■ Correction of overcapacity has finally begun

According to the survey results on actual business conditions in the printing industry for 2002 reported by the All Japan Federation of Printing Industry Associations, the operating earning rate in small and medium-sized printing businesses, which had remained around 3.5% for the past seven years, indicated a considerable drop. While a reduced ratio of raw materials cost to sales contributed to a slightly higher ratio of output to sales, declined sales per employee resulted in lower output per employee, which is the source of profits. Labor cost per employee stayed at the exact same level as last year, resulting in a climb in labor share, which was the largest factor for a reduced ratio of operating profit to sales.

This report also identified various changes brought about by fully digitized prepress which is moving toward computer-to-plate (CTP), as well as the financial data described above. In addition, the report pointed out that correction of overcapacity has finally begun.

Since 1992, there has been a trend to secure profitability by increased output achieved through a cutback in subcontract costs. However, the past two years have reversed part of this trend. In this new move, subcontracting of printing work has been growing along with a decline in machinery cost per employee. The ratio of subcontract cost to sales rose as much as 2.0 percentage points in the past two years. Machinery cost per employee, however, took a downturn one or two years ago. This suggests companies' intention to rely on subcontracting to save additional investments in equipment under the circumstances where they have overcapacity and no prospect of a recovery in demand.

Since the latter half of 2001, the printing industry has been experiencing an unprecedented slowdown in volume of work. The companies, which had been suffering from worsening profitability through long-time competition, must have finally realized that a race to expand equipment would do harm to themselves. However, simply cutting down on equipment investment would, in the medium-to-long term, weaken the corporate capacity. Unless printers figure out their next action to take within the next one or two years, they will be left with only one option of resuming their equipment race when the economy turns upward. The key is how to choose and prepare for the next action.

■ Digital networking and how to cope with environmental problems pose challenges

The challenges faced by the Japanese printing industry from the long-term perspective are the establishment of digital networks and how to cope with environmental problems.

With respect to digital networking, from the perspective of solutions to the printing industry's problems and the society-wide diffusion of B2B e-commerce, the utilization of CIM (Computer Integrated Manufacturing), EDI (Electronic Data Interchange), and MIS (Management Information System), which serves as the core of the former two, will be the keywords. In addressing the spread of B2B e-commerce across society, the specification of industry standards poses a challenge. On an individual company basis, one should take full advantage of information technology in order to abandon poor financial management practices, perform rationalization by improving white-collar productivity, and reconstruct the corporate foundation to enable profitability of new digital business models.

■ A wave of B2B e-commerce is approaching

In Japan, the value of B2B e-commerce in 2001 hit 34 trillion yen, accounting for 5% of the total value of overall business dealings. For years to come, B2B e-commerce is expected to grow at an annual rate of approximately 30% to reach 125 trillion yen by 2006, accounting for over 17% of the total business dealings. As B2B e-commerce expands across the overall industry, the printing industry will be forced to adopt EDI e-commerce as part of the supply chains that connect many different industries.
If the printing industry fails to develop its own standards for EDI e-commerce by the time this becomes a reality, it will have to use a system not suited to its specific business practices, or each printing firm will have to have an environment that is compliant with multiple systems in the operation of individual customers' different business fields, by running multiple system terminals. The industry should be well aware of how serious the situation could be; individual firms would be obliged to make significant amounts of unnecessary expenditure, resulting in the entire industry's inevitable loss of a certain amount of profits regardless of efforts made at a company level.

This is not an issue to be addressed by individual companies but an issue that requires industry-wide activities.

■ The accelerating spread of environmental activities

A product cannot be completed without materials and parts provided by suppliers. The suppliers, on their part, receive products from materials processing companies and raw materials companies. This explains how a request as mentioned above from a large buyer will affect other entities across the supply chain. Such a move among manufacturers, which originates in government-level green purchasing regulations, will no doubt spread widely as some consumer retailers begin to enforce environment-friendly policies based on their own standards.

Thus, environment-oriented activities have been continuously penetrating even more widely and deeply. We have already seen an indication of this when an ordinance to protect the living environment raised an issue in Saitama Prefecture that posed a fatal threat to businesses involved in photogravure printing and glazing. A similar problem could occur anytime in any field.

In this regard, you must have been convinced that coping with environmental issues takes not only efforts at a company level, but also, most importantly, industry-wide proactive actions.

■ Recurring paper pricing problems

The year 2002 saw a paper pricing problem shake the industry. Problems on paper pricing appear every few yeas in a cyclical fashion. They basically arise from fluctuations in balance between supply and demand generated by equipment investment valued at as much as a few tens of billions of yen. In recent years, in addition to this, highly enhanced production capacity in the Asian region as well as corporate competition and industry realignment on a worldwide scale have probably contributed to the formation of the problems.

The 2002 paper pricing problem is more serious because either side, the paper industry or the printing industry, cannot afford to compromise. Papermakers are facing the need to improve profitability amid a worldwide industry shakeout and a race for survival, whereas printers, whose market shrank by no less than one trillion yen in value terms in the past ten years, struggle to stop the aggravation of profitability, for which only streamlining production is no longer effective because of their overcapacity. As it is highly likely that the state of the business environment in 2002 will become the norm for the paper and printing industries, approaches on a year-by-year basis may no longer be valid.

■ Expected roles of trade organizations

As shown in the above discussions on problems associated with digital networking, environmental requirements and paper pricing, issues that cannot be solved solely by the efforts of individual corporations in the industry or that require organized approaches for efficient resolution are arising one after another. Many people in the printing industry, however, lack the recognition that the adoption of IT and addressing environmental issues take industry-wide coordinated efforts and the awareness of how critical the damage resulting from insufficient measures for them could be. Their tendency to put less weight on the trade organizations is undeniable.

In the future, the significance of the trade organizations should not lie in advocating an industry with a uniform vision based on the assumption that company-level improvements would result in the improvement of the entire industry, but in protecting the industry from disadvantages deriving from social changes and, preferably, leading the industry to actively contribute to society.

2003/11/05 00:00:00