Because of high cigarette packaging costs, China's cigarette pack printers face a dilemma regarding investment in procurement and maintenance of equipment.
Chinese tobacco manufacturers favor luxurious and sophisticated cigarette packaging, for which they have to pay high prices.
Official statements on the capacity, costs and profitability of Chinese tobacco manufacturers in January suggest that the cost of producing every 10,000 cigarettes in China stands at RMB567.04 (US$82), with RMB119.37, or 21% percent of the total, representing the cost of packaging alone. In reality, the high cost of packaging has not only proven to be a heavy burden on tobacco manufacturers but has also put printing enterprises that provide services for them in a dilemma over investment.
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The competition between tobacco manufacturers to constantly improve the quality of cigarette packaging has been closely related to the fierce competition within the printing industry. According to incomplete official statistics, there are over 200 Chinese printers whose core business is the printing of tobacco packs, and a majority of these enterprises have intaglio printing lines. In southwest China's tobacco-producing Yunnan province alone, there are more than 50 intaglio printing lines of six to eight colors. Therefore, competition among cigarette pack printing enterprises is becoming increasingly intense, which in turn makes the design of tobacco packaging and printing technologies more and more complicated, and this is turn affects the choice of materials used. As a result, cigarette pack printing enterprises are using increasingly high-grade equipment and are making increasingly large investments procuring and maintaining cigarette pack printing equipment.
Heavy pressure
In reality, the cigarette pack printing industry in China has formed an established development model. Every year, they need to reinvest profits, either in the form of fixed assets or in other forms. It seems that investment in equipment has become an abyss: each year, new technology is required and the equipment needs to be renewed constantly. Investment in equipment seems to be bottomless.
Over the past few years, a majority of cigarette factories in China have managed to incorporate their own printing facilities through close cooperation, joint investment, joint venture, association, share acquisition by staff members and workers, etc. They commission such printing enterprises to print all cigarette packs for them. Even under such a system, the printing enterprises incorporated by tobacco manufacturers themselves cannot always endure the pressure of continuous investment in equipment. Meanwhile, independent printers are constantly watching the situation and studying the relationships between themselves and their investors, trying to find opportunities to encroach on their sphere of influence by means of technological innovation and various public relations efforts.
Printing enterprises incorporated by tobacco manufacturers themselves are desperate to renew equipment and upgrade technology to prevent external companies from encroaching. As this type of disorderly competition turns increasingly fierce, there have been signs of excessive equipment investment.
As stated above, there are already more than 50 intaglio printing lines of six to eight colors in Yunnan province alone. According to the business development planning of China Tobacco of Yunnan Industrial Corporation, by the year 2012 the annual cigarette output and sales volume of Yunnan province will have reached 7 million cases (17.5 billion packets). Consequently, the market demand for cigarette pack printing in the province can only be the printing of 17.5 billion packets, which can be fulfilled by some 30 intaglio printing lines. However, cigarette pack printing enterprises in Yunnan have showed no sign of slowing down the acquisition of new intaglio printing lines.
Because end users keep demanding both the application of new technologies and higher printing quality, printers have to print at least one color of water-soluble shining ink on the four existing colors on cigarette packs. As a result, the post-printing processing technologies are becoming increasingly complicated. For example, tobacco manufacturers demand indentation, die stamping, special die cutting, thermal printing, cold stamping, UV printing and other technologies. As their existing printing equipment can hardly meet these requirements, they have to purchase new equipment to try to meet the demand.
Today, many products require the printing of seven or more colors. The equipment required to do this is expensive. New cigarette pack printing equipment is generally priced at RMB20 million or more per set. Moreover, most of this type of equipment needs to be imported, incurring high tariffs.
Advanced configuration requirements and high equipment costs and the relatively large proportion of tariffs and value-added tax in their overall income means that printing enterprises have seen their investment in equipment going up sharply.
Heavy external pressure
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The State Tobacco Monopoly Administration (STMA) - the regulator of China's tobacco industry - has time and again issued warnings against excessive packaging of cigarette products in China. It says that the cost of packaging cannot exceed 25% of the total cost of cigarette production.
Tobacco manufacturers are faced with the pressure of gradual increases in both taxes and costs. To control the rapid growth of cigarette prices and lower the cost of production, tobacco manufacturers have taken steps to strengthen control over the cost of printing. Because of increasingly intense competition within the industry, it is inevitable that pack printing profits will narrow further.
Because of raw material price fluctuations, increased labor costs and insufficient incentives for further development, cigarette pack printing enterprises have generally seen their cost of operation continue to rise, which in turn makes their operation more difficult. If they are unable to increase the competitiveness of their leading products and strengthen their profitability, some cigarette pack printers could face bankruptcy.
Conclusion
To sum up, investment in equipment is of vital importance to the development of printing enterprises, and any decrease of investment in equipment will see a slowdown of the pace of technological innovation, which will contribute to further weakening the essential development towards technologies that add to the value of printing products. But any increase in equipment investment may make enterprises unable to bear the heavy economic burden it places on them.
Many printing enterprises are therefore faced with difficult choices. Some have chosen to alleviate the pressure at the expense of lowering their technological or quality standards. Such a choice could ultimately prove to be fatal, and may eventually result in their becoming uncompetitive and withdrawing from the marketplace.
Meanwhile, other printers have chosen enlarge their annual production capacity. They wish to increase efficiency and promote development through increased production, reforming their business structure and form new printing groups. But such reform may lead to further increases in production capacity, which will in turn make the surplus issues even more serious.
In the face of these problems, printing industry sources believe that it is advisable for small- and medium-sized cigarette printers to associate with leading or key enterprises in order that they can jointly strengthen their capacity against risks, enhance their profitability and promote technological progress.
Printing enterprises need to make efforts to tap the full potential of their existing equipment in order to make the best use of what they have. They need to consider the compatibility of new equipment with existing machinery in order to reduce possible underuseage or waste. Moreover, they also need to grasp the future trend of development in the tobacco industry, in large tobacco manufacturing enterprises and big cigarette brands. Cigarette pack printing machinery that is capable of improving the quality of printed products and of meeting the requirement of large-scale production will certainly become more competitive in the future. Enditem
