Thursday, July 27, 2006


What Will Commercial Printing Look Like in 2008? 2011?

For the past two weeks, subscribers to PrintForecast Contrarian View were provided with a review of two dissimilar forecasts created by our proprietary forecasting models. Using the broadest measure of the number of commercial printers from the U.S. Department of Commerce, one forecast shows today's approximately 35,000 establishments declining to 28,000 by 2011; the other shows the number of establishments remaining about the same.

Forecasting models come in a variety of flavors. Some are very conservative and minimize historical changes and develop an average forecast. Other models, however, place significant emphasis on the most recent trends. The two models we used for this exercise occasionally result in surprising consistency; there are often two paths to the same destination in forecasting. Other times the models will produce markedly divergent projections. Understanding how they got there is quite revealing. The scenarios were presented to PFC-CV subscribers in greater detail and analysis over the last two issues.

But here are the highlights for 2011:
Forecast Scenario 1: 28,000 establishments, $66 billion in shipments
Forecast Scenario 2: 35,000 establishments, $53 billion in shipments

They are quite different, and they are both legitimate statistical forecasts. Neither of them will be right, most likely. The examination of alternative scenarios, however, is an important element of a beneficial strategic development process. No one can accurately forecast the future with great certainty. Most times, future trends are clear but the timing is not. The way management prepares itself to deal with changes in the marketplace is to create scenarios of differing market conditions and to think them through, company function by function. This aids in the creation of a robust strategy that can withstand market uncertainties. It also allows management to develop contingency plans that they can implement at the appropriate time.

Among the questions that this exercise can help explore are...
How many sales people do we need?
Do we need branch offices?
How aggressively do we pursue new markets?
Do we have to change our product mix?
Is it time to consider a merger with another company?... among many other strategic options.

The first forecast projects a decline in the number of small (<$2 million in sales) and mid-size (between $2 and $10 million in sales) establishments, and only a negligible decline in large ones (>$10 million in sales). Because most industry shipments are from large plants, the decline in establishments is somewhat mitigated. Overall shipments, however, are about 30% lower than today.

The second forecast projects a significant downsizing of the industry with large and mid-size establishments shrinking to become small and mid-size businesses. This is not so unrealistic considering the kinds of printing technologies that have become available that significantly reduce the amount of production staffing, especially important as costs need to be restructured in what will likely continue as a hostile environment for print demand and print pricing that demands significant productivity enhancement. Did we say hostile? A 40% decline in demand would definitely earn that category.

In coming weeks, we'll be taking PrintForecast Contrarian View subscribers through our thought process that leads to a final forecast of the commercial printing market. Whether you are a printer or supplier, understanding alternative scenarios and what they mean can lead to a deeper understanding of the industry, your business, and the strategic challenges ahead.

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