print 21 report

Full reportA study into the competitiveness of the UK printing industry

Print 21: coming of age?



Cover: Swan or ugly duckling?

For years many outsiders have viewed printing as one

of the economys ugly ducklings; old fashioned and

in decline. The reality is that print markets are growing

and the industry is increasingly service-oriented, IT

intensive and innovative in fact, metamorphosing into

a new economy swan.



Contents

Executive summary 3

Introduction 9Coverage of the sector 9Industry statistics 10Structure of the report 11

1 Industry characteristics 121.1 Demand 121.2 Technology 131.3 Industry suppliers 161.4 Industry organisations 161.5 Industry structure 171.6 The labour market and industrial relations 181.7 Management 221.8 Finance 231.9 Environment 23

2 Performance 242.1 Output 242.2 Foreign trade 242.3 Costs 252.4 Profitability 262.5 Capital investment 272.6 Productivity 272.7 Obstacles to achieving business goals 29

3 Foresight 303.1 Print markets 303.2 Technical trends 333.3 Other trends 363.4 Scenarios 36

4 SWOT analysis 394.1 Strengths 394.2 Weaknesses 404.3 Opportunities 444.4 Threats 454.5 E-business 47

5 Conclusions 48

6 Intended actions 50

Appendix 1 Steering Group membership 54

Appendix 2 Tables 55

Footnotes 64

2 print 21: coming of age? competitiveness in the UK printing industry

Executive summary

This report aims to inform policy-makers and others about the current position and futuredevelopment of the printing and printed packaging industries, and to recommend actions toimprove its competitiveness. It has been prepared by a steering group containing representatives of employer associations, the GPMU, printers and industry suppliers.

Industry characteristics

The UK printing industry employed 189,200 people in 1997, when it was the second or thirdlargest in Europe.1 An additional 50,000 plus people work in printed packaging. One unusual aspectof UK printing employment is that it is substantial in all areas of the UK. It is also one of the mostimportant sectors in several regions and has been designated as a priority industry in South WestEngland, Wales and Yorkshire and Humberside. The total paper, printing and publishing industrycluster has a turnover of 29 billion, representing 3.5% of GDP.

The industry has changed greatly over the last decade. This has been a response to newtechnologies, competition from other media and demands from customers for lower costs, higherquality and more rapid response. A key technical transition has been from analogue processestowards digital workflows in which content is received and processed in electronic form. Oneresult of this is heavy investment in information technology (IT) hardware and software and agrowing need for IT skills within the industry. Good telecommunications links are also essential.

Workflows are fully digital when outputs occur on digital printers rather than impression-basedprinting presses. This creates completely new possibilities for print. Brochures, cards and otherproducts can be fully personalised and it is economic to print short runs or even single copies of documents. Digital printing only accounts for a minor share of output at present but this will grow over time. However, the impression-based technologies of flexo, gravure and litho are likely to remain dominant for the foreseeable future, and may grow in absolute usage even while theirrelative share declines.

Britain appears to have an even higher percentage of output produced by small companies, and asmaller average size of firm, than many other developed countries. Nonetheless, market pressures,and the entry to, and growth within the UK, of foreign companies, are creating greaterconsolidation.

Technical and other changes mean that the industry needs less unskilled labour. There is also achanging balance between physical craft skills and computer-based process control and graphicsskills. And shopfloor staff are being given greater responsibility for managing print processes.

The industry has traditionally recruited from people leaving school at the minimum age but nowrequires higher average skills in its recruits. The number of new entrants to the industry has alsobeen relatively low in recent years so that the workforce has a high average age. The industry has a patchy take-up of qualification-based training schemes and related initiatives.

Larger printing companies approximate to similar sized peers in other industries in their approachto management. In general, however, printing has always been a very entrepreneurial sector. Mostcompanies have been founded and run by people who have risen within its ranks. There has beenlittle management-level recruitment into the industry until recently.

Printing processes consume resources and create VOC emissions and wastewater. Printed productsare also a major component of national waste streams. This means that the industry is directlysubject to an increasing amount of environmental regulations, notably the Packaging WasteRegulations and the Climate Change Levy. In addition, there are voluntary or semi-voluntary (i.e.undertaken to avoid regulation) initiatives to reduce wastage within supply chains by industrycustomers, notably direct mail users and magazine and newspaper publishers.

competitiveness in the UK printing industry executive summary 3

Performance

Printing is a mature industry, the value of whose output over the last decade has grown broadly in line with GDP, although being disproportionately hit by recession and recovering stronglyafterwards. Volume has grown more quickly than value, reflecting declining prices for manyprinted outputs. Within this average some segments such as direct mail are growing rapidlywhilst others such as business forms and carton packaging have been declining or stable.

The sections of the industry which are open to international competition have been badly hit bythe high value of sterling. The trade surplus for printing and services related to printing fell from708 million in 1996 to 458 million in 2000 and is now almost certainly lower.

Printers costs have risen by 39.7% over the period 1990-1999 compared to 31.2% in the RPI. Paper,board and other substrates account for around a third of these costs. Their prices have been veryvolatile over the last decade, causing great damage to printers planning and margins, and nowappear to be on an upward trajectory.

Average earnings in printing have risen by slightly more than the national average over the decadefrom 1990-99, but by slightly less than the national average between 1995 and 1999. The UK hashigher overtime levels than most other European countries and will be affected when Britains opt-out from the European Commissions Working Time Directive ends in 2003. In general, UK printearnings are thought to be in the middle of the European league table. However, lower socialsecurity costs compared to most other European Union members mean that employers total labourcosts per individual are near the bottom of the table.

The industry faces powerful buyers and suppliers, has a product which can often be easilysubstituted, and has intense competition between printers, which is exacerbated by over-capacity.Hence, rising and unstable costs have been accompanied by continuous downward pressure onprices, causing a fall in profitability. The median return on capital employed for respondents to theBPIF/SPEFs business survey fell from 14.67% in 1999 to 8.63% in 2000, with a considerablevariation between individual sectors. Packaging has been particularly badly hit, largely because ofan uncompetitive exchange rate. The British Carton Association estimates that return on sales forcarton printers fell from 6.0% in 1995 to only 2.8% in 1999. However, a minority of printers indynamic print sub-sectors, or specialist niches, have been able to buck the general trend. Despitefalling margins and flat profitability, the industry has continued to invest in new technology.Investment was 6.5% of turnover in the mid 1990s around the European average but at a similarlevel to the German industry.

Labour productivity (value added per head) rose by almost 33% between 1994-2000 over 5% a year. Most experts believe that the Governments 1997 Competitiveness Report is erroneous inidentifying a 30% productivity gap between the UK printing industry and that of northern Europe with their best guess being a figure of around 10%. Packaging experts also believe that the acutepressures for lower prices from retailers and other customers in the UK have resulted in comparableproductivity to that of Western Europe.

Capacity utilisation is an important factor in explaining productivity differences even allowingfor differences in measurement, the UK has much lower utilisation than most other developedeconomies.

ForesightDemand for print will continue to increase. Demand for print and printed packaging hastraditionally been closely linked to GDP but there are now some signs of decoupling. Demographictrends will probably create higher volumes of printing. Prints overall share of the communicationswill maintain its gradual decline but this should not preclude continuing volume growth as theoverall market continues to expand. Electronic distribution via the Internet and other means willhit some segments such as business forms but on balance will stimulate rather than reduce printdemand by creating new opportunities. Environmental regulations may reduce volumes in


magazines and direct mail but will probably have little influence on packaging. There areconsiderably opportunities for innovation in both printing and printed packaging.

Other trends include: a growing proportion of printed output will be sourced from digital and flexopresses; automation of production processes; development of e-business; more customised anddiverse outputs and more sophisticated workflow management.

There is also likely to be further internationalisation of competition, customers, suppliers, printersand unions.

Three scenarios have been developed for print futures decline (no growth or growth substantiallybelow GDP), maturity (growth in line with GDP) and rejuvenation (growth above that of GDP).Historical trends and most industry opinion suggests that the maturity scenario is the most likely todevelop. However, a minority of those consulted believe that the others are credible futures.

SWOT analysis

Strengths

Satisfied customers most of those consulted were generally satisfied with the quality and serviceof UK print and printed packaging.

Technical competence the industry has a good record of responding to technical change and hassimilarly modern equipment, and technical skills, to European competitors.

High investment compared to many other UK sectors, and at a similar level to that of the Germanprinting industry.

Entrepreneurialism this makes printers very flexible and resilient and fosters strong personalrelationships with customers and staff.

Good industrial relations printing has a single union structure and a low level of industrialdisputes.

Good business support the industrys trade associations provide a variety of well-used advisory,networking, training and commercial services for their members.

Weaknesses

Low margins these are a significant factor in many of the industrys other problems, such as lackof resources for training, and are now threatening capital investment.

Variable quality of management many print companies are well managed but there is poormanagement in a substantial number of companies.

Lack of performance data this is a key driver of improved productivity but there is littlecomparative data on important operational measures such as downtime or make ready times.

Poor marketing the printing industry is generally seen as being good at sales but poor at marketing.

Low levels of training the industry has a poor record on apprenticeships, numbers on accreditedcourses, expenditure on training, qualification levels and take-up of NVQs.

Unrepresentative workforce this is predominantly white and male whereas there are growingnumbers of women and minorities amongst customers and potential skilled recruits.

Poor image making it difficult to recruit well qualified school or college leavers, to interestinvestors, to impress customers or to have high visibility in Government and the media.

Fragmentation this reduces investors interest in the sector. The industry also lacks a commonvoice in projecting itself to the outside world and key industry stakeholders.

Finishing an important means of adding value to print which is handicapped by low investmentand skill levels and less technical innovation than other areas of printing.


Opportunities

Growing print markets forecasts suggest that print has a positive future in many traditionalmarkets, as well as new ones.

Growing demand for print-related products and services printing accounts for 5-10% of thetypical costs of communication and there are opportunities to capture additional value.

Relatively low-cost producer (excluding currency issues) UK printing is fundamentallycompetitive with other EU countries and should win business if sterling depreciates.

Opportunities to strengthen existing, and develop new, clusters building on a large user base,and pockets of expertise in higher education and some areas of hardware and software.

English language the dominance of English as an international business and cultural languagecould present major opportunities to UK printers.

Threats

Currency movements in segments subject to international competition significant orders havebeen lost because of the strength of sterling against the euro.

Substitution printed documents and packaging are potentially vulnerable to substitution.

Skill shortages most people consulted believe that skills shortages are already handicapping theindustry and will become worse in future.

Lack of policy support policy makers often fail to recognise the industrys importance and do nottake it into account when making decisions.

High input costs there is evidence that UK printers are paying higher prices for their (mostlyimported) equipment and raw materials inputs than equivalents in continental Europe.

Anti-competitive practices there have been proven unfair practices by some large supermarkets.

Inadequate telecommunications this is constraining innovation and opportunities for costreduction and improved customer service.

Financing problems the industry has a poor image on the capital markets, which hampers itsaccess to capital.

Poor statistics these make it difficult to make good business decisions and, by underestimatingthe industrys true size and growth potential, contribute to its poor image.

Excessive/inflexible regulation there is a strong view amongst print employers (but not theGPMU) that the industry suffers from excessive and unnecessarily complex regulation.


Conclusions and actions

The common perception of printing as a traditional, and declining, manufacturing industry isuntrue. The market for print and printed packaging and related services will grow steadily in theUK and Europe, and rapidly in developing and emerging economies. The industry is nowembracing many of the characteristics of the new economy and has a future firmly based in thecommunications sector.

The report identifies seven key aims, and actions to achieve them (sub-divided into those which areespecially high priority and those which are essential).

Aim 1 improve margins through better performance and reduced costs

High priority actions

1. Establish a Productivity Task Force.

2. Strengthen industry benchmarking.

3. Analyse international productivity differences.

4. Improve the range and quality of industry statistics.

5. Increase the industrys awareness of e-business.

6. Increase the availability and reduce the costs of high bandwidth telecommunications.

7. Conduct a follow-on competitiveness study on printed packaging.

Essential actions

8. Respond to the EUs Working Time directive and examine the relationship between longworking hours and health and productivity.

9. Strengthen industry financing.

10. End retailers anti-competitive practices.

11. Investigate if UK input costs are excessively high.

Aim 2 achieve a stable and competitive exchange rate


12. Join the euro at a competitive rate.

Aim 3 improve the industrys quality of management


13. Enhance the strategic abilities and innovativeness of industry managers.

14. Create industry-specific management development centres.

15. Create a centre of print centre of management excellence.

Aim 4 strengthen the industrys education and training infrastructure


16. Create a statutory framework to fund industry training.

17. More Government funding for print education.

18. Increase Government funding to the PGC NTO.


Essential actions

19. Raise awareness of revised NVQs.

20. Provide more information on printing career routes.

21. Raise awareness of Individual Learning Accounts.

22. Improve opportunities for women and minorities.

23. Raise awareness of printing careers in colleges and universities.

24. Increase the prevalence of professional, engineering-based, qualifications.

25. Support retraining of older workers.

Aim 5 create a more positive external image


26. Develop a common industry voice.

27. Rebrand the industry.

Aim 6 reduce environmental impacts through cost-effective initiatives


28. Reduce unwanted print through better targeting.

29. Reduce wastage in the book and magazine supply chains.

Essential actions

30. Further reduce process waste.

31. Publicise the environmental advantages of the industrys raw materials and technologies.

32. Implement the VOC directive across Europe.

33. Avoid further changes or increases in the Climate Change Levy.

Aim 7 strengthen the industrys technical competence and domestic supplier base


34. Raise awareness of the importance of print-related clusters.

Essential actions

35. Improve print finishing.

36. Establish a print business park.

37. Strengthen R&D and postgraduate education.


Introduction

This report forms part of a series of studies on leading UK industries prepared on behalf of andpart-financed by the Department of Trade and Industry (DTI). Its aim is to inform policy-makersand others about the printing industrys current position and future development, and torecommend actions to improve its competitiveness. The report was prepared and project managedby the British Printing Industries Federation (BPIF), under the guidance of a steering group withrepresentatives from the European Flexographic Technical Association (EFTA), the Graphical Paperand Media Union (GPMU), Pira International, the Scottish Print Employers Federation (SPEF), theScreen Printing Association (SPA) and three companies, Cantate (formerly Battley Brothers),Chameleon Press and httprint (see appendix 1 for membership details). The DTI also participated asan observer and source of advice on the content and format of competitiveness studies. Nearly twohundred individuals in all sections of the industry and its customers were consulted and/or wereasked to comment on drafts to ensure that the publication is representative of a wide range ofopinion.

Coverage of the sector

As the following pages demonstrate, printing is a complex industry. It has many discrete segmentswhich use unique technologies and have a distinctive customer base. The heart of the industry isthe activities which are classified under heading 22.2 of the NACE classification scheme printingand service activities related to printing. This has the major sub-divisions of printing ofnewspapers, printing, bookbinding and finishing, composition and plate making and otheractivities related to printing. As newspaper printing is organisationally separate, uses distinctivetechnologies, is not usually subject to international competition, and has a unique and highlyfocused customer base, this study does not give it detailed attention.2

The sub-category of printing can be further divided into:

Industrial printing of products such as magazines, catalogues, weekly newspapers andnewspaper supplements. These are usually in colour and are produced in large volume, generallyon web-fed gravure or litho presses, in plants and by companies which are much larger than theindustry norm (and, if in a trade association, are typically members of the British PrintingIndustries Federation or Scottish Print Employers Federation).

General printing of other products which are generally printed in low-medium volumes onsheet-fed litho presses, although some printers in this category are starting to acquire digitalprinters (and again are also represented by the BPIF and SPEF).

Quick printing of short runs, usually with very fast turnarounds, usually done on copiers inhigh street premises (with companies being represented by the British Association of Print andCommunications, BPIF and SPEF).

The specialist area of screen printing, whose companies are represented by the Screen PrintingAssociation.

To add to the complexity, most industrial and general printing companies, and a few screenprinters and quick printers, also have in-house facilities to undertake some of the tasks which fallunder the NACE headings of bookbinding and finishing, composition and plate making, andother activities related to printing.

Printing also occurs in the packaging industry, either in the form of:

Labels to attach to glass, metal, rigid plastic and other containers.

Direct printing onto sheets of cartonboard, paper, plastics and composite materials (such as thelayered paper/metal/plastic material used for liquid packaging) which are subsequently convertedinto the final package (usually on the users production line, following score marks made by the printers).

competitiveness in the UK printing industry introduction 9

Printed packaging can be further sub-divided into:

Corrugated packaging layers of straight cardboard reinforced by a middle layer of corrugatedboard, typically converted into cardboard boxes for shipping goods in. Because the product isbulky and relatively low value it is usually printed as part of an integrated production process ata board manufacturing plant. Producers therefore tend to be larger than in other segments andare usually members of the Corrugated Packaging Association.

Folding cartons smaller cardboard or composite containers used to package individual itemswhich typically use higher quality print on higher quality materials than corrugated. The sectorhas companies of all sizes and is represented by the British Carton Association (a section of theBPIF).

Flexible packaging sealed plastic bags and other non-rigid containers. The sector has distinctiveraw materials, conversion processes and customers. Producers are usually members of the FlexiblePackaging Association or the BPIF.

Sheet fed packaging a residual category of independent, non-integrated companies who convertcardboard and paper into what are generally low-value products such as cardboard and rigidboxes and paper sacks. The sector is represented by the National Packaging Council, an umbrellabody for several smaller trade associations.

The main social partner in all these areas of printing and printed packaging is the Graphical, Paperand Media Union.

Industry statistics

Understanding competitiveness requires accurate statistics. Despite some amendments in responseto industry requests, there is a widespread feeling that UK government data about the industryremains incomplete because of:

The large number of small companies in the industry, some of whom are not registered for VATand others of whom may be wrongly classified in tax returns.

Inappropriate definitions of industry segments.

The integration of printing with other business activities for example, provision of printing aspart of an overall facilities management contract or in-house printing by commercial andeducational bodies which creates inconsistency in how they are classified by companies makingreturns.

The market and production data collected by industry associations and consultancies tends to bemore accurate, because it is collected in a less impersonal way and is often subject to verification.But it is often gathered from members and collaborators, and so may be unrepresentative, and isusually based on organisation-specific definitions and therefore not comparable.

The difficulty of making European comparisons is further exacerbated by national differences in:

The data which is required and is actually provided from very small companies (whichdominate the printing industry).

The level of black activities which are not accounted for in tax or regulatory returns.

Interpretation of how companies should be classified.

The extent of these difficulties is illustrated by different figures on the size of the French and UKprinting industries. Data from Intergraf, a European confederation of national trade associations,states that the UK industry has twice the turnover of that of France. By contrast, data from arespected consultancy, Trendwatch, suggest that the French industry has a 50% higher turnoverthan the UK!

There are even fewer reliable statistics available for printed packaging than is the case with printing.As a result the report has been unable to conduct as detailed an analysis. Data has been used


wherever it is available, and areas where printed packaging differs from printing have been noted inthe text.

It is important that the statistical and information deficiencies with regard to printed packaging arefilled as the sector is of considerable economic importance. Given that it also has distinctivesuppliers and technologies (for example, increasing use of flexo presses rather than gravure orlitho), concentrated customers primarily large retailers and fast moving consumer goods (FMCG)manufacturers for carton and flexible packaging and has been particularly badly hit by thestrength of sterling, it should be the subject of an independent competitiveness report.

More generally, these statistical problems not only make it difficult to assess the truecompetitiveness of UK printing but, as our consultation shows, is also harming the industry.Poor data distorts perceptions of its scale and performance and makes it difficult for financialstakeholders to make well-informed investment decisions.

In the interim, we have used the best available statistics to support the analysis but those fromofficial sources need to be interpreted with caution.

Structure of the report

The report broadly follows the DTI recommended format for studies of this kind in which:

Section 1 describes the current market, employment, technology and other characteristics of the sector.

Section 2 assesses its performance over the last decade, particularly vis--vis other sectors in theUK and printing industries in other developed countries.

Section 3 provides foresight about potential trends in markets, technologies and other variables.

Section 4 discusses the strengths and weaknesses which have been identified during theconsultation process.

Section 5 provides conclusions.

Section 6 formulates intended actions for the industry.

Appendix 1 gives details of the project steering group.

Appendix 2 contains the quantitative tables for the report.

competitiveness in the UK printing industry introduction 11

1 Industry characteristics

According to Intergraf, the UK printing industry is the second largest in Europe, behindGermany (see tables 1 and 2). However, the figures for France in table 2 are misleadinglylow because small companies are not included.

Printing is one of the largest manufacturing industries in the UK in terms of employment(see table 3). In addition, the relevant trade associations estimate that at least 50,000 peoplework in the labels and carton, corrugated, flexible and sheet-fed packaging sector. Overallthe printing and printed packaging industries:

Are a vital supplier to publishing, one of Britains most successful industries

Purchase most of the output of the UK paper and board and ink industries

Are a major purchaser of computer hardware, peripherals and software

Are a leading user of high bandwidth telecommunications

Provide a substantial market for specialty chemicals and coatings.

The combined turnover of the paper, printing and publishing industry cluster is 29 billion,representing 3.5% of GDP.

1.1 Demand

Even in an electronic age, printed media have many distinctive and highly valuedproperties. Print has a long historical tradition which continues through widely acceptedprinciples of graphic design, typography and other parameters to influence perceptions ofhow information is best communicated. It has a physicality that is lacking in electronicmedia and which, in the eyes of many people, makes it more appealing. It also has anemotional association with many of lifes pleasures as when people curl up with a goodbook, eagerly await the next issue of a magazine, or leaf through a brochure or cataloguewhen making a spending decision. And, through its link with literacy, print is thefoundation of a civilised society. More prosaically, print continues to have a greatpsychological impact on buyers and other users, especially when it makes use of highquality colour and innovative substrates. Printed documents are also portable, in a waywhich electronic equivalents have not yet achieved, and do not require complextechnologies and the existence of a power supply to read them. Indeed, with careful storage,they can be more permanent than electronic files which are prone to corruption and whoseformat can quickly become obsolete.

These properties mean that there are many different markets for print, as table 4 indicates.

The primary purpose of packaging is to contain, store and easily transport goods. However,most packaging has print on it either printed directly onto the packaging substrate or ontoa label because there is a need to convey information about the contents and, forconsumer and some other kinds of packaging, to persuade people to buy it.

The paper/board packaging market which is almost entirely directly printed had a valueof 3.3 billion in 1996 and rose from 41% to 46% of the total packaging market during theprevious decade (see table 5).

Some generic trends which are occurring in almost all markets for print and printedpackaging are:

Concentration and therefore increased buying power in customer industries, such aspublishing or retailing.


Closer integration of supply chains to improve customer response and reduce inventory.This requires printers especially those producing printed packaging to co-ordinatemore closely with buyers and/or customers.

Less use of professional print buyers (who usually had some experience in the printingindustry) and greater integration of print with other procurement activities.

Demands for price reduction, due to cost pressures in customer industries and the highvisibility of printing as an overhead item.

Demands for faster turnaround times in order to meet the needs of customers ownrapidly changing markets, and because of the general time urgency of modern culture.

Demands for higher performance from printed products, through high quality colour,new substrates, personalisation or other means.

Shorter runs, resulting from reduced stockpiling, tailoring of outputs to specificindividuals or groups of customers and other drivers.

The trend towards shorter runs is particularly significant because it increases the throughputof print jobs. This requires printers to be much quicker at preparing presses for new work,and to be more efficient at production management and administration.

Print is a means to an end, that of communicating information. This is also an importantfunction of packaging. The actual cost of a printed item typically forms only 5-10% of thetotal cost of achieving this communication. The costs of preparing the material to beprinted, of holding stock and disposing of that which is waste (for example, 30-40% ofbooks and magazines produced are unsold and returned for pulping), and of administeringthe entire chain are much greater. Printers have considerable opportunities to develop newservices to capture more of the value added (or destroyed) within the process, and many aredoing so. Customers are receptive to this because:

They may wish to outsource non-core activities, such as running in-house printingactivities or storing printing material for distribution on request.

They want complete solutions to their needs rather than simply a product leading directmail printers, for example, often collate and mail customer packs and maintain customerdatabases.

Printers may have technical expertise in non-printing areas, for example, image archivingand retrieval or database development and management.

1.2 Technology

Historically, printing has been a very distinctive craft-based manufacturing industry, whosetechnologies make it qualitatively different from other sectors. Although it is now movingtowards computer integrated manufacturing in some respects, it remains an unusuallycomplex production process. Printing presses operate to very fine tolerances which requireeither very high levels of skill or advanced automatic control. Reproducing complex graphicdesigns can also be difficult, especially when customers may not appreciate some of thedifficulties of doing so. And, whilst modern colour management software and instrumentscan ensure objective consistency of outputs and inputs (which has many benefits), colourperception is subjective so that customers and staff will not always accept that this is thecase. Printing therefore requires a great deal of checking (through printing proofs of work inprogress) and communication across the supply chain. This chain has four main stages:

Content creation usually done by customers such as advertising agencies, editorialdepartments etc. but printers may be involved in specialised areas or for inexperiencedcustomers.

Pre-press processing the component elements of the final job (primarily images andtext) so that they suitable for outputting and then assembling them into a compositeversion for outputting.

competitiveness in the UK printing industry industry characteristics 13

Outputs creation and finishing of printed or electronic products for distribution.

Distribution delivery of products to final customers.

The falling cost of pre-press equipment and its increasing automation which is expected tocontinue has allowed many medium-sized printers to establish pre-press departments, withadverse effects on the repro houses who have specialised in this area. This increases theskill requirements of smaller printers and means that repro houses must diversify into otherareas, such as digital asset management or specialist digital printing.

Fundamental change has been occurring in all of these four areas, driven by a move fromanalogue to digital processes. Most content is now created on computers and transferredand processed as electronic files. It only takes physical form when it is imaged onto a plateor screen for impression-based printing (which transfers an inked image onto paper or othersubstrates through physical pressure). New digital technologies (which transfer the image bynon-contact processes such as electrostatic attraction or inkjets) even eradicate the need tomake plates or screens.

Digital printing creates completely new possibilities for print such as:

Fully-personalised brochures and information packs, containing a selection of material ofdirect interest to the recipient.

The end of out of print books as it becomes economic to print in small batches or evensingle copies.

Individual or small versions of products such as greeting cards, labels and cartonpackaging.

Frequent reprinting and therefore opportunities to amend small quantities ofpromotional materials, business cards etc., rather than having to place a substantial single order.

Digital printing only accounts for a minor share of output at present (see table 30).Impression-based technologies are likely to remain the dominant technology for theforeseeable future, and may grow in absolute usage even while their relative share declines.In the very long-term, however, digital printing is expected to become as or more importantthan impression-based methods (see section 3).

The move to digital workflows is independent of these changes in output technologies andhas numerous consequences, notably:

Rapid technological obsolescence of pre-press and other equipment, with a consequentneed to depreciate it over much shorter periods (typically three years) than the industryhas been used to.

Continuous expenditure on software upgrading.

Making file errors and problems a major source of cost, which can only be eliminated bydetailed checking, IT expertise and customer education.

A need for better process understanding and management amongst staff, as mistakes inearly stages can be hidden until output, when they are very expensive to correct.

High investment in networks and data storage in order to move data around quickly, andarchive it until required.

A need for colour management and other software to ensure that all items of equipmentare calibrated to each other.

Closer electronic integration of processes within printers, and between them and otherplayers in the supply chain, so that inputs can be transferred and work can be sentbackwards and forwards for proofing.

A reduction in environmental impacts because it avoids the need for film processingchemicals and wastes.


Some other important technical trends within the industry are:

Faster make ready times and/or running speeds of presses, which means that the capacityof a new machine is much greater sometimes double that of older ones of similar size.

Increased automation of press functions such as ink settings and plate changing.

Increased costs and substitution of inputs due to environmental regulations on theemissions of volatile organic compounds (VOCs) which arise from inks, and also thealcohol solutions and solvents which are used to treat and clean printing presses.

Use of higher performance substrates which can achieve better results e.g. better colourreproduction, higher gloss and/or reduce their weight and thereby reduce costs.

A growing emphasis on finishing binding, collating and other procedures as a meansof adding value to printed products.

Concentration in suppliers, which are increasingly offering a wider range of equipmentand software on a global scale. This means that it is increasingly hard to gain competitiveadvantage from technology alone, as this is available anywhere in the world.

The traditional, and still probably the most widely used, method of distribution is print anddistribute in which finished print is delivered on a van or lorry. The industry is thereforehighly dependent on a good road system, especially as paper is ordered on a just in timebasis and customers are demanding quicker turnarounds of their orders. However,alternative methods of distribution are growing especially:

Fulfillment services, in which printers stock products such as brochures and mail them toan individual order (in some cases from customers and in others internal staff).

Distribute and print, which replaces the shipping of printed products to multiplelocations with transmission of an electronic file for local outputting in smaller quantities.

Electronic distribution, in which content is published on electronic media with noassumption that it will be printed.

One implication of this growing complexity of distribution is that printers have be to beadept at repurposing files into different formats so that they can be outputted anddistributed in different ways.

Modern printing is heavily dependent on information technology (IT) and becoming moreso. The large size of image files means that even a relatively small printer will often handlemore data, and process it more quickly, than a medium sized building society. As a resultprinting is a key market for several major IT vendors such as Adobe or Apple. The corollaryis that much of the industrys capital expenditure is devoted to IT hardware and software,and to IT components embedded within other equipment. Much pre-press equipment, forexample, is now essentially specialised computers. Printing is also a major, and growing,employer of staff with IT skills, particularly in networking and graphics software.

Good telecommunications links are also essential, with even the smallest commercialprinters usually having ISDN connections. The industry is also seeing a growing interest inInternet usage and of e-commerce. Indeed, printing has had more dot coms albeit mainlyUS based than almost any other manufacturing sector. Section 3 discusses the potentialimpact of e-business on printing in more detail.

One important aspect of this growing reliance on IT and telecommunications is theextension of the potential market for individual printers. It makes it easier for local printersto seek regional or national markets, for UK printers to seek international markets and foroverseas printers to target UK work.

Technical complexity also results in substantial capital expenditure. It is not unknown, forexample, for even a small printer with 1-2 million of turnover to make a single itemequipment purchase with a value of 500,000 or more.


1.3 Industry suppliers

The UK printing industry is very dependent on external inputs. 59% of national paperconsumption is provided by imports. Most pre-press, production printing and finishingequipment is also imported, primarily from Germany and Japan, and graphics software isprovided by American suppliers. The only areas of printing inputs with a substantial Britishproduction base are inks and coatings and some specialised areas of pre-press equipment.There is a substantial British development base for pre-press software, and managementinformation systems (MIS). The UK printing hardware, software and non-paper consumablesindustry is represented by Picon.

There is also increasing consolidation amongst print suppliers, especially with regard topaper and board.

Supplier R&D in the UK is relatively on a lesser scale than other leading economies such asGermany, Scandinavia and the USA. Britain does have a world class research organisation inPira International, which undertakes primary and secondary research in printingtechnologies, especially digital and flexo, as well as in packaging, paper and publishing. Italso provides technical consultancy, market intelligence, training and other services to aninternational customer base

There is also some R&D conducted in the UK by the paper and inks and coating industry,and in some specialist areas of pre-press equipment and software. A number of printingcompanies undertake development work but this is probably only a small minority of thesector. Only a small number of universities notably the Department of Colour Chemistryat the University of Leeds and the Welsh Centre for Printing and Coating at the Universityof Swansea are known to specialise in research on the printing and printed packagingindustries and their suppliers.

1.4 Industry organisations

The largest UK trade association is the British Printing Industries Federation (BPIF), whichhas around a third of the industry in membership, by employment. Its Scottish equivalent isthe Scottish Print Employers Federation (SPEF). There are also two more specialisedassociations the British Association of Print and Communications, representing quickprinters, and the Screen Printing Association. The three largest general printing companies,Polestar, Quebecor and St. Ives, and their subsidiaries, are not generally in membership ofany trade association.

Printed packaging has three independent trade associations, representing the differentmarket segments (see introduction). They are the Corrugated Packaging Association, theFlexible Packaging Association and the National Packaging Council. The EuropeanFlexographic Technical Association is a technical support and training organisation forcompanies using flexo presses (the dominant printing technology in all areas of printedpackaging and labels).

Two professional associations, the Institute of Printing and the Institute of Packagingprovide personal development support and training for individual members of theirindustries. The BPIF-affiliated Young Managing Printers (YMP) organisation provides similarsupport to young managers.

Both printing and printed packaging have one main union, the Graphical Paper and MediaUnion (GPMU). This is the largest union of its kind in the world. In early 2001 it had201,292 members and was recognised in approximately 7000 workplaces, the great majorityof both figures being in printing and printed packaging. The unions membership fell by25% between 1991 and 1996, stabilised thereafter but fell by 3% during 2000.


1.5 Industry structure

As table 6 indicates, printing in every country is dominated by small-medium sizedenterprises, with most printers serving local markets. Newspaper, magazine and carton andcorrugated printers tend to be much larger than others.

Britain has an even higher percentage of output produced by small companies, and asmaller average size of firm, than other developed countries. Nonetheless, the industry hasbeen consolidating. This is most advanced in printed packaging. In 2000 the top threecorrugated packaging companies shared 42% of the UK market, followed by some mediumsized players and then approximately 250 smaller producers.3 The top two carton producersshared 32%, with the remainder having market shares of 4% or less. This contrasts withmuch greater concentration in metals and glass packaging in the latter five producers have85% of the UK market. A similar process has occurred in Europe as a whole, where the top10 carton companies increased their market share from 17% to 26% between 1989 and1998. Printing is less consolidated but several recent mergers and takeovers means that thereare now 20 UK printers with more than 500 employees.

Consolidation has also been driven by the entry to, and growth within the UK, of foreigncompanies. This reflects a general trend towards more internationalisation of printing,which has traditionally been organised on a national basis. The main reasons for this appearto be:

Providing a global service to multinational customers.

Expanding product opportunities by tailoring them to local markets.

Taking advantage of lower cost production locations.

To date, the national and specialised nature of most printing markets means that achievingeconomies of scale does not appear to be an important driver, but this may change with thedevelopment of a more integrated European market.

In 2000 there were said to be 31 North American companies employing 14,000 people(around 5% of the workforce) in printing and printed packaging in the UK and Ireland.4

There are no comparable figures for continental European companies operating in the UKbut they are likely to be smaller. There is also considerable investment by Irish companies.One reason why North American companies are attracted to Britain is the lower stockmarket ratings of UK companies. This means that any takeovers are immediately earningsenhancing.

Foreign investment by British printers is growing but is on a smaller scale to inwardinvestment. Until recently, this was focused on printed packaging and the specialist area ofsecurity printing, where De La Rue has a number of international operations. The twolargest UK headquartered general printers are now expanding internationally Polestar intoEurope and St. Ives into Europe and the US (where it is now the 27th largest printer). There isalso more foreign investment by niche printers, either in autonomous operations or, as inacademic journal printing and related services, outsourcing of some back office operations.


1.6 The labour market and industrial relations

UK printing employment has been in decline during the 1990s (see table 2). This mirrorsthe situation in Germany, but contrasts with rising employment in the US a result of the high rates of GDP growth over the last decade. The main cause of falling printingemployment in the UK is automation of printing processes, which has reduced the need for semi-skilled and unskilled labour.

Employment in carton packaging has fallen at a similar rate, from an estimated 12,000 in1994 to 11,000 in 1999. However, there have been considerable job losses during 2000 dueto loss of export markets.

One unusual aspect of UK printing employment is its relatively even national distributionacross the country. It is a substantial employer in all areas of the UK and is one of the mostimportant industries in several regions (see table 7). Yorkshire and Humberside, for example,has one of Europes largest concentrations of web offset printing. Some regions have alsoincreased their printing employment during the 1990s for example, South West Englandhad a 6.4% increase in printing employment between 1991 and 1996. This compares to an 8.3% decline in London. The Yorkshire and Humberside and South West regionaldevelopment agencies (RDAs) and the Welsh Development Agency have all defined printingas a priority sector in their economic plans. Yorkshire Forward is also supporting a networkfor local printers, PrintNET.

The industrys workforce is mainly involved in production, although the percentage ofoffice-based jobs is rising with time (see table 8). Around a third of the total jobs in theindustry are in finishing. This also has the highest proportion of women, in part because it is the area with most part-time work.

The number of new entrants to the industry has been relatively low in recent years. One reason for this is a surplus of older workers. A second is a decline in traditional entrymethods such as apprenticeships (which are generally over-subscribed when they areoffered). A third reason is difficulties in recruiting the non-traditional skills such as IT whichare increasingly required by the industry. As a result, the workforce has a high average age 42 in the case of GPMU members.

The industry has traditionally recruited from people leaving school at the minimum age. It has been seen as one of the most skilled, well paid and respected occupations for suchleavers and attracted many of the most able candidates. The increase in the numbers ofyoung people staying on for further and higher education has now reduced this pool.Although the industry has partially compensated by employing more staff with A levels andHighers, and a small but growing number of graduates (especially in larger companies), thechange has caused difficulties. There are now fewer people with the ability and commitmentto develop advanced skill levels amongst early school leavers. Although it remains easy torecruit unskilled staff, there is also greater competition both for school leavers with A leveland higher qualifications and for qualified staff, especially those with the IT and customerservice/marketing skills for which the industry has a growing need.

A 1999 survey found that 40% of responding companies had experienced labour shortagesat the time of the interview and/or during the previous six months.5 Another study ofcompanies in the Leeds/Bradford area found that vacancies were mainly related to theintroduction of new technology and machinery, changes in production processes and theneeds of new clients. 6 The main reasons for the difficulty in filling these was lack of skills or relevant work experience amongst applicants.

The industry has a number of UK-wide or more geographically limited national agreementsfor specific segments of printing and printed packaging, which are negotiated between theGPMU and the various trade associations. These vary in their degree of coverage of thesegment, and in their terms and conditions. The largest agreement in terms of numberscovered is that between the BPIF and GPMU. A number of larger companies such as Polestar


and St. Ives negotiate individual agreements. There is continuing debate amongst employersabout the value of a national agreement, with a minority strongly opposed. However, themost recent member consultation by the BPIF found that most respondents felt that it wasmeeting their needs.

Many peoples perceptions of printing industrial relations is that they are contentious andstrike prone. This is largely because of lingering memories of the highly publicised labourdisputes of the early 1980s, particularly those surrounding News Internationals move of itsnewspaper printing to Wapping. However, the level of disputes has been very low duringthe 1990s and is well below the national average (see table 9).

Education and training

The lead body for the sectors education and training is the Print and Graphic CommunicationNational Training Organisation (PGC NTO), which was established in 1999. It is a tripartitebody with representation from employers, the GPMU, educationalists and individualemployers. The majority of its funding comes from the BPIF.

There have been several sub-regional skills initiatives involving collaboration between the BPIF, GPMU, development and training agencies and educational bodies. These includethe Birmingham and West Midlands Printing Initiative, the Nottingham Print, Media andGraphics Network, PrintNET in Yorkshire and Humberside, the Regional Accord for Change(REACH) in Wessex and the Welsh Printing and Coating Forum. The latter has led to aconcerted initiative by the University of Swansea, Bridgend College, GPMU and tradeassociations to develop NVQ and degree level distance learning schemes.


Table 10 Skill requirements for modern printing

Size Current leading edge Future

1-9 Multi-tasking in pre-press: Convergence of pre-press skillsemployees scanning Imagesetting/platemaking/CTP/screenmaking

typesetting skillspagemaking Operating computerised conventional litho and

Imagesetting/platemaking/screenmaking direct digital colour presses and screen pressesFinishing skills in-house and increasingly digitised

10-49 Multi-tasking: Convergence of pre-press skillsemployees scanning Operating computerised conventional litho and

typesetting direct digital colour presses and screen pressespagemaking Finishing in-house/increasingly digitiseddigital proofing Data management/archiving

Imagesetting/platemaking/CTP/ Greater knowledge of alternative mediascreenmaking skills Increased customer relations training/advisingOperating computerised conventional litho and customersdirect digital colour presses and screen presses Knowledge of JIT printing/distribute to print Finishing skills (in-house and increasingly digitised)Direct to screen projection

50-100 Internet/ISDN/Intranet Internet/ISDN/Intranetemployees Convergence of pre-press skills Convergence of pre-press skills

Operating computerised conventional litho and Operating computerised conventional litho anddirect digital colour presses and screen presses direct digital colour presses and screen pressesFinishing in-house/increasingly digitised Finishing in-house/increasingly digitisedData management/archiving Data management/archivingKnowledge of alternative media Knowledge of alternative mediaCustomer relations training/advising customers Dedicated customer service relationsPress staff with clients Training/advising customersDirect to screen projection Knowledge of JIT printing/distribute to print

Press staff with clients

Adapted from D. Smallbone, R. Baldock and S. Supri, New Technology and Related Skills Needs in the Printing and Publishing Industries, London:

Centre for Enterprise and Economic Development Research, Middlesex University, 1999.

The amount, and nature, of skills required in printing is changing. The industry hastraditionally employed large numbers of skilled and semi-skilled staff to man printingpresses and undertake pre-press activities. Increased press automation and productivity isreducing the requirement for unskilled and, to some degree, semi-skilled staff. Those whoremain generally require less skill in manual press adjustments and more in computer-basedprocess control. Shopfloor staff are also being given greater responsibility for managing print processes.

The demand for skilled staff in the press, pre-press and finishing areas is more stable and may even be increasing. However, in pre-press the balance has shifted from manualtechniques to detailed understanding of graphics software, design skills and knowledge of the overall print process (so that files can be prepared without errors). The rapid pace of technical change also requires regular retraining with a consequent need for staff withmental flexibility and a good grounding in the basic principles of print productionprocesses. Table 10 provides a detailed breakdown of the new skill requirements for printing, from a study conducted in collaboration with the PGC NTO.

One difficulty for all areas of production education and training is the rapid obsolescence of equipment. Educational bodies find it difficult to fund the costs of regular replacement,especially when other subject areas may be faster growing and cheaper to provide. Manyemployers are then reluctant to devote time and money if staff are not training on the latestequipment. A minority of colleges have managed to overcome this difficulty by winningsupport from manufacturers, as with Leeds College of Technology and Heidelberg.

The industry also has a growing need for non-production skills such as customer service,sales and marketing, IT support (e.g. for networks and file transfer) and database preparationand management. Some of these skills which often cross the border between technical andmanagement roles are industry specific but many are generic in nature and can beprovided by non-print specific courses, for example, in management.

Only a small proportion of industry staff have higher level qualifications such as A levels ordegrees table 11 provides figures from a survey of print staff in Wessex. The PGC NTOs2001 Workforce Survey reached similar conclusions.7

As noted, there has also been a sharp fall in the traditional route into the industry, that of school leavers taking up apprenticeships and/or attending full- or part-time courses infurther education. In 1999 this was estimated at only 800 people, compared to 14,000 inGermany.8 The German figure is also increasing substantially. These numbers may not becomparing like with like, as German courses tend to be broadly based with, for example, a large multi-media component so that many people go into publishing and otherindustries once qualified. Nonetheless, most experts believe that there is a substantialdifference in the numbers of young people receiving print industry education. As a result of falling recruitment, the number of UK colleges offering printing courses has fallensubstantially to only twelve.

The PGC NTOs 2001 Workforce Survey of printing workplaces found that only a minorityof companies were undertaking training (see table 12).9 Of those which were, machineprinters were the category of staff most likely to be receiving training (in 37% of respondingcompanies) and sales staff the least likely (in only 17% of respondent companies).Companies which were relatively sophisticated in terms of IT were more likely to be trainingstaff than others.

Much of the training which was provided was on-the-job. Whilst this is essential andinvaluable in printing, and will always remain important, it has many limitations such aslack of contact with outside ideas or poor training methods when not supplemented byoff-the-job approaches. The main reason given for companies not training was lack ofneed. A fifth of respondents also felt that accredited training made little difference to staff performance.


There have also been several regional surveys by cross-industry initiatives involving theBPIF, GPMU, PGC NTO and other bodies. A survey of printers in the West Midlands foundthat 22% of respondents were spending nothing on training and smaller companies wererelying on training in larger print companies (who were more likely to plan their trainingthan other manufacturing employers). 10 An equivalent study in South Wales reached similarconclusions, and stimulated the establishment of the Welsh Printing and Coating Forum tohelp remedy the weaknesses.11

The 2000 Workforce Survey also revealed a patchy take-up of qualification-based trainingschemes and related initiatives. It found that only:

38% of sites were employing modern apprentices, national trainees or other young peopleon a structured training scheme, with medium-large companies being much more likelyto do so than smaller ones (60% in sites with over 100 staff, and 46% amongst thoseemploying 25-99).

31% of sites were using NVQs or SVQs, but in these a mean proportion of 10% of staffwere utilising them.

13% of sites were using Investors in People.

However, almost all the sites which were involved in such schemes found them to be useful.

When asked where they would go to get advice on training and staff development, 49%cited a trade association and only 23% an official business advice or training organisationsuch as TECs or Business Links.

Shorter-term technical training in the industry is provided by:

Colleges particularly those which have alliances with manufacturers, as with the DigitalAcademy and the National Printing Skills Centre.

Suppliers increasingly significant as they are able to offer access to the latest equipment.

Professional bodies notably the Institute of Printing and Institute of Packaging.

Trade associations training is an important activity for all associations and accounts for thebulk of the expenditure for several. It is delivered both through courses and other means,such as the interactive CD-ROM based package Sinapse developed by the BPIF and EFTA.

The GPMU this has a number of training centres and has played a leading role inseveral local skill development initiatives. Its work parallels successful union-employertraining collaborations in Scandinavia.

Pira International the main UK consultancy and research centre for the industry.

Private training providers particularly significant for software training.

There are a number of undergraduate courses in graphic design but very few which focus onprinting or printed packaging. This is also the case at postgraduate level. Leeds and SwanseaUniversities have developed, with EPSRC support, a new MSc in Colour Application Te c h n o l o g ywhich is partially targeted at the printing and printing supply industries. The ESPRC has alsosupported an MSc in Packaging Technology at the Universities of Brunel and Loughborough.

Many print educators believe that e-learning can overcome some of the problems of cost,distance and inflexibility associated with attending college, and provide access for people inremote locations. However, the 2001 Workforce Survey found that printing staff have apreference for more traditional forms of training.

Printing has been designated as a priority area for the new University for Industry (UFI) andthe PGC NTO has been appointed as the sector hub, with responsibility for co-ordinatingactivity and encouraging development. Other e-learning initiatives (which could also beaccredited as UFI courses in future) include:

Academedia, a Swedish company which is marketing English versions of on-line coursesoriginally developed for the Scandinavian media industries.


A multimedia package developed by the Corrugated Packaging Association.

The Institute of Printing, in association with Leeds University.

LCP Direct, which is putting many of the London College of Printings outputs into on-line form.

Leeds College of Technology.

Verteppe, a European initiative by the BPIF and the Graphical Association of Denmarkwhich is developing a platform for print-related environmental training which can also be applied to other areas.

1.7 Management

The recent consolidation of the industry has created a number of large printing companieswhich approximate to similar sized peers in other industries in their approach to management.In general, however, printing has always been a very entrepreneurial sector, with mostcompanies being founded and run by people who have risen within its ranks. Managers and supervisors too have tended to follow the same route. A 1995 survey comparing Britishand American print managers found that far fewer British print managers had receivedfurther education and only 18 per cent had a degree, compared to 46 per cent of the USrespondents.12 This partially reflects the higher percentage of people undertaking highereducation in America. The survey also found that over 40 per cent of British managers hadworked in the industry for more than 25 years and very few for less than 10 years. The PGC NTO 2001 Workforce Survey found little change in the situation, with only 28% ofresponding directors/managers having higher academic qualifications. No comparableEuropean statistics are available.

Entrepreneurialism and movement up the ranks remains an important, and in manyrespects positive, aspect of printing management. Industry-specific opportunities fordevelopment are also provided by management and supervisory courses offered by tradeassociations, as well as the Young Managing Printers (YMP) organisation. This organisesevents, company visits and other activities to assist the development of potential and juniormanagers. There are also some local initiatives, such as the collaboration between the BPIFand WESTEC in the Avon region. This identified leadership development for team leaders(also known as shift leaders and number one printers) as a priority requirement forcompanies.13

There has been little management-level recruitment into the industry until recently. This is now increasing in larger companies, and for specialist posts such as finance, IT andmarketing where there is a shortage of expertise within the sector. There is also a small butpotentially significant trend of individuals with external management experience taking fullcontrol, or equity stakes, in printing companies which they then manage.

This lack of qualifications may explain the industrys relative disinterest in businessplanning. The 2001 PGC NTO Workforce Survey found that only 63% of respondents hadformal business plan and under half of companies with less than 10 employees and lessthan half had any kind of human resources plan.

The previous 2000 Wo r k f o rce Survey also found that only 52% of sites surveyed were operatingto recognised or customer-devised management standards.14 Of the sites where standardswere in use 72% operated to the ISO 9000 series and 13% to Investors in People. Larger siteswere more likely to operate to quality standards than smaller ones (80% of companies withover 100 employees were doing so compared to 40% of those with under 10 employees). Probably a majority of commercial printers have a computerised management informationsystem (MIS) to track jobs and provide decision support information such as time spent andactions performed. However, many of these are relatively old and, in the view of suppliersand consultants, few are being used to their full potential.


1.8 Finance

Some 95% of printers have debt which, on average, finances 33% of their assets.1 5 46% of the2000 printers who filed accounts increased their debt during the year 2000. About 15% of thoseincreasing debt were making losses, suggesting that they were in serious financial difficulty.

Although no statistics are available, it is likely that, as with UK industry generally, British printersrely more on short-term overdrafts than continental equivalents, which make greater use oflonger-term bank loans. There has also been a trend from purchasing printing presses to usingasset-based finance such as leasing or secured loans. The traditional longevity and correspondinglyhigh resale value of printing presses has meant that lenders have lower risks than in some otherareas of asset-based financing and so lend on relatively generous terms. Some believe that theready availability of asset-based finance has contributed to the industry s over-capacity. However,the situation has changed in recent years because of a fall in the value of second-hand presses.

Very few printing companies are quoted on the London Stock Exchange and those whichare have low price/earnings ratios. The main reason for this is a perception that they are in a low growth sector. This makes them vulnerable to takeover. Low valuations and perceivedinsecurity often mean that private companies are reluctant to consider listing and aretherefore unattractive for commercial equity providers which require this as an exit strategy.Low valuations also mean that few such providers take an interest in the sector.

1.9 Environment

The main environmental impacts of printing are:

Consumption of resources in the form of paper, cardboard and plastic substrates, energy,water and consumables such as inks.

Disposal of paper wasted in production or surplus to requirements, which often amountto 5-10% of the volume purchased for printing and up to 20% for carton packaging.

Emissions of volatile organic compounds (VOCs) from solvent-based inks, cleaning fluidsand other consumables.

Waste water resulting from processing film and cleaning machines.

Printed products are also a major component of national waste streams. This includesproducts which are wasted within the supply chain as with the 30-40% of printed booksand magazines which are pulped and those which are disposed of by customers.

These impacts mean that the industry is directly subject to an increasing amount ofenvironmental regulations, notably:

The Packaging Waste Regulations which make all printers of more than 50 tons per annumoutput responsible for recovering a proportion of their output at the end of its life.

The Climate Change Levy.

Emissions controls on volatile organic compounds (VOCs) which are driving a move towater-based inks.

Landfill tax on paper wastes.

Printing and printed packaging are also indirectly affected by environmental regulations on the paper industry, especially those encouraging greater use of recovered fibre, and ondownstream customers. Finally, there are voluntary or semi-voluntary (i.e. undertaken toavoid regulation) initiatives to reduce wastage within supply chains by industry customerssuch as direct mail users and magazine and newspaper publishers.

As yet very few printers have adopted ISO 14001, the standard for environmental managementsystems. The main reason appears to be a concern that the standard is bureaucratic andexpensive to implement and therefore beyond the reach of smaller printers.


2 PerformanceThe performance of the printing and printed packaging sectors can be assessed against threecriteria:

Its potential performance (if that can be ascertained).

The performance of other comparable UK industries.

The performance of other national printing industries.

Although the information needed to make these comparisons is patchy, the followingsections consider recent trends in turnover, foreign trade, prices and costs, profitability,investment, capacity utilisation and productivity.

2.1 Output

Printing is a mature industry. Indeed, the sector is seen as the archetypal bellweather sectorwhich tracks and to some degree anticipates changes in macro economic trends. Valueadded in printing (code 2221) has historically grown broadly in line with GDP, althoughbeing disproportionately hit by recession and recovering strongly afterwards (see table 13).The value of printed output is closely linked with advertising expenditure which directly orindirectly funds around 50-60% of printed material but that the link is weakening as printsrelative share falls. This has declined from 52% of total spend in 1990 to 47% in 2000.

Other areas have been less buoyant with value added in carton packaging having fallenannually since 1995.

Consumption of the printing industrys main raw material writing papers, most of whichare printed on rose by 26% between 1993 and 1999, or double the rate of printingindustry turnover (see table 14). This occurred despite a reduction in the weight of papersused for most print jobs. Much of this increase is attributable to increased desktop printingin offices and homes but it also reflects declining prices for many printed outputs.

Within these generic categories there are several segments whose sales have been growing byat least 10% per annum over much of the last decade, notably:

Direct mail products and related services such as mailing to customers.

Self-adhesive labels (although recently hit by the high valuation of sterling).

Specialised labels, packaging and leaflets for pharmaceuticals and personal care products(which has also grown less quickly in the late 1990s).

Conversely, some segments have been in absolute decline, including:

Areas of carton packaging which have been displaced by other materials and/or overseassuppliers.

Some specialised business forms which have been superceded by electronic documents.

Colour book printing which has largely moved to overseas suppliers.

2.2 Foreign trade

Printing and services related to printing makes a positive contribution to the UK balance ofpayments although exports have been falling and imports increasing in recent years (seetable 15). This is primarily related to the high value of sterling. Several large printersestimate that they have lost in excess of 25% of value added from the movement of ordersabroad during the late 1990s.


Table 16 shows the composition of exports and exports. The areas with the most positivetrade balance are books and brochures (the main category of both imports and exports) andnewspapers and periodicals.16 Two notable segments with a negative trade balance arefolding cartons and catalogues, which have been especially badly hit by sterling strength.

2.3 Costs

Printers costs have risen more quickly than the RPI in most years over the last decade by 39.7% over the period 1990-1999 compared to 31.2% in the RPI (see table 17).

Printing and printed packaging has three main cost categories:

Paper, board and other substrates

Labour

Depreciation on equipment.

Other significant cost categories are:

Purchased services (e.g. pre-press for smaller printers)

Inks, solvents, plates and other consumables

Energy

Transport.

Paper and other substrates

Paper typically accounts for around 30% of the costs of a printed document. Board can bean even higher percentage of packaging. Paper and board production is a highly cyclicalindustry, which moves from periods of substantial over-supply and downward pricemovements to acute shortages, with the opposite effect. Price fluctuations are furtherincreased for many customers because wood pulp is priced in dollars.

Table 18 demonstrates this volatility. Although prices in 1999 were similar and in somecases below those of 1992 there was a major price hike in 1994-95. The softer prices of thelate 1990s have been related to over-capacity. A combination of reduced investment,consolidation and managed temporary closures of mills has now reduced this and there wasa marked rise in prices in 1999-2000 in the region of 20%.

There is also a feeling in the industry that UK customers are the first in Europe to be subjectto price increases, and the last to receive the benefit of price falls. This, it is believed, meansthat prices have not fallen by as much expected given the rise in the value of sterling. Intheory, the fact that pulp is priced in dollars should mean that euro zone printers haveexperienced higher paper prices than those in the UK. However, much pulp is producedfrom integrated mills making both this and paper. The paper is usually priced in localcurrencies and is sometimes sold relatively cheaply because pulp is the main output, andhas risen in value because of euro depreciation.

Rising oil prices have also led to increases in the price of plastics, with consequent marginpressures on flexible packaging companies.

Labour

Average earnings in printing have risen by slightly more than the national average over thedecade from 1990-99 (see table 19). However, they have slightly lagged the national averagebetween 1995 and 1999. Table 20 gives average earnings in BPIF/SPEF member companiesand demonstrates the importance of overtime in those earnings. This is an importantdifference between the UK and most other European countries, where overtime levels tend

competitiveness in the UK printing industry performance 25

to be much lower and working hours less. This situation may change in 2003, whenBritains opt-out from the European Commissions Working Time Directive ends.

In general, UK print earnings are thought to be in the middle of the European league table.However, lower social security costs compared to most other European Union membersmean that employers total labour costs per individual are near the bottom of the table.

Print earnings differ between regions, different sizes of company and different occupations(see table 21). Origination has been the best paid occupation within the industry andfinishing the least although experts believe that this situation has changed over the last year.

No data is available for average management earnings in general but table 22 indicates bothaverage salaries for particular posts and, inter alia, the wide variety of posts which are to befound in contemporary printing.

Energy

Although energy prices are only a small proportion of total print costs, they are a variablecost which can have a significant impact on margins. The main energy source for printing is electricity, whose price tends to be higher than in many competitor countries. Theindustrys dependence on road transport also means that it is adversely influenced by thehigh cost of diesel fuel in the UK.

The UK governments Climate Change Levy puts up the cost of electricity by around 10%but the effects have been mitigated for large users who can join the BPIFs Rebate Scheme,negotiated with the DETR.

The energy-intensity of paper and board making energy costs are around 10% of turnoverin the UK also means that energy prices have a significant influence on paper and boardprices. The competitiveness study of the paper industry has demonstrated that the industryfaces higher costs for electricity than most other European countries. Although it hasenjoyed low gas prices in the past, these are now at risk because of the new pipelinebetween the UK and continental Europe which allow British producers to take advantage of higher European prices.

2.4 Profitability

The industry faces powerful buyers and suppliers, has a product which can often be easilysubstituted and has intense competition between printers, which is exacerbated by over-capacity. Hence, there has been continuous downward pressure on prices. This has beenexacerbated since 1996 and even more since 1998 by the appreciation of sterling againsteuro currencies. Although only a proportion of the industry is directly effected by thisappreciation, it has knock-on effects because printers who have lost orders to foreignsuppliers then seek to fill their capacity with domestic work. For example, when gravureprinters lose business they will target large-format web offset markets. The losers in thatbattle then go for medium-format work and so on. In this way the effect spreads out to the entire industry.

Price and cost pressures mean that average printing profitability is low, and declining (seetables 23 and 24). The median return on capital employed for respondents to theBPIF/SPEFs business survey fell from 14.67% in 1999 to 8.63% in 2000, with a considerablevariation between individual sectors. This compares with a net rate of return (the equivalentmeasure used by the Office of National Statistics) in 2000 of 5.3% for UK manufacturing as awhole and 14.4% for UK services. As printing has elements of both manufacturing andservices, this suggests that it is relatively unprofitable. This is especially true when theabnormally high level of risk created by a constant need for large, lumpy investments evenin relatively small printers is considered.


Packaging has been particularly badly hit. In carton packaging, for example, return on salesfell from 6.0% in 1995 to only 2.8% in 1999. There are no comparable figures for otherEuropean countries but anecdotal evidence suggests that the pressures on profitability aremore severe in the UK.

Table 25 summarises a study by the industry financial analysis agency Plimsoll. Thisexamined the 1997-2000 report and accounts of 1181 printers and divided them into fourroughly equal categories of:

Winners which have low borrowings as a percentage of sales, and relatively highmargins and sales growth

Chancers which have high sales growth but also high borrowings and average margins

Sleepers which have low borrowings but average margins and negative sales growth

Losers which have high borrowings, negative sales growth and are barely profitable.17

Plimsoll concludes that time is running out for losers, which are almost a quarter of all thecompanies examined.

2.5 Capital investment

Despite falling margins and flat profitability, the industry has continued to invest in newtechnology throughout the 1990s (although anecdotal evidence suggests that there maynow be a delayed response). Investment was around 6.5% of turnover in the mid 1990s, thelatest period for which figures are available (see table 26). This was around the Europeanaverage but at a similar level to German printers a surprising fact given the generallyhigher levels of capital investment in German industry as a whole. One reason for thisrelatively high investment is the speed of technical and market change, which renders mostpre-press and some production equipment obsolete within a few years. The industry cultureis also very equipment-focused.

2.6 Productivity

There are a number of different ways of measuring productivity and no single measurecaptures all aspects. Measures come in several broad classes: output per head (or labourproductivity); output per unit of investment (capital productivity); and total factorproductivity. Table 24 includes a range of such different measures from BPIF/SPEF surveys.This, and chart 4, show that labour productivity (value added per head) rose by almost 33%between 1994-2000 over 5% a year.

The statistical problems identified in the introduction are illustrated by the fact that theBPIF/SPEF figures show sales per head in printing increasing by 27.6% between 1992 and 1998. However, Government statistics for printing, publishing and paper suggest that output per head rose by only 0.9% per head over the same period, well below themanufacturing average of 11.3%. One explanation of the difference is that the governmentstatistics include very small copy shops and printers which would not be included in theBPIF/SPEF figures.

Sales and added value per head have risen less markedly in carton printing (see table 27).The main reason for this is probably downward pressure on prices, as is demonstrated bythe fact that volume of output per head rose by 11% between 1995 and 1999.

The 1997 Competitiveness white paper and other Government publications state that there isa 30% productivity gap between the UK printing industry and that of northern Europe. Thefew experts with cross-national experience agree that UK printing productivity is almostcertainly lower than in other north European countries but there is less agreement as to byhow much. A large printing company with international operations, for example, estimates

competitiveness in the UK printing industry performance 27

a 10% productivity gap between comparable sites. It attributes around half the gap to bettermanagement in continental Europe and the remainder to logistics problems for example,late delivery of paper causing slowdowns in production. On the other hand, a technicalconsultancy which has compared manning levels for specific presses estimates that it maybe as high as 25-30%.

Packaging experts also believe that the acute pressures for lower prices from retailers and othercustomers in the UK have resulted in comparable productivity to that of western Europe.

One problem is that there are considerable differences between sectors and types ofcompanies so that aggregate comparisons are potentially misleading. The Governments,and indeed all industry, statistics therefore need to be interpreted with caution.

There are a number of theoretical explanations for any productivity differences which doexist, including:

Investment

Labour inflexibility

Skill levels

Management

Logistics

Low capacity utilisation

Lower prices in the UK as a result of intense competition (this reduces the turnover andvalue added component of productivity ratios).

The following paragraphs discuss the evidence for each of these explanations.

There is

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Documents

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industry structure

industry organisations

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