Creative Destruction: winners and losers - Print 21 magazine article

Times of change are always a combination of opportunity and threat depending where you are standing. There are as many people pushing for change as there are those holding on to the status quo. While change can be scary, it is inevitable and the ability to adapt is essential if you want to be a winner. Patrick Howard looks at the creative and destructive impact of market forces in printing.

There is carnage abroad in the printing industry. The number of printers going out of business or being swept up into the large PE-funded groups is accelerating. The complement of printing companies still in business - 4,500 approximately in Australia and New Zealand - is becoming smaller. It is already down from over 6,000 in the late 1990s and the rate of decrease shows little sign of slowing.

Attrition comes in many forms - apart from the lucky few that caught the private equity wave and got out with loaded saddlebags - bankruptcy, forced sale, change of business direction and, in quite a few cases, simply pulling down the roller doors and walking away. For the truth is no one from outside the printing industry will buy a printing company. It's just not a good investment, in most cases failing to cover the cost of capital. Business brokers will tell you that with the possible exception of the franchise stores, it is practically impossible to sell printing businesses to anyone other than a printer. The capital investment is too high, the ability to differentiate is problematic, the manufacturing skills required to operate the machines are in scare supply and the price competition is ferocious.

It is a commonplace in the industry to blame a massive overcapacity of production equipment for fuelling a price war. The belief is that printers would rather run presses at or near cost than let them sit idle; the economics do not matter, perception of productivity is everything. A thundering press is good for business, even if the profit is negligible. Which is OK if you are a well-financed corporate that spreads the costs across a number of sites and leverages its size to buy everything from presses to paper as cheap as chips. But for an independent, small to medium-sized enterprise taking jobs at heartbreak margins is a short cut on the road to ruin.

For many of the old-style, family-owned, trades-educated printers the current environment is frightening. Squeezed by forces beyond their control there is a harkening back to a golden age when printers were members of a prized craft that was sought out by customers. Other company owners of like size and background were not about to start undercutting the market. The powerful union 'chapels' controlled even the movement of skilled printers and without the approval of the 'father' a printer could not change jobs.

Whether there ever was such a golden age is debatable and it was unlikely to be as well organised as memory prompts, but without doubt there was a lot more stability than in the radical transformation under way in the industry at the moment. The trend is towards survival of the fittest and the market forces are continually upsetting plans for cosy retirement and producing winners and losers.

Which side are you on?
The gold rush of private equity funds into printing has left a radically altered industry landscape in its wake. There is more intense and organised competition from the new large groups while the influence of printing buying giants such as Stream Solutions is growing all the time. Prices for print are under intense pressure with margins cut to the bone. Equipment costs are soaring as new technology makes printing a more automated process. The role of the SME is under a growing threat and many will not survive.

Perhaps that is the best thing for the future of the industry. This may seem a harsh judgement but the laws of market capitalism are based as much on sweeping away older forms as they are of encouraging new structures to arise. The advent of the digital printing revolution 15 years ago as well as the move towards computer-controlled production in printing plants was always going to bury the last remnants of craft printing. The skills learned as a tradesman, while still valuable, are no longer an assurance of economic survival. In many cases they have been incorporated into automation or supplanted by another printing technology. You don't need much training to push a green button.

You say you're a printer!
The attributes and skills required to be a success in the current printing environment are a world away from the traditional craft. It is obvious that managers of multi-million dollar printing enterprises need to be highly educated, skilled financial and management professionals. Knowledge of the printing industry, while an advantage, is not necessarily a prerequisite.

Even for smaller printing enterprises, the Snap and Kwik Kopy chains of this world, the last person they want to buy one of their franchises is a printer. They would prefer accountants and sales people or others with market and financial savvy. The actual production of print can safely be left to the systems in place.

The Perth-based WorldWide Online Printing is currently advertising for designers to take up a franchise. They recognise that most print jobs these days originate with the designer. What better person to operate in a spoke-and-hub printing operation? Instead of giving the designed job back to the client for them to search out a printer, the designer is a one-stop shop feeding the work back to a centrally located hub. It is a low-cost solution and one that is proving very attractive to a whole new push of entrants into the industry.

Morphing into printers
A little recognised side effect of the decline in the number of printing companies, either through consolidation or natural attrition, is the fall in member numbers and revenue of the industry associations. Certainly Printing Industries in Australia is feeling the pinch as many of its larger members are coalesced into the two big groups. The ability of such organisations to continue to provide both the lobbying and social infrastructure the industry has come to expect is under greater pressure as numbers decline.

The same phenomenon happened in New Zealand but, as with many occurrences, it took place some years earlier. After a fairly dramatic fall in numbers, PrintNZ went out to cultivate a whole new group of printers, what CEO Joan Grace terms, " the mall t-shirt printers". These shopfront printers, who will reproduce anything from a personalised mug to party posters for the end consumer, are a far cry from the craft-oriented commercial printers that had been the mainstay of the association since its inception. After an initial period of discomfort everyone now recognises the validity of the transformation and the need to be more inclusive. Numbers of printers in the association are now stable, even growing, but their make up is a far cry from the past.

There is still a lot of pain to be endured as the industry continues to reinvent itself in an internet-driven, personalised communication sector. Threats of imports from China, of predatory pricing from print brokers and large corporations, of skills shortages and more expensive equipment will continue to reshape the industry. There is nothing to be done except adapt, renew or get out.

Market forces are doing what they have always done, destroying outmoded business models to make way for newer, more efficient ones. In this we are all players, even if we don't know it. From printers to equipment suppliers, paper and ink manufacturers to financiers and, yes, magazine publishers, we are all part of the creative destruction that drives our commercial world.