All Perspectives Considered -- What are we Heading For?

All Perspectives Considered — What Are We Heading For? 14Jul05

The State of the Industry at Drupa 2004

By Ron Augustin European Correspondent IPP

The Global Picture
Reliable international statistics on the graphic industry are hard to come by. Most likely this has less to do with the famous aphorism that “42.7 per cent of all statistics are made up on the spot”, and more with the fact that published numbers are based on different classifications, definitions and currency adjustments that are not always very transparent. At times, revenues from worldwide operations are subsumed under national statistics. Different ‘North-American’ statistics are confused with US-American ones, ‘Asia’ envelops shifting entities, and the number of national statistics included in ‘Europe’, ‘Western Europe’, the European Union or the OECD are not always traceable either. And a fact remains that many countries maintain contradictory data particularly with regard to small companies.

Comparing and combining information from different sources (Pira, BPIF, TWGA, PIA, Intergraf, RIT, IppStar, national statistics), we presume that the printing industry spans some 300,000 enterprises employing 4.6 million people worldwide, with an estimated sales turnover of US$ 420 billion in 2003 (from US$ 62 billion in 1973). This compares to the volume of the worldwide electronic document market estimated at US$ 180 billion (from US$ 60 billion just 5 years ago).

The global market volume of the media industry, including publishing, advertising and printing, is estimated at some US$ 850 billion. For the packaging industry, global revenues are valued at US$ 480 billion, of which US$ 145 billion is paper and board labels and packaging.

Segmentation of the industry is still very different in each region, but, on the whole, publications printing (books, newspapers, magazines) represents some US$ 180 billion, commercial printing US$ 160 billion, and packaging printing US$ 60 billion. North America, Europe and Asia/Pacific each oscillate around 30 per cent of global revenues, leaving Central and Latin America at 7 per cent, and the Middle East and Africa at 3 per cent of the total. Table 1 shows the geographic spread in more detail.

Table 1. Graphic Industry Sales Turnover 2003 (in US$ billions)
Total US$ 420 billion (excludes packaging).

By December 2003, the North American printing industry was made up of 40,000 companies in the US and 5,500 companies in Canada, together employing some 1.2 million people. Five printers share some 15 per cent of the US market: Quebecor World, RR Donnelley, Quad Graphics, Banta, and Big Flower. Canada-based world leader Quebecor World has a worldwide sales turnover of US$ 12 billion, of which US$ 1 billion is from Europe where it is one of the largest graphic groups, particularly in France and Spain. RR Donnelley has a turnover of US$ 7 billion and is investing heavily in Eastern Europe and Asia. Quad Graphics, with an annual turnover over US$ 2 billion, is developing partnerships in Latin America and Eastern Europe.

In Europe, with an estimated 85,000 companies and 1 million employees, large graphic groups include Bertelsmann Printing Division (US$ 2 billion) from Germany and UK-based Polestar Group (US$ 1 billion). The two single largest Asian print giants are Dainippon Printing and Toppan Printing from Japan, each around the size of RR Donnelley.

Growth Perspectives
One of the myths that have prevailed for a long time in the graphic industry is that its annual growth rates should be more or less at par with GDP growth rates, at least in leading economies. This hasn’t been the case anymore however, since 1996, and we think it would be an illusion to expect that pace to come back soon, or, to come back at all. Over the past five years, the average growth rate of the printing industry has been +0.4 in the USA, against an average GNP growth rate of +4, and +0.8 in Western Europe, against an average GNP growth rate of +2.3 there. Growth rates are much higher in Asia and other regions of the world, and will continue to be so for some time with increasing globalisation of the industry and its customers and suppliers.

But the reason for linking expectations of print sales to GNP growth is the fact that, historically, there has been a correlation between advertising expenditure and GNP developments. It is more realistic, then, to look at the changing patterns of advertising expenditure and print buying, which, in turn, are bound to respond to changing market requirements and the technologies underpinning these.

Within the industry, these changes in the market have already led to more differentiation, less repeat jobs, less pages, shorter runs, more colour, increased use of enhancement applications (different paper grades, additional colours, coatings, UV, foiling, embossing, in packaging a growing range of substrates and electronic applications), and a variety of inroads by digital alternatives. The total volume of print may continue to grow, but there is no doubt about it that more and more areas are shifting to digital applications and that printing activities are being taken over by players other than the traditional printshops. Globally, there’s a steady growth in the use of printing on demand, PDF transfer over the Internet and intranets, electronic messaging, office and home printouts, and distributed printing.

One of the most significant changes printers need to realise is the shift of print in the overall media package. Print is rapidly evolving from the number one message carrier, which for audiences only had to compete with radio and TV, to a narrow range of communication media among a larger range of other alternatives.

For printers across the globe, this means that any economic rebound will not automatically turn their sales around. They can only stay on top of things when they develop new and inventive business models that adequately respond to the changing requirements of their business environment.

The Voice of the Industry
At the close of 2003, we attended a two-day workshop of Intergraf, the International Confederation for Printing and Allied Industries, which tried to determine the industry’s market dynamics and drivers of change. The workshop was both experimental and innovative in its methodology since it used scenario techniques commissioned by the European Monitoring Center for Change to structure an exchange of views between Intergraf member federations and the European Commission’s Directorate General for Enterprises. Basically, the European printing industry was seen as being endangered by structural overcapacity, competition from globalising markets, and a number of regulatory aspects of European legislation. Particularly, the new regulations on enterprise finance known as the Basel II Framework were blamed for divestments in the industry. At the same time, business opportunities were identified in new media technologies, more focus on competencies, adding value through adhering to networks, and more creativity in customer services, as key factors to sustaining competitiveness and profitability.

Intergraf intends to keep up with developments by sharing them at its newly established World Print and Communication Forum. The main purpose of the Forum is to act as a regular platform for printers and their suppliers on common global issues. The Forum, founded by the printing associations of Australia, China, Europe, Hong Kong, India, Japan, Latin America, South Africa and the United States, will organise a 3-yearly World Print & Communication Congress replacing both the World Print Congresses and the Comprint International Conferences. The next congress will be known as WPC8, and is to be held in January 2005 in Cape Town, South Africa. It may just be in time to anticipate on the industry’s next post-Drupa shake-out.

drupa
Fragmented as the industry is, despite the increasing number of mergers and joint ventures, its main concern remains competition, and its main focus a continuous effort of cutting costs. We have been told again and again that drupa 2004’s answer to this is JDF and its enabling functions in the advancement of the computer integrated manufacturing (CIM) concept. Well, workflow automation has been around for a while and will undoubtedly remain an important issue for printers trying to rationalise their production processes and customer interfaces, both in terms of quality control and productivity. But what many printers will be looking out for in the first place, when going to Dusseldorf, are technologies that may help them increase profitability and add value in additional areas. They will be looking at digital printing, proofing, CtP, content management, fulfilment and what have you with the perspective of diving into other market segments and other services than the ones they are already offering to their customers.

Prospects
So what are the prospects in particular segments of the industry? Forecasts tend to be based on parameters that vary from country to country and that are changing too rapidly to be generalised. It may still be useful, however, to take a broadbrush look at trends that are already shaping the industry, and that will undoubtedly determine the conditions of its future.

The next few years will see a significant replacement of the sheetfed offset press base in leading economies, where printers will find that buying a new press will allow them to eliminate older presses, not on a one-to-one basis, but on a two-for-three or two-for-four basis. Some of the impetus for this investment will be a declining workforce, which is already tight as new employees look to more exciting computer-based imaging markets. The same printing companies will find that virtually every production decision will represent an investment in digital technology, and an employee training and retention investment that adds up to the equipment cost, if they want to sustain their businesses.

The main growth areas will be in heatset offset and digital colour printing, at the expense of sheetfed offset. At the high-end of the business-to-business market, heatset presses continue to make inroads, and at the very low end, in terms of run lengths, colour copiers and digital presses are eating at this business. By the end of 2003, digital printing already accounted for 9 per cent of commercial printing, and its market share for 2010 has been forecast at 20 to 25 per cent.

When this is combined with what is occurring in new media, like the internet and such simple things as viewing PDF’s on screen in corporations, sheetfed offset products are seriously threatened. In the packaging printing industry, flexo is gradually gaining ground over other printing processes, together with a range of inkjet applications.

Over the next few years, we are likely to see the impact of alternative information distribution technologies on the printing industry. Business forms will be impacted by eCommerce. Directories are already affected by CD ROM, and will continue to be heavily affected by the Internet. The same will be the case with parts lists and price lists, where CD ROM and PDF’s over the Internet are better alternatives. Technical literature is likely to move to digital printing, allowing shorter-run (on-demand) printing and more customisation (personalisation or even variable printing).

Annual reports are moving partly to digital printing, as special late copies can be produced for the most important investors. Most of the legal requirements to publish this information will be handled by the company’s website. Financial printing is going digital, as runs are generally short, and there will be an increasing move towards distributed printing in specific financial centres.Posters will move to digital printing using high-speed, large-format inkjet devices.

One area that will continue to experience growth is quality colour printing, which currently isn’t threatened seriously by electronic delivery. Quality promotional material will be required for many years, as will magazines.

The magazine publishing market will do quite well for the years to come, especially with specialty titles. The lifetime of these types of magazine titles will be less than in the past, and emphasis will be on constantly creating new ones. The proportion of magazines printed by heatset offset will increase from 60 to 70 per cent, gaining from gravure. Heatset is expected to be economic at run lengths as low as 15,000, with typical run lengths in the 50 – 100,000 range, whereas gravure would still be economic from 100,000 copies onwards. Due to declining run lengths, digital printing and hybrid coldset presses are expected to take increasing chunks in this market.

Newspapers are facing the greatest challenge from the other news media, and can only survive by combining their activities with those in other areas.

Catalog marketing and direct mail will continue to do well as retailing tries to adapt to changing customer requirements, but marketing via the Internet will be intertwined with these efforts. Just-in-time printing, distributed printing, but also digital asset-management and cross-media publishing remain both challenges and opportunities in this area.

Packaging and label markets will stay strong for a long time, as there are no electronic alternatives, and marketing requirements will keep this segment growing.

Depending on temporary differences among regions, we may conclude that, in general, the next decade will see the following developments for commercial printers —

Declining markets: newspapers, journals, booklets, brochures, business stationery, business forms, transactional printing, envelopes, parts and price lists, presentation folders, product literature, product manuals, tickets, and technical literature.
Flat markets: directories, annual reports, greeting cards, newsletters, newspaper inserts, tags, posters, and, arguably, books.
Growth markets: packaging, labels, quick printing, magazines, marketing and promotion printing including direct mail, point-of-sale, digital reprints, and inserts.

Table 5 breaks down the regional differences in some of these trends, and we’ll have to keep in mind that a general trend may contradict specific counter-currents in a particular area.

At any rate, there will be an increasing level of competition from service companies and creative organisations moving into printing, particularly in the areas of digital and on-demand printing. In most areas, we will see a certain polarisation, leaving companies operating in the ‘middle ground’ to be the most vulnerable, whereas the stronger businesses will either be major international players or small niche companies operating in high-value market segments. (For instance the IppStar industry survey estimates that newspaper production in India in the past three years has increased by more than 10 per cent each year in terms of value addition of print, that is in the net increase of titles, editions, circulations, pagination and process colour pages.)