Summary of the Study
Printers, publishers and graphic designers must situate themselves within a configuration of industry-related factors to compete in a globalizing enterprise: state-of-the-art technologies, availability of skilled labor, low production costs and market prices, reliable telecommunication system, efficient mailing and delivery system, stable government that upholds a 'free press' and an industry-performance-monitor.
Can the Philippines provide a competitive environment for its media and graphic industry competitive and therefore assure foreign investors of viable business enterprises in the Asian region?
The Philippines certainly can.
It can provide strategic locations and infrastructures for investments. The Philippines' strategic position places the country at the crossroads of international shipping and air lanes. The world's biggest air express delivery service provider operated its first Asia-Pacific Hub from Subic Bay Freeport because of its proximity to most of Asia's trading centers. In lining up possible sites, Subic Bay and Clark Air Base can be presented as instances of locations where adequate air and seaport facilities are available. Both boast of modern, world-class aviation facilities as they used to be operated and maintained as American military bases. Subic Bay, however, has the added facility of an ideal transshipment point. Just like Hong Kong and Singapore, these locations are situated within the crossroads of the emerging markets in the Asia-Pacific region. By flying time, both sites are just less than one and a half hours away from Hong Kong and Taiwan, and less than four hours away from Singapore, Japan, Indonesia, Malaysia and South Korea.
It has the pool of available labor. Apart from having lower labor charges, the Filipino worker is known to be one of the most fluent in English. The country has one of the largest numbers of migrant workers. It has one of the highest literacy rates in Asia too. Skilled Filipino labor has made the Philippines most competitive in Asia.
It has all the potential to maximize the benefits from Information and Communications Technology (ICT) as long as there is a collaboration of key sectors and stakeholders so that things can move forward. The Philippine government has passed laws on foreign investments, competition, convergence, comprehensive data protection and the creation of a Department of Information and Communications Technology (DICT). The business environment therefore assures lower transaction costs through e-government, fiscal incentives for ICT investments and other ICT related investments.
It has long recognized the importance of the graphics and media industry. Aware of the need to modernize and upgrade the technological capabilities of the industry, the Philippine government has imposed only a mere 3% import duties on the importation of capital equipment. The industry has been listed as a preferred industry in need of support. The Arroyo government has currently listed the publication or printing of textbooks as one of the activities under its '2001 Invest Priorities Plan'. Several laws have been legislated to protect the industry and enable investors to maximize the opportunities in the graphic and media enterprises: Republic Act 8293 or the Intellectual Property Code of the Philippines, Republic Act 8047 or the Book Publishing Industry Development Act, Republic Act 8424 or the Tax Reform Act of 1997, Executive Order No. 226 or the Omnibus Investment Code, etc.
It offers a range of Investor-friendly Incentives and unlimited business opportunities. The country's tax and fiscal incentives for companies in eco-zones continue to attract investors. The country presents a whole range of opportunities for investors. ASEAN, for instance, will transform into a free trade area. By the year 2004, the region will represent a growing market currently estimated at about 500 million consumers. As ASEAN economies integrate within the framework of the ASEAN Free Trade Agreement (AFTA), the Philippines becomes the most strategic location for firms that want access to the large ASEAN market and its vast business opportunities.
Main Lines, Engagements, Potentials: Industry Sub-sectors
The Philippine graphic and media industry has an estimated base of 4,000 – 5,000 establishments with about 70% strategically located in Metro Manila and in key cities of the 13 regions. About 60% of the printing firms are small with an average capital of PHP 0.5 million, 35% between PHP 0.5 million and PHP 5.0 million and only 5% over PHP 5.0 million. Many of the smaller presses operate one or two presses.
85% of the printing companies are into offset, while 15% are into letterpress, gravure and flexographic printing. Of the 85% belonging to the offset printing group, 53% are small-scale (assets: PHP 5 million and with less than 30 employees), 35% are medium scale (assets: more than PHP 10 million and more than 30 employees), and 12% are large scale (assets: PHP 100 million or more than 100 employees).
The commodities and services of the industry include the following: (1) publication printing: books, pamphlets, newspapers, periodicals, magazines, journals; (2) commercial printing: business and office forms, brochures, posters, envelopes, school annuals, promotions/advertising materials, calendars, calling cards, greeting cards; (3) security printing: documentary stamps, postal stamps, bank forms and passbooks, legal tender, examination booklets, forms and answer sheets of state-sponsored tests; (4) office supply printing: continuous forms for computer printers, invoices, receipts, and other business forms; (5) special printing, e.g. packaging: folding cartons, boxes, containers; (6) software-related services: pre-printing services, such as typesetting, color separations, electronic stripping, image manipulations, graphic illustrations, internet services such as web design.
The industry is composed of four sectors according to specific lines of business: printers-publishers, job and commercial printers, industrial/package/label printers and firms with printing presses. These sectors likewise engage in pre-press and design services. But with the advent of electronics technology, pre-press and graphic design enterprises have gradually constituted themselves as one distinct, competitive segment.
The printing-publishing sector accounts for 70% of the total industry sales. Firms in this business group engage in the publication of various products for communication such as books, newspapers, magazines, journals, periodicals and pamphlets. Except for the segment involved in newspaper publications, this sub-sector usually sub-contracts printing requirements out to commercial printers or foreign firms. Only 6% of the total industry players are into publications of newspapers and periodicals. Entry barriers are high because of the huge capital investment requirements and the established dominance of such publications like Manila Bulletin, Philippine Daily Inquirer and the Philippine Star. The segment servicing the book market (i.e. about 3% of the industry) has lately found more channels for increased production sales. The untapped potentials of this segment have made it a very promising engagement. The large capital outlay required may be high but the degree of rivalry will be low among the limited number of competitors.
The Job and Commercial printers account for 10% of the market share. Firms in this group are primarily engaged in small to medium run commercial jobs like government forms, advertising brochures, office and school papers/forms, posters, calendars, calling cards, greeting cards. They employ the smallest printing equipment in terms of runs and number of printers. This small to medium scale sub-sector, however, comprises majority of the firms in the industry. A little less than 90% of the industry players are in this sub-sector. The wide range of commodities and services has made it the most fragmented.
Job and commercial printers largely service the domestic market. But they also compete with printers based in the other neighboring countries like Hong Kong, Singapore, Thailand, Malaysia and Taiwan. These entrepreneurs compete in a market size of around $50 million and are expected to expand the sub-sector and reach the $165 million mark by 2005 if it aggressively upgrades its technologies.
The Industrial/Packaging/Label printers account for 20% of the market. It is similar and at times interchanged with job and commercial printers. It is also characterized by small to medium run printing jobs. Its distinguishing character is its engagement with the manufacturing industry. The latter requires wrappers and labeling materials for carton packaging products, boxes and containers for manufactured goods. Depending on the type of packaging and labeling requirements, the firms in this sector shift foci from packaging to commercial with some degree of constraints, depending on the printing equipment used to produce various outputs. These products include labels for canned goods, label inserts in packaged products, labels in carton boxes and other product labeling materials.
Companies with printing technologies. This sub-sector is made up of big conglomerate multinational and local enterprises with printing plants established primarily to service their own printing requirements.
Images, Impressions, Reproductions
The industry presently employs four printing methods: duplication, letterpress, offset and the gravure method. In the 1980s, offset printing was, and still is, the method majority of firms use. Letterpress and gravure are the other common modes. In the 1990s, conventional color scanners were commonly used. But with the introduction of the desktop publication system in the late 1980s, the processing of typesetting, electronic publishing, color separation and graphics manipulation have been made important components of the industry.
Human Resources and Investments
Labor has been a major resource for the industry once paralyzed in the 1960s when workers decided to reiterate their demands for increases in their compensations. Unionized workers and skilled operators have important bargaining powers and thus affect the plight of business in the industry.
While there is an abundance of English speaking trainable power in the country, the lack of qualified printing schools as well as the mass exodus of skilled workers to other countries abroad which offer better paying jobs have left the industry with little for its various requirements. Compared to Hong Kong and Singapore, the Philippines has yet to establish a good printing school. There are some schools, however, which offer non-diploma or degree courses in printing: Don Bosco School of Printing, Polytechnic University of the Philippines (PUP), Technological University of the Philippines (TUP), Rodriguez Institute of Science and Technology (EARIST), University of Santo Tomas (UST) and Salesiana Publishers School of Graphic Arts (SPSG), DUALTECH.
Trade organizations have been regularly conducting short-term courses to complement the training program for the industry workers. Enrolment has been very low. Graduates are insufficiently equipped to work in advanced printing companies due to inadequate training infrastructures and consequent poor training.
Most technical personnel learn the skills on-the-job. Most printing presses in the country utilize basic (often previously-owned) equipment that workers can learn to operate on the job. Since most printing presses hardly upgrade their equipment, there is no pressing need to retrain employees.
Organizations, Productions, Operations
Majority of printing presses are family owned. The industry, however, has started to professionalize organizational structures. Sales and production managers outside family circles, for example, are hired. Major decisions, though, are still made by the president or general manager, almost always a member of the owner-family. Company control has been handed from generation to generation exclusively among family members. Family owned presses are almost always incorporated to avail of benefits of a corporation: less problematic succession schemes, tax and labor advantages.
Presses often have a commission-driven sales force. Commissions range from 5% to 10% of the gross selling price. Advertising and promotions are not heavily availed of. The former is usually limited to small sections in the newspapers. Printers, however, advertise in the Yellow Pages and trade magazines.
Customers mainly concerned with low prices, easily transfer orders from existing printers to other firms offering lower costs, commonly the smaller and newer presses. Clientele of the publishing, label and packaging segment, however, is more quality sensitive.
Majority of the industry clients are Metro Manila based. Margins for orders, however, from other regions and provinces are often higher. Firms located in the economic zones, e.g. Calabarzon, usually order more as against similar companies in Metro Manila.
Production in the industry usually involves a combination of pre-press, running and finishing processes. The specific dynamics of these processes depend on the mode(s) of printing employed. Stocking practices are usually made on a per-order basis, with minimum stocking practices even for larger orders. Firms take on bigger volumes to enable a lowering of prices. Partial deliveries are made in cases of very large orders; clients can request for partial deliveries and avail of reduced costs. Large presses, however, make use of economies of scale, especially in long running orders, with the same qualities and immediate delivery agreements with the client. They require sufficient space to store finished goods for immediate delivery to the client. These agreements are presently prevalent in the food industry, the manufacturing sector. In most of these agreements, quality control is practiced before, during, and after operations.
In the book-publishing segment, some players, particularly the bigger ones, engage their clientele with 'vertical integrations', a variety of services and hence, expand their markets. In the newspaper/magazine/periodical publication segment, industry players offer specialized publications for different types of readers. In the job and commercial printing sub-sector, large firms render a range of services from pre-press to post-press services, and allow customers to opt for the printing press handling all their requirements. Larger firms also reduce production costs per unit through the economies of scale.
For many players, the lack of access to additional capital other than what is generated by business, coupled with the high prices of new equipment, limited their ability to upgrade their printing capabilities. Smaller firms, however, cope with pressure to engage in multiple investments by establishing networks with other smaller players to enable them to specialized on specific services: color separation, printing, or binding.
Rivalries
Rivalry among industry players takes the form of price and quality competitions. Since the potentials of advertising have been relatively untapped, new markets for printing services have not been created or fully realized. It seems that printers compete for the same customers, and hence, make competitions highly unstable. Profitability then drops since rival firms easily and quickly match price cuts.
The degree of competition among bigger printing firms, however, decreases since a smaller group of players is involved. Among small and medium scale printers, competition is more intense. The more limited technological capabilities of these printers have compelled them to engage solely in a 'price war'.
Rapid developments in pre-press technologies and reductions in computer hardware costs influenced the increase in the number of design and graphic service companies.
Clients, Suppliers and Bargains
Clients in the industry have very low switching costs. They easily transfer from one printer to another as orders are on a per job basis. Clients' bargaining powers differ in degree in the different sub-sectors of the industry.
Suppliers also exert considerable influences over the printers. Since paper is the main component in the industry, paper suppliers serve as the prime determinants of the printers' price, quality and terms. The paper industry is one of the most protected industries in the Philippines. Printers have long been deprived of a broad range of imported paper with enough quality to choose from as paper supplies have always required high production costs.
Substitutes and Threats
What is now popularly known as 'paperless' technologies and culture have generated what is now referred to as 'substitute products' and threats to the industry. Most printers though consider these substitutions still in their infancy in the Philippine market and thus accept them more as 'refreshing developments' in the business landscape than threats in a competitive industry. But new technological advances in the industry have been challenging the conventional modes in the business and generated more competitions in the market.
The engineered changes in Filipino consumers' attitudes and practices and the low switching costs of consumer goods provide threats to the paper-based industry. Plastic based packaging, for instance, which has lower finished product costs, has endangered profits for the printing sub-sector. But the ecology-friendly culture currently promoted among consumers may counter the threat: biodegradable, recycle-able, durable, lightweight paper-based packaging promises a more environment-friendly enterprise.
Industry Supplies
The industry builds on raw materials mainly consisting of paper or cardboard, ink, glue, chemicals, plates and film. Paper usually used by printers, like newsprint, bond paper, coated paper, book paper, and cardboard, can now be manufactured domestically. Some special papers, however, as well as coated ones, can only be sourced outside the country.
Printers are always quick to lament over the inferior quality of locally produced paper, especially newsprint. They consider it the main obstacle in capturing the export market in the publishing sector. The dependence of the industry on imported paper has made presses vulnerable to other problems such as freight costs, time lag problems, import-processing problems.
Printing inks are also imported. Importers usually repackage these imported inks into smaller containers and group them into several cost categories. Glues, usually used for binding, are sourced locally. Other chemicals used for processing of the films for photographic plates and for cleaning the machines of excess ink and oil are likewise imported.
Paper Suppliers
Suppliers of paper account for 41.59% of the output of publishers of newspapers, journals, and periodicals; 5.10% of the commercial and job printers; 5.05% of wholesalers and retail traders; 3.65% of manufacturers of miscellaneous chemical products; and 2.13% of road freight transport and supporting services to land transport.
For the books and pamphlets, the leading suppliers include paper suppliers which account for 21.12% of inputs; commercial and job printing, 12.17%; wholesale and retail trade, 3.78%, manufacturers of miscellaneous chemical products, 3.30%, and real estate developers, 2,57%.
For the commercial and job printing sub-sector, the leading suppliers include paper suppliers which account for almost half of its inputs; manufacturers of miscellaneous chemical products, 6.63%; wholesale and retail trade, 3.89%; and suppliers of electricity, 2.00%.
Equipment Requirements
The industry largely imports its equipment. It has no local manufacturers for printing equipment. But there are some manufacturers of auxiliary printing requirements, e.g. manual paper cutters and stamping machines. Printers, however, underscore the inferior quality of these machines.
Printers, especially commercial printers, attest to their weaker bargaining power compared to the suppliers of printing machineries. Most firms in the industry, except the bigger companies, depend on local distributors for their printing equipment, as well as for the spare parts and services necessary for the maintenance and repair of these machines.
Foreign suppliers promote, sell, and service printing equipment through appointed local distributors. Printing companies access these machineries through the distributors' promotional strategies usually comprised of sales calls, advertisements in industry publications and yellow pages, sponsorship of industry, associations' membership meetings, product presentations and seminars, direct mailings, participation in trade exhibits, open houses and showroom displays. These foreign suppliers provide their distributors with sales and service training, and information about sources of related supplies like ink and other chemicals. Some suppliers send technicians to oversee the installation of machineries in the Philippines to ensure a smooth and efficient operation of printing equipment.
