Partnering to Share Strengths

After years of discussion, the notion of printing companies partnering with other printers—without the ties of ownership—is finally gaining ground among top executives. Not to be confused with mergers, company partnerships as defined here involve cooperating firms developing formalized business relationships to expand their product offerings, reduce overhead and production overcapacity, increase market share, and improve profits.

These partnerships can take many forms, from two companies working together to share capabilities to more complex relationships that add non-core services to peer groups.

Granted, the printing industry has a long history of companies partnering, but this mostly involved suppliers in the production chain, that is, printers joining forces with prepress services providers, trade binders and trade printers, and other specialist services providers. However, as technology and customer demands changed, many of these arrangements of convenience gave way as printing companies moved more services in house.

Now the pendulum is beginning to swing back as printing company owners rediscover partnering as a more profitable means both of adding capabilities and squeezing out costs.

"Printers needing to advance into areas where they don't have a lot of expertise are realizing that the quickest way to profitability is to partner with someone that has already climbed the learning curve," explains Andrew D. Paparozzi, chief economist and director of the Printing Economic Research Center, operated by the National Association for Printing Leadership (NAPL), Paramus, N.J.

But despite this realization, he says, responses to recent NAPL surveys indicate that most printers still prefer to develop new services in house.

Nonetheless, Paparozzi reports, "As printers find out that offering a new service is not easy and can require new staff, expertise, and equipment, along with significant investment, the idea of partnering begins to look pretty good."

Industry observers note an upsurge in printing managers talking about developing unique and highly creative partnerships, but add that the details of such business arrangements are often shrouded in secrecy because of competitive reasons.

"Given the industry's overcapacity, partnerships are an ideal solution for some companies struggling to fill press time and others trying to come up with some creative means to diversify or expand their business," says Harris DeWese, chairman and chief executive of Radnor, Pa.-based Compass Capital Partners, an investment banking firm that specializes in the printing industry.

Not long ago, Standard Register, Dayton, Ohio, and Consolidated Graphics, Houston, formed a partnership to leverage the expertise of each by offering their customers both commercial printing and document management services.

The alliance offers customers print services ranging from business forms manufacturing and on-demand digital printing, provided by Standard Register, to high-quality commercial print products such as annual reports and promotional brochures via Consolidated Graphics.

Standard Register did briefly operate a commercial printing unit, but it shed the operation when managers restructured the organization into four strategic business units: document management, fulfillment services, labels and label systems, and e-procurement systems.

"This alliance has more than met our expectations," says Charles White, president and chief operating officer of Consolidated Graphics. "Together, we have several dozen common customers that we've brought together from this alliance, to which we make joint sales calls and presentations. It was a little slow going at first, but I can't think of any real problems that we've had with this arrangement."

White says that even though both firms signed a contract outlining various aspects of the alliance, what makes the partnership work is the relationship that has developed between the companies. "You've got to respect and trust the person you're going to work with because no contract can make that happen," he notes. "The bonus was that we uncovered a number of new business opportunities just by working together."

Adds G. Christopher Colville, executive vice president and chief financial officer of Consolidated Graphics, "We're an ideal partner for companies that have national accounts, diverse geographic needs, and a clientele seeking a single-source solution because we operate 65 geographically diverse facilities offering a broad range of capabilities, from high-end commercial and on-demand digital printing to prepress and Web services. In fact, quite a number of new companies are knocking on our door to form similar types of partnerships."

Another form of partnership getting a lot of lip service has one company selling off its manufacturing assets, then outsourcing all of its production to a partner. (This is not to be confused with a "tuck in" acquisition in which a company sells its sales and receives a royalty on those sales over some period of time.)

"The company selling its manufacturing assets is not joining the other company," explains John E. Hyde, managing partner of Rampart Associates LLC, Trumbull, Conn., a consultancy specializing in acquisitions, mergers, and business restructuring in the graphic arts and information technology industries.

This type of partnership, notes Hyde, who says he's now working on these types of deals, allows a company to dispense with its equipment while retaining access to production from another plant having excess capacity.

"In this type of deal, unlike a brokering arrangement, the two companies sign a written agreement to cover such issues as price, service expectations, and billing," reports Hyde. "For the outsourcing company, it's crucial to partner with a printer that has made substantial investment in state-of-the-art equipment and is willing to give accommodating pricing."

For close to three years, Irwin Finkelstein, president of Jalor Color Graphics, New York City, has been trying to form just such a partnership. Jalor and its sister company Team Litho employ about 60 people and post annual sales of $10 million.

"I want to be the manufacturing partner for companies that don't want to continue to invest in the necessary equipment," says Finkelstein. "They could take care of the sales and preparation and we would do the manufacturing on a commission basis, which I think would give us more volume and reduce our overhead."

But even though many companies like his idea, Finkelstein laments, they just weren't ready to stop manufacturing. In the current economic climate, however, he believes that his is an idea whose time has come, although he realizes that many owners' love of machinery represents a big hurdle for this type of arrangement.

Adds consultant DeWese, "Traditionally, the manufacturing side of the business has been easier: turn on the machine and put in some paper. I don't mean to make light of our industry's fascination with equipment, but it has gotten us into trouble, and as long as there's more supply than demand, the customers call the shots."

Printing company executives are finding that forming alliances with a group of their peers helps them to gain business insights, develop managerial expertise, share best practices, benefit from sounding-board feedback, and ask for professional what-would-you-do? advice on topics ranging from technology and financial performance to strategy and market development.

These alliances of non-competing companies generally are not set up to be partnership arrangements for capturing or producing work, although they could be. Rather, they're set up so that executives can meet to offer and receive each other's expert business advice and guidance. In some cases, the groups have banded together as purchasing pools to obtain volume discounts on supplies.

"Perhaps the next step in the evolution of peer groups will be partnership arrangements in which work and/or services are shared," says William K. Marrinan, president of Marrinan Associates Inc., Raleigh, N.C., a consulting firm.

Says Marrinan, several of his clients are investigating such partnership opportunities.

Although printer-to-printer partnerships appear to present many benefits, as a practical matter they haven't often been aggressively pursued. This is the view of Robert H. Rosen, principal of R.H. Rosen Associates, Inc., a graphic arts consulting firm with offices in New York City and San Francisco that specializes in mergers and acquisitions, sales and marketing, and strategic management.

Says Rosen, "This is a brilliant idea: don't buy a press that's going to be used only sparingly, or hold off developing that new technology. Instead, form an alliance with someone you trust and like, and who is not a direct competitor, and you both benefit. Unfortunately, most printers can't seem to make the concept work."

Even companies with common ownership, adds Rosen, have difficulty sharing work. A major obstacle, in his view: the extreme job control wielded by the printing salesperson. "There may be a terrific way to produce a particular item using a partnership arrangement, but the sales people too frequently caution, 'We'll lose control of the job'—whatever that means," says Rosen. "So the sensible partnership doesn't happen."

Rosen, while conceding that sales people understandably are protective of their accounts, says, "I think the burden is on management to make clear to the sales staff the importance of the economic value of such arrangements."

He says that business partnerships, which offer many economic benefits to the parties involved, can and will work, but only if management sheds its inchoate fears.