Future directions: outlook for offshore production of U.S. print consumption
As demonstration above, the U.S. print market is primarily a domestic industry with relatively small components of imports and exports.
What about the future? Will print remain primarily a domestic-based industry? Let’s look at some underlying factors that influence domestic versus offshore production.
One factor is the weight-to-value ratio. Products with relatively high weight compared to the values are somewhat less conducive for shipping over long distances. Printing is typically a manufactured product with a relatively high weight to value ratio, so this factor supports domestic production.
Another factor supporting domestic production is the production cycle and “time to customer.” The nature of most print (but not all) is such that it has a relatively short production and distribution cycle, so this factor again supports domestic production at least for much of print. Excluded in this category would be printed products with a longer shelf life such as books, calendars, and greeting cards. These two key products characteristics are conducive to domestic production, especially in light of the extremely large volume of print-related demand in the U.S. economy.
However, some countries-like China-have much lower labor cost, which translates to lower prices. Relatively lower production costs between different countries can mitigate some of the above two factors. The U.S. printing industry is extremely efficient and productive and gets more so every year. A key indicator of the likelihood of offshore production for manufacturing is the percentage of cost that is composed of direct labor costs. The general “rule of thumb” is that those industries and products with less than 10%~15% of total cost comprised of direct labor are well suited for domestic production.
The least data from the PIA/GAFT Ratios indicate that printing averages about 16% for this figure-a percentage right on the borderline. These percentages vary somewhat by printing process
Sheetfed printing-16.3%
Web heatset printing-15.7%
Coldest web printing-15.8%
Digital printing-16.2%
Thus, in regard to relative direct labor costs, the U.S. printing industry is certainly competitive. Current trends may drive these relative direct labor costs down further as U.S. printers reduce headcounts through productivity increase. Also, the recent surge in energy cost is driving up paper and other consumables cost on a global basis and therefore reducing the relative share for direct labor.
Another factor that should help keep most printing domestic is that much of printing (about 40% by dollar volume) ultimately goes into the U.S. mail team. The integration of print and delivery creates significant barriers to foreign production.
So the bottom-line assessment is that while the percentage of U.S. printing consumption that is provided by imports will go up, it should remain in the single-digit range for the foreseeable future.
However, there are particular print segments (in terms of run length and value-added service mix) and products that are more suitable for offshore production.
By product.
Here are the printed product categories that have shown significant increases in foreign production over the last few years:
Books are by far the most import-threatened product category. The largest sales categories are in children’s picture/coloring books, technical and scientific books, and textbooks.
The second most threatened print category is miscellaneous printed materials such as basically general commercial printed materials such as advertising flags and banners, posters, calendars, etc.
Labels are the third largest category of printed imports.
Another category with a lower weight-to-value ratios and longer shelf life is greeting cards.
By run lengths.
Which print run lengths may be most suitable for offshore production?
Conventional wisdom suggests that mid-run lengths may be the most likely candidates. Short run lengths are more likely printed for “just-in-time” distribution so may be more easily produced domestically. This is especially true for the emergence of printing for “one-to-one” marketing and transactional printing using digital presses where immediate communication is needed.
Current trends show short-run print growing as a result of digital technology and the increasing targeting and personalization of much of direct marketing, so this should decreasing the share of U.S. print consumption moving offshore. At the same time large, longer-run print jobs are capturing a declining share of total print production which pushes in the opposite direction.
By print and ancillary service mix.
The latest PIA/GAFT data indicate that about 10% of printers’ revenues currently are derived from various ancillary services such as data base management, mailing and fulfillment, creative design, and others. To that extent that these value-added services create a deeper relationship with domestic customers, we can say that they increase the likelihood of domestic production.
In summary there are several factors that should help to keep U.S. print production onshore for the intermediate future. These include:
Print’s weight-to-value ratio.
Print’s direct labor content.
U.S. printers’ productivity growth and workflow efficiency
The growth of value-added ancillary services.
The growth of targeted and personalized marketing coupled with digital printing.
The current small base of imports and exports.
Printing and the U.S. mail stream.
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