Tuesday, 15 April, 2014

Handling complexity

In spite of the GDP growth of 4.9%, most Indian industries are unhappy including the printing and publishing industry. The reason is that GDP growth below 5% is easily absorbed by our existing capacities. Since the majority of our industry grows at twice the GDP rate, even 10% growth in print and packaging is easily absorbed since the installation of even one new automated multicolor press adds capacity exponentially. Even where two new presses replace three old presses, new capabilities and efficiencies are created that can generate far more value than the depreciated equipment. So if you grow at all, your capacity grows exponentially, it is very difficult to moderate and balance expansion unless you build and populate a completely new plant. And new plants, even if an old one is shut down, also mean large increases in capacity.

Another dimension of new capacity creation is that it tends to be at the high end. Very few printers are able to resist the temptations of new technology for automation, coaters, UV curing and other features if they are buying a new press since the whole purpose of the purchase is to differentiate yourself from the market. Demand for high value commercial printing with add ons such as special UV coatings, foiling, embossing, diecutting and personalization does not keep up with demand in the middle part of the market such as book printing.

Many medium and large commercial printers have tried to rationalize their growth by adding digital printing, book printing in addition to the marketing and promotional collateral work that they traditionally printed. Each of the big printers has built up expertise in several niche areas and some have done this in exports. However, there is no question that barring some unforeseen boom in the industry, there is every likelihood of more presses in the metros closing down just as new print businesses in Tier 2 and 3 cities continue to grow.

Elections and print
In the earlier days of our democracy, let’s say much before the economic liberalization of 1991, one could point to a multicolor machine in the pressroom and say that it represented the by-product or profits from the political posters of such an election. In those days, respectable printers generally added one big used machine for every election they worked for.

In the 21st century, elections are associated with high spending on the media – print, television and outdoor and more recently on public relations and social media. Some estimates claim that the Rs. 10,000 to 15,000 crore media spend of the 2009 general election will likely grow to Rs. 30,000 crore (including parties, candidates and government expenditures) in the current general election. There are various estimates on how much of this will be spent on print versus television advertising. Although it is clear that the major political parties have spent considerably on print advertising (as much as a 10% boost to ad expenditures) this spending has not really lead to major plant expansion by newspaper publishers. To print more color pages, some color towers have been purchased and added to old machines, but not as many as the manufacturers had hoped and few new presses have been added just for the elections.

As far as whether the elections have boosted the economy, there are divergent views. There are reports of money being spent on air charters, automobiles including SUV’s and even on liquor, all of which act as a kind of economic stimulus since the money is said to pass through efficiently without sticking too much on the way. “Election spending provides a very sizeable boost to the economy. Traditionally we have seen it adds 0.2-0.3% to growth,” Pronob Sen, chairman of the National Statistical Commission reportedly told the Economic Times in mid-March.

Other reports insist that elections actually slow down the economy. An analysis of key variables in Mint convincingly shows economic activity slows down ahead of an election. The study that looks at as many as seven election years in the past two decades shows that economic activity loses pace every time there is an election in spite of the increase in government spending in the average pre-election year. It points out that steel consumption in these years falls by 6.45% in comparison to other years in the past two decades. The front page report asserts that government spending ahead of the polls in such years is largely wasteful and inflationary. The report states that the year preceding the current general election has been worse than that of the other six or seven pre-election years analyzed over the two decades.

Where there is complexity, there is generally value to be added.

Naresh Khanna from the edit-blog page of April 2014  issue Indian Printer and Publisher

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