IN MY VIEW

IN

MY VIEW

What is the biggest issue facing remanufacturers in North America?

Andy Slawetsky President of Industry Analysts, Inc.

In my opinion, the biggest issues facing remanufacturers in North America are the lack of standards and inconsistent quality. Customers often have no way to know whether a brand is any good unless they try it themselves. If they wind up with an inferior product, it often paints a dark picture for the entire industry and leaves a bad taste in their mouths.

I’ve spoken to many customers that tried to save money using non-OEM aftermarket products. Some have had excellent experiences and rely on these products to add margins to their supplies business. Others have had horrible experiences and will never stray from the OEM again.

Tom Bersch President of Veteran Toner Services LLC

2014 presents a number of challenges; What is going to happen to the Federal Government’s FSSI OS3 (Federal Strategic Sourcing Initiative, Third Generation for Office Supplies)? Who will be awarded contracts and how many companies will go out of business because of the new guidelines? The $90 million to be spent on Toner and Ink Jet ink is on the low side. Clones continue to be a big issue and eat our profits for the uneducated buyer. Customer education will also continue to be a problem as HP, Lexmark, Canon and Brother are losing business and have resorted to warfare to keep their customers. There are more issues but, in my opinion, these are the biggest for US remanufacturers.

44 RESEARCH

FORECAST ON GLOBA Andrew Carroll, Research Analyst, InfoTrends

The global demand for marking supplies is being driven by a variety of diverging dynamics. The largest portion of the market—pages printed in the office environment—is under increasing pressure as managed print services (MPS) have continued to penetrate the most developed markets and remove printed pages from workflows where they are unnecessary.

In fact, the two largest regions—North America (NA) and Western Europe (WE)—are now forecast to show ongoing declines in the volume of pages printed in the office environment. Fortunately, the other global regions are still experiencing page volume growth and helping to offset that decline. They will likely maintain overall print volumes in the office, which are forecast to report a compound annual growth rate (CAGR) of 0.4% in the 20122017 period.

Outside of WE and NA, the Asia Pacific (AP) region, as an emerging market is the largest showing positive growth (2.0% CAGR), while Latin America (LA), another emerging market, shows the most growth over the forecast period (8.1% CAGR). However, both of these regions have very different dynamics than those seen in the developed but declining markets.

Monochrome laser devices still dominate the AP and LA regions, accounting for almost 90% of devices in use (compared to less than 75% in NA and WE). In addition

Frank Topinka President of National Printer Repair Network

I believe the biggest problem for remanufacturers is the OEM pressure to discredit the business. The OEMs will lead attacks on imports used by service providers and on the “risks of remanufactured cartridges” sold by service providers.

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to the higher penetration of monochrome devices, the OEMs have a significantly lower share of the supplies for devices they sell in many of the markets in AP and LA. Aftermarket or third-party supplies— particularly refill services and low-priced, newly made compatibles— account for the majority of supplies used in these regions, as end users look for the lowest running cost option, leaving the OEM with a much smaller share of the supplies business than they are used to getting in either NA or WE. The home/consumer segment (the richest margin portion of the market) is experiencing some of the largest rates of decline in print activity as consumers increasingly rely on their smartphones and tablets for activities that previously might have involved hard copy printing. These include, archiving and sharing photos, e-mail and communication, or mapping and directions. Print volume from consumer inkjet devices is expected to decline at around 5% per year through to 2017, with only LA expected to grow as a region over that period. We expect consumers across the globe to leapfrog their behavior directly to mobile, social media, and cloud— diminishing the need for hardcopy print in the home environment.

The consumer market has traditionally been served by desktop inkjet devices, and the decline in demand for those machines has been slowed by the increasing demand

RESEARCH

45

AL PRINTING VOLUME for business class inkjet devices, such as HP’s Officejet Pro and Epson’s Workforce ranges. Business inkjet devices have emerged strongly over the past few years (primarily in NA and WE) as an alternative to low priced laser printers. This is attributed to their much more competitive cost per page, as well as business critical features such as full network management and connectivity as well as robust paper management (e.g., duplex capability and higher capacity paper trays).

Business inkjet devices are expected to grow by 6% per year between 2012 and 2017, with NA and WE accounting for over 75% of devices in use and over 80% of print volume. The lack of demand for color in many developing markets, and the perception of inkjet as having high running costs, restricts the opportunity for business inkjet devices to compete against monochrome laser devices.

The momentum behind business inkjet has increased further with the introduction of page wide array printing technology into desktop class devices, such as in the HP Officejet Pro X range launched in 2013. The introduction of a single static printhead has allowed inkjet devices to meet and exceed the print speed of similarly priced laser devices while, at the same time, offering a significantly lower cost per page. As a result, we believe that page wide inkjet has enormous potential to increasingly take print volume away from

electrophotographic devices in the office.

The high speed and low cost could also help business inkjet penetrate in regions of the globe where they have not succeeded thus far.

It is the production/commercial print sector that is expected to see the greatest growth opportunity moving forward, as the benefits of digital workflow combine with the high speed capability of modern inkjet presses to open up a variety of new applications to digital production print as well as offering the opportunity to produce material with shorter run lengths that would not have been viable on offset printing presses.

The result is that digital production print volume is forecast to increase by 4% per year, with the less developed regions (i.e., AP, LA, and CEE) all experiencing double-digit growth year-over-year through to 2017, with the roll-fed/continuousfeed inkjet segment projected to see print volume growth of 30% year-over-year.

The positive growth of the production sector ensures that global print volumes for digital print will continue to show small gains (1.3% CAGR). Overall revenues, however, are likely to be stable at best as lower cost inkjet technology becomes an increasingly important part of the office and production sectors, and lower cost developing economies grow at a greater rate than their mature counterparts. ■ For more info: www.infotrends.com

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Fadi Suidan Owner, FS Office Supplies

I think clones are the biggest issue facing remanufacturers in North America, next comes the low priced compatibles, with not so good quality.

Rick Ethridge Director of RemanFan.com

Remanufacturers in North America are the most innovative, hardest working, determined, resilient, compassionate and toughest business people in the world and remanufactured cartridge retail store owners are the toughest of the tough.

That being said, only a handful of us could survive a direct conflict with an OEM. The biggest issue facing remanufacturers in North America has to be the absence of unity and leadership within our industry. Without an “All-For-One, One-For-All” defense strategy, success is but a dream as we struggle on a daily basis just to survive.

Luke Goldberg Senior VP Global with Micro Solutions Enterprises (MSE)

As I have always said, the remanufacturing industry in general has overcome all manner of external challenges since its humble inception in 1985. These include technology challenges, OEM marketing programs, OEM exercise of IP etc. These external challenges have all been overcome and the industry is not a multi-billion dollar business. Conversely, we have NOT been able to overcome our legacy of internal competition which is partially exacerbated by new, low-cost clones trading share with remans, and partially due to the aftermarket’s inability to properly market and position its products as true OEM alternatives. This internal price competition is due to a lack of differentiation which spurns price-only selling as the primary value. What about quality? What about reducing the use of non-renewable resources?

What about engendering consumer choice? We have departed from these values and devolved into this morass of red ocean competition. If we don't depart from this path, we will not collectively thrive. Only those companies with well-honed value propositions and differentiated value will endure.