Printers Inc.

Thanks to a highly skilled workforce and cutting-edge technology, business is booming for Polish printing companies. Changes in the tax law are set to fuel further growth on the export market, with Polish printers aiming to turn the country into the publishing house of Europe.

The Polish printing market is reaping the benefits of EU membership, and is in the midst of an export boom.

According to the Central Statistical Office (GUS), within the last two years the value of Polish printing products, such as books, brochures, leaflets, newspapers and periodicals, exported onto foreign markets increased dramatically, reaching some zł.617 million in the first three quarters of 2005. This amounts to about 60 percent of total revenues in the industry.

At present there are more than 13,000 printing houses in Poland, the majority of which are small operations employing less than 10 people. However, around 1,000 firms use the latest printing technology with fully qualified staff, and many of these firms also have ISO certification, making them competitive on the international scene.

"There are printing houses that previously didn't export and now export a lot," says Tadeusz Winkowski, the founder president of the Winkowski Printing Office. "Compared to Europe we are still little, but I believe we have great potential and chances for development."

Picture perfect

Over the last three years, several Polish companies have made major investments in cutting-edge printing technology and software. The Winkowski Printing Office recently bought state-of-the-art computer-to-plate technology. Cezar Białystok, the biggest producer of alcohol labels and packaging for cosmetics, bought the first ultra-violet (UV) technology press back in 1998 and now, with the company making a new investment in UV, it will become the second-biggest user of the technology worldwide.

"The current global use of the technology is some two percent and we estimate that in 10 years it should reach some 10 percent," says Magdalena Michalska, a spokesperson for Cezar Białystok.

 "The most important reason for moving printing here is the price," says Swapan Chaudhuri, general manager at Xteam, which specializes in modern digital printing. "This, along with our well-qualified staff, frequently surprises our contractors from Western Europe."

Jerzy Hoppe, director of the Research and Development Center for the Printing Industry, emphasizes the value of Polish printers' expertise, whereas Cezar's Michalska says that the country's geographical position is a crucial asset.

Changed perceptions

For many clients, printing is a hands-on process that they want to be involved in from start to finish. There is a perception that it is difficult to control a printing process that takes place in a different country, but Poland's accession to the EU has done much to assuage these fears. Trade procedures have improved, completion times have shortened and, perhaps most importantly, Polish printing houses are now seen as reliable and trustworthy. "We managed to overcome the habits and the cliché that in Poland there are only polar bears on the streets and high-quality printing is out of the question," says Winkowski.

These are difficult times for Western European printing houses, due to increasing production costs. Winkowski believes that although the situation is changing, foreign printing houses are suffering thanks, in part, to strict union labor rules and agreements: "It is really hard to find talented young people who want to work in printing houses in Western countries. Fortunately, we don't have that problem. In Germany, printing houses don't work on the weekend. It would be impossible for a printing house not to work over the weekend if a weekly magazine comes out on Monday."

International demand

Poland's domestic demand for printing products is not enough to meet the capacity of domestic printing firms. "That is why we take up numerous initiatives to attract contractors from abroad, and the effects of our efforts are noticeable. We want the whole printing market to develop," says Jerzy Hoppe.

Winkowski shares this viewpoint: "We care about the development of the printing industry in Poland, not just one company. We have managed to attract a great number of customers and even if they are not our clients they are clients of the Polish printing market. I go abroad very frequently, I take part in numerous conferences where I present my vision of the industry, our company and the whole Polish printing market."

Chaudhuri believes that close collaboration or joint ventures, not competition, between Polish and foreign firms is the key to success and will enable the dynamic development of the industry in Poland.

Interest from abroad

The market is also proving interesting for foreign companies who want a piece of the Polish printing pie. RR Donnelley (RRD) has been operating in Poland since 1993, and it intends to take over or buy shares in other Polish printing houses in the future. Lidia Jankowska, marketing director at RRD, says the company intends to use and develop the potential of the Polish printing business. Currently, 60 percent of its business here is for the export market, and growing.

Last August RRD purchased all the outstanding shares in listed printer Poligrafia for zł.173 million. The company offered zł.32.6 per share, which at the time was much higher than the company's average share price. RRD withdrew Poligrafia's shares from the Warsaw Stock Exchange, and all its products are now being marketed under the RR Donnelley trade name.

"Now we are integrating the two locations of this company in Kielce and Starachowice into our Polish printing platform, that now consists of four major printing plants. The other two are in Kraków," says Maarten Franken, marketing director at RRD Europe. "The combination of location, costs of production, and a highly skilled workforce provides us with a clear competitive edge in the market place. The acquisition of Poligrafia fits well into our strategy to grow our core business in Europe."

Enter the taxman

But increasing returns are not being received by every operator. Currently the tax office views printing as a service, which means exports are subject to a VAT levy of 22 percent. Printers argue that they offer finished new products fully made on their own paper, making the VAT classification wrong.

In December, Izabella Laskowska, a spokesperson for the Ministry of Finance, said: "To settle whether the correct tax rate has been used requires investigating the individual situation in the company, taking into account the situation within each individual company." Many printing houses have taken this route, and are judged on a case-by-case basis. "The interpretation can be different [and] some companies had problems with the office, whereas others didn't," says Ryszard Czekała, director of the Polish Chamber of Printing.

Axe the tax

When the new government took office, the Polish Chamber of Printing launched a campaign that sought to end the tax office's practice of issuing different interpretations of the same law, and get the 22-percent VAT removed from its members' exports.

"The last positive decision the tax office made in December last year was regarding Płońsk-based Elanders Polska … Now there is one more - Pabianickie Zakłady Graficzne (PZG)," says Czekała. PZG is the last member of the Polish Chamber of Printing that is paying the 22-percent VAT rate. Remigiusz Jastrzębski from PZG says the company again applied to the tax office on February 10 and is now waiting for a decision.

"This problem seems to be a tax Loch Ness Monster. Everybody is talking about it, but by rights it shouldn't exist," says Deputy Finance Minister Mirosław Barszcz. In addition, according to Article 15 of the Sixth EU Directive, all member states have the right to use a zero-percent tax rate if the taxpayer receives a document certifying that the goods have been sent outside the borders of the EU before submitting its monthly tax statement to the tax office.

Once this barrier to trade has been dismantled, "we project a dramatic increase in exports," says Czekała, "Now we have to do the same on the domestic market, where printing products are still taxed at 22 percent."