The major print manufacturing suppliers from Asia are now the pioneers in that game, and racing to make your products better, faster and cheaper than ever before. Unlike in the 1980s, they no longer have mentors—the Italians/Spaniards to teach them the finer points of museum-quality printing, the Americans on leveraging technology for maximum efficiency, or the Japanese on paper engineering—because they are now way ahead of the competition (if there's any at all). So Asian suppliers are now learning on the fly, upping the ante and pushing the envelope to the very edge as they go along. And how!
During a recent weeklong tour, PW is once again astounded by the array of creations rolling off production lines. Three projects catch our eyes like no others: an oversized coffeetable book sporting a gatefold on almost every page, a children's boardbook with pattern-embossed pages mimicking corrugated steel, and one waterproof book of full-color acetates. It's hard to believe that we are essentially looking at the sum of paper, ink and glue—with the occasional bits of cloth, vinyl and other synthetic materials—put together with the help of technology and a liberal dash of ingenuity.
Today, instead of just taking orders as they did 10 or 20 years ago, the Asian print manufacturers are the publisher's best friends—and, for want of a more accurate phrase, partners in crime—in a race to engineer products that will shout the loudest from the bookshelf or make customers part with their money the quickest. They are also the saviors when the publisher stares down the barrel of a tight budget or an impossible in-store date. And it's no longer in doubt that what the publisher wants, the publisher gets—at a price, of course. The truism of the industry is never far from these manufacturers' mind: that if they can't deliver the goods, the cost-conscious, spoilt-for-choice publisher will just skip to the next contact on their list without so much as a blink.
In essence, the print manufacturing industry is now about tailoring—expertise, capacity and materials on hand—to meet publishing demands. It's about creating the novel and abnormal—since thermochromatic/photochromatic inks and glittering/ flocking effects are becoming standard fare—to fatten their razor-thin profit margins. And it's also about making sure the industry moves as one to affirm its global dominance and to challenge even those extraneous factors beyond its control.
SARS: The Bad Chi
The timing couldn't have been worse: headlines were screaming weak overseas demand and enfeebled buyer sentiment brought on by the impending war on Iraq. And the mood was further weighed down by the depressing certainty of global oil price hikes impacting raw material and freight costs. So when the colorful and often fatal mutant strain of the influenza virus reared its ugly head in March 2003, it was the last thing Asian suppliers needed on their plate. But the virus spiraled out of control, decimated some 900 lives and said to have cost Asian economies a hefty $140 billion during its reign of terror.
Much of Asia rued the day SARS (severe acute respiratory syndrome) made its way to the medical lexicon. In Singapore, the country's flagship carrier, with a 57-year winning streak had nothing but bad news of canceled flights, staff rightsizing and two straight quarters of steep losses. In Hong Kong, tourist receipts dwindled to near zilch in March and April, striking the hospitality-dependent economy right at its heart. In China, trade fairs—the lifeblood of its manufacturing sector—were either canceled or cut short. In Taiwan, its economic vehicle stalled as the country battled to rein in a virus that had run amok in its hospitals.
You get the idea. The virus spelt trauma at the highest level to the Asian economies. A whiff of a new case was enough to lower all stock indices, induce paranoia and depress GDP by a few percentage points. But, in reality, the fear of SARS is far more contagious than the disease itself. For most American and European publishers manufacturing in Asia, SARS and its ensuing hullabaloo were pure media circus, especially when, by comparison, influenza claims at least 7,000 lives annually in the Northern hemisphere. Most of the publishers surveyed by PW say the impact on their manufacturing schedule was minimal. All agree that teleconferencing and email communication with their Asian suppliers have now reached a new level of sophistication and confidence, thanks to the virus.
Disorder Equals Opportunities
The Chinese scent profit in chaos. It's an aphorism which anyone wishing to deal with Asian suppliers would do well to understand. For Beijing, turning the whole SARS debacle to its advantage and cooking up ideas to heal the devastating blow to its manufacturing prowess was high on its list. The launch of its first-ever B2B e-commerce portal Procurement e-Fair Platform in August 2003 subsequently generated $200 million worth of transactions within two weeks. Almost simultaneously, its first international online book expo attracted 450 foreign publishers and more than 370 domestic ones. During its run, the expo Web site (exp.cnokay.com) provided access to more than 120,000 books, trade calendars, sales and copyright trading activities.
To most companies looking for cheaper goods and volume production, sourcing in China must continue, virus or no. And it did even during the worst period of the epidemic. According to international trade mediator Global Sources, there was a 50% increase in online enquiries going to Chinese manufacturers in April 2003. Those expecting the mainland to keel over from the viral attack had to retract their doom-and-gloom predictions: in the first half of 2003, Guangdong's economy grew 12.6%—proof of its unyielding manufacturing strength—and by the end of the year the national figure hit an unprecedented (and, some accused, intentionally deflated) 9.1%.
Even the recent two confirmed and six suspected SARS cases have been parlayed into a positive PR stunt for the country. Beijing reassured everyone from APEC to WHO and any alphabet-soup organizations in between that all the appropriate actions had been taken: cases were isolated, ground zero identified, reporting transparent, and cooperation with neighboring countries immediate and apparent. Translation: What more do you want?
The Numbers Tell All
For the Hong Kong/China print manufacturing industry, SARS is very much an inconvenience and dreaded bad press. But it was business as usual, and one barometer attests to that fact: exports of paper and paperboard (based on CIF value) from Hong Kong/China to the U.S. shores hit an all-time high of $1,191 million in 2003, an increase of $378 million over the previous year. Even after categorical adjustments, there's still no refuting that the industry has marched on with relentless aggression.
In general, the industry has enjoyed a growth spurt since its WTO accession. Why, just this past December, the World Packaging Organization announced its plan to set up a packaging center in the mainland—as much an endorsement of the country's past 20 years of development as a nod to the potential growth of this sector there. At the same time, relaxed regulation has pulled in print manufacturing joint-ventures by the dozens. In 2003, some 92 printing joint-ventures were approved, bringing in investments totaling $55 million. Later, its published schedule of import and export taxes included tariff adjustments in 28 of the 31 printing equipment categories. Specifically, tariffs on offset web and sheetfed presses fell from 22% to 15% while those on flexo presses dropped 6% from the previous 18%.
With China importing more than 70% of its printing equipment, the reduced tariffs are pure fish bait to certain companies, namely the #1 and #2 in printing equipment/workflow solutions, Heidelberg and MAN Roland. Their sales offices keep springing up all over China, even in the vast western region. And the factor behind this rational exuberance? One figure: 10. That is, the mainland's printing market is expected to expand tenfold within the next decade.
Smaller Pool, Bigger Fishes
The harbinger of a maturing industry is the appearance of the Darwinian eat-or-be-eaten phase. That the Asian print manufacturing industry has reached this stage is no longer in doubt. The question instead is this: Who dines, and who's bait? It certainly makes for interesting conversation at dim-sum places all over the town.
The big story in 2003 was when SNP (Singapore National Printers) clinched its second deal in Hong Kong, taking a 56% stake—worth $320 million—in public-listed Leefung-Asco. Rumor has it that SNP has another $500 million of loose change in its wallet for more shopping. Another equally big story was Dai Nippon's decision to close its New Territory facility and withdraw from the competitive Hong Kong market. High hopes in the industry that the company would hit the right spot during their 2001—2003 restructuring campaign were dashed. In Dai Nippon, a warning is served cold: that a long history and a much revered (brand)name have got no clout whatsoever with market shifts and changing customer demands.
Meanwhile, things are shifting in the other side of the world, specifically in the U.S. where domestic suppliers have long been defending their turfs against the onslaught of Asian competitors. Deciding that going with the flow would be far more productive than trying to convince their publishing houses to keep the manufacturing process on American shores, players like R.R. Donnelley, Banta and Phoenix Color restrategized their plans with an eye on low-cost expert manufacturing in Hong Kong/ China.
R.R. Donnelley went a step further by entering the domestic Hong Kong/China market with its local partner in 1994 and has since set up another joint-venture in Shanghai to penetrate the domestic commercial/ security/financial sectors. Its Shenzhen plant continues to offer lower-cost manufacturing services to clients loyal to the Donnelley brandname. Banta, on the other hand, offers Asian sourcing services through its Singapore, Hong Kong and Malaysia offices to support U.S. publishers demanding hand-work expertise and cost efficiency from a known and familiar entity. For Phoenix Color, its alliance with a Hong Kong-based print manufacturer enables its clients to choose where to manufacture their titles through a parallel workflow. Less time-sensitive projects—in which the one-month shipping lead-time is workable—are often shifted to Hong Kong/China.
For North American customers, such strategies represent a win-win situation: proven local support with all the advantages of manufacturing in Asia.
The Bottom Line
There's a microcosm of change redefining the Asian print manufacturing industry. By all indications, there's compaction in the number of export players while hitherto domestic suppliers are bypassing agents and going after international publishers directly. Service- and product-wise, the big names are expanding into every segment imaginable, while the smaller ones are peddling cozier personal client—supplier relationship, lower overhead/cost structure and nimbler operations.
The recent rebound of the global economy—no doubt due to the less-sluggish American indices—bodes well for everyone. But such indicators were also in place previously—and they went splat. The question of the continued upward crawl of the economic curve remains a topic of much heated debate and prognostication. On the other hand, the state of the Asian print manufacturing industry raises nary a question or speculation. And that's because its best days still lie ahead.
