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Capital Investment in a Recovering Economy

December 1, 2010 By Joe Truncale, President and CEO, NAPL
“In this economy and technological age, a bad decision can put a company out of business.” That’s how one participant in the NAPL Capital Investment Study puts it. He’s right, of course. Margins for error are shrinking across our industry. And while the return to making the right capital investments is greater than ever, so is the cost of making the wrong ones.

Over 350 companies, with annual sales ranging from under $1 million to over $350 million participated in our study. Topics included investment priorities for the next three years, priorities for the last three years (past priorities explain a lot about future priorities), investment rates, plans to invest in new equipment, in used equipment, to expand capacity, to replace capacity, the most trusted sources of capital investment advice, and where the capital investment process most needs to be improved. Here’s some of what we learned:

• By more than 2-to-1, participants in our research plan to invest less in capital equipment over the next three years than they did over the last three years. Uncertainty about the economy and our industry is part of the reason. But this is about more than waiting for the clouds to lift. It’s about a tough new mindset—born of an extraordinary recession—that will invest “only when sound measures of expected return justify investment, not because our competitors are investing, we’re getting a deal, or it’s new, hot, and going to make all the difference.”

• Digital infrastructure, bindery/finishing systems,Web-to-print and e-commerce, and variable-content digital printing are top five priorities for the next three years, just as they were for the past three years. Priorities vary by company size, but similarities across size categories are far more significant than the differences. For example, digital infrastructure and bindery/finishing systems are among the top five priorities in every company-size category.Web-to-print/e-commerce is among the top five priorities for all but companies with sales of $1 million or less. And workflow solutions and variable-content digital make everyone’s top 10, with at least one of the two in everyone’s top five.

• Four-or-more-color lithographic presses will be a priority over the next three years or were a priority over the last three years for one-third of our research group and for nearly half with sales above $20 million. Of course lithography’s share of our industry’s revenue has been declining for a decade. And no turn around in the economy—no matter how robust—is going to change that. But lithography is still a $40-$50 billion market.Who’ll get the lion’s share of that work? The most efficient, the most productive, and the most adept not at printing but at putting print to work for their clients. Everyone else will have to fight it out for what’s left.

• There are many ways manufacturers and suppliers of graphic arts technology can help their clients make better capital investment decisions. The four our study group mentioned most: know our business, connect us with peers who can give us the whole story about the investments we’re considering, show us the ROI, and educate and support us—before, during, and after the investment.

Our research is just beginning. Capital Investment Study participants made it clear that there’s a lot more they want to talk to us about. As always, we’re ready to listen. Our goal: Better understand how they make capital investment decisions so we can help them make better decisions. After all, better investment decisions will lead to a stronger, more sustainable industry. And that’s something from which we will all benefit.

 

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