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QUEBECOR WORLD -- Marriage Made in Heaven

April 2001

Integration is defined as forming into a whole, uniting or incorporating into a larger unit. See: Quebecor World.

It is difficult to put the merger of Quebecor Printing and World Color Press into perspective. The M&A shocker that ushered out 1999 has resulted in the largest commercial printing (et al) conglomerate in North America—the largest in the world. When the final receipts for 2000 were tallied, Quebecor World stood at $6.5 billion in sales. Only R.R. Donnelley & Sons, at $5 billion, was remotely close. The difference between the two could form a company that would rank eighth on the Printing Impressions 400 ranking of the largest printers for 2000.

Despite its sexy financials, Quebecor World is not a press hound that bombards the masses with news of its latest conquest, though you should forgive Montreal-based Quebecor Inc. for crowing just a little about its marriage to World Color. Not surprisingly, Quebecor World spent the last year in virtual silence while going about its integration chores. The company is emerging form its shell bearing a highly structured persona with many levels. In many ways, the hard part—assimilation, elimination of duplication (read: layoffs and plant closings)—is over. In many ways, it's just begun. From top to bottom, the men and women charged with keeping Quebecor World on top of its game appear tenacious to meet the task head on.

"It's an incredibly compelling story and I'm excited for it to get out now," states John Paloian, president of the Magazine/Catalog Group. "I think we're finally ready to tell people about our company."

Marc Reisch is chairman, CEO and president of Quebecor World North America. He was president of World Color Press and held several other roles prior to arriving there in 1991. Aside from Charles Cavell, who is perched high atop the Quebecor World empire, Reisch is arguably the most powerful man in the ink-on-paper business. He also had a bird's eye view of the integration drama.

"From a big-picture standpoint, this was clearly the largest, most complicated transaction in the history of the printing industry," Reisch states. "The good news: we accomplished it more quickly than anybody had anticipated. The opportunities, from a cost standpoint, that we originally estimated came in at twice the level anticipated. All the equipment that we took out of service and had to redeploy has come up well. Customer retention was virtually 100 percent, so the integration went as smoothly as we could have hoped.

"Unfortunately, when you bring together two businesses that are as large as ours, there was duplication in various parts of the company—certain markets, certain facilities—so with that came the loss of jobs."

Reisch estimates that Quebecor World moved more press and bindery equipment within the company during a six-month timeframe than the entire U.S. commercial printing industry would move in a year. Combined. He attributes the smoothness of the transition to the relentless work of each of the company's eight business units, as well as assistance from third-party sources such as equipment manufacturers. In essence, business as usual transpired in the second half of 2000.

Quebecor World could have patted itself on the back for emerging from the campaign a bigger, stronger and more diversified network of business groups, for which less-than-estimated performance targets could have been rationalized. Yet, its financials easily outperformed the industry circuit.

Reisch doffs his hat to the newly created leadership team, the best and brightest from both companies—imagine the New York Yankees and Atlanta Braves merging to create an all-star baseball team. Or, in deference to our northern neighbors, the Montreal Canadiens and Toronto Maple Leafs in hockey.

While it wasn't the best of times to be a Quebecor World employee, given the job uncertainty any transaction of this magnitude could create, the company took care of its people. An attractive, uniform, company-wide employee benefit program was rolled out at the end of 2000. This included upgrades to the 401(k) retirement plan and an employee stock purchase plan.

The company prides itself in being truly global—Reisch notes that nearly $500 million in revenues is accrued from clients with whom Quebecor does business with on multiple continents. Just as the company is diverse in its scope, its global clientele benefit greatly from the diversity of Quebecor World's platform. According to Reisch, its uniqueness is unparalleled.

"We feel we can go to our major, strategic customers and truly service—not theoretically, but with real equipment in key markets—all of their print needs," Reisch states.

"I passed out assignments to all the business unit presidents this year, asking them to take on personal responsibility to manage certain strategic accounts and to make sure we leverage our capabilities across our platform. We spent a lot of money and effort over the past few years building up our premedia business on the front end, and dramatically increasing the scale and scope of our logistics business on the back end. It's very important that we leverage those strengths to our customer base in 2001, and beyond."

Like the rest of the industry and the national business climate in general, Quebecor World faces a daunting task in dealing with a U.S. economy that, despite its good health over the past two years, hit a wall in the fourth quarter of 2000.

Reisch wonders if the economical blood pressure is as high as the perception, and he believes the "herd mentality" is to blame in part for reduced advertising expenditures, which has been particularly felt by, but not limited to, the magazine industry. He feels the second half of the year will provide more optimism.

It is the increase in postal costs being felt by clients that also requires close attention. "One of the real drivers for our company is to build both a global platform and a multi-product platform. So we really do mitigate our risks, and we can take advantage of the strengths in various marketplaces," he says.

"Our magazine and catalog businesses may be impacted by the increased postal costs. But our book, retail inserts, telephone directory and global businesses are not, and our logistics business will help our customers offset the impact. It's the breadth of our platform that we think positions us well. From my personal standpoint, the concern is the general economic conditions and staying very focused and quickly reacting to how the markets move."

What follows is a capsulated look at how five of Quebecor World's eight business units will help steer the company through the turbulent waters that 2001 may have to offer.

Magazine/Catalog Group
John Paloian, president
On the magazine side, Quebecor World touts itself as the world's leading printer, with an annual output of more than 1,000 titles and more than 5.2 billion copies. Not surprisingly, it produces magazines for the top five U.S. publishers. Its customers have access to the most extensive web offset and gravure network in this country, as well as geographic and demographic versioning, digital asset management, and logistics-based delivery and mailing systems.

In terms of catalogs, Quebecor World prints a staggering 27 million per day, with 14 of its 20 largest accounts ranking among the top catalogers in the United States. Its bindery technology allows customers the ability to create a multitude of personalized versions, while its global network provides one-stop shopping for all needs.

The Magazine/Catalog platform at Quebecor World boasts 16 dedicated print and bind facilities, 13,000 employees, more than 100 offset presses, 40 gravure presses, 40 perfect binders and 150 saddle stitch lines. This platform drives an approximately $2 billion business that has absorbed significant restructuring since the merger.

John Paloian notes that the restructuring of his group's platform was broken into two segments. The primary restructuring took place in the first half of 2000; the second phase continues in the first six months of 2001 as the group rearranges its assets and adds new equipment on an incremental basis. A half-dozen presses, 10 stitchers and three new squareback lines will also be strategically placed in time for the rush of volume that typically ensues in the second half of the year.

"The goal of all this restructuring is to shake the blanket and make sure we have all the best assets, in the best places," notes Paloian.

"Prior to the firms coming together, you really had an organization that was made up of a collection of various businesses due to the numerous acquisitions made by both companies over the years. In some cases, they were smaller platforms of two or three facilities, so they were forced to be the jack-of-all-trades and the master of none. In some plants, you found assets capable of producing digest-, tabloid- and standard-sized products, all within the same facility. It really lacked the ability to take advantage of the economies of scale and the efficiency that comes with having a more specialized platform with common assets.

"We had some plants that looked like press exhibitions," he adds. "They had two of every kind of press known to man. Now, we have a platform that speaks to much more specialization, much more commonality and flexibility within a facility."

The start of 2001 has been highly successful from a new sales perspective, with at least four new contracts being acquired from competitors on the catalog front alone. Paloian balances the new business by managing his already state-of-the-industry portfolio of clients while upgrading older machinery. He is also careful to monitor the consolidation that is also transpiring in both segments, positioning the group to accommodate clients' changing needs.

Paloian cites his group's magnitude, location and diversity of the asset base, the flexibility of product capability and the diversity of the overall Quebecor World product offerings as the primary differentiators that enable the Magazine/Catalog platform to be at the forefront of their markets.

Retail Group
David Boles, president
It's a tale of two segments within the retail/Sunday magazine segment—both rotogravure and offset printing. The former is a pacesetter in North America, accounting for more than 50 percent of the market. The offset segment accounts for roughly 5 percent, and David Boles expects that number to rise as the integration continues to take hold.

Quebecor World counts most every major, national retailer as a client, meeting both short- and long-run needs that range from runs under 25,000 to as high as 10 million. Its new gravure digital engraving and related prepress processes enhance quality while reducing time to market.

"What we're trying to propose to our target customer—a national retailer that is interested in a variety of creative print solutions that are national and process neutral—is to offer something no one else can offer. This includes factories entirely focused on the retail and Sunday magazine market, both in rotogravure and offset, coast to coast," Boles explains.

"What we want to do is get the offset division approaching scale with what we have on the rotogravure side, so we can sell the complete package. That's our focus this year."

Another primary challenge for 2001, according to Boles, is to accommodate the constant changes in management direction within the group's customer base. A number of customers with similar product and strategic profiles tend to swing in various directions in terms of print demand, based on the philosophy of new management.

"The swings are challenging to deal with, particularly when they're given to you with little notice," Boles states. "The long-run side of the business is very capital intensive—the name of the game here is capacity utilization. When you've got wild swings in print demand, that's very tough to deal with from a short-term standpoint."

Boles is positioned to handle these challenges buoyed by the versatility his group's rotogravure presses offer. "There are big pagination possibilities and intricate work can be finished in-line," he says.

"We have the variability and the flexibility of pagination on size, and when you finish a year with paper prices going up into double digits percentage-wise, customers tend to get very interested in alternatives. That's what we bring to the market. We bring that total package to market the way no one else can. There is a very clear difference between us and our competitors in this segment of the printing business."

Boles feels his segment's growth is going to be fueled through what he considers to be a form of product development that arises from the flexibility of its operating platform, where similar or new products can take on different formats and different shapes. "It's simply because we're offering a platform that hasn't been offered in the market, and that will make print more viable," he says. "That's going to result in our being able to organically grow our network, as well."

Commercial/Direct Group
Brian Sullivan, president
Some of the biggest changes still occurring within the Quebecor World organization are being felt most by the Commercial/Direct Group, which was merged in the fourth quarter of 2000. The result was a $1 billion operation and an organizational restructuring announced in the first quarter of this year.

"We felt, from a customer perspective, that there were a number of overlapping opportunities we could leverage much more significantly under one management team and one market focus," states Reisch.

Brian Sullivan is excited about the opportunities such a move affords. "There are many synergies between the two businesses," he says. "The merging together of the two groups will allow better utilization of equipment throughout the platform. The portfolio of products that this group brings to the market is unparalleled. The end result will be a better opportunity for our sales force, our business and our clients."

Commercial/Direct boasts 25 plants in North America (21 in the United States) and 136 web and sheetfed presses. Two "mega-facilities" take customers from concept to mail in one location, significantly reducing costs. The direct segment of this business unit has also introduced innovations to the industry, including scrambler cards that draw consumers to customers' Websites through the opportunity to play games and win contests.

It was another banner year in 2000 on the commercial side, according to Sullivan, with sales eclipsing $600 million. While a national sales force routinely vies for work with R.R. Donnelley, Quad/Graphics and Banta Corp., the commercial segment also does a good deal of competing on local levels, where Sullivan estimates up to 50 percent of the work is generated.

Another strong suit is the complementary relationship it has with the other business units, allowing for ample cross-selling opportunities. With the restructured group now in place, Sullivan hopes to take it a step farther.

"We want to capitalize on the whole Commercial/Direct sector," he says. "We have a big advantage when competing for major deals in comparison to our biggest competitors. A lot of them simply don't have the high-end commercial capabilities that we bring to the table. The same goes for direct mail. In today's market, more of our clients want single-source deals across business units."

Que-Net Media
Jack Schuh, president
Quebecor World rebranded its Premedia Group in April of 2000 to include an array of new products to accompany the traditional prepress offerings—scanning, page assembly, archiving, digital and conventional photography—all of which are Web-enabled solutions. Among them are hosting content management over the Web and automated publishing solutions (fixed and customized templates for catalog, retail and book customers).

"All of these solutions are designed to stream information into multiple channels," notes Jack Schuh. "Whether we print or go off onto the Web, CD-ROM or other portal, the whole idea of our design is to have our content and our solutions multi-channel oriented.

"Customers were looking to go beyond print," he adds. "We have more and more customers that have created their own Websites or are in the process of doing it, and thus have the requirement of multi-purposing data. The Internet has really been a key strategy, not only for them, but for us as well."

Que-Net Media's 15 digital centers are linked via the VPN fiber optic network, which was installed in August, with 95 percent of Quebecor World's printing facilities now tied into the system. This provides the opportunity to target the larger retail customers such as Sears, to serve them coast to coast and into Canada, regardless of where the front-end data is being processed.

The Quebecor-World Color merger has paid dividends in terms of backing Schuh with quality people. "In the process of combining the companies, we've picked up some very outstanding talent, particularly in color management, where we're stronger than ever," he says. "Now, we've got the best of both companies tied together within our technological group, in terms of developing and forming the products, and as far as multi-channeling and repurposing data."

Actually, the best may also be yet to come. In January, the company opened the first of four Technology Solutions Centers. The New York opening will be followed by ribbon cuttings in Los Angeles, Chicago and Toronto. The centers were strategically placed in cities that have the key concentration of its most significant customers.

The aim of the centers is to provide a base of content management, automated publishing tools, as well as training and education for Quebecor World's employees and clients. "This gives customers the opportunity to send their people to our facilities for training, which had become necessary as they move into the multi-channel distribution of data," Schuh states. They also provide locations where Quebecor World can demonstrate its latest product offerings and its legacy group of products.

It will be a busy 2001 for Que-Net Media, which is also launching seven new products that will be delivered by way of a new Website that is still being developed. "The success as to how we deliver these products and present them to the customer is critical for us," he remarks. "This year, we're expected to have almost 10 percent organic growth on our platform.

"One of our mandates this year is to present total solutions to our customers as opposed to our independent specialties. The success of our individual platform is going to be highly dependent on how we come together as a company and present these total solutions."

Logistics Group
Dan Scapin, president
It was heartening for Dan Scapin to see, at the time of the merger, that both World Color and Quebecor Printing were on the same page in terms of logistics goals. He was hired eight months prior to the merger to position World Color to take on competitors like Donnelley, Quad and various print consolidators by creating a logistics operation. Roughly eight months after the initial assignment, Scapin found out that his primary objective hadn't really changed. The company name did.

Immediately, Scapin went about piecing together his logistics team. He went after logistics transportation experts from around the industry rather than taking people from the print side and moving them into logistics. The move paid off for Scapin, who was able to assemble a high-quality team. They spent the first year building up the network and concentrating on the catalog and magazine industries.

Scapin believes the unit is now clicking on all cylinders. "One of the techniques that we used was creating a consolidation network, and we were able to get to the point where we're hitting 275 postal facilities three times a week—about 100 of them we hit every day," he says. "We've also created a freight brokerage operation. While other printers and transportation companies contract out to just a handful of carriers, we have more than 4,000 carriers that we choose from each day to minimize costs and maximize flexibility. I think that's a key differentiator for us."

Quebecor World opened five mail consolidation centers in 2000, allowing all the company's facilities and customers to reach all the necessary postal facilities. One of the mail consolidation centers, opened in Lexington, KY, focuses exclusively on bound, printed matter. "What's happening is that the book publishing industry is realizing the value of this," Scapin notes.

The immediate future consists of a new set of services for the retail and directory markets. What also fortifies the group is encompassing the mail list responsibilities with logistics, complete with sales force, to complete the full-service loop.

Innovation is key for the group. It boasts a pair of systems: Visions, a widely used entry point planning system; and Transportation Manager, a highly advanced application that optimizes and integrates deliveries.

Like most of his business unit colleagues, Scapin is concerned what affect the postal rate increase(s) will have on customers. Rises in fuel and transportation costs also factor into the equation. "But that makes more of a focus on our logistics operation—to help mitigate any of these increases, and we've done a pretty good job in that regard," he says. "Our customers haven't felt the brunt of those increases because of our logistics capabilities."

Directories Group
David Bragen, president

Book Group
Jerry Allee, president

Targeted Publications and Catalogs Group
Chuck Miotke, president

The Directories Group features a wide geographic network of seven facilities in North America, all boasting computer-to-plate (CTP) capabilities. During 2000, the business unit printed more than 180 million directories in North America.

"We had an absolutely extraordinary 2000, and 2001 appears to be as strong," Reisch states. "We made major inroads with the independent telephone directory market, which is growing at a very significant rate. We're introducing heatset web printing for one of our major strategic directory customers, which we feel bodes very well for us.

"There's a lot of telephone directory business that's coming up for bid and renewal in the next couple of years. With our unique North American platform—which truly goes from coast to coast—we expect to increase our market share considerably."

Quebecor World also touts its Book Group as an industry leader, and it's hard to argue otherwise. The unit prints one billion books per year, buoyed by 13 U.S. facilities. Its Buffalo, NY, paperback plant is reportedly the largest in the industry.

Large orders are not a problem, as Quebecor World has printed two-thirds of the acclaimed Harry Potter children's series.

Quebecor World is seeking to double its book growth in the educational text, religious sector and parts of the trade paperback market; those markets are seen by the company as having the best growth potential. The Book Group has also had some success with encouraging publishers to print in the first half of the year, which is helping to flatten the demand curve.

The Targeted Publications and Catalogs (TPC) Group is dedicated to special interest publications, trade magazines and catalogs with print quantities of 250,000 and below. The group's eight plants offer computer-to-plate technology, nearly unlimited press configurations and finishing options, and mailing and distribution economies.

While remaining focused on the needs of special interest publications and catalogs, TPC offers its customers the opportunity to benefit from the economies enjoyed by their larger competitors.

Reisch echoes Cavell's motto, that "Quebecor World's journey has only just begun." Through organic growth and consolidation, the company is out to prove that acquiring World Color was not the company's last hurrah.

"We're very excited about what we see in the long term," Reisch states. "In 2001, we have good visibility—it will be a good year. But, as we grow beyond, we'll continue to extend our product offerings. In all our individual sectors, we will continue to cater to strategic customers, to which we can leverage our entire platform.

"We'll move much more aggressively to take our customers global," he adds. "We hope, in the not-too-distant future, to see our company at twice the size that it is today. There's a lot of excitement over the future for this company."

Welcome to Quebecor World.

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