The printing industry is currently in a recession having fulfilled the technical definition of two consecutive quarters of negative growth. You could see from the chart the impact that the GFC had on the industry spanning from JuneQ 2008 to JuneQ 2009. The industry has not yet recovered from the GFC, there was temporary hope during Sept and Dec Q 2009, but ever since then the trend has been a downward one. According to the latest data, the industry’s growth rate is 21 per cent lower than the pre-GFC level.
A comparison of the growth rates of the printing industry and the Australian economy makes an interesting reading. The GFC impact is noticeable on both but unlike the Australian economy which managed to pull itself out of the economic downturn reasonably rapidly largely due to the fiscal stimulus measures and falling interest rates, the printing industry’s growth rate plunged in a southerly direction. The Australian economy managed to avoid a recession whilst the printing industry experienced a severe economic downturn. In recent quarters the industry has continued to underperform relative to the Australian economy.
The sales data depicts a similar trend to the industry growth data. Industry sales are currently 22 per cent lower than their pre-GFC levels. Considering that printing industry sales fell by 22.4 per cent during the period of the GFC, clearly there has not been a noticeable improvement since then.
The recent period has been characterised by a downward trend. New capital expenditure also fell during the GFC period but the duration of the decline was much shorter than the contraction in industry growth and sales and this is due to the Federal Government’s Investment Allowance. With trading conditions remaining challenging and the presence of idle capacity, it is not a surprise to see falling levels of new capital expenditure. There is also less incentive now to invest in new equipment following the end of the investment allowance (December 2009).
The Association’s internal research shows that business sentiment has been volatile in recent times. The GFC period was characterised by extreme volatility. While in recent times business confidence has remained positive the most recent quarter shows a significant deterioration.
We also monitor reported capacity utilisation rates. The Index we have developed plots the results of all those respondents who are operating at capacity utilisation levels of 70 per cent or more. The orange area thus represents effective reported capacity utilisation rates and the olive green area represents idle capacity. The December 2010 quarter was characterised by reported improvements in business conditions which resulted in noticeable improvement in reported capacity utilisation rate. It will now be interesting to see whether the reported improvements in industry trading conditions are actually reflected in official data as well when the data is released next week.
As part of our survey we ask respondents to identify what is the single most important factor preventing increased production levels. Predominantly this has been lack of orders. During the December 2010 quarter the significance of lack of orders declined and other production barriers mainly capacity and labour increased in significance.
Another issue facing industry participants is labour and finance availability. For 4 consecutive quarters labour has been reported as being difficult to obtain. As for finance the situation started deteriorating during March quarter 2008 and continues to this day. Lenders view the industry as a mature one with relatively low rates of growth, hence there is some reluctance to extend funds. Having said this, proactive printing businesses continue to access funds.
Economic sustainability is the single most critical issue facing the printing industry today. A combination of factors such as idle capacity and printed matter being treated as a commodity despite the fact that the vast majority of printing that is commissioned is unique and hence should not be treated as a homogenous product, places downward pressure on margins. Many segments of the industry are also considered mature meaning at best they have low growth prospects. Having said this emerging sectors such as digital printing and printing businesses that have moved beyond just offering ink on paper, are enjoying solid rates of growth.
Changing public perceptions about the environmental impact of printing is a contemporary industry challenge. The main substrate used by the printing industry paper is produced using a renewable resource – timber. Sustainable timber harvesting is Greenhouse Gas emissions neutral. The paper industry plants more trees than are harvested. It is estimated that there are 25% more trees today in the developed world than there were in 1900. Using more paper and print means more trees! A fact not widely known. Unlike toxic materials contained in computers, and e-devices, paper is a natural non-toxic product. Paper and printed communication can be completely recyclable. Paper can be recycled up to 7 times. How many times can computers or e-devices be recycled? Printed communication is permanent, portable and easily re-read without requiring additional energy. However, each time we access a website or our email, we have to turn on a computer which involves the use of energy. Commercially printed communication materials have a significantly lower environmental footprint than printed items produced in offices or in households. For example, printing a single page A4 document in black at home or at the office, consumes the same amount of energy it takes to produce 100 A4 pages, printed both sides in colour, on a commercial printing press. The printing industry is an environmentally sustainable industry, the challenge it faces is exposing the true environmental costs of e-media. Printing locally is also environmentally beneficial helping reduce the carbon footprint – the “carbon miles argument”.
Time affords printing a natural protection against imports. If you as a client is commissioning time sensitive printed matter than in most cases it is likely to be produced locally. The window of opportunity for time sensitive printing is up to a month. Despite this many items of printed matter are traded on the global market with China assuming a critical supplier role in recent years. For me the interesting question is who will replace China. As no doubt it will happen as printing capital flows to low cost production centres. Currently China is one of those low cost centres, but as Chinese costs increase over time, it will start to lose its competitive advantage, and another lower cost centre will emerge and attract the printing capital to it.
The printing industry is a capital intensive industry. There is constant pressure on industry participants to invest in new technology. So in a way technology for the industry is both an enabler and inhibiter. Technology has also fostered the emergence of e-competitors to print which are eating at the market share of the printing industry. I see this as a major threat to traditional printers who remain stubbornly focussed on ink on paper. Those who are in the communications game, and since printing is an integral part of the communications and information industry, the internet and electronic applications and devices that are emerging now should be seen in their proper context as part and parcel of the wider media convergence trend. This offers proactive printing/communication companies a great commercial opportunity.
The SME characteristic of the industry means that a vast majority of printing business operators are owner operators. Our surveys show that within a decade more than 90 per cent plan to exit the industry, yet more than 70 per cent have no plans in place to manage the process. For many their business is a form of superannuation or retirement income yet their ability to sell their businesses is being placed at risk as without a succession plan the potential value of the business is reduced.
While the printing industry is a capital intensive industry it also employs tens of thousands of employees. The 2006 census data shows that more than 140,000 people were employed in printing and related occupations. The issue of attracting and recruiting labour – encompassing both new entrants to the WF and skilled workers has become a major issue for the printing industry. Largely due to misconceptions about the industry as job seekers often perceive the industry of being craft based and hence non-appealing. The reality as we all know is quite different. Not only is the printing industry a technologically advanced industry with widespread use of modern technology, it is also one of the largest employers of information technology personnel. The industry has started to address the misconceptions, with special campaigns targeting generation Y.
The group known as commercial printers are the most numerous. Using offset printing technology they are prominently SME’s focusing on delivering quality printed matter. Some proactive entities have expanded beyond ink on paper and offer other services such as database management, warehousing, logistics and digital printing services. The key feature of this print management model is direct relationship between print suppliers and clients which helps deliver product quality and greater responsiveness to client needs.
Elimination of the middle man means essentially one margin. Being predominantly SME’s these print suppliers are single site operations often driven by volume. Those focusing on print also tend to have a relatively limited product and service offerings.
The hybrid model which has been a recent phenomena, the last 5 years or so is offered by print groups. The client can choose from in-house or outsource printing options.
Like the commercial print model there is a direct relationship between print suppliers and clients. A formalised procurement structure is often established to cater for business critical products – hence there is increased sophistication involved.
A feature of the last decade or so has been the independent print manager model. The model sources lowest price by using a panel of print suppliers. It is a classical outsource model with single point of contact.
A key feature of this model is the involvement of the middle layer of management which translates into a margin-on-margin cost model. In the post GFC period with a significant number of printing suppliers exiting the industry, the supply base from which the independent print manager draws upon is shrinking with obvious consequences. Ensuring product quality and consistency is another issue that independent print managers need to manage, making certain that when they are dealing with 200 or so print suppliers, that they all adhere to similar standards.
The Association invested time and resources during 2010 to develop its Print Procurement Principles. While initially aimed at the government sector the Print Procurement Principles equally apply to the private sector. The PPP is based on the formation of clusters featuring government departments and agencies with similar print needs
The criteria used to establish the print supplier panels includes printed product category and regional printing requirements. Print managers/buyers have access to both printing supplier panels
To give regional suppliers an opportunity to compete there are elements of positive discrimination in their favour – with work destined for regional markets being allocated to regional print suppliers An important principle is the “value for money” principle which goes beyond price and encompasses quality, service and turnaround times.
Print panel suppliers need to satisfy minimum standards for labour, product and service quality, and sustainability Another feature of the PPP is that it stipulates direct and ongoing relationships between print purchasers and printing suppliers
The printing industry has been around for more than 500 years. While it is true that the industry is facing various contemporary challenges, including an evolving and difficult business environment, there is little doubt that print in some form will survive into the future. It may look quite different to what it is now as further industry consolidation will reshape the industry’s landscape and ongoing technological developments will assist printing companies to evolve and become true providers of communications solutions. Today’s print buyers can choose from a range of print management models. We the Association believe that the different print management models have their advantages and disadvantages. You as a print buyer should choose the one that best serves your commercial interests. If you need assistance in choosing a model by all means feel free to approach us and we can help you find a model or arrangement that best suits your needs. Or you can consult our Print Procurement Principles which provides you with a policy guideline to assist you to purchase print optimally. Thank you for your attention today you have been a good audience. I hope you have gained some valuable insights into Print Communications the evolving dynamics. If any person would like to contact me at a later stage my contact details are on the final slide. Thank you once again.
Australian economy and printing industry market conditions
Hagop Tchamkertenian National Manager for Policy & Government Affairs Printing Industries Association of Australia The CIPSA Special Category Forum Buying Office Supplies and Print Print Communications – the evolving dynamics
Contents <ul><li>Contemporary trading conditions </li></ul><ul><li>Main issues facing the printing industry </li></ul><ul><li>Key features of the print management models </li></ul><ul><li>An overview of the print procurement principles (PPP) for government </li></ul>
Main Issues & Challenges <ul><li>Economic sustainability </li></ul><ul><li>Constant pressure on margins </li></ul><ul><li>Printed matter treated as a “commodity” </li></ul><ul><li>Idle capacity encourages price competition </li></ul><ul><li>The dilemma of a “mature industry” </li></ul>
Main Issues & Challenges <ul><li>Environmental sustainability </li></ul><ul><li>Addressing misconceptions about paper and print </li></ul><ul><li>Exposing the true environmental cost of e-media </li></ul><ul><li>Domestic production delivers lower carbon footprint </li></ul>
Main Issues & Challenges <ul><li>Globalisation </li></ul><ul><li>Printed matter being traded on global market </li></ul><ul><li>Emergence of ‘China” </li></ul><ul><li>Who will replace China? </li></ul>
Main Issues & Challenges <ul><li>Technology </li></ul><ul><li>Both an enabler and inhibiter </li></ul><ul><li>The Internet and the proliferation of e-applications </li></ul><ul><li>Cost of new technology </li></ul>
Main Issues & Challenges <ul><li>Succession planning </li></ul><ul><li>According to industry surveys 91 % of current owners plan to retire within a decade yet more than 70 % have no plans in place </li></ul><ul><li>Critical issue for owners as without a plan the potential value of the business is at risk </li></ul>
Main Issues & Challenges <ul><li>Recruitment of labour </li></ul><ul><li>Despite its capital intensive nature, significant number of people work in printing </li></ul><ul><li>Poor industry image is affecting recruitment efforts </li></ul><ul><li>In WA and QLD competing with resources sector </li></ul>
Section Three Key features of the print management models
Key features of the print management models <ul><li>Commercial printers </li></ul><ul><li>Focus on print, some have expanded into other areas </li></ul><ul><li>Dominated by SME’s </li></ul><ul><li>Direct relationship with clients ensures quality, delivers greater responsiveness </li></ul>
Key features of the print management models <ul><li>Commercial printers </li></ul><ul><li>No middle man – one margin </li></ul><ul><li>Volume driven and limited product and service offerings </li></ul><ul><li>Most are single site operations </li></ul>
Key features of the print management models <ul><li>Hybrid model </li></ul><ul><li>Recent development </li></ul><ul><li>Offered by print groups </li></ul><ul><li>Clients offered in-house or outsource production options </li></ul><ul><li>Cap on in-house production facilitates outsourcing </li></ul>
Key features of the print management models <ul><li>Hybrid model </li></ul><ul><li>Offers direct relationship for business critical products </li></ul><ul><li>Establishment of procurement structure </li></ul><ul><li>Suitable for sophisticated high volume corporate clients </li></ul><ul><li>Time to implement </li></ul>
Key features of the print management models <ul><li>Independent Print Manager </li></ul><ul><li>Emerged in the past decade </li></ul><ul><li>Use of panel of suppliers to source lowest price </li></ul><ul><li>Outsource model, single point of contact reduces complexity </li></ul><ul><li>Sources lowest price on the day </li></ul>
Key features of the print management models <ul><li>Independent Print Manager </li></ul><ul><li>Margin-on-margin cost model </li></ul><ul><li>Supply base is contracting especially after the GFC </li></ul><ul><li>Product quality and consistency issues </li></ul>
The “PPP” <ul><li>Printing Industries Print </li></ul><ul><li>Procurement Principles (PPP) </li></ul><ul><li>Formation of clusters incorporating government departments/agencies who have similar print communication needs </li></ul><ul><li>The print spend of the “clusters” should be similar </li></ul>
The “PPP” <ul><li>Supplier panels created based on printed product category and regional printing requirements </li></ul><ul><li>The Print Managers have access to both printing supplier panels depending on the nature of the work. </li></ul>
The “PPP” <ul><li>Work destined exclusively for regional markets is allocated to the regional print supplier panel </li></ul><ul><li>Print procurement be based on the principle of value for money where a balance of quality, service, cost and turnaround is considered and not only on the cheapest tender/quote. </li></ul>
The “PPP” <ul><li>In selecting printing companies, Governments should specify minimum standards pertaining to the use of critical issues such as labour, sustainability, product & service quality and general capability </li></ul><ul><li>Direct and ongoing relationships between purchasing managers & government departments and printing companies </li></ul>
Summary <ul><li>Contemporary printing conditions remain challenging </li></ul><ul><li>Printing businesses need to manage numerous issues </li></ul><ul><li>Print buyers have the luxury of choosing from a range of print management models </li></ul><ul><li>The “PPP” offers policy guideline for government buyers of print </li></ul>
Hagop Tchamkertenian National Manager for Policy & Government Affairs [email_address] Mob: 0414 953 271 Ph: 02 8789 7361