Editor’s note: This article is based on Mr. Mallardi’s presentation to the recent Graphic Arts Marketing Information Service and was rewritten with a Canadian context exclusively for Graphic Arts Magazine.
It isn’t Canadian heritage when many of the country’s photographic art books, posters, calendars and packaging are not printed in Canada. This is painfully evident at any bookstore. Even the best-selling Canadian English Dictionary and the Collins French-English Canadian Dictionary are ‘Printed in the USA!’ Recently I was reading a book to my grandchildren that was written in Belgium, published in Quebec, supported by Hull (Canadian Heritage) and printed in China!
Publishing management has long cried out against cheap foreign labor, however little has been done by our industry or the federal government to combat printing imports. As a result, these have increased $103 million in the last seven years. For perspective, Canadian consumption of print increased at half this amount, indicating an erosion of the domestic market by a factor of two in past the decade.
Most Canadian non-newspaper publishing is, effectively, foreign-owned. The top 10 printing houses account for over 90% of production but less than 30% are Canadian-owned. Some have plants overseas; others are simply outsourced there.
Besides the old-world relationships, new ones are emerging as a result of immigration. Canada encourages overseas investment using the carrot-stick of citizenship. What kinds of businesses are often started? Importing companies!
The supply chain goes back to the country of origin, including the labels, packaging, advertising and promotional materials. In food, beverages, entertainment, recreation, travel and most every other print-demand category, the work stays where the companion products and services originate. Foreign banks and insurance companies are also setting up offices in Canada to service their transplanted constituencies. I obtained the printing contract for a marketing campaign targeting Turkish North Americans by an Ankara bank. The same institution finances printing imports, including an Istanbul web printer that ships over half its annual 11,200 metric tonnes of comic book output to North America.
Once an immigrant population reaches critical mass, some printing does migrate here, but it remains largely unnoticed and unavailable. Canadian paper and machinery merchants miss these establishments because the paper and machinery are imported by the importing companies. There are easily 300-500 pressrooms in urban Toronto, Montreal and Vancouver that will never be listed in a Blue Book or the Yellow Pages.
Meanwhile, most of the printing industry is oblivious to overseas and landed competition. Because marketing and salespeople have no idea how foreign printers and their customers operate, it is imagined that they do not exist. The few who have some idea dismiss the loss of work – particularly book manufacturers – to cheaper labor costs.
What’s occurring in the marketplace has less to do with the actions of outsiders than it does our own inaction. We are not selling to offshore organizations operating here because we are ignorant of their ways and feel culturally uneasy dealing with them. How many multilingual printing salespeople are on your staff? When was the last time you produced a job in a non-official language? Have you ever exported a job – or tried to sell – one offshore?
It’s not cheap labor; it’s cheap capital
At the macroeconomic level, the growing printing machinery trade deficit is much more debilitating than just the lack of competitive instinct. Our country’s capital base is eroding, as will everything that stems from de-capitalization. The more offshore goods Canadians buy because of perceived better value, the less Canadians produce. Those dollars spent offshore are invested both in the producing country and at home.
Profits from printing products sold to Canada may pay for a new press in Kowloon, and may eventually finance the purchase of a new press in Kamloops. The difference between the two transactions is an inversion of both capital and debt, and opportunity and risk. One is the paid-in-advance residual from past profits; the other is a borrowing against future profits. What’s worse, the marginal opportunity for the Canadian shop is diminished, and therefore the risk associated with the investment is increased.
This cycle passes through all the components of manufacturing, ultimately compelling one to buy foreign and owe foreigners. Our printing industry already purchases over $12 billion annually in non-Canadian materials, machinery and financing, thereby undercutting the country’s trade surplus.
Import capital goods, lose the technology
When any industry imports its capital goods, it also gives up technological leadership to the exporting country. Most graphic arts innovation, with the notable exception of Canada-based Creo, comes offshore, which means it has not been developed in Canada. This would not be important if printing was a cottage industry, but it isn’t. Ours is the largest printing sector as a share of GDP in the world at over 2%, but as an importer it is impossible to be first in technology. That glory belongs to the machinery and material producing nations.
Curiously, our productivity-per-printing-employee continues to be among the highest of any country. Ingenious adaptation and process improvement is a national characteristic. We also work harder and longer with inspiration inexplicable to non-North Americans.
Once, in a plant in Germany, I was startled to see the presses stop at ‘tea time’. In Uruguay, the presses were silenced for one hour in sympathy for striking bank workers. Even in China, where plant crews sleep alongside their equipment, productivity is less than in the US.
Same job, different costs
In North America, we treat selling price as a function of standard costs plus markup. Value added, after materials and sales costs, is of inordinate importance to management. Elsewhere, price is “what-can-you-get” relative to another price. In Latin America, a seller typically sizes up a buyer and tries out multiple prices for reaction. In the Middle East, sellers ask a buyer to make an offer. No matter how insulting it is, the range for bargaining is defined.
Such cultural differences in valuation and negotiation make it difficult to compare international printing competitors. However, the following generalizations may be made in an attempt to relate and differentiate costs:
Paper – While the cost to produce paper are nearly the same universally, environmental and taxation policies add 22% or more to the price printers pay in North America, and with VAT, an additional 18% to printers in the European Union. Increased papermaking capacities in South America, Southeast Asia and China are keeping worldwide prices from rising.
Prepress – Automated digital workflow and direct-to-plate prepress in the Western Hemi-sphere, with its capital investment and high-priced pre-flight, is no price competition for labor-intensive facilities in Asia. Larger amounts of prepress-only will be outsourced to places like India, while inclusive prepress will continue for printing done in China.
Press – Press prices and choices vary substantially from country to country based on taxation, supply and demand and subjective factors. In many parts of Asia, for example, Japanese presses are eschewed because of long-standing animosities dating from World War II. They prefer German machinery because it is perceived as better value. In South America, presses and servicing are particularly expensive, so printers run their machines slower. There is also an acute shortage of trained operators that adds to production costs.
Postpress -Automated, fast finishing lines in Europe and North America are no match for the unlimited mechanical and hand labor in the rest of the world.
Pack-out – Costs for cartons, skids and containers are cheapest in North America and most expensive in Europe and Southeast Asia.
Selling and Administration – Printers in North America pay salespeople well and inside management even better. European sales are principally by contract and inter-company relationships, and managements are leaner. In Asia, most work is brokered, and management is paid two thirds less.
In appearance, the jobs might be indistinguishable. However, the facilities where the jobs are produced are astonishingly different. At a hand-finishing operation in Guangjong, the working and living conditions were so deplorable that some of us visiting there vomited. Young girls endured long shifts without a break or accommodation for personal hygiene and they lived in unheated dormitories without doors. The die cutting, grommeting, assembly and stringing were for “Happy Birthday” and “Merry Christmas” signs they couldn’t read, all destined for North America. No doubt the buyers got a great price, but at what cost of social conscience?
Domestic printers cannot compete on price. Neither is draping oneself with the maple leaf particularly useful. Rather, the sales appeals should be speed, ease of communication, less travel and the practical benefit of keeping dollars here for the economic good of the customer and country.
The growing ethnicity and diversity in Canadian life is increasing real printing demand by 1-3% annually, yet machinery is being withdrawn from the marketplace because of perceived overcapacity. However, until we start to sell and produce multi-culturally, look for export partnerships, and develop better technology and content transfer, there will be under capacity.
Vincent Mallardi, C.M.C. is one of North America’s best-known printing authorities. He has led Canadian print exporting since 1980 and is chairman of EntrePrint Canada Corp. He is the author of, Taking Impressions: Borderless Printing Sales.