains very mixed, with the prospect of no growth in the manufacturing recovery together with growing pressure on household spending. The impact on household spending totally affects the Print and Communication Industry together with shorter print runs and a rapid move to Digital operations and Print Management Service companies.
For a high value-added business the print industry exhibits relatively very low profit margins and in many cases heavy losses. This largely reflects intense global competition in a very highly fragmented industry, which restricts the ability of organisations to raise prices. Therefore, print organisations should look very closely at improvements in operational processes. There are experienced/skilled people available with vast knowledge of managing successful organisations, who have developed business models especially for the print/communications industry. Use them and you will be successful in this global trading environment.
Mergers and acquisitions have occurred among large organisations (Equipment Manufacturers /Print Manufacturers /Print Management Service Organisations) with only a few SME`s being acquired by other businesses to try and stay profitable. Pressure on margins and the need for constant investment in new equipment and R & D will drive further consolidation within the industry.
The growth of electronic media represents a threat to print products, but some sectors are more at risk than others are.

THE DYNAMICS OF THE PRINT INDUSTRY

The printing industry encompasses a `wide` range of activities and products. It includes printers who receive most of their work in the form of individual jobs (job shop mentality) to produce printed matter.

The Customers

Ø By far the largest single market is the production of `advertising literature` (including brochures, direct mail and commercial catalogues) which at present accounts for 50% total sales (but this sector is in decline except for direct mail).

Ø Digital Display Printing is a major growth area in the future to traditional media printed products, whether home produced or imported.

Ø Output of Printed Products

The direct mail market has been among the most successful sectors in recent years, having grown by more than 150% over the past 12 years. But, lower company profitability and confidence has hit spending on advertising and promotions, the largest single source of printing industry revenue. Also, there has been a rapid rise in Digital Display Printing In POP/POS and large personal wrap’s on buildings.

Official statistics from the Office for National Statistics show that sales of advertising literature fell in 2001, the first time in six year and continues to fall year-on-year. Figures from the Direct Mail Association show that expenditure on mailing reached £2.2 billion in 2002, representing 5.2 billion items of mail, compared with 4.9 billion on 2001. The prediction is further increases up to the first quarter of 2005 then rapid decline.

Spending on books, newspapers, magazines and stationery has been one of the `weakest` areas of household expenditure in recent years and will continue to decline. Within this, the strongest subsection has been books, although the pattern of growth tends to be somewhat erratic. Newspapers and periodicals have generally exhibited slower growth and indeed spending in this segment has declined in each of the past four years and is still predicted to decline further.

In addition, to no growth of consumer spending, printers in the magazine sector have had to contend with the effects of a complete slump in advertising. Advertising expenditure in business magazines, for instance, was down by 8%. This has often resulted in a reduction in the number of pages printed. Meanwhile leading publishers have sought to rationalise the number of print manufacturers that they work with! This will mean, cost cutting - which will push print manufacturers further into decline? This of course is a great opening for foreign print organisations to step in with even more economical prices! There will be more acquisitions to try and keep the margin up, but the trend is still `over capacity` with `ridiculous` prices!

Possible Prospects for the Print Industry

In an industry plagued by over capacity and chronically thin margins and in most cases heavy losses, it is inevitable that some printers will continue to struggle. Print organisations should look close to home at their operation processes to cut costs, by using business models to help them raise the `bottom-line`. Plus, take on board experienced/skilled people in `management of change` to introduce best practise.

Consolidation will continue to take place among SME`s as it has become clear that a certain critical mass is sometimes necessary for survival. But only if the SME`s wake up to the `true` value of their organisations. The consolidation of the large corporations will also continue on a global scale.

Pressure on margins, the need for capital investment and the desire to build market share will continue to drive further acquisition activity. Continuing rationalisation either though mergers or plant closures, while painful to some in the short-term, may provide a firmer financial footing for the industry if some `below-cost` organisations are squeezed out!

There is no doubt that the growth of electronic media, including the Internet, is the single most important threat to the printing industry. Some parts of the print industry are less immediately threatened by these developments. Direct Mail of a specialist nature and Transactional Billing for example, are expected to see further growth over the next few years, while most manufactured products will still require packaging.

Elsewhere, however, publishers will be looking to use other media, as well as print, to distribute their content. Likewise, major organisations are seeking to communicate with shareholders and the public by electronic means. Printing of newspapers, magazines, and business communications will therefore be more vulnerable to the threat posed by new media. Plus, shorter runs and Digital processes will dominate.

It is not all doom and gloom. Printing is just one part of a complex communications process and print organisations may be able to undertake other activities and capture some of the value associated with other parts of the process. The development of variable data printing, where print jobs are linked to information held on databases, may afford opportunities for printers to become involved in managing data on behalf of customers. This is potentially highly profitable work, although it requires frequent contact with clients to keep the content up-to-date. It also requires in-house staff with appropriate database management expertise.

Customers are becoming even more demanding in terms of customer service. The traditional `two-week` turnaround is largely a thing of the past and speed of response, from initial estimates to final delivery, is essential. Success in such a market requires more than just the latest equipment - also demands a `skilled and flexible` workforce.

Conclusion

Print along with spoken language and electronic media is one of the key historical shifts in communication.

The Internet and interactive multimedia are providing ways of employing the printed word that add new possibilities to prints role in culture. The printed word is now used for real-time social interaction and for individualised navigation through interactive documents. It is difficult to gauge the social and cultural impact of new media without historical distance but these innovations will most likely prove to signal major transformation in the use, influence and character of human communication.

We live in a world of `High Technology`, a world that places great emphasis on `effective management`; a world where communication is one of the most talked about business subjects.

What's Changed? Is the speed of change!

The last 20 years have seen more significant changes in the development of print processes than ever before.

The World is Digital, The pace of Change is Quicker

Globalisation of Digital printing is hard to ignore, and will certainly take a larger proportion of the world printing work currently led by offset litho, flexography and screen printing. Digital printing is fast becoming a popular choice for convenience, speed and cost. Also, linked to convenience, speed and cost is the change to short-run, on-demand digital colour printing, which is going at a fierce pace. The market valuation is always hard to prove. The speed of change depends on cost, speed and convenience.

The Business Outlook-Take Advantage of Technology

Today's technology opens new doors to increased productivity and effectiveness in producing digital print. The latest software and document production technologies can dramatically increase the functionality and value of digitally printed documents.

High-level platform integration lets organisations merge data from multiple sources and create communications with increased value.

Automated process controls systems, featuring the latest logic and coding technologies, ensure data and document integrity for each communication. Automatic process checks and balances at every stage of production can help eliminate communication error made by humans.

Digital colour document readability and eye appeal. As new colour and digital technologies become easier and more economical to integrate into the high-volume communication manufacturing and distribution environment, they will be key to the communication process.

The future is variable-data imaging, which is the unique capability of digital printers. The growth of database-driven marketing and in particular database-driven web sites is leading to precise targeting of the marketing message to individuals.

As time goes by the e-commerce and email explosion will effect printing, but by how much and in what time frame, depends on technology, cost and human acceptance. But the investment priorities are in both categories as company's gamble with their future. `Think before you leap`.

Acquisitions and mergers will be gathering momentum in the future, not just printing companies, but industry in general on a global scale. Organic growth is very difficult, the way to survive and hold up the profit margin is to acquire companies and companies with synergies as well as partnerships (alliances) with other companies to offer the `total solution`.

The Print Management Service - A global communications solution for printing and distribution of information.

The Print Management Service has been described as resembling the relationship between conductor and orchestra, both sides working together for a common goal, with the supplier delivering the product in perfect harmony. For today's most successful companies, these principles underpin their whole corporate philosophy; print dotcoms do not adhere to such principles.

Today's users need to create printed documents faster and change them more often, multi-purpose usage has made many documents more complex. Quality linked with flexibility and customisation has become important factors.

The Bottom line-Bringing value to the Customer

The biggest factor in winning or losing the business is the customer's perception of the value you provide. This requires analysis, education for the customer and communication of the benefits of digital `on demand` printing solution. You need to show the customer that you have the best, total solution and provide the level of support required achieving cost savings and improving operational efficiency.

In most cases you will not be the lowest price per unit alternative, but will need to demonstrate that you provide the `greatest value` for the customer price pound.

In today's business world, it is not about selling products; it is providing the customer with solutions. This is the way to develop long-term relationships and retain customers for life - this is why the `Print Management Service` is the way forward. Also, over the past thirty years the Print Management Service organisations have gained about 50% of the print available in the UK.

Future Directions

Digital printing systems vendors will continue to push speed and increase resolutions of their machines as well as introduce new colour systems.

Paper documents will become more `intelligent` through the creation of efficient coding systems.

The ability to view, archive, search. retrieve, distribute electronically in any format, and print any document, at any time, and from any platform will be key in the future.

Organisations will be successful, if they have the `right` people with the passion, experience/skills together with the business models to forge the way ahead in the world of change. Take on board business guides and business models to achieve an increase in sales, gross and net margins and the retention of people. Training is the most important tool to success!

Over-capacity

As a result of the fragmented nature of the printing sector in the UK and the world, the industry has been affected by surplus capacity. This excess capacity has increased year-on-year, despite continued retrenchment of employment, closures and failures among small, medium and large sized companies in the UK, Europe and the USA. Also, the starting up of new print manufacturers in China, the Middle East and the `new` European countries. The investments in the `new print manufacturers` are exceptional high, due to low `overheads 'and a higher return in a global trading environment. Training is the most important tool that foreign countries have invested into with unique guides, business models and taking on board experienced/skilled people that the UK have abandoned!

It is currently believed that over capacity in the UK printing industry runs at approximately 40% +, affecting every sector. The effect of this over capacity has been substantial pressure on margins, forcing companies to look for alternative ways to increase profits, through moving into different or niche sectors or looking for these new sectors by mergers with other synergy companies.

Again, this has led printers to strive for efficiency through cutting costs, resulting in redundancies and cuts in other business activities. But, utilisation of both expensive equipment and people are the major criteria.

Economy

The economy is an extremely important factor for the printing industry in a number of ways.

• Economic conditions have a significant impact on investment.
• Affects not only expenditure on advertising but on all printed material.
• Levels of disposable income have impact on commercial printing.
• Small changes in the economy have a significant effect.
• Rising costs erode margins.
• Strength of Sterling
• Weak Euro

Rising Costs

• Rising raw material costs.
• Paper mills facing `untenable pressure`.
• Increased customer requirements.
• A move from paper to printing on synthetic substrates.

New Technology

The development of new technology is one of the most important issues impacting on the printing industry. Indeed, this is a world-wide issue.

New developments in improving productivity and efficiency as well as enabling printers to create new products for the customer have enabled many companies to forge ahead of their competitors.

• Digital printing is the most important development since Litho. Digital presses have been available since 1995, so the technology is no longer in its infancy. The Digital market is expanding rapidly as more companies are seeing the advantages of Digital in terms of increased productivity and lower costs. Digital is taking market share from conventional printing by cost savings being a major key factor.
• The development of waterless printing has also been important, but not as important as Digital in terms of reducing cost.
• Another impact on saving costs is single fluid ink.
Other developments designed to increase productivity and cost effectiveness include the creation of new types of paper such as mico-flute. 30% lighter than litho-laminated.
• The development of print portals has enabled printers to bid for jobs on-line and allowed print buyers to deal direct via their web-site.world wide. This has increased productivity and efficiency in terms of time management.

The Environment

Key factors to impact on the printing industry.

• Legislation-European Directive on Packaging Waste/Waste Strategy.
• The Climate Charge Levy-energy tax on business.
• Energy and fuel costs will increase by more than 30% annually.
• ISO 14001 certification benefits-lower costs by using less energy and economic incentives such as taxes, charges and trade permits.

The future is about offering `solutions` to customers by operating a Print and Workflow Solutions Programme and methodically looking at how you manage your business with the `right` people. Also, keeping a close eye on the speed of change, that will affect your business. Training, guides, business tools and experienced/skilled people that are available to help your business challenge the global impact are the most important investment for your success.

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Now you have a detailed overview of the challenges and economic importance of the print industry.

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