The New World of Offshoring and Automation --McIlroy

It's widely accepted that desktop publishing killed the typesetting industry. This is not true. It certainly shrank the industry a great deal. As I recall back in 1984, just before the Apple Macintosh hit the market, roughly 6,000 firms in North America offered typesetting services.

In the short-term many of those firms morphed into "PostScript Service Bureaus," offering film output from desktop publishing software. Soon printers began to bring that service in-house, forcing many of the service bureaus out of business. More recently, the near-complete printing industry adoption of computer-to-plate knocked most of the rest of them out of the market.

But a core group has remained, offering composition services to the publishing industry. Nearly all of the newspapers and larger magazines do their production in-house, but most scholarly journals and technical, educational and trade book publishers farm out their composition to outside specialists.

What's Being Used

Much of this work is completed using QuarkXPress, building pages with stylesheets and lots of manual intervention. Some firms use Kytek's Autopage to automate a portion of the Quark workflow. There are also a few "high-end" composition systems still on the market, notably XyEnterprise and 3B2. Adobe's FrameMaker, along with add-ons such as Datazone's Miramo, is used for much of the published technical documentation, whether created in-house or through outside services.

There are two important trends that are impacting the existing North American composition industry. The first is a move to offshoring this service to less expensive overseas vendors, primarily in India (and to a much lesser extent China and the Philippines). Pricing overseas is generally 30 percent to 40 percent less than domestic pricing.

The other important trend is advances in automated page composition, represented in part by a new XML-based standard called XSL-FO, but also a new generation of "expert system" automated products such as PageFlex and the as-yet-unreleased Typéfi (a client of mine). These feature a degree of design flexibility not common in the earlier generation of rules-based, batch composition systems.

A related group of software is focused on the requirements for variable data printing, which I consider a different beast than full-page composition automation.

The offshoring aspect falls into the much larger trend of many U.S. businesses (and government agencies) to move what are seen as relatively low-level, yet highly priced, white collar and clerical tasks to lower-cost centers. There is mounting controversy about this subject across the political spectrum as unemployment in the U.S. continues to climb.

Fans of the global economy see this labor shift as just another aspect of the economic forces of globalism, and argue that the net benefit of lower cost goods to American consumers will outweigh the job losses. Many other observers, previously willing to see low-paid manufacturing jobs move offshore, are far less comfortable as these semi-skilled and skilled positions disappear from North America.

Printing is Not Immune

This trend to offshoring is also infiltrating the printing industry. Transcontinental Printing and Quebecor World, for example, have long been active in Mexico and Latin America, while RR Donnelley has recently opened plants in China, featuring significantly reduced manufacturing costs at quality levels comparable to their North American plants.

The issue is extremely complex, and the solutions elusive. Most people assume that offshoring is merely an attempt to gain cost advantages based on the low wages in second- and third-world countries. But my observation is that the smartest players overseas recognize that the wage advantage will disappear over time.

The only sustainable advantage is using superior technology to outperform their North American competitors. This notion is anathema to Americans, who have assumed—mostly correctly—that North America enjoys a substantial technological edge on developing countries.

But they fail to realize a new law of technology: provided the technology is affordable, developing nations will adopt it even more quickly than the first world, because these technologies represent their only hope to achieve some kind of parity with the developed world.

Hard Combo to Beat

India enjoys a very high rate of English-language literacy, and a surplus of well-educated technicians. When you combine this labor force with advanced technology, there's an advantage that's hard to beat.

Let's then add to the equation a new generation of automated page composition technology (and, for printers, a new generation of expensive, but highly automated presses). The most significant aspect of these new technologies is that while the up-front acquisition costs are generally high, favoring companies with access to capital, the longer-term impact is that the labor cost component of the manufacturing process drops significantly while the capital cost component rises.

While the overall labor component drops, the labor required to operate the new technology is generally more expensive, and has to be well-trained and expertly deployed. This represents a key competitive differentiation.

My ultimate assessment of the situation is that North American graphic arts firms are foolhardy to buck the offshoring trend. They should look instead to the underlying mechanics, and recognize that the winners in this contest will be the firms that continue to invest in the latest technology, and in the staff that can make it hum.

—Thad McIlroy

About the Author

Thad McIlroy is an electronic publishing consultant and analyst, based at Arcadia House in San Francisco. He welcomes your comments at thad@arcadiahouse.com.