Article prepared by C. Clint Bolte, C. Clint Bolte & Associates, Chambersburg, Pennsylvania. For additional information please call 717-263-5768, fax 717-263-8945, or e-mail to clint@clintbolte.com.

Offshore Print Evolution

American and European publishers and corporate print buyers have been developing viable print production relationships offshore since hot metal typesetting gave way to manuscripts sent by telephonic transmission. Broadband capabilities and associated electronic prepress software systems have allowed ever more complex and sophisticated graphics projects to be produced in lower labor costs regions of the world.

As rising educational standards in many developing countries have elevated the English speaking communication capabilities of these new vendors, old line publishers and globally minded buyers have gained confidence in moving less time sensitive but more labor intensive printing projects half way around the world. Technology has certainly contributed to "flattening the world" as the book of a similar name, i.e., The World is Flat, has alluded.

However, this new paradigm can be attributed to other cultural factors as well. For example, many native print entrepreneurs in these evolving economies have received their higher education in Canada, United States, or Europe. From this entrée they have put together business plans and aggressive sales programs targeting the export market. At the same time business development policies and laws in these countries have contributed to fueling this engine by streamlining the importing of new technologies that will be producing these exports. Governmental leanings toward democracy and free market economics have helped this export initiative as well.

The west's traditional corporate tendency toward mergers and acquisitions in exchange for the infusion of financial and intellectual technical capital has met with resistance in many far eastern countries. Legislative compromise has resulted in minority equity positions, but rarely majority or total ownership. Keep in mind that the universal priority guiding federal legislation for both acquiring new technologies and local corporate ownership control has not been the export carrot alone but the over arching desire to build the country's internal economy and standard of living.

Package printing has logically stayed with the origin of the product being manufactured. Hence, toys manufactured in China have had virtually all of their packaging and assembly instructions printed there as well. With this single product exception virtually all other printed products have encountered two primary limiting factors to offshore production; shipping costs across vast oceans and the resulting elongated time to reach the U.S. market. With ever quicker project turn around times being provided by printers in North America and Europe these two limitations are not expected to be eliminated.

Despite labor unions in the old line, free world economies bemoaning the "exporting of jobs" from the time of the very first offshore outsourcing, most manufacturing stays in the country of origin and intended sale. The United States continues to manufacture 80% of what it consumes. It manufactures well over 90% of the printing that it consumes. Hence, offshore printing has been and is expected to continue to be a niche resource. And for certain graphics and printed projects this resource will provide distinct value for the globally minded publisher and/or corporate print buyer. This article will discuss the current dynamics of offshore print production including actual case studies. Statistics, strengths, weaknesses, along with interesting advancements and innovations of these foreign vendors will be described.

Current Economic Perspective

Dr. Joe Webb, economist and consultant with WhatTheyThink.com, reported on his weekly Print Economics Chart of October 15 that printing trade exports thus far in 2007 have grown by 8% while imports are up 9%. Each of these is up in real terms by 5% and 6% respectively. There actually is a small surplus in net commercial print trade as U. S. imports total $4.1 billion and exports are $4.25 billion. However, as would be expected the exports and imports are not in the same value chain, i.e., more books are being imported while more magazines are being exported. Likewise, China is the biggest import source at over $1.4 billion from January - August 2007 with very little U.S. print export value going to them. Canada is the second largest import source at nearly $900 million. There has been a downward trend in the Canadian imports as the US dollar has weakened and is now on par with Canadian loony.

Following the enactment of the North American Free Trade Agreement (NAFTA) in 1992, Canadian print exports to the United States grew to 40% of their printing industry total revenues. While the currency differential of as much as 36% (in Canada's value favor) is attributed to much of this growth in Canada's print exports, experts on both sides of the border also attribute this growing business relationship to other factors. The ease of using the Internet to send electronic files and PDF proofs eliminated the time and expense of courier proofs. And just as importantly Canadian printers have continually worked with American subcontractors and mutual clients to set up win-win scenarios on increasingly complex and timely projects.

Additionally similar management styles, shared values, and common language have played no small part in the on-going success of the Canadian printer - American publisher/print buyer business relationship. This is despite the continued erosion of the favorable currency differential since the beginning of the millennium. These cultural issues underpin the successes as well as failures of so many global cross border enterprises.

Mixed Printing Results from NAFTA

For example, Mexico has been the third partner in this first-of-its-kind free trade agreement. Mexico has grown to become the United States' third most significant overall trading partner behind Canada. The print imports from Mexico were nearly $335 million in the first eight months of 2007, also the third most of any country.

As NAFTA began its roll out, international business news reported the creation of over 250 maquiladoros in Mexico along the U.S. border to take advantage of the lower Mexican labor costs. The maquiladoro was a manufacturing enterprise established either as a joint venture or an American initiative to produce a specific product often on an exclusive basis for the American owner/partner.

By the end of the 1990s over 200 of these maquiladoros were shut down. Reasons vary but quite often were attributed to the increased American overhead needed on hand to oversee the maquiladoro plant to assure no miscommunications, predictable quality output, and assurance of meeting production deadlines. Many of these same jobs have now migrated to China while the Mexicans in those plants have come across the border into the States. They make more money then was offered at the maquiladoro.

International Award Winning Work

At the recent PIA/GATF Print Awards Banquet held in conjunction with Graph Expo 2007, Chinese printers won several awards for their books that required exhaustive hand labor. These were all children's books. When a page was slowly turned over a three-dimensional centerfold castle or tree would unfold and emerge as much as 6" high. These paper objects de arte were often comprised of several dozen pieces of diecut, process color printed elements. The "paper engineering" to design these three-dimensional objects much less the actual manufacturing would have been intricate and labor intensive. The basic print quality was quite satisfactory, but the award was clearly given for the intricate handwork required.

With China's entry into the World Trade Organization in the early 1990's, large printers out of Hong Kong and Singapore moved operations into the southern provinces of China. Land was inexpensive and the "free enterprise" policies of the Chinese government were making it easy to invest. Shortly local printers in Hong Kong were reported to have added or expanded facilities just over the Guangdong provincial border in the cities of Guangzhou and Dongguan.

This all complemented the special economic zone (SEZ) set up nearly thirty years ago in Shenzhen, which is in the same Guangdong province. Over 2,200 foreign capitalized printers, such as RR Donnelley and Japan's Toppan Printing & NIPPO Printing, have formed partnerships and moved into various SEZs along with Beijing and Shanghai. Much of this initial thrust was to bolster the package printing explosion as global enterprises moved their manufacturing to China.

As of November 2003, China had 92,400 printing establishments with 35% as state-owned or collectives, 21% were foreign invested joint ventures, and the balance privately held.

General Commercial Printer Case Study

The American publisher and print buyers are increasingly turning to the Chinese to provide "premiums" to be included in their mailings to encourage prospects to "opt in" for subsequent e-mailings. Most all internal printing is process color and unremarkable but satisfactory quality. Without the premium, the relatively long run contents could have been produced in the United States on high speed equipment often with automated inserting. Because of the unusual size, shape and fragility of the little premium, the entire package instead must be hand assembled.

A tour of one of these general commercial printing plants in Guangzhou reveal practices that are typical of mainline manufacturing throughout China whose primary client mix are foreign and therefore products are exported. The overwhelming proportion of these plants are located within a two hour truck ride from Hong Kong harbor so that finished goods in shipping containers can quickly meet ship embarkation deadlines.

Project manufacturing cycles on multiple shifts require two to three weeks while delivery by ship requires at least another two weeks across the Pacific ocean to the west coast of North America. Of this manufacturing time, print production rarely takes more than a week with the hand assembly easily consuming the majority of the remaining time. If labor wage savings were not the deciding factor and this entire series of manufacturing tasks were performed in North America under the influence of Industrial Engineered work flows and modern printing equipment, it is judged that a couple of days could easily be saved in the print production process and perhaps the same in the hand areas.

Computer-to-film and computer-to-plate are as commonplace among the larger printers in China as in the rest of the developed world. Hence, no real time savings would accrue in prepress or platemaking. While Heidelberg and MAN Roland speak of the new Chinese press installations in recent years, reports from actual printing plant tours indicate that well over three quarters of the printing industry is dependent upon sheetfed presses that are at least twenty years old and many exceed three decades. Hence, all press automation technology initially introduced at DRUPA 1990 is absent. Or stated another way, on the used equipment market these presses can be purchased by the Chinese for little more than the cost of the steel.

Two and four unit 36" Rolands were observed with four man crews taking two hours for wash up and make ready and running full out at 5,000 impressions an hour. Six, eight, and ten unit 40" presses younger then ten years rarely have a crew of more than two in developed countries, have changeovers under an hour, and net good product in the five figures an hour (or at least twice the speed of the ancient presses).

Finishing equipment can easily be older. An array of single operator clamshell die cutters were observed that have not been used in North America post WWII. This is primarily due to the safety hazard of the operator potentially chopping a finger off as he retrieves a completed sheet with his left hand while inserting a preprinted blank with his right in the fraction of a second when the clamshell is open.

It is interesting that most all of this equipment is European, American, or Chinese made. New Chinese presses have been observed at the International trade show DRUPA in Germany, but few have been observed in any of the larger Chinese printing plants. Chinese finishing equipment is reported by the Chinese printers to be inexpensive but unable to hold up for very many years under multi-shift production demands. Select Chinese finishing equipment designed for specialty purposes that will not encounter heavy duty usage is universally present. Used European and American equipment, though ancient by western standards, is considered by Chinese printers to be dependable and reliable.

When asked why good, used Japanese printing equipment is not considered, particularly considering how relatively close Japan is to China compared with Europe or the United States, the retort is that good service is difficult to get from the Japanese. Since neither the American or European equipment manufacturers see any significant revenue streams coming from archival equipment whose only spare parts come from cannibalization yards, there has got to be another reason. While unspoken, it is suggested that bitter memories of WWII stand between this potential business relationship.

The NPES trip of September 20-29 2007 to Japan and China reported seeing joint venture Chinese printing machinery manufacturing plants and Shanghai and Beijing. The first makes quarter, half size, and full size modern 4-6 unit high quality Akyamas sheetfed presses under the Guanghua brand. They claim to have 40-60% of the new press market share. The second is a joint venture between Beiren and Mitsubishi manufacturing the half size Mitsubishi sheetfed press in China. So the Japanese have clearly developed workable relationships with some Chinese printers contrary to the earlier observations.

Significant tariffs by the Chinese government are reported to be levied on used equipment coming into China. This is a back door incentive for all Chinese manufacturers to invest in the latest modern technologies. Considering that so much of the press and finishing equipment appears to be used, these tariffs do not seem to be creating the desired incentive. This may be due to the increasingly weak U.S. dollar (to which the Chinese Yuan is tied) making European new technology extraordinarily expensive. Or perhaps the Chinese customs agents get an early Christmas gift for approving understated valuation statements. This could not be verified.

Hand Assembly

The hand finishing area is a football field sized room with high ceilings cooled by aircraft hanger fans mounted high in the side windows creating cross breeze. There are a series of a dozen sit down tables arranged parallel the length of the room. Some 8-12 ladies sit on either side of the table. A similar 600-800 count work force mans the potential 12-hour night shift providing at least 16 hours and up to 24-hours of hand work capacity six days a week.

There appeared to be no jigs, fixtures, or tools to aid the hand assembly process as might typically be observed in most American or European general commercial printing operations. It was not unusual to observe the four women sitting across from one another to be arranging themselves and the flow of their work into a cooperative assembly line process. And yet when two or more tables were working on the same hand assembly project, it was not unusual to see various teams of women following noticeably different methodologies to arrive at the same end result.

When asked why a "best method" was not arrived at and then taught to all the teams, the plant supervisor remarked that every project is completed in only a few days. Plus they have found that the senior lady at each table wants to arrive at her own preferred method and teach her crews accordingly. Part of the Chinese culture appears to be a hierarchy of management with decisions and responsibilities delegated and not infringed upon.

The plant clearly lacks the discipline of thinking a hand assembly project out in advance, designing and building jigs or fixtures to assure consistent quality and uniform positioning of elements, and then training all participants in the best, most efficient technique. However, one fact cannot be denied. These women are amazingly dexterous, tenacious, and have a Trojan work ethic. Given the later characteristics they conceivably could assemble as much product as many better engineered Western hand factory in the same amount of time.

This Guangzhou plant had 2,500 employees working 24-hours a day six days a week. All except the management team lived on site in quarters provided and furnished for them. The management team typically lived on site three or four nights a week as will be explained later.

Factory Campus Complex

The plant complex occupied a city block and had walls and secured gates. The campus was comprised of five buildings; (1) a four story factory, (2) a large warehouse for raw material and finished goods, (3) a five story employee barracks, (4) a secured management apartment building, and (5) a five story factory expansion under construction.

The concrete factory had freight elevators only (no people elevators) with 16' clear ceilings and 50' span on load bearing pillars. The administrative office had a few private offices for top management, standard moveable partitions separating desks for the rest of the professional staff, and a large conference equipped with the latest audio video accoutrements to facilitate the weekly teleconferences held with European and American clients. These will be described in more detail, as they are crucial to the success of the operation. The professional and management staff was less than 200. There did not appear to be more than 50-75 personal computers in the entire operation. The single administrative office complex located on the second floor was heavily secured.

Lithographic factory workflow was predictable except for the final finishing task. This was packing huge freight containers to be trucked twice a week to awaiting ships in Hong Kong harbor. The freight containers were staged on the unusually large dock under an open-air roof for up to three days before being loaded onto open tractor trailers. Packing these containers with maximum product in a fashion that would prevent any load shift damage was an art and a science.

The warehouse surprisingly had minimal racking with skids of paper on top one another. Ceiling clearance would clearly have accommodated three of even four high racking if so desired. While rack investment would be minimal, forklift truck investment to get 4,000 pound skid loads up 15' would not have been. Cartons of premiums and supplies were simply on skids. Skids were abut side-to-side and front-to-back with one large aisle down the middle of the single story warehouse. Seasonality created lots of open space but the Warehouse Management System dictating warehouse product location was only between the ears of the warehouse staff sergeant and his crew of hand forklift operators. The accounting office had inventory levels on their computer but no formal MRP release into production. Home grown, proprietary software provided the limited management information system.

The best analogy for four-story building where hourly employees lived, though only a few years old, is a WWI enlisted personnel barrack. The women occupied the top floors and the men the second floor. The ground floor contained the canteen, where all meals were prepared and served and the common area, where employees could relax when they were off work. No married couples could live in this building. They would be given a modest stipend to rent a room in the local community. No children were allowed in the complex at all.

Management and senior staff housing and accommodations looked like garden apartments but the floor plan resembled freshman dormitories. Each room about triple the size of the single bed was sparsely furnished with men's and women's showers and restrooms at the end of the corridor. This building was fenced in and had its own security system.

First it must be understood that the Chinese culture emphasizes that if an individual is going to go to college then they are clearly ambitious. The attitude appears to be that not only the most, but the only successful Chinese professionals live and work in Hong Kong. (A similar analogy might be presented for Beijing and Shanghai.) This is like saying the only location that American professionals want to work is New York City. While it may not make sense to westerners, it does to easterners.

Consequently it is extremely difficult to hire managers or professional staff for a position that is two hours away from Hong Kong. To accommodate this concern, the higher ranked professional staff boards the company bus every Thursday evening for the drive to the provincial customs clearance office. From there they board the trains for the one hour ride home to their families in and around Hong Kong and Kowloon. On Friday, Saturday, and Monday they take their one and half hour (each way) train commute into downtown Hong Kong to the company headquarters. While the work days are similar to NYC being about 7 hours, the full commute makes these full ten hour days as well. On Tuesday mornings they take the commuter trains north to the provincial customs office where they pick up the company bus for the one hour trip to the plant. Tuesday, Wednesday, and Thursday are long days at the plant. Monday would be included in this during the seasonal peak periods of production.

It was interesting that there existed an elaborate telecommunications set up at headquarters dedicated to the receipt of electronic design files (PDFs) from foreign clientele. The staff of six electronic prepress people would generate a digital proof, impose for the Guangzhou press layouts, and burn a DVD to be sent to the plant for making CTP plates. In the United States this entire set up would have been located at the printing plant as there was not a single value-added step offered from the Hong Kong headquarters. If there was any problem or last minute change in the file, the new plates would be delayed a day. The only possible conclusion is that these electronic prepress professionals refused to work up country outside of Hong Kong.

Appealing Teleconferencing Capability

Tuesday and Wednesday nights are reserved for teleconference meetings with their foreign clients. A 7 p.m. meeting in Guangzhou is 7:00 a.m. EST, 8:00 a.m. in Chicago, and 10:00 a.m. on the west coast. In addition to discussing status of existing jobs, they review specifications for complex upcoming work, and most interestingly they review the dialogue and drawings on the evolution of new and innovative premiums. While everyone had access to e-mails and phone, it was easy to visualize how much western clients would appreciate this regular telecom hookup lasting as long as necessary.

While there is an inventory listing of hundreds if not thousands of small premiums made from all types of materials, the nonprofit sector is constantly trying to come up with cute freebies that no one else has seen. The printer does not himself manufacture these premiums but has relationships with select vendors that he holds proprietary. The idea for a new premium may start with a sketch on the back of a napkin. It moves quickly to engineering drawings, mock ups, and samples. His facilitation process on the design and manufacture of premiums coupled with the printer's strategic concept of all print production under his roof gives him the ability to control and meet demanding production schedules.

High Hourly Employee Turnover

His overwhelming problem is nearly a 100% annual turn over of his staff! And this problem is not unique to this particular Chinese printer. But lets go back to the Chinese culture that helps explain this phenomenon.

The 2,300 hourly employees are primarily young women who grew up on farms in the northern Chinese provinces. Their homes and families are typically a two and a half day train ride away. The promise of a higher wages is only available in the big cities. As teenagers these young people with little formal education (and their parents) except the promise from these southern manufacturing plants to (1) pay them a handsome hourly wage, (2) guarantee overtime at premium wages, and (3) provide free room and board.

Time and a half is paid for Sunday work. Double time is paid for holiday work when required. And if the employee agrees to work over the three week Chinese New Year in January rather than return home, there is triple time offered.

They currently make the equivalent of about $100 week, which is nearly double what the wage levels were at the turn of the millennium. Wage inflation has been and continues to be approaching 9% a year. This is total money in the bank as there is no taxation or other living expenses. This system has allowed many of these people to save enough money in only 2-3 years to return home and start their own restaurant or millinery. They can be well respected middle class entrepreneurs, get married, and start their families. This system is attributed with bringing an entire generation of Chinese out of poverty. The United States could never come close to this with their minimum wage policies.

The biggest employee termination occurs in February when workers simply don't want to leave their families and return south to work. Many manufacturers in addition to printers are confounded with seasonal peaks and valleys of demand. For example the non-profit printing sector has its busiest production period in late summer and fall leading up to the Thanksgiving, Christmas, and end of the year philanthropic giving period. Other times of the year there may not be as much or even any overtime as was promised. With extra time on their hands these unskilled workers go "off campus" and meet other workers from plants across town. If these folks are getting overtime and need help, it is easy to pack their bag and accept the more lucrative position.

Frankfurt (Germany) Book Fair 2007

China's economic expansion is fast making it a force to be reckoned with in the publishing world according to exhibitors at the world's biggest book fair in Frankfurt, Germany this past September. The fair featured 7,000 publishers from 110 countries. "China's growing printing works strength has resulted in a 30 percent increased presence at the Frankfurt fair this year in search of more business from international publishers," organizers said. Southern China has become a printing stronghold after companies there spotted a market opening and moved quickly to improve their quality, often dispatching people to learn about the industry in Europe.

"Printing is more and more a question of cost and China has just taken off," said Manuele Bosetti from Hong Kong-based Media Landmark Printing, which does all its printing in southern China. "In the beginning, the quality really was not there but they are smart at their job. They came (to Europe), learned from the Italians, and in some ways they are matching the (print) quality."

China Printing Corp., China's oldest state-owned printer, said the general economic boom meant it was suddenly facing stiff competition from a host of private printing works. "We are absolutely trying to expand our market. Business is very good but as the market has grown so big, we are facing a lot of competition," said the printing house's Qing Wei. She said China's success in the market was a simple question of economics. "Printing books in Europe and in the United States is expensive. We are cheap and our quality is good," Qing said.

The decade-old private competitor Hengyuan Printing Co., which is based in Guangzhou with a workforce of 600, said it was very aware of the need to keep up quality standards for clients in France, Italy, Spain, Russia and South Africa. A representative of the company, Stephanie Chen, proudly showed off a French-language edition of the cartoon cat Garfield, with a pink, printed ribbon running across the cover. "They come to us because we can do this. We have to be very careful and if we cannot do something to the standard required or within the deadline, we would rather turn it down," Chen said. Hengyuan can handle print runs of 5,000 books and deliver to Europe within three to five weeks, she added.

The printing house's stand at the Frankfurt fair was full of glossy, high-resolution coffee table tomes on anything from vintage cars to chateaux in France, where it claimed contracts with Editions Moliere, Hugo and Editions de Lodi. The state is quite happy to have a host of private printing rivals, Chen said. "It is a really free market, we are encouraged."

French publishing house Groupe Fleurus' Mango division, which specializes in children's books, said it was increasingly commissioning Chinese printers to handle editions with complicated illustrations or inserts. "It is becoming common to send books that require a lot of detail and are therefore very costly to produce, to China. The prices are in another realm. And we have no problem with the quality," Mango's Marion Girona said.

The president of the Spain's publishers' association, Antonio Maria Avila, said half of the books that Spanish houses produce for the Spanish market in the United States, are now printed in China. "Fifty percent of these books are printed in China. They are often shipped straight from there to San Francisco," remarked Avila. "The reason is very simple -- it is much cheaper."

Traditionally American publishers and print buyers could find offshore printers only through foreign print brokers. A few of these individuals added value to the relationship but many simply marked up the prices to the buyer and bought low dollar. In recent years buyers are finding more Asian printers attending national conferences and trade shows in an effort to develop their own long term relationships with prospective clients. The Print Oasis annual gathering has been one such venue. The printing trade associations, such as PIA/GATF and NAPL, likewise have names of firms abroad that they will pass along.

Article prepared by C. Clint Bolte, C. Clint Bolte & Associates, Chambersburg, Pennsylvania. For additional information please call 717-263-5768, fax 717-263-8945, or e-mail to clint@clintbolte.com.