Commentary & Analysis
Combating the Offshore Threat
By Scott Mitchell of Presstek Chinese printers are talking about the importance of content management,
By WhatTheyThink Staff
Published: February 17, 2005
By Scott Mitchell of Presstek Chinese printers are talking about the importance of content management, increasing automation, and not being saddled with antiquated business practices--like some other printing centers in the world. They view this as an opportunity to increase their global competitive advantage and continue their rapid rate of growth. February 17, 2005 -- The business press has paid much attention of late to the threat of offshore outsourcing and the impact these initiatives have on the U.S. economy. The latest stories reflect that the bloom is off the rose in terms of some IT outsourcing, due to rising costs in India and lack of strategic skills among the worker base. Time will tell how that ultimately shakes out and what the overall global impact will be. The general business press, though, has paid little attention to the offshore outsourcing of print. But we have certainly seen coverage in the trade press. China is the biggest culprit here, and the bloom is not coming off of that rose for some time to come. Consider this: According to NPES data, China went from a #9 global position in 1999 in terms of the export of printed matter, to a #7 position in 2002. In the same period, China moved from #5 to #2 in terms of the import of printing machinery, right behind the U.S. According to PIA reports, in 2003 China had over 163,000 graphic arts establishments including 92,400 printing plants and 71,200 copy shops with three million total employees. By comparison, the U.S. has some 44,000 printing plants with approximately one million employees. In early 2004, business leaders in Guangdong province, located in the Pearl River Delta not far from Hong Kong, began allowing increased foreign investment in printing and related companies. Officials are also encouraging foreign manufacturers of printing equipment to establish research centers in the province. 70 percent of the manufacturing capacity of Hong Kong's printing industry has been transferred to the Pearl River Delta, with its printing industry growing at about 20% per year--a far cry from our low single digit growth rate in the U.S. These are pretty scary numbers. Add to that these two factors: There is significant financial and business support being provided to the Chinese printing industry by the Chinese government. Although China literally invented the printing industry thousands of years ago, today's printing industry in China is fairly young--as young as 10 years in some of the most concentrated printing centers. When you read articles that quote Chinese printers, they are frequently speaking about the importance of value-added services such as content management, increasing automation to improve productivity, and not being saddled with antiquated business practices like some other printing centers in the world. They claim they are jumping into the digital age with both feet and that gives them the ability to leapfrog printing communities in other parts of the world. They view this as an opportunity to increase their global competitive advantage and continue their rapid rate of growth. The key to maintaining a strong and profitable business in U.S. and European markets in the future--as immune as possible to the threat of offshore competition--is to get out of the commodity zone. Today, printing produced in China typically sells for 30% less than printing produced in the U.S. and ships in six to eight weeks from time of order. While U.S. and European printers are facing increased customer pressure to deliver shorter runs with faster turn times, there is still a significant amount of non-time-sensitive printing--coffee table books come to mind--that could be produced in China under their terms, and a segment of print buyers that will find this proposition attractive. Even buying product brochures in bulk can be attractive at a 30% discount. So what can you do to protect your business from the offshore outsourcing threat? It is clear that a key target for offshore printers will be commodity printing--long-run printing that can afford the extra time associated with shipping to take advantage of decreased cost. It is also clear that as the offshore infrastructure builds up, the longer turn time will be offset by the implementation of collaborative digital tools that cut time off of the front-end process--particularly content management, and remote proofing and approval tools. So the key to maintaining a strong and profitable business in U.S. and European markets in the future--as immune as possible to the threat of offshore competition--is to get out of the commodity zone. Getting into the Right Zone Research performed by the RIT Print Industry Center in 2003 with marketing executives and advertising agencies clearly demonstrates that print buyers are looking for value, not price. Research performed by the RIT Print Industry Center in 2003 with marketing executives and advertising agencies clearly demonstrates that today's print buyers are looking for value, not price. In both constituencies, survey results placed price as number five on the list of criteria for selecting a printer--behind such things as dependability, print quality and ease of doing business. And according to a survey of print buyers conducted by Print Buyers Online, 68% felt they knew more about printing than the average print sales person. These two pieces of data point to a clear path out of the commodity zone. In order to leave the commodity zone behind, print service providers should, at a minimum: Ensure that sales professionals are knowledgeable about all of the processes and technologies that you use in your operation Make sure your sales force is adept at helping customers understand the value of printing shorter, more customized runs to eliminate waste due to obsolescence and to produce more effective, targeted communications Unemotionally examine the workflow processes within your operation, looking for bottlenecks and redundancies that may cause unpredictable delays or unreliable results Take advantage of the technologies available in the marketplace today to eliminate as many steps in the production process as possible; examples would be direct-to-press or computer-to-plate implementations and eliminating chemistry in the plate production process Implement a user-friendly Web interface that allows customers to access you 24x7 to submit work, access a catalog of materials for reprinting and track job status. Train your sales people! In a survey of print buyers conducted by Print Buyers Online, 68% felt they knew more about printing than the average print sales person. Taking these simple steps will reduce your cost of doing business, shorten cycle times and make your operation more accessible to customers. And these basic steps must be taken before examining additional value-added services--adding new services on top of a broken infrastructure is a recipe for failure. Once you have optimized the infrastructure, take the time to discuss your services with your customers. These conversations should preferably take place outside of the procurement department--with the actual owners of the applications, and as far up the management chain as possible in order to gain a more strategic view. What do they like most--and least--about working with you? Who else do they use for printing services and why? Are there additional services you could offer that would allow you to capture more of their business? What are some of the business problems they are facing, especially as it relates to document-intensive business processes, and how could you help them become more efficient? These are a few of the critical questions you will need to ask. Others will become evident as you conduct these critical customer meetings. This approach will place you in a consultative role, and should give you the opportunity to become involved as an advisor, before all the production decisions are made. By ensuring that you have a knowledgeable sales force, a solid and efficient infrastructure and a clear understanding of your customers' business objectives--as well as a plan to help them more effectively meet those objectives--you will be well on your way out of the commodity zone and into a solid, long-term customer partnership that will deliver value to you and to them--and ensure that your book of business is as immune as possible to the increasing threat of offshore outsourcing. And stay away from those coffee table books--there's probably not much of a U.S. or European future in those!