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Firsthand Experience — Made in China

May 2007 By Regis Delmontagne
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THERE SURELY is agreement in the United States, as well as in Western Europe and elsewhere, that China is quickly building up its technology and equipment levels to become the dominant supplier of printed products for the Chinese market and a major supplier for the world market.

I just returned from spending several months teaching Business English at the University of Wuhan’s Printing and Packaging School. I taught future leaders of the Chinese printing and packaging industry a course in Business English, which included business terminology, Website development, how to handle inquiries from prospective foreign customers and how to furnish quotes to foreign clients.

I experienced firsthand the dramatic effort under way at the university level to increase the knowledge of students about the various printing processes and how to conduct business over the Internet with Fortune 500 companies, as well as many other mid-sized companies around the world. Total enrollment at the university’s printing school is more than 350 undergraduate students, plus another 100 at the graduate level. (Enrollment at China’s other major universities: Beijing Institute of Graphic Communications has 6,986 students; Shanghai Publishing and Printing College has 4,900 students; and Xian University School of Printing and Packaging Engineering has 1,500 students.)

If determination and stamina can transform these students—many from the rural and farming sections of China—into first-class practitioners, then the world should stand up and take notice. First of all, they are in school for two 20-week semesters; classes are held seven days a week. They live in unheated and uncooled dormitories with no hot water. During the winter months, they attend classes in unheated buildings. During the summer, when temperatures hit 105°, their dorms and classrooms have no A/C.

They are more intense than anyone could imagine. Classroom attendance and homework would be considered “cruel and unreasonable punishment” in the West. As a result, they are completely focused on improving their knowledge of the printing and packaging world. And, the government notices them because many of them will find a career in one of the thousands of state-run and/or privately owned printing factories.

Why is this important to the United States and Western world, and what does it have to do with the educational systems at RIT and Cal Poly, for example?

First, the Chinese government identifies industries that it wants to grow and employ a large number of Chinese—and one of those industries is printing/packaging. Secondly, once the industry is selected, financial assistance is provided in various forms, one of which is scholarships to deserving students. Finally, while RIT and Cal Poly are years ahead as far as teaching, and are more than adequately equipped with state-of-the-art equipment, both schools are not exactly overflowing with students. The opposite is true in China today. (When I was president of NPES, we spent hundreds of thousands of dollars via the GAERF to entice and encourage high school students to consider a career in printing…without much success.)

When you couple their dedication with the fact that the brightest Chinese students end up in graduate schools in the United States, Germany, England and Italy—and return to China energized and knowledgeable—perhaps one is starting to get the picture. The picture is: You now have a large pool of well-educated, dedicated professionals who are fluent in English.

The one drawback I saw on this recent stay was the apparent lack of full utilization of equipment because of poor maintenance and lack of continuing training for both new and seasoned operators. While the Chinese do have modern printing plants, in many cases, they fail to obtain the profit that they should be generating with new equipment, software and systems. That will change over time!

The fact that various studies predict the printing market in China is expected to double in the next five years—from about $50 billion to $100 billion—clearly demonstrates that there are a lot of positions to be filled, and much new equipment, software and accessories to be purchased. Overcapacity may be a new problem for the Chinese.

How do they plan to minimize or eliminate that potential problem? Increase the demand in their country for printed products? One only has to enter a news kiosk and will be overwhelmed with the number of newspapers, books and magazines on the shelves. Another way to minimize China’s overcapacity is, of course, through export. And, that is where the educated, seasoned, English-speaking professionals will ensure that their government’s “assistance” pays off.

Next: India and Vietnam

Another reality U.S. and Western European printers will have to deal with in the coming decade—and one the Chinese already acknowledge will be a major factor—is the blossoming of the printing and packaging industry in India and Vietnam. India has more than 300 million English-speaking citizens (highly literate, law-abiding citizens). Once some of the country’s antiquated business-protection laws are eliminated, and more state-of-the-art equipment can be imported without onerous duties and tariffs, the Indian printing industry literally will challenge China as the source of quality, low-cost printing.

The biggest question now: How will Vietnam develop its printing industry? Will it follow the Chinese model? Probably. Couple that with a labor pool, which is the second highest in Asia, and labor costs even less than China and India, and you can imagine U.S. printers setting up shop in either country, and U.S. print buyers moving their businesses there.

Another factor working at present, and that will only strengthen in the future, is the almost brutal competition among Chinese printers in their home markets. At present, there is something close to a glut in the number of web presses in the Shanghai area, for example. Ten years ago, a Shanghai printer with a web press could almost be guaranteed he would get his price because there was virtually no competition. Ask a Shanghai web printer today what effect this competition has on his bottom line, and he’ll tell you he is fighting for every job.

Chinese printers who hope to take advantage of this competitive situation, if asked what they are doing about it, will tell you, “We will export.” Easier said than done at the present. Despite the fact that a printed job can be delivered to our West Coast in about two weeks, there are other factors. Many Chinese printers don’t know how to market their company and its skills, many don’t know how to deal with printing brokers in different countries, many don’t know how to conduct business with foreign customers, etc. Those who do will have a much better chance of landing foreign customers, and that’s where the educational system comes into play.

In April, eight of my students traveled to Hong Kong for a month of intensive training at the university to further brush up their English and spend time working with printers. (Waves of art books printed in Hong Kong are arriving in the United States, and it is significantly impacting book printers here.)

Does this spell doom for the U.S. printing industry? No! Not by a long shot. But it should serve as a wake-up call that if a U.S. printer is staying up to date, it may not be enough. Coffee table books that went to Asia years ago could be joined by monthly periodicals and, in some cases, even best-selling books. The U.S. printer is not destined to become redundant. There are many printed pieces that are almost “China proof” because of their nature and are not as price-sensitive as other jobs; for example, financial printing.

While some pundits may claim it’s time for printers to get out of the market, a case can be made that that attitude is a recipe for “giving up the chase” and resigning oneself to continuing to lose business to the Chinese. U.S printers really have no choice but to continually upgrade their technological skills, upgrade their equipment and systems, and find new markets. Perhaps that’s easier to say than do, but those who fail to do so will be faced with losing customers to more adept printers, many here, as well as in China.

The labor/cost differential between offshore and U.S. printers, in most cases, cannot be eliminated solely with new equipment because the Chinese printers themselves will be facing lower labor costs, once the Indian and Vietnamese printers start chasing the U.S and Western European markets. Western European printers are facing a two-front foray from both the Chinese and Eastern European printers. Their long-term success in staying competitive is even more daunting than the one U.S. printers face.

When I look back at my experiences in China over the past 25 years, I must admit that not only is the printing industry facing severe competition for the reasons I mentioned, but almost every industry one can think of is in a similar situation. What can (and should) the U.S. printing industry do to ensure its survival? Upgrade technology, educate its labor force, seek out niche and time-sensitive markets? Or, should they consider partnering with a qualified Chinese firm and, perhaps, even consider setting up a plant in China?

Both of the latter options are fraught with risks. Partnering with a Chinese printer is probably less risky. Opening up a plant in China, whether it be printing, textiles, manufacturing printing presses, etc., is not for the faint of heart. There are bureaucratic delays, environmental permits (though the Chinese are less concerned than other countries, there still are issues dealing with solvents, waste discharge, etc., that cannot be ignored), insurance (yes, employers are responsible for paying medical insurance for their employees), auditors and the Chinese version of the IRS.

Compete or Partner?

Leasing, a relatively new concept in China, also could provide an opportunity for U.S. printers to partner with a Chinese printer. The way it works, the leasing company identifies 15 or so of its customers as being specialists in printing books, magazines, packaging products and so on, and will furnish its representative in the United States with samples of each plant’s specialty. The U.S. printer benefits because he has a list of Chinese printers and their specialties/capabilities, while the leasing company vouches for the quality of the finished product to the U.S. printer and guarantees payment to the Chinese printer in case of default. This may be one of the easiest ways for a U.S. printer to have a presence in the Chinese market.

U.S. printers are among the most technologically adept, and their ability to adjust to market changes has been remarkable. Adoption of digital printing is the most current example of how they can react. In the past, they viewed their competition as the “printer across town;” they are now facing global producers, which in many cases, are equally adept and knowledgeable.

When I return to Wuhan in the Spring of 2008 to teach marketing and sales for the printing and packaging industry, I’m quite sure that some of the options available for the U.S. and Chinese printer will have already changed, and there will be new challenges for both to consider.

The Chinese character for the word “crisis” has two meanings: opportunity or disaster. U.S. printers know the correct meaning. PI

About the Author
Regis Delmontagne is chairman emeritus of NPES, from which he retired in 2005 after nearly 30 years as president. He has also served as president of GASC and GAERF. Delmontagne presided over the growth of Graph Expo and PRINT and developed them into recognized international events. He expanded NPES into an international operation with offices around the world. Delmontagne currently serves as a consultant to several foreign companies, and to both U.S. manufacturers and printers.
 

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