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Danger and opportunity in China’s print ascendancy – magazine article

Thursday, 16 November 2006
By Print 21 Online Article

Many manufacturing industries view China as a competitive threat, while resources and service-based sectors like tourism consider it a major business opportunity. Printing is a hybrid industry with both manufacturing and service industry features, so are there threats or opportunities? Hagop Tchamkertenian looks to a new Printing Industries’ initiative, ‘Focus on China’ for some answers.

Printing Industries recently introduced part one of a three-stage management training program that culminates in a business matching tour to China for senior printing executives. The introduction featured a Focus on China seminar with a message: the world not only has changed but will continue to change at an accelerating pace.

Changes in technology have helped remove some of the barriers faced by small and medium-sized businesses in accessing global opportunities. Ongoing globalisation trends as well as the removal of official trade barriers have fundamentally reshaped the global business landscape to create a situation where trade is occurring in a seemingly borderless world.

Collecting and using information is an integral part of doing business in a globalised environment. Information is considered a vital driver of strategic business decisions.

Printing organisations in highly developed countries such as Australia can no longer compete on price alone as countries such as China have moved into that market space. Instead they need to focus on value-adding activities. In other, words moving up the value chain to occupy niche market opportunities.

The seminar emphasised the importance of coming up with new ways of doing business. To quote one of the presenters, Dr Ian Lin: “After all, it is not likely that a business can use yesterday’s strategies to solve today’s problems and expect to remain in business tomorrow.”

Putting China into context

Regardless of how you describe China, you cannot escape its vastness. According to some economic forecasts, China will become the largest economy within 20–30 years. The Economist magazine has undertaken an exercise ranking the size of major economies now and in 20 years time, as measured by GDP at purchasing power parity exchange rates. This represents adjusted exchange rates so that identical goods in two different countries have the same price when expressed in the same currency.

What The Economist study clearly shows is the emergence of China as an economic superpower. Measured in purchasing power parity-basis China’s GDP alone is forecast to account for 21.8 percent of global GDP by 2026; up from the current estimate of 15.2 percent.

While the economic projections on China sound impressive they do have to put in proper context. China may well overtake the United States in 20 years and become the world’s largest economy but that does not mean it will be the richest economy. China’s population for example is expected to be more than 1.4 billion in 20 year’s time compared to more than 350 million for the United States. So while China’s population will be 400 percent larger than that of the United States, in 20 years time the Chinese economy, measured in purchasing power parity basis, will only be three percent larger than the economy of the United States.

Comparing lychees with lychees

Comparing the Chinese and Australian printing industries also highlights some interesting facts. China has more than 94,000 printing companies compared to about 5,000 in Australia. More than 3.4 million people are employed by the Chinese printing industry compared to around 115,000 in Australia. Yet China has more than 65 times the population of Australia. This means that Australia’s printing industry when measured against the population base is making a larger contribution. Another interesting fact is that, when measured in terms of revenue, both the Chinese and Australian printing industries currently make almost an identical contribution to their respective economies. The turnover of Australia’s printing industry as a proportion of the Australian economy stands at 1.9 percent compared to China’s share of 1.8 percent.

An important difference is found in the growth prospects of the Chinese and Australian printing industries. The Chinese printing industry’s share of the Chinese economy is expected to keep on rising for the next decade or two in line with the Chinese government’s printing industry development plan, which aims to grow the printing sector at a faster rate than the overall economy. Interestingly, printing is amongst nine industries selected by the Chinese government for this purpose. In contrast, Australia’s printing industry share of the Australian economy is likely to continue declining unless current trends are reversed.

So, while China economically is huge and will continue to grow in size over the next several decades, the vastness of China needs to be put in proper context given the huge population base that they are currently operating from.

The wisdom of Confucian logic

The Focus on China seminar highlighted important business themes associated with the Australian and Chinese printing industries. Production scale in China is huge while in Australia it is relatively small. The Chinese printing industry views the world as their market whilst Australian printing companies are focussed mainly on the domestic market resulting in low export propensity.

And while Chinese printing companies are prepared to take business risks, their Australian counterparts are more conservative and generally focus on minimising risk.

Being prepared to take business risks may be attributed to Chinese culture as another key presenter, Mark Reid, pointed out that the word ‘crisis’ in Chinese is represented by a combination of the symbols for danger and opportunity.

The Chinese printing industry tends to also be more customer-focused to the point that the word ‘no’ has lost its place in the Chinese business vocabulary. Chinese printing companies often take extraordinary measures to satisfy the evolving needs of their key clients.

While the printing industry in China will continue to use lower manufacturing costs as a driver of its competitive advantage, other competitive factors are also emerging and increasing in importance such as an emphasis on new technology; commitment to ongoing improvements in product quality; and environmental and safety improvements.

The Australian printing industry is now faced with these additional emerging competitive pressures from China and one way it will be able to respond is by finding a niche position in an increasingly globalised environment. Undertaking continuous innovation and creativity programs and initiatives will also help the Australian printing industry to migrate to profitable segments of the industry value chain.

The hard question, boldly asked

Focus on China seminar participants were asked to consider how they would respond if confronted with a situation where a key client is approached by a printing organisation in China, prepared to print a magazine that the client currently prints in Australia at a price that is 28 percent lower.

The responses of the seminar participants to this emerging competitive threat from China were mostly based on technology—involving modernisation of equipment and cost cutting—involving measures related to staff, materials and cost of finance. Consideration was also given to moving the companies’ print run for all magazines to China by formalising a business partnership with a company in China or using China as a manufacturing base to fulfil the printing requirements of markets outside Australia.
The key lessons derived from the case study was to demonstrate that strategies based on taking costs out of the business or simply employing new technology are not sufficient responses to combat the competitive pressures coming from China.

The Australian printing industry, from its inception to today, has been one that has focused mostly on technology to provide solutions to emerging industry challenges. The pilgrimages to Drupa and Ipex are testimony of the industry’s focus on technology. The Focus on China initiative introduced by Printing Industries provides printing organisations with a systematic and structured framework of responding to the Chinese challenge by going to China to seek business opportunities and business partners.

Chinese print imports up by 23.7 per cent

But, like all initiatives, the success of the Focus on China initiative will depend on a positive response and take-up by the Australian printing industry. And while the local industry has a number of strategic choices available to it, ignoring China with the hope that the competitive threat will go away is no longer a viable option. It is no longer viable because China has already made inroads into the Australian printing market. For the most recent calendar year imports of printed matter from China increased by 22.5 percent and the trade deficit in printed matter with China deteriorated by 23.7 percent. There is also the prospect of Australia concluding a Free Trade Agreement with China within the next five years, which will help enshrine Australia’s economic engagement with China.

It is a given that the Chinese economic challenge will persist for several decades. What is not yet determined is the response of the Australian printing industry to that challenge. Will China present an opportunity or a threat for the Australian printing industry?

The Focus on China initiative provides a strategic framework for those printing organisations who view China’s economic potential as both an opportunity and a threat—just like the Chinese word for ‘crisis.

Hagop Tchamkertenian is national policy and research manager for the Printing Industries Association of Australia. Tel: +61 2 8789 7300

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