Print
Solutions January 2006
Cover
story
Finding
Opportunities in Consolidation
Attrition,
competition and acquisition in
2006 will separate winning business
models from deadweight, leading
to a slimmer but more effective
industry.
The
economic pressure on print professionals
to redefine their businesses,
streamline their operations and
diversify their offerings has
been building for some time. Companies
that remained static are about
to pay the price. Look around
the room— you’re standing
shoulder to shoulder with peers
who won’t be around much
longer. “In about five years,
we’re going to lose between
4,000 and 5,000 establishments,
and those will typically be small,”
says Dr. Joe Webb, president of
Strategies for Management Inc.,
and PrintForecast.com, Harrisville,
R.I.
The
industry’s rapid changes
are often affected by forces that
it can’t stop. Rising energy
costs, overcapacity, globalization
and the widespread dissemination
of high-speed internet access
are just a few of the big-picture,
long-term trends that individual
printers and distributors can’t
prevent. Entrenched, inflexible
companies may not like the news,
but for the nimble and the innovative,
these trends spell opportunity
in the form of increased sales
volumes and profits. “There
are some companies that really
get it, and the distance between
them and the companies that don’t
is just going to get bigger and
bigger,” Webb says. “This
shakeout is just going to keep
going…and I think this is
the year for that to become much
more pronounced.”
Squeezed
on Both Ends
Higher
costs and less demand: The printing
industry’s problems start
way up the supply chain, and they’re
exacerbated by fewer orders from
end users. Raw material suppliers—namely
oil and petroleum companies—face
higher demand for their products,
but regulatory measures make it
difficult for companies to add
capacity or new competition to
enter the market. Consequently,
these companies have enjoyed higher
pricing power. Overcapacity and
fierce competition in the ink,
paper and print manufacturing
industries has made it difficult
for suppliers and printers to
pass the higher costs to their
customers, but increases are likely
as suppliers’ margins suffer
and consolidation accelerates.
At
the same time, the demand for
traditional printing from end
users simply isn’t enough
for printers and distributors
to absorb higher costs through
increased sales volume. “You
just have more and more people
interested in doing things with
e-commerce and email,” Webb
says. “You’ve got
people thinking this way already,
that this is the way to distribute
information.” As printers
and distributors fight for a smaller
pool of work, profitability is
bound to suffer. Companies already
on shaky ground will close shop
or sell out to larger, more stable
competitors. “The economic
pressure to consolidate is relentless,
and it’s hard to believe
that it’s going to get stronger,
but it will,” Webb says.
Rising
costs alone aren’t the cause
of the industry’s woes.
“Ink is still a tiny portion
of the cost of the overall print
job. Paper is not at historical
highs when you adjust for inflation,”
Webb says. “But when you’re
at this stage, and you go moving
in the wrong direction on the
economies of scale curve, every
cost change can seem traumatic.
The question is, ‘How did
people let their businesses get
this way?’”
A
Global Industry
Ink,
paper and printing equipment suppliers
are global industries, and they
have been for a long time. However,
for many North American printers
and distributors used to competing
only against each other, the presence
of international companies in
their markets comes as a shock.
The growing economic influence
of China and India, for example,
has been well documented in the
media, but the printing industry
as a whole still has failed to
realize its significance. “People
mistakenly think globalization
will go away or that it’s
something that should be fought,”
Webb says. “It’s not
going to go away. It can’t
be fought, and people should be
finding ways to participate in
it.” China and India each
will be bigger markets than the
United States within 30 years,
so one possibility is for companies
to invest in them, as suppliers
to those markets or as importers.
“If you want to grow as
a printing business, there are
a few choices,” Webb says.
“One is to consolidate and
to put more volume in your plants
through acquisitions. The second
is to invest in growing marketplaces.
“It’s
not about the threat,” he
says. “It should be about
what growing markets we can go
in. How can we change our company
to be a leader and not just in
our town, in our region, in our
state or country? It’s about
how can we globalize our company?”
Technology:
The Good and Bad
Technology
certainly has played a role in
the industry’s evolution.
The internet, especially, has
reduced many businesses’
dependence on printed products,
including forms and catalogs.
Email has facilitated competition
by making it easier and less expensive
for end users to find vendors
and purchase printing. From an
operations and production standpoint,
many printing companies haven’t
made necessary investments in
upgraded equipment and software.
“The industry overall still
hasn’t achieved all the
savings that it could get from
automation and management information
systems and similar investments,”
Webb says. “That’s
why so many other industries are
growing: They have flow of information
and good implementation of computers
through their operations. Our
industry doesn’t have a
very good record in that, but
the more profitable printing businesses
do.”
In
other words, printers and distributors
who embrace technology are far
more likely to be around in 2010
than those who don’t. Not
only can companies improve their
productivity, they stand a better
chance of capturing business from
end users that demand technology-savvy
vendors with innovative technology
solutions.
End
Users in 2006
Distributors
and printers would love to know
what goes through their customers’
minds. If only they could predict
what end users want, they’d
be ready to serve them. The challenge
with forecasting end users’
behavior is that they’re
not all the same, says Margie
Dana, principal of Chestnut Hill,
Mass.-based Dana Consulting and
founder of Boston Print Buyers,
an organization that caters to
professionals who purchase or
influence the purchase of printing.
“People
who buy print cover a wide range.
Not just industries, but experience,”
Dana says. “To lump them
all together is dangerous to do.”
Yet, many corporate print buyers
in marketing departments will
enter 2006 with certain characteristics.
“They’re stressed.
They’re overtaxed, time-wise.
Their staffs have been cut,”
Dana says. “They have to
know how to buy all kinds of media.
Print is just one of them. They
have to know how the print integrates
with other, maybe digital media.
And add to that, among other things,
they’re pushed to keep costs
down.”
Print
buyers perform in this climate
by looking for vendors they can
trust and build relationships
with. “The buyers I know
who have very strong ties to their
printers, the printers have become
extensions of their own departments,”
Dana says. “They rely on
them for this or that project.
They expect their printers to
offer more than ‘Here are
my specs. Give me an estimate.’”
Achieving this level of trust
with an end user is difficult,
but the result is usually more
emphasis on value and less on
price. “The ones with the
best relationships are not as
price sensitive,” Dana says.
“Everybody’s expected
to deliver good printing. It’s
the relationship, experience and
any other thing of value the printer
can offer that makes the difference.”
The
first step is to make sure end
users know you exist. Competition
is so stiff that printers and
resellers must differentiate themselves,
but most printers and distributors
don’t do a good job promoting
themselves, Dana says: “[End
users] are being sold to by online
print and e-commerce sites, and
by offshore companies. If those
emails, mailings and ads are reaching
them, all the more reason why
brick-and-mortar printers and
resellers have to make themselves
known.” The best way to
reach prospects, she says, is
to mail good samples. “Don’t
just send the samples out,”
Dana says. “Make sure they
know who it’s from.”
Planning
Ahead
Companies
that haven’t initiated changes
in their business model by now
face a tough road ahead. It’s
essential that they make a plan
now, before it’s too late.
Perceptive printers and distributors
already have added digital printing
capabilities, graphic design services,
mailing and fulfillment services,
and other offerings to set themselves
apart from competitors and position
themselves as more than manufacturers
and order-takers. “This
may be the year when companies
that specialize in marketing services
do better than companies that
just think they’re printers,”
Webb says. “Companies that
specialize in doing design as
part of their printing business,
who help their clients get on
the internet more effectively,
developing web pages and email
strategy—stuff like that.
They’ll probably do a lot
better.”
Even
as the gap between companies grows,
some may still feel insulated
from economic trends, but Webb
cautions them not to be complacent:
“You can go through every
single print application, and
while it’s not full obliteration
of each one, it’s like a
slow water torture,” Webb
says. “It doesn’t
seem like a lot, and then you
turn your head and realize, ‘My
gosh, it’s gone.’”
Andrew
Brown is assistant editor at Print
Solutions magazine. Email him
at abrown@PSDA.org.
“There
are some companies that really
get it, and the distance between
them and the companies that don’t
is just going to get bigger and
bigger.”
Dr.
Joe Webb, President
Strategies
for Management Inc. and PrintForecast.com,
Harrisville, R.I.
“You
have to be very specific about
why print buyers should pick you
and not the guy down the street.”
Margie
Dana, Principal
Dana
Consulting and Boston Print Buyers,
Chestnut Hill, Mass.
