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Market Intelligence: China's Mixed Bag

Returning from an on-site research investigation in China, IT Strategies caught up on the state of the Chinese wide-format graphics market and its manufacturers. Sometimes grouped with the smaller Taiwanese and Korean vendors, the Chinese wide-format graphics printer manufacturers outnumber all other wide format graphics printer manufacturers by good measure.

IT Strategies has followed this market for 10 years, and since its beginnings the Chinese wide-format graphics printer market has grown by two to three times a sales level of more than 14,000 nearly all-aggressive solvent printer systems (this compares to only a few hundred aggressive solvent printers sold in the developed world which has moved on to UV-curable and latex printer systems). Originally supplied with print heads by inkjet print head vendors such as Xaar, more suppliers such as Konica Minolta, SII, and Dimatix have spurred recent market trends.

China's wide-format solvent printer market and its manufacturers are of interests because of two scenarios: The first scenario is China's market potential for Western printer manufacturers to expand their sales in a rapidly growing economic sector of the world. The second scenario is as a potential source of low-cost manufacturing for wide-format printers for the Western markets, to be sold either through OEMs or under a Chinese brand. Early on fears arose that Chinese wide-format graphics printer manufacturers would appear in developed markets with low-cost solutions, but neither potential scenario has happened.

Is it a Market or a Competitor?

China is an export market; it is build upon the basis of commodity pricing and economies of scale. Domestic consumers and most businesses have little cash, which restricts the ability on the part of vendors either inside or outside of China to levy high prices domestically. This has prevented Western wide-format printer manufacturers from gaining a foothold inside China, but it has also caused a problem for domestic Chinese wide-format manufacturers. With the inability to command reasonable pricing for their printers domestically, they have become trapped in a vicious cycle circle of low capital accumulation with fear of re-investment.

With low capital resources (the entire Chinese wide-format graphics printer manufacturing industries generates less revenue than a single manufacturer like EFI/Vutek for example), the Chinese wide-format manufacturers have not been able to keep up with product quality standards, new technology improvements, and market/service access as set by Western wide format printer manufacturers. As a result Chinese manufacturers have been limited to selling about half their products domestically and half to emerging economic foreign markets, which are facing similar internal domestic challenges as China. Neither market is cause for celebration; hardware prices are low—up to 10 times less than the prevailing market rates in developed markets—and there is as good as no ink market available to the OEMs (aftermarket solvent ink sells for an average of $6 per liter).

After 10 years there now seems to be a genuine dissatisfaction from established Chinese vendors whom are losing interest in a market where poor returns overshadow growth potential. But with limited access to capital, the Chinese manufacturers are not capable of financing distribution and service cost in the Western markets, let aside from the likely prohibitive cost of displacing established vendors. So were are Chinese manufacturers looking for profitable growth that will allow them to accumulate much needed capital?

New Markets May Be Different

UV-curable and Industrial Inkjet systems are new among Chinese vendors and could be important for the future in ways aggressive solvent ink printers were not and could never be. UV systems have been introduced by a number of Chinese vendors with a few hundred possible unit sales already. UV-curable printer hardware prices and quality are not yet up to Western standards, but the inks are neither readily available nor copied. This suggests price defense, which, if realized, could represent a break-through for the Chinese industry. The UV initiative stems from upward industry progression demanding better print production on a wider variety of substrates. Plus of course the Chinese are also becoming acutely aware of environmental impact issues, which could result in legislation banning aggressive solvent printer sales from one day to the next.

So what about the Chinese Print Market?

China is a good market if you make inkjet print heads as it already supports four major suppliers out of Japan, Europe, and the US, with growth left. They could become industrially competent, but it has yet to be proven commercially and technically.

If Chinese vendors want to succeed outside of China they need capital to invest and then learn how to partner with sophisticated users—not an easy or fast process, more likely after five years.

Going to China with products will prove difficult due to cost value-creation infrastructure in place, determined by macro-economic development issues beyond control of the print industry and partnerships have proven difficult even within developed countries. Chinese companies are willing to market 'copies' of eco-solvent and aqueous printers claiming original Japanese and US technology at prices that suggest otherwise. This is not the market, just a part of it.

While China is a mixed bag, the vendor community leaves you with a good feeling; these people are enthusiastic about getting forward finding out what is needed and trying to provide it. They cannot do it all, but they will more forward rapidly and it is our western opportunity to vie for creative leadership.

It's not just about Wide-Format

We focused on the wide-format graphics market because that is where you will find a discrete group of dedicated system vendors unmatched in any other digital printing sector. China has risen in other print areas as well such as textile, ceramics, and packaging thanks to migration from developed markets implying modernity.

It may well be however that the Chinese wide-format printer manufacturers next role is in industrial printing systems to these textile, ceramic, and packaging print applications with inkjet technology. So far there has been a lot of talk, but not a lot of proof, of ceramic inkjet printing systems being developed in China. There is already a well-established market for inkjet ceramic printers in Italy, Spain, and Brazil served by Western printer manufacturers. It could be that in China this application will be the first one to allow domestic Chinese manufacturers to change their business model and allow for capture of inks and more reasonable hardware margins, allowing them for the first time to escape from the commoditization trap that they build so well in years past.