Asian Economic Crisis Has Created a Buyers' Market
Sally Taylor -- 6/1/98
This is our 12th annual report on book printing services in Asia. This began as, and remains, something of a primer for publishers whose experience with book-printing opportunities in the Far East may be limited. But it is also a news story. We cannot separate even something as seemingly straightforward as book printing from the current rapid technological, economic and political changes in Asia.
Nor can we limit this discussion to conventional book manufacturing, with book-plus, novelty and gift items now being such a strong part of many publishers' product lines. While total import figures are impossible to get (with so many of the book publishers' products now coming out of Asia grouped into the "toys" category by the U.S. Department of Commerce), judging by the export printing capacity of Asia, especially China, the value of these novelty items must exceed conventional book imports by a factor of two or three.
The financial turmoil in Asia in the second half of 1997 had one small benefit for U.S. book publishers: it brought down (slightly) the cost of overseas printing. While currencies in some countries dropped 35%-50%, though, prices decreased only 5%- 15%. In some cases, as in Singapore, this small drop brought prices back into line with the most competitive and by far the largest export print production engine of Asia: Hong Kong and its auxiliary factories in China.
Why didn't such a big currency drop create more of a drop in print prices? The cost of labor, which is the only printing cost really affected by local currencies, is about 35% of the total costs of printing. Many printers and print brokers reminded PW that the machines, the paper and the shipping are all traded in U.S. dollars. The first result of the currency turmoil is a decline in local business and in local credit. There is a recession going on in most countries in Asia. Printers need work and they need cash flow.
"People should understand that the recent cheap prices offered by companies new to the U.S. market are not only because of the Asian currency crisis, but mostly because local business has dried up," explained Lee Moncho, head of Colorprint Offset Hong Kong's New York office. "They just have too much capacity, and are looking toward large markets to fill the gaps."
This has had more of an effect on prices than the currency declines. Countries such as Malaysia, Thailand and South Korea, where the booming local economies have kept the best printers busy with work at home, suddenly found their local customers strait-jacketed by recession, leaving enormous first-class capacity unused, without work to cover their costs.
Hong Kong printers, protected by a dollar pegged to the U.S. dollar, were similarly affected by the regional recession, and by year's end, domestic printers in all of these countries were scrambling for new foreign (read: U.S. and European) business to take up the slack in local demand.
U.S. representatives of printing services abroad have described this year as the most competitive print market in recent memory, with more companies offering more services than ever before. "It's amazing," one broker told PW. "Half the printers I used to deal with over in Asia are now here, selling their services directly."
Prices are so consistently competitive in Asia that one U.S. print broker, Ken Coburn of Global Interprint in Santa Rosa, Calif., was even placing Latin American publishers with Asian manufacturers.
But good prices, as we all know, are not everything; as one production director told PW frankly, "I don't want to see prices drop much. I depend on my suppliers in Asia for a quality of service I can't get in the U.S., and I value our long-term relationships. If the prices drop, it means they are hurting. I want them to stay healthy and stay in business."
"One problem is that some of these good prices are being offered for spot jobs to solve immediate problems," said Moncho, who also sees an unhealthy aspect to all this new competition. "The problems for U.S. publishers can arise when these short-term problems resolve themselves and the U.S. work no longer holds all the solutions, especially if it has been accepted at very low, often loss-producing prices"
For the likes of Toppan Printing Company (HK), Dai Nippon Printing, C&C Offset, Leefung Asco, Paramount Publishing Group and Everbest Printing Company, some of the major players in high-quality conventional book printing for export in Hong Kong and China, things are relatively stable. All but Paramount have moved at least some of their operations into China, but nearly all their work is for export to the West. Each has its own sales force in the U.S., (which readers can find listed in the second part of this report). Only one among them, Everbest, is still family-run.
There is a second group of smaller printers, most of them still family-held, that also supply high-quality conventional work for overseas, and most of them we list in this report. To reach the rest of Hong Kong's many print suppliers, you would be wise to work through brokers.
A Print Buyer's Year
There's no doubt that it has been a print buyer's year in Asia, especially for publishers involved in items requiring hand assembly -- and what juvenile publisher is not these days? Here, though, another factor brought a price drop: new capacity developed for this service. Several of the major players have doubled their capacity. For hand-assembled projects, it is new capacity rather than a reduction of local demand, of which there is little, that is making prices competitive.
Most of this hand work is done for the West, and most is done in China (though certain kinds of projects in the genre are also managed by companies in Colombia, Malaysia and Thailand, from pop-ups to board books). The unique combination of needs for book-plus and novelty items: sourcing sound chips for plastic toys and "sound books," offering sophisticated packaging design skills and, finally, assembling quickly and faultlessly by hand, have made Hong Kong's nearby and purpose-built China factories, all run by experienced Hong Kong printers, a prime source (see second article).
Such printers now have massive hand-assembled packaging plants, with thousands of workers, capable of producing hundreds of thousands of pieces of these products. And each printer PW spoke with had increased its capacity from the year before.
Why can't this kind of work be done in the U.S.?
The complicated sourcing, assembling and packaging requirements of novelty, book-plus and pop-up products defy all the rules of conventional U.S. book printers, who have automated and regulated everything from trim sizes to carton counts to keep labor costs, and thus production prices, to a minimum. Thus, web printing is more competitive in the U.S. than nearly anywhere else in the world.
But when it comes to projects requiring hand labor and large quantity orders, most publishers have to go abroad, and most go to China.
There are exceptions, of course. Stacey Kreutzmann Quinn at Acid Test Productions in Petaluma, Calif., works with former Chronicle Books production director Nancy Reid. While they are primarily a publishing company, they do some print brokering, mostly for very small publishers and primarily in Hong Kong and China, though they have found other nearby services for hand assembly.
"We can handle any kind of project, from gift items to regular books," Quinn said. "We do conventional books in Asia, depending on the project and turn-around time. We have overseas hand-assembly plants and even in the U.S. we can find Goodwill Industry warehouses and other handicapped facilities to do this kind of work. There are lots of possibilities if the volume is not too high."
But few printers offer hand-assembly work in North America. Even the mighty R.R. Donnelley & Sons is now using its joint venture China plant, Donnelley Bright Sun, to compete on small-format juveniles, multiple-language editions, internationally distributed editions and simple hand-assembly projects for their book publisher clients world-wide.
One of numerous international printing plants Donnelley operates in Singapore, India, Mexico, Western and Central Europe, DBS serves both China and the West. (The Reynosa, Mexico, plant deals with more time-sensitive production, including some hand-assembly work.) "We entered the export market about 18 months ago," said Anne Barnett, v-p of international development for the Book Division, who coordinates global book-manufacturing for customers in Europe, the U.K. and the U.S.
"This is an evolving situation, but by attracting experienced people in Hong Kong and working in partnership with the U.S. and international book publishing community, we have begun to establish expertise in very focused markets," she said.
Donnelley Bright Sun attracted Andy Yau and Herbert Lau from Paramount to run its Shenzhen operation for book-related work. Constant Lam is the division director, and the liaison in the R.R. Donnelley Chicago headquarters is Mita Nataran. "As our customers go global, we are working to have the production platforms in place, so we are already there to serve our clients," Barnett said.
Certainly Donnelley has good company in Shenzhen. Rare is the Hong Kong printer or repro house without a factory in China these days. Even color-separation houses in Hong Kong have, for the most part, moved into China to do their conventional press-proofs, if not their high-end color work, both on the desktop and on high-end electronic scanners.
The color houses have joined forces, in most cases, with printer partners, though a few, such as Johnny Leung at Universal, Billy Tse at Digital Prepress and Wayne Ling at Hong Kong Scanner, remain independent. Karen Greatres at United Color Inc. in New York represents New Arts exclusively, though the firm also d s conventional printing.
A number of houses in Singapore also compete for prepress work, and several buyers this year report they are right up to the minute in technology skills. "They can handle anything we throw at them now in digital pre-press," said one broker.
CS Graphics in Singapore is even offering direct-to-plate technology, the first in Asia that PW has found. According to Rick Marment at their Granite Bay, Calif., office, prices have come down some in Singapore, but only 10%-15%.
Shenzhen, the Special Economic Zone of China adjacent to Hong Kong where so many Hong Kong printers and repro houses have set up factories, is remarkably capable now in printing and technology skills. We reported last year on the long history of printing in this part of the world. The recent years of financial investment and training in the P.R.C. by Hong Kong's finest have brought operations there up to world quality standards, including those of Japan, whose publishers' expectations are the most rigorous.
Palace Press, a global print brokerage operation specializing in high-end book and book-plus productions, has offices in New York, San Francisco, Singapore and Hong Kong and 15 years' international experience. Recently it expanded operations into India, with sourcing of special papers and materials, and d s coffee-table book projects for a number of new publishers in the Indian subcontinent.
According to managing director Gordon Goff, Palace has won numerous awards for its high standards of print production, with emphasis on cutting-edge press applications. Since winning the LMP Manufacturing Award, Book Builders New York and numerous Gold Ink Awards for their work on the designers' showcase magazine Graphis, Palace Press has increased its business substantially in the last few years.
An Easy Crossing
Many of the same companies that helped establish Hong Kong as the quality color-printing capital of the world are now doing all their work in Shenzhen. With Hong Kong itself now a Special Administrative Region of China, the transportation and currency links are all that much easier. Hong Kong ID holders can pass in and out of China with a swipe of their ID cards. Raw materials and finished product can move back and forth more freely now. The "one country, two systems" promised by China is working. And Hong Kong and China are the two most stable economies of Asia at the moment, both with currencies fixed to the U.S. dollar and defended fiercely by their respective governments.
Charlie Clark, who represents C&C Printing, part of Hong Kong's Sino United Group, on the West Coast from his Portland, Ore., headquarters, told PW that one year after the handover, "Everything is better than before." Like most of the major players, C&C is expanding toward hand-assembly work. Children's books are of particular interest to them, with their good publishing connections in China.
"Prices are definitely coming down," said Tim Linn, director of sales at Asia Pacific Offset in New York. "Printers in Hong Kong are hungry and publishers know it, but we are doing surprisingly well. We've retained 85% of Mandarin's former customers." Asia Pacific Offset is a new name in U.S. print brokerage this year, serving Ph nix Offset in Hong Kong and featuring the majority of the U.S. sales force of Mandarin Offset, which until last June was the largest print brokerage house in Asia and part of the Reed Elsevier group. Mandarin Offset was closed down by the parent company in a surprise announcement in April last year, just as the busiest printing season was gearing up and just before the handover in Hong Kong. It was a move that really rocked the Hong Kong printing industry.
Ph nix Offset rose quickly from the ashes, though, with David Martin as chairman, Edmond Chan as managing director and a core staff of two dozen of the old team, plus most of the U.S. team, operating under the name Asia Pacific Offset.
"Seventy percent of our work is still conventional books," said Linn, "with a wide spread of business from smaller publishers without much experience to quite large New York and San Francisco houses. In hand assembly, we have people on the ground in Hong Kong to help deal with the relationship with the printer and check quality control. There were 160 employees at Mandarin in Hong Kong. Now they are spread around various printing operations and have a strong relationship with us."
"We can't compare with the old Mandarin in size,' admitted Edmund Chan, managing director of Ph nix Offset in Hong Kong. "But with a staff of 14 people, we are very strong in conventional sheetfed work and looking to do more in hand-assembly projects, which were a smaller part of the business at Mandarin."
Colorcraft, the oldest print brokerage in Hong Kong and run by everybody's favorite broker, Bundy Walker, daughter of the founder, d s a wide range of conventional and non-conventional print work for clients on three continents. With a large staff and strong ties to the printing community both in Hong Kong and China, Walker and her team, led by director Daniel Chung, have continued to adjust well to the increasing variety of customer demand, now dealing in the full range, from CD-ROM replication to novelties to conventional juveniles and textbooks. Walker spends a great deal of her time on the road, working directly with her customers in the U.S., the U.K., Europe, Australia and New Zealand, leaving the daily flow of work in Chung's hands in Hong Kong.
Bookbuilders, another well-established brokerage, spends half of its energies in educational publishing, with one of its primary specialties in paper sourcing, helped along by an association with Price and Pierce, a paper company. They also lack a dedicated U.S. rep, though they certainly have the capabilities to serve.
Regent Publishing Services Ltd., however, has four offices in the U.S., as well as its Hong Kong home base. New assistant to managing director George Tai is Tracy Choy, who told PW they were staying clear of complicated hand-assembly work and sticking with conventional books and simpler book-plus projects. With a profit of $1.5 million last year and 25 years' experience, Tai is confident that the opportunities for their services continue, especially among medium and small-sized publishers.
"We are in a better position to shop for them because we know who is good in town; even the same printers can go up and down in quality, and you have to be on the ground here to know that," Choy said.
With the current over-capacity, Tai and Choy concede that every printer is going to try to expand its customer base. "But we can offer credit terms, faster turn-around and a variety of services, with the personal touch of our sales team in the U.S.," they noted.
Wyatt Portz covers the West Coast for Regent and pointed out that while most of the work Regent handles is conventional, they do photo albums and craft trays that require both hand-assembly and local sourcing. He is also encouraged by the current technological improvements.
With Mandarin gone, probably the biggest print broker in Hong Kong these days is Imago. The company d s everything from conventional books to the full range of novelties and books-plus, and though much of its business is with the U.K. and Europe in co-editions, it has active sales offices in Los Angeles and New York.
"We've really been pushing books-plus the last couple of years," explained Howard Musk, the production director in New York. "We have a separate department now in Hong Kong devoted to sourcing the materials for this kind of work, and we are doing a lot of color separations with Bright Arts in their China plant. Most of our customers are realizing the need for a broker in these book-plus projects. With each of them, everything is new."
A Tradition Continues
So the tradition of quality print brokering continues in Hong Kong, a recommended way for most publishers to enjoy the benefits of Asian printing services, though certainly not always necessary.
Another ex-Mandarin rep, Frank DeLuca, is now the managing director of Pearl East Printing in Glen Head, N.Y. He joined up with Elegance Printing and Book Binding, a mid-sized book printing company in Hong Kong, to form Pearl East. Founded in the late 1970s, Elegance is a full-service printer with production facilities in Hong Kong and a new state-of-the-art plant in Shenzen, China, according to DeLuca. "We can offer complete pre-press from typesetting through color separations, printing, binding and packaging to the U.S. market."
With clients such as the Boston Museum of Fine Arts, Galison, Workman, Ten Speed, Little, Brown, Stewart, Tabori & Chang, Henry Holt and Random House, DeLuca's group covers a range of product including illustrated books, juvenile books, non-book items, calendars, puzzles, magnetic boxed greeting cards and board building blocks.
Larry Lazopoulos is another familiar name in printing services in Hong Kong. He amicably parted ways with the broker Regent last year and has joined Karen Shen Fishel and her family-run Sing Cheong Printing Company, a high-quality, medium-sized printer with 33 years in book printing and contracts with three hand-assembly operations in the P.R.C. Nearly all of its work is for export.
"About 25% of our work is in the U.S.," Lazopoulos said, "with the rest in the U.K. and Europe." Martin Pugh in Denver is Sing Cheong's U.S. rep. Larry is in the office and on the factory floor in Hong Kong, helping customers get what they want. "Brokers represent about 35% of the business in Hong Kong now," he noted. "More publishers are working directly with printers like us. So I'm here to develop new business and to offer the kind of hand-holding customers want. We find the demand is for more titles, lower print runs and quick reprints. We can deliver books in two to six weeks, year round."
Lazopoulos is confident export printing is "not going to leave the Hong Kong/Shenzhen area," and added: "Our growth will be slow and steady. And in two years we will need to go over to direct-to-plate, although you are still going to need films to be competitive with reprints."
From Denver, Martin Pugh confirmed that since the changeover, it has been "business as usual" on the U.S. side of the company. "Business is good and we are looking at the potential of high-speed transfer of files."
Another printer going direct, Colorprint, has Justin Wakefield on the West Coast, who told PW the firm is "still mostly doing book work, but moving toward gift work, like Christmas card box sets and postcard books. We take on everything in terms of run, but we are most cost-effective between 5000 and 25,000 for a 32-page children's book. We are very much in the middle, as a printer, and we don't fluctuate much on price because we are not that big compared to others.
"But we now do 70% overseas work, a big increase from 30% four years ago, and a life-saver for us with the depressed local market. About 30% of that is gift and novelty work."
Wing King Tong, a family-run operation with an aggressive approach to keeping up with international clients' needs, bought a $3-million, 10-color Roland sheet-fed machine this year, the first in Asia and only the second one operational in the world, specifically for U.S. demand for short-run, high-quality five-color and custom work, as well as fifth-color text runs for co-editions and quick reprints.
"We can print five colors on both sides, or CKMY +RGB 7 color, add silver, gold or spot varnish to a project, all in one go," said managing director and son of the founder Alex Yan. "The bindery has also been upgraded to match this new printing capacity." With fully equipped plants both in Hong Kong and in China, 180 workers in Hong Kong and 400 in Shenzhen, WKT offers both speed and economy for its customers. All its work is for export and all its business is direct with clients.
"We do the jobs we have time for in China," explained marketing director Jeremy Kuo. "And of course, all the work requiring hand labor. But since we do a variety of formats and projects, we can spread the work around both plants. Our advantage with the 10-color press is that we can be competitive with U.S. web presses, but with a wider range of trim sizes and paper options. We need a four-week lead time on standard jobs, and with the 10-color press, we hope to shorten that to three weeks."
Another of the top export printing operations with a long history of overseas work is Leefung Asco. All its facilities are in China now, though it keeps an office in Hong Kong. With a fairly even split between the U.S. and U.K. for exports, and a great deal of hand assembly work, shareholder Peter Yang told PW that his Chinese customers "pay faster than traditional book export terms," and "our future growth is in China, especially in co-editions." But the bulk of the business is still exports to the West.
Jeffrey Raether, president of JY International Inc. in New York, is exclusive representative for Leefung in the U.S. and reports it is running "pretty close to capacity all year around now," even with the factory at 580,000 square feet printing, and at one million square feet in Dongguan, with 3000 workers for hand assembly.
He continued, "If we could change anything, we would make it now more back to casebound. A higher percentage than we expected comes from handwork, which takes our press time away from the book plant. But neither is too much now, with so much capacity. And the change of mix away from just casebound gives us a range of work throughout the year, with different cycles and a more even load."
With a long and successful history of working directly with overseas clients, South China Printing Co. (1988) Ltd. merged with its sister hand-assembly operations last year, giving it a full range of novelty and other hand-assembly capabilities, in addition to its conventional juvenile, picture and art book production skills.
The firm moved its binding line to China at the beginning of this year. Peter Lawrence continues to run the U.S. liaison office in New York, as he has since 1977, with a second office now in Temple City, Calif.
For standard four-color work in hardcover and soft, Kwong Fat Offset Printing, Hoi Kwong Printing, Ocean Graphics and Sing Kee are all family businesses that do export work. Lawrence Wong, managing director at Kwong Fat, works with prepress partner Evergreen, both with factories in China.
Michael Lam at Primaz is developing overseas business for Ocean Graphics, which has eight plants in China now, a corporate structure and a wide range of capabilities. Lam hopes their new Agfa Chromapress in Hong Kong will be useful for publishers in creating four-color blads. Their U.S. office is Pacific Rim International in Los Angeles, run by Tommy Lee.
David Chan at Hoi Kwong said his company still d s all its work in Hong Kong. The slowdown in the local market in high-end advertising and design work is encouraging them to boost the mix of overseas business, where they specialize in art, architecture and design projects.
Roger Williams at Snow Lion Graphics in Berkeley is the rep for Sing Kee in the U.S., doing mostly conventional books and helping smaller feminist and lesbian houses with design as well as production -- another "hand-holding" operation important for small houses.
Certainly, there are some printers trying to work directly with the U.S. but that lack the skills and infrastructure needed to do so, and that is a concern of all. "Let's say someone is getting ready to make a foray into Hong Kong printing," said Moncho of Colorprint. "If they choose one of these inexperienced companies new to the export scene, they will get an unrealistic view of what Hong Kong printing can offer in terms of schedule and service."
Staying with Brokers
PW's advice is to stick with people with experience, and don't shy away from brokers, who can sometimes get better prices and delivery than you can by going direct. While our list of recommended printers and brokers in this section is not complete, it includes many of the pros in the business.
"Hong Kong has given us a wide variety of new sources," noted Ken Coburn at Global Interprint Inc. in Petaluma, Calif., referring both to the developments in hand-assembly and to former Mandarin suppliers now going direct. "And we are also looking at other countries with paper prices down, including Thailand, South Korea and Singapore, which is competitive again. I am also searching for offshore printing opportunities for Mexican and South American publishers; sometimes it is even more cost-effective for them to print in the U.S.," he said.
There are a number of smaller brokers working with the Koreans, including Apex, American-International, Bolton Associates, Codra Enterprises and Daehan (all listed in our directory). But in general PW did not find the Koreans themselves as jubilant about their increased competitiveness. Dong-A has closed its U.S. rep office and at Sung In, whose various U.S. offices are headquartered in South San Francisco, managing director J l A. Sanguinetti told PW, "We're hanging in there, but it has been a rough ride." He was referring to the instability in the Korean currency, which has made price quoting difficult.
Hal Belmont at Overseas Printing in San Francisco is still using South Korea and Hong Kong but with a new emphasis on Italian printers, especially for conventional printing of quality art books, even though the shipping takes longer to the West Coast.
Global Interprint East, now a separate company still run by Charlie Bear, is still finding Asia the best place for high-quality four-color adult and juvenile jobs. And another print broker thinking both globally and digitally is Lori Comptois at PrintNet in Alachua, Fla. She d s much of her prepress work in San Francisco now, including blads, using high-tech digital methods.
She explained, "We can supply plates or files that can go to plate at Donnelley, for example. And we give a digital archive at the end of the product, which you can't get in the Far East. Publishers need that, rather than film, for their future. And with the high level of sophistication and technology, we will still be able go overseas. We just have a broader base of options with no additional costs." PrintNet also features inhouse designers and editors. "We can take raw manuscript and make it into a book," Comptois says.
She said she d s not print conventional books in China: "We don't feel secure doing that, and there are a lot of human rights issues we disagree with, so we are only working in Hong Kong, to give us very good quality and keep our reputation for delivery." But hand-assembly work has to go to China -- there is no choice -- and that represents 25% of the business for PrintNet.
It is also another story.
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