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Imports Overtake Forest Products Exports; Survey Shows Wide Impact: Virginia Tech Survey Shows Companies Responding, Adapting to Globalization
Globalization: Last year, the volume of imported forest products dramatically overtook the volume of exported forest products; survey shows the impact of globalization is far-reaching, but the industry is adapting and responding.
By Brian Perkins, Robert Smith
Date Posted: 11/1/2007
†† (Editorís Note: The following article first appeared in Center Focus, the newsletter of the Virginia Tech Center for Forest Products Marketing and Management, and it is published here with the permission of the center.)
†† Globalization has been occurring for centuries. From its earliest beginning to present day, the desire to trade goods and services has been the driving force behind internationalization. The pace of globalization increased as boat building and navigation technology allowed early explorers to travel the world and exploit people and resources. The rate of global integration has also increased rapidly in the past 100 years and especially in the last 50 with ever more sophisticated technology.
†† The trade of forest products has increased steadily if not drastically at times since data was first collected by the Food & Agriculture Organization of the United Nations in 1961. The data indicated increasing volumes of sawn wood, paper, and wood based panels are imported and exported every year.
†† In the U.S., the volume of forest products imports and exports were roughly equal in 1990, according to data from the U.S. Foreign Agricultural Service. However, in 2006 the forest products import volume was approximately four times greater than the forest products export volume.
†† This data reinforces what companies have been experiencing in the business world: increasing competition from imported forest products.
†† This import surge coincides with a strengthening dollar during this time period. One would expect an increase in exports when the dollar is weakening relative to other currencies.
†† Globalization is not new to large forest products companies that have been doing business and investing overseas for decades. According to statistics from the Internal Revenue Service, 8% of paper-manufacturing companiesí net income was derived from foreign income based on the 1993-2004 period; wood product manufacturers and manufacturing in general averaged 1% and 5%, respectively. Clearly, wood product manufacturers have plenty of scope for expansion of overseas business.
†† For smaller forest products companies, globalization has seemingly come out of nowhere during the past 10 years with the loss of domestic manufacturing and increased competition from imports.
†† It is within this context that a brief study on globalization was initiated at the Virginia Tech Center for Forest Products Marketing and Management. The study consisted of a seven-question Internet survey that was sent to the e-mail distribution list for the newsletter, Center Focus. ††††††††††
†† This e-mail list consists of 700 forest products industry people who have been active with the Center over the years, taken one of the Centerís short courses or otherwise communicated with the Center. The questionnaire consisted of two demographics questions, three multiple-choice questions about globalization and two open ended questions about companiesí responses to globalization. The Internet survey was open for 2-1/2 weeks with one e-mail reminder sent during the second week. A total of 76 responses were received for a response rate of 11%.
†† Nearly every respondent, 92%, indicated that their company had been affected by globalization.
†† Not surprisingly, a broad spectrum of the forest products industry participated in the survey. Participants ranging from hardwood companies to softwood companies to integrated companies along with others responded to the survey. The majority (56%) of firms had sales of greater than $20 million.
†† When asked about the aspect of globalization that caused their company to change, respondents indicated that loss of domestic manufacturing, increase in U.S. imports and foreign competition were the three most frequently cited. Approximately 60% of respondents cited multiple globalization effects that created change in their firms.
†† Companies were asked to rate the importance of 10 factors in their response to globalization. The factors (Table 1) were developed from previous research and intuitive, logical reasoning.
†† Table 1 shows the importance rating broken down by industry segments: hardwood lumber (HL), hardwood lumber & secondary (HS), softwood lumber (SL), softwood lumber and secondary (SS), and vertically integrated forest products companies (VIFPC) and the overall importance rating average.
†† The attitudes of decision makers and knowledge of foreign markets were rated most important followed by increased cost controls and export market development.
†† Increased foreign investment and alternative transportation methods were rated the least important of all factors.
†† There was no statistically significant difference between the groups.
†† Respondents indicated in the open-ended questions that their company had reduced lead times, changed products, increased travel, reduced costs and explored export markets to address globalization. The results of these efforts ranged from positive (30%), neutral (31%), not yet known (21%), to not applicable (18%). Companies are making changes in response to the challenges of globalization and the majority of them (61%) report positive or neutral results.
†† For a company that has yet to change in response to globalization, the results of this research give a glimpse of what their peers are doing. Depending on the segment a company is in, some factors will be more important than others, and there may be others that are not on our list.
†† Companies must continue to innovate and add more value than competitors because economic globalization will only continue.
†† (Editorís Note: Brian Perkins is a graduate research assistant at the Virginia Center for Forest Products Marketing & Management; Robert Smith is associate dean for engagement for the Virginia Tech college of natural resources and previously served as an associate professor and director of the center.)