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Q&A

As a follow-up to Dr. Joe Webb’s Economic Webinar, hosted by WhatTheyThink on Wednesday, September 29, 2004, and sponsored by Kodak Polychrome Graphics, we are pleased to provide you with some additional Q&A that we did not have time to address during the session. If you have additional questions, Dr. Joe will be happy to answer them as well. Simply click here!

Q: You've addressed the question of China as producer/exporter of printed material.

Any insights about the (mid term) capacity of local vendors to supply equipment for the industry (offset and others...) similar to what's happening with low cost solvent based bill board printers ?

Thanks a lot and congratulations for this excellent webinar.

A: As far as I know there are no problems with supplies of equipment in terms of shortages or deliveries of note. Neither are there problems with dealers who are able to supply or support them, unless there are unique circumstances. If you mean grand format printers in the second part of your question, I know that sales have not lived up to the expectations of some (or should I say excessive forecasts) of the companies (indicated by the financial problems that were experienced by NUR), but in the long term it can be a good market for someone well-financed with the right expectations and right structure. I do not track this market segment carefully, however, and I would suggest you ask others who are closer to this marketplace.

Q: Regarding the work performed in China, besides the coffee table book variety, does it seem to be mostly packaging?

A: Packaging is not even tracked in the data because packaging is part of the product that is shipped. That is, if a stereo system is imported into the U.S., the packaging for that is part of the value of the stereo system. In no place is the value of the packaging for that product tracked.

There are some packaging materials that seem to be coming from overseas, and I’m in the process of investigating those issues.

Q: We've seen increases in raw materials such as paper.  Is this expected to increase throughout 2005...is the tightness in the market real or is the industry figuring out how to strengthen their position within the industry?

A: The paper companies have closed numerous plants and paper machines in an effort to better match demand. This has caused them recently to respond to increases in demand for certain grades, especially for magazines as consumer magazine pages have increased. One can’t help but think that their strategic analysts have been telling them that the manufacture of printing paper is a declining former cash cow business and they should get as much as they can from it while they can. I have found this unfortunate, because paper prices are so much a factor in the competitive nature of print, and in that sense are heading in the wrong direction, undermining print’s ability to compete. Realistically, how much would paper have to decrease in price to make it more competitive with new media? Even if it went to zero, many new media applications would still be far lower in cost. But just an acknowledgement from paper manufacturers that they realize it’s an issue would certainly help. I suspect that there will be efforts to raise paper prices throughout 2005, and if magazine ad pages keep moving upward, so will those efforts intensify.

Q: Why are commercial printers slower to add wide format to their mix? Solvent vs. Aqueous, flat bed versus roll to roll, what technology will be the winner? Thanks.

A: I’m not a technology guy, so I can’t answer the second half of your question. Most printers buy products when they know that there is tangible demand for them (such as lost orders or they see other printers getting business with a particular product or service). There are already many outlets for wide format, such as franchise quick printers, some of whom have been very aggressive in this area, but also many photo shops that cater to commercial photographers and creatives. In that sense, it would be too late to get into the business in the minds of many printers. Others look at the volume that they believe they can get and figure that they can’t really make money for handling so many small orders, and leave it to service bureaus who are used to that kind of business.

Q: What effect do you think the digital display (LED/LCD) technology will have on the print industry? The technology seems to be improving with the ability to change the content on demand from one central location.  The cost of this technology seems to have a downward trend.

A: Are there any technologies that don’t have a downward cost trend? I’ve said for about 10 years that folks in our industry were too obsessed with things like cost per print, and should be looking at “cost per not printing.” On-demand printing is a weak answer to on-demand viewing, and the fact that so much information can be accessed online is cracking the foundations of print demand. We already have content changed on demand, and if it’s controlled from one central location, I doubt consumers would really notice the difference. It’s here already. Go shopping at amazon.com using two different computers owned by two vastly different regular shoppers. You’ll see incredible differences in what is displayed on their screens.

Q: You mentioned that outsourcing was growing and helping small business growth. How about outsourcing provided by large outsourcers like IBM, EDS, etc.? Also, there seems to be a continuing trend in outsourcing or managed services by large printers like RRD/Moore, Standard Register, and others. Do you see any indicators good economic indicators that support this growth and track with this growth? Do you feel like this area will continue to be strong, if Yes, why?

A: Some of the big computing outsourcers have been having problems, such as EDS, but outsourcing services were the real story behind IBM’s growth under Lou Gerstner. But I look at outsourcing on a much smaller level. Companies outsource all kinds of jobs, such as payroll (ADP, Paychex), cafeteria services (Aramark, Marriott), logistics and fulfillment (UPS, FedEx), and a wide range of consultancies (ad agencies). For a while there has been a "stick to your knitting" movement in corporations where they shed functions that are not core strategic competencies and send them to outside vendors. This has occurred for many reasons, some of them regulatory. Environmental compliance would create the need for outside waste management businesses that would have the skills and methods of reporting, tracking, and ensuring proper disposal. Pension reforms were seized upon by banks and financial institutions for management and reporting based on compliance with new regulations. These are just a few examples. When CEOs got tired of the bad press from layoffs and the high benefit costs of employees, outsourcing became much more viable in their minds.

As for managed printing services, these are often combined with document management programs. This is a serious problem for major corporations, especially those who have heavy turnover of personnel. Documents and information management become their only method of preserving continuity in their corporations. It’s a natural outgrowth of their original purpose in creating business forms: create a system to collect data in a consistent, predictable manner. That’s a much more complex task now. So I guess my answer is yes! What indicates this? I’d suggest watching the technology investment data that’s part of the GDP releases. You can see the GDP reporting at www.bea.gov

Q: What are the dynamics of Small Commercial Printers moving to a Digital Environment - CTP or Short Run. And how does that change with Economy?

A: Part of it is the cost. Many of these companies are so poorly financed(“overleased,” or running hand-to-mouth cash flow) that they have difficulty looking at this equipment seriously. More importantly, they do not feel that they have the customer base that really needs digital, nor do they have employees skilled enough to run digital devices. This ends up being one of the least-acknowledged reasons for consolidation at this segments of the printing business.

Q: My understanding is that accelerated depreciation for capital purchases has not been renewed. If that is correct, what tax laws will help drive business in 2005?

A: The accelerated depreciation ($100,000) is still in effect for 2005, and will revert to $25,000 in 2006 unless new legislation is passed. If it is not passed, the lack of a new law would push some purchases into 2005 that would have been transacted 2006. In that sense, the lack of a law would stimulate 2005 sales. Otherwise, because so many small businesses pay on their personal returns because they are subchapter S filers, lower rates certainly do keep dollars available for investment. The one-year delay of the Alternative Minimum Tax will help as well. The ATM is an accident waiting to happen, and its insidious effect on the economy will unfortunately grow unless something is done.

This free event is made possible by KPG.

Kodak Polychrome Graphics provides one of the broadest portfolios of digital, conventional and business solutions available in the graphic arts industry today. Products and services include a wide range of computer-to-plate and conventional lithographic and flexographic plate products, digital halftone, virtual, inkjet, and analog proofing products, digital printing applications, color workflow tools, storage solutions, business solutions and Kodak branded graphic arts films. With headquarters in Norwalk, Connecticut, USA, KPG serves customers around the globe with regional offices in the United States, Europe, Japan, Asia Pacific and Latin America. Additional information regarding Kodak Polychrome Graphics may be found on the company's website: www.kpgraphics.com.

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