Graham Galliford by RechargeAsia Corp

The China (Re)Manufacturing Industry Overview and Outlook Graham J. Galliford

Galliford Consulting & Marketing Oxnard, California, USA

Cartridge Market is one of Derived Demand

• Industry Production follows

– Market for print hardware – Industrial/commercial/economic growth – Literacy and wealth of population Other Factors

• Printer Hardware placements and printing in general are

slowly declining in North America and Europe because of the popularity of tablet, mobile devices and electronic media • Printer Hardware placements and printing in general are increasing in Asia because of growth and that print is more affordable to the population that cannot afford tablets and mobiles (e.g. India, Vietnam, etc.) • Additionally China has very high literacy rate plus rising incomes which creates growing demand for all types of print © 2012 Galliford Consulting & Marketing

Worldwide Printer Hardware Market

• Worldwide New Printer Sales Volume 2010=125,094,250; 2011=125,981,530; 2012 (projected) = 120,863,400 (-3.4% vs. 2011) • Printer Sales declining overall in the World Market

USA Printer Hardware Market

• USA New Printer Sales Volume 2010=27,858,986; 2011=26,068,248; 2012 (projected) = 25,500,940 (-8.5%) • Printer sales declining faster in USA than rest of the World © 2012 Galliford Consulting & Marketing

China Printer Hardware Market

• China New Printer Sales Volume 2011=8,700,000; 2012 (projected) = 9,200,000 (+5.7%) • Printer sales increasing in China with Urbanization of Population and Growth of Chinese Economy © 2012 Galliford Consulting & Marketing

The China Game of Numbers • China population 3.5X the US • In the US 1% of top students qualify to apply to Harvard • • •

about 30,000 In China top 1% is about 100,000 students - a lot more capable students in China than in the United States or any other region By same logic Apple will sell almost 2X more iPhones in China than in the US next year Apple projected to sell 35 million iPhones in China at premium prices but only selling to the top 3% of population with high incomes © 2012 Galliford Consulting & Marketing

The China Game of Numbers • Same logic might be applied to print industry but GDI • •

•

per Capita lower in China Print is a more democratized product affordable to the masses that cannot afford Tablets, PCs and Smartphones China has a very high literacy rate at about 95% and this together with rising incomes is creating growth in demand for newspapers, magazines, and books as well as the increased of document printing for records and communication Print will grow in China but decline in USA and Europe

Green Industry • High rate growth in Chinese economy has had side • • •

effects of creating pollution, an issue of national importance Lack of fresh drinking water, poor air quality, and safe food supply have come to forefront Remanufacturing and control of waste/used cores has become important issue China has embryonic printer manufacturing industry and new makers are approaching the business in a “green” manner

How and What are Chinese Companies Printing? • Chinese business usage pattern – – – – – –

50% of companies use OEM supplies 20% use refill kits 30% use aftermarket cartridges 84% of companies have inkjet printers 81% of companies have monochrome laser printers 73% of companies have color laser printers in use as well

How and What are Chinese Companies Printing? • What are Chinese businesses printing? – – – – – – –

85% of companies print spreadsheets and charts 80% of companies print text documents 43% of companies print brochures 40% of companies print e-mails 35% of companies print slide presentations 27% of companies print Web pages 25% of companies print high-resolution photos

Chinese Cartridge Manufacturing

ÂŠ 2012 Galliford Consulting & Marketing

Chinese Cartridge Manufacturers • Top 5 producers make 64% of aftermarket toner cartridges (Print-Rite, Ninestar, New Regent, Ink Lab, Retech)

• Top 5 producers have only 11 percent of the • •

domestic market share in China Approximately 90 percent of output of top 5 producers exported Rest of the aftermarket industry exported only about 44 percent of its production © 2012 Galliford Consulting & Marketing

Chinese Cartridge Manufacturing

ÂŠ 2012 Galliford Consulting & Marketing

Partial List of Chinese Cartridge Manufacturers â&#x20AC;˘ PrintRite, Tesen, G&G/Ninestar, ABColor, Prinko Image , Leehi Industries , HueWay , Orink , Anycolor, Tech A, Summit Enterprise , Zhuhai Gree , Kolion Technology , Mipo, Dingrui Electronics/Kalon, ABColor, Speed Infotec, Anerya, Mito Color, Ningbo Sea-Hill, Retech, Shanghai GW Electronics

ÂŠ 2012 Galliford Consulting & Marketing

Chinese Cartridge Manufacturing Industry • In China empty collections becoming more

difficult because of more competition for empties and more brokers resulting in: – Many empties are recovered from other Asian countries to China – Shortages of cartridges favor production of clone cartridges – Chinese remanufacturers also use many non-virgin cartridges (50% LBP and IJ) unlike US (20% LBP, 10% IJ) © 2012 Galliford Consulting & Marketing

Chinese Cartridge Manufacturing Industry • Chinese cartridge industry has major influence • • •

on other Asian markets shipping remans and clones China does not import finished remans or clones China imports large amounts of empties China has lowest remanufacturing industry landfill rates in the World because of – Active demand for plastic and metal scrap – Larger use of non-virgin cores © 2012 Galliford Consulting & Marketing

China Trends • Expanding remanufacturing / manufacturing production • •

• • •

capacity Cartridge remanufacturing / manufacturing still moving to low production cost areas in Asia particularly China but also Vietnam Toner production growing in China – New domestic producers – Foreign producer expansions – Most domestic production is for aftermarket use Increasing Domestic Demand Continued Investment in Production and Research and Development in China unlike North America and Europe Growing production and sale of compatible cartridges particularly of colored toner types © 2012 Galliford Consulting & Marketing

Growth of Color Worldwide

ÂŠ 2012 Galliford Consulting & Marketing

Growth of Color Worldwide

ÂŠ 2012 Galliford Consulting & Marketing

Color Office Printing in China • Color is a big opportunity area – 43% of Chinese offices use an in-house office color device to print color documents – 28% of Chinese offices use both an office printer or an outside print service – 14% of Chinese offices use only an outside print service to print their color documents – 13% do not print color documents at all (10% have no need for it and 3% do not have the resources)

Color Cartridges and China • HP color cartridges retail at high cost so 3rd Party vendors • • • • •

have brought alternative options to market Cost structure enables good profit and cost savings for end-users Big impact on aftermarket promised but has taken a long time to master remanufacturing Now there are many vendors selling color cartridges Growing diversity of machines means vendors still require aftermarket products to sustain their profit and remanufactured HP cartridges are no longer enough Compatible supplies can fill gaps where remanufactured product not available © 2012 Galliford Consulting & Marketing

Compatible Color Cartridges • Vendors learning to build products and researching • • • • •

patents to ensure no infringement Vendors can provide more non-HP SKUs Compatibles allow dealers to address wide range in costeffective manner and guarantee supply because no used cores required Even if used cores for remanufacturing available compatibles ensure consistent availability of input materials Normal that new and lower-yield cartridges have core cost that makes remanufacturing less cost effective “Patent free” compatible cartridges will be important element of the future © 2012 Galliford Consulting & Marketing

Buying Compatible Color Cartridges â&#x20AC;˘ Dealers must carefully evaluate suppliers to ensure that the vendor has done the necessary research and development on their products to ensure noninfringement

ÂŠ 2012 Galliford Consulting & Marketing

Chinese Toner Manufacturing Industry

ÂŠ 2012 Galliford Consulting & Marketing

World Toner Production Japan US Europe Asia Worldwide

CAGR% 3.05% -2.81% -2.08% 7.06% 1.28%

ÂŠ 2012 Galliford Consulting & Marketing

Greater Asian Toner Production

â&#x20AC;˘ Large growth percentage of smaller base but non-Japanese production becoming significant ÂŠ 2012 Galliford Consulting & Marketing

Chinese Toner Industry

ÂŠ 2012 Galliford Consulting & Marketing

Chinese Toner Industry • More than 35 Chinese Domestic Manufacturers in China

• Growing number of makers of CPT

• Largest capacity

• Mainland - Handan, Pointrole, TCOA, Jiateng, Huike, ICL • Taiwan - Trend Tone Imaging, Royal Precision Toner

• Lower manufacturing cost than N. America Europe and Japan • Foreign Manufacturers Present in China • • • •

Chinese Toner Industry

• China has become important production base for toner because • Investment climate • Potentially lower cost labor and resources • Chinese and regional market growth potential

• Continuing expansion at many manufacturers with new advanced

production line installations • Continued investment in production and Research and Development • Has lead to growing number of makers of CPT (3 plus others in preproduction/research) But seen from outside China it is viewed that • Quality/consistency is still problem of top importance Other industry problems are that • Spare capacity • Restricting factors: low availability of experienced workers; for some R&D ability constrained by low profits; raw material industry not focused on toner business © 2012 Galliford Consulting & Marketing

The China (Re)Manufacturing Industry Overview and Outlook Graham J. Galliford

Galliford Consulting & Marketing Oxnard, California, USA