Source: Bank of America, 2013
Organization for Economic Cooperation and Development (OECD), U.S. Bureau of Labor Statistics, 2011.
By any standard, the Chinese workflow market is years behind the Western industry. Adoption of Computer-to-Plate (CtP) has just started in China, and there is strong reliance on manual labour and processes.
However, unlike Western markets that took twenty years to migrate from CtP to digital, the transition in China might go much quicker as labour wages are spiralling. Whereas western markets experienced relatively stable labour cost when they transitioned from analogue to digital, it is estimated that print-industry related labour cost will rise with about 20% annually. Especially in Beijing, Shanghai, and Guanzhou (the so-called Tier 1 cities) it is difficult for print service providers to attract and retain (unskilled) staff due to high demand for workers. This year, it’s estimated that Chinese labour rates have overtaken those in Mexico.
There is a strong correlation between labour cost and the need for automation. The Chinese workflow market is set for very high growth resulting from a combination of low software adoption, the rising labour wages, and the need to remain cost competitive with other low-wage countries. It may take two, three, five, or more years for this growth to materialize, depending on how quickly labour wages continue to rise, but fundamentally the Chinese market is moving in the direction of more automation.
The most pressing question today is how the Chinese workflow market is going to unfold. Will it follow the Western adoption pattern (Conventional workflow management -> MIS -> DFE/digital workflow -> VDP -> Web-to-print -> Cross Media) or will it leapfrog certain phases? Variable Data Printing (VDP) and Cross Media Marketing are two categories that will likely remain underdeveloped, but digital workflow might actually see higher adoption, because many digital solutions have significantly increased in functionality in recent years.
Another damper to growth is the region’s troubling relationship with copyright, joking referred to by Chinese market observers as ‘the right to copy.’ It is often said that in the Chinese view of the world, individual rights do not really matter. Much of the preference for piracy however is cost driven. Adobe opened an online shop in 2011 where its Creative Suite (CS) software retails for similar cost as in the US. In contrast, buying illegal DVDs on the street can be done for as little as one to two US dollars. Microsoft, that in contrast to Adobe, has actually lowered its prices significantly for China, still estimates that 40% of its Office software in China is pirated. That said, for specialist software that requires professional installation, training and customization (such as MIS), software piracy is a significantly lower risk. And perhaps moving licenses to the cloud (as Adobe has announced) can resolve some of the problems. Cloud systems are generally much more difficult to hack.
In the next couple of years, the best growth potential for production workflow software in China is in workflow management and MIS software. Western MIS vendors need to ensure that their software is localized for China and that they have local support in place. The higher cost of their software compared to local suppliers is a point of concern that Western vendors need to address, and they can do so by offering lower price points or developing strategies that justify their premium pricing.
Jim Hamilton and I have just returned from China Print 2013 and will be completing a show review that will have additional perspective on the Chinese market.