This Month's Spectrum Summary:

(The following is an excerpt from the September 2003 issue of Spectrum. Spectrum is a proprietary monthly briefing published exclusively for the clients of I.T. Strategies, Inc. © 2003)

Wide Format Frenzy in China--
Domestic Focus for Now; But Tomorrow?

This month we meet to discuss the recent visit by one of our I.T. Strategies' analysts to the Shanghai International Advertising Show. Wide format (2-4 meters) aggressive solvent digital printers dominated the event and the state of this young industry in China was found to have interesting strategic potential for both the domestic and the established foreign OEMs.

First of all, contrary to most expectations, China does not represent a significant market for the established wide format OEMs such as Mutoh and VUTEk. There are now over 20 domestic OEMs in China and the market is saturated. As might be expected in any emerging market, the picture is one of high demand, lower print quality, much less pricey hardware, and incredibly cheap output. Inks are sourced from a large group of domestic suppliers at a fraction of the cost in the West. Another saving is that even though almost all printers use solvent inks, there is little concern about air quality so expensive ventilation systems are not required.

The industry grew from early print providers who imported VUTEk and Scitex machines. Rather than import more, they were able to design and build copies, using mostly heads from Xaar. Resourceful engineers copied the copies, and the number of OEMs multiplied. Now the market is saturated. Machines that sold for $70,000 a few years ago-less than half the price of a commensurate import-now sell for as little as $15,000.

Although the market is flat, there is good opportunity for the head suppliers. Non-OEM specified inks reduce head life, so the demand for replacement heads is high, apparently well over 40,000 per year.

To revive growth one hope is exports. There is thought to be a lot of demand outside China for lower cost wide format machines. Barriers include the challenge of developing sales/support overseas and finding distributors. Exports are beginning to countries in the developing world such as Russia, India, and Brazil, and are even being explored by two distributors in the U.S.

Contract manufacturing for the established foreign OEMs seems like a logical option, but unit numbers are probably too small and there would be no savings on the non-manufacturing costs, which are significant.

Building an export market for wide format print is another possibility. With costs as low as $0.10 per square foot, compared with several dollars in the West, this looks like an appealing strategy and could revive demand for machines.

Another path would be to gamble on product differentiation combined with partnerships with established overseas OEMs. 3M Company is already believed to be working with Teckwin. It seems a company such as Mutoh partnering with an OEM in China could develop a line of printers that would fill latent demand for both upgraded performance in China and lower-cost printers overseas. Productive partnerships between Japan and China for digital textile printers are another scenario. There are cultural and historical differences, but differences can complement one another and be empowering rather than problems.