The International market of US hardwood products consist of a significantly diverse mix of customers from different regions around the world; where Canada, Mexico, Asia and Western Europe have played a central role in developing the US Hardwood Industry.
According to the U.S. Hardwood Export Statistics published by the American Hardwood Export Council (AHEC) and United States Department of Agriculture (USDA), the United States has been the World’s leading exporter of hardwood lumbers and veneers in the last 2 years, accounting for a total market share of 17% and 14% respectively during 2010. The country also played a key role in hardwood log exports between 2009 and 2010, holding a total market segment share of 22% and 20% respectively, surpassed only by Malaysia by approximately 1 percentage point.
The American Hardwood Export Council also indicated (AHEC, 2011) that China, Germany and Italy led the World’s wood furniture exports between 2008 and 2010, holding a 46% of total market, while United States only reported sales equivalent to a 2% of worldwide Exports throughout this time frame (9th place furniture exports).
During the last 6 years, the US exports of hardwood products have characterized by a predominance of primary/low value added goods such as logs and lumbers, over other more complex and higher value added products such as furniture, molding, floors, among others. In view of previous research, the exports of hardwood products will be vital for the US hardwood industry to survive . (Quesada-Pineda and Smith, 2010).
A conceptual model was developed based on preliminary studies and applied to the survey of perceptions of wood products retailers and manufacturers from Central America regarding supplier attributes, product attributes, retailer/manufacturer promotion strategy, supplier promotion strategy, potential importing barriers, and company performance. Cronbach’s alpha and factor analysis were used to check the reliability and validity of the data. The results of factor analysis suggested meaningful groupings within many of the constructs, including factors such as product attributes, purchasing attributes, and supplier services. Two hypothetical models were developed and the relationships were tested for significance using ANOVA and multiple regression analyses. Barriers were found to positively affect company performance and supplier attributes. These constructs may be important to consider when Appalachian wood products companies are interested in exporting to Central American countries. Appalachian wood products companies need to invest resources and work to overcome barriers in order to be successful exporters to Central America.
Figure 1. Conceptual research model developed from the literature
Other international marketing studies were consulted to determine what attributes to consider in the survey and the conceptual model (Cossio 2007; Parhizkar 2008). The survey focused on supplier attributes, product attributes, retailer/manufacturer promotion strategy, supplier promotion strategy, potential importing barriers, and company performance.
The first hypothesized model suggested that supplier attributes would be predicted by supplier promotion and barriers (Figure 1). Although supplier promotion did not appear to be driving supplier attributes (Hypothesis 6), barriers (i.e., language barrier, quality of Appalachian wood products, transportation and logistics) was found to be a significant predictor (Hypothesis 5).
These findings of supplier promotions contradict other studies that find promotion such as personal selling to be an important supplier’s attributes (Szymanski 1988). Barriers were found to be a significant predictor of supplier attributes (Hypothesis 5). While literature suggests a negative relationship of barriers to supplier attributes, this model suggests that the relationship with barriers is positive. It is possible that suppliers may have to work harder to overcome the barriers, which, in turn, provides a positive impact on the supplier attributes. Some studies have found that companies entering a new export market need to overcome barriers (i.e. specific product design and promotion strategy). These companies have an advantage over their competition and their company performance improves by the increase of sales (Douglas and Wind 1987; Jain 1989; Cavusgil et al.1993; Cavusgil and Zhou 1994). For instance, if Appalachian wood products companies produce lumber in the dimensions required by Central American customers, then they may have competitive advantage over companies that do not produce to the desired product attributes.
Scott Lyon, M.Sc. Candidate
Virginia Tech
swlyon@vt.edu
The process of establishing the Central American-Dominican Republic Free Trade Agreement (CAFTA-DR) began in 2006 in El Salvador, Guatemala, Honduras and Nicaragua, Dominican Republic in 2007, and in Costa Rica in 2009. This region is the 14th largest export market for U.S. products (USEAC 2011). CAFTA-DR will phase out tariffs between the U.S. and Central American countries within 15-20 years (USDA FAS 2009). Some tariffs were immediately duty free after the trade agreement took effect (USDA FAS 2009). The trade agreements help to expand market opportunities and allow companies to compete in the global market (USEAC 2011). From 2006 to 2008, the export of wood products from the Appalachian region to Central America increased by 51% (Figure 1). Furniture exports to Central American increased by 43% from 2006 to 2007(Figure 1). The rise in exports from the Appalachian region to Central America may be a result of the establishment of CAFTA-DR. Due to unstable financial markets, tighter credit limits, and increase freight rates global exports of Appalachian wood products and furniture decreased in recent years (Figure 1; VDACS 2008). To increase sales the Appalachian region needs to increase product competiveness by expanding export markets and improving product promotion (Wang et al. 2010).
Figure 1. Appalachian region exports of wood products and furniture to Central America (US Department of Commerce. Trade Stats Express 2010)
The CAFTA-DR may help increase exports of wood products from the Appalachian region. A 1996 study on the North American Free Trade Agreement (NAFTA), Prestemon (1996) found that lumber and plywood were to gain the most from free trade out of all wood products being exported. Hardwood lumber exports were expected to increase from 45-120% as a result of NAFTA (Prestemon 1998). It is important for Appalachian forest products companies to identify Central America as a potential export market.
Scott Lyon, swlyon@vt.edu
MS Candidate
Virginia Tech
From November 17-24, 2010 Dr. Henry Quesada and Scott Lyon, graduate research assistant visited 8 forest product importers, 2 non-government organizations, and 2 governmental forestry agencies in Guatemala and El Salvador. The researchers were examining the forest products markets in these countries to identify opportunities for Appalachian forest products companies. The researchers used a structured interview to gain valuable information about the companies and organizations. The objectives were to: (1) identify main competitors of forest product companies in Central American countries; (2) investigate distribution channels of forest products; and (3) investigate local production, demand, and policy of forest products in Central American countries.
Figure 1. Teak Plantation (Author's photo)
The researchers found that restrictive regulations in these countries may create an opportunity for Appalachian forest products. The Guatemalan government requires permission and payment of taxes before harvesting, causes a decrease of timber harvested. In El Salvador, beginning in 2011 the government will be checking for legality of the wood to prevent illegal harvesting of timber. A permit must accompany the wood product through the harvesting and manufacturing process, which may cause some companies to look elsewhere for raw material. Currently trees are harvested from agroforestry sites such as coffee plantations. These trees are small in diameter and low quality. There is only a small amount of funding available for expanding plantations and no incentive to be certified. Plantations grow primarily gmelina (Gmelina arborea) which is sold locally and teak (Tectona grandis) (Figure 1) which is shipped to Europe and Southeast Asia.
In both countries, furniture constitutes a large portion of wood products production. Because the majority of hardwoods used in furniture production are reddish to dark brown in color, black cherry (Prunus serotina) and black walnut (Juglans nigra) from the Appalachian region may substitute for the species currently used. Many of the companies interviewed import a variety of building materials from Canada and Chile, including: plywood, osb, mdf, and softwood lumber. Some companies buy southern yellow pine from brokers in the United States. Many of the companies were concerned about the specific dimensions of softwood lumber available from the United States. Most lumber is bought and sold in “varas” (32.9”). The interviewees stated they would prefer lumber from the United States in metric dimensions.
Figure 2. Dr. Quesada and Scott Lyon interviewing a furniture manufacturer in Guatemala City (Author's photo)
Hardwood and softwood lumber is primarily purchased as “green” and the companies have a lack of information regarding kiln drying. The researchers visited a local cooperative group in El Salvador that recently purchased a Finnish kiln by using funds from a NGO from Finland. Small and medium enterprises use the kiln for drying local lumber.
Logistics for importing did not seem to be a problem in Guatemala. The main port of entry in Guatemala is Puerto Barrios on the Caribbean Coast. The Appalachian region may have a problem importing directly to El Salvador. Most imports to El Salvador arrive by ship to either Guatemala or Puerto Cortes, Honduras and trucked to El Salvador.
There appears to be a large demand for wood from international sources with abundant raw materials and efficient transportation systems to deliver products. Because the Appalachian forest products industry offers products that are similar to those currently imported in Guatemala and El Salvador, they have a unique opportunity to expand their markets into Central America. This marketing research project is funded by the UDSA Federal State Marketing Improvement Program (FSMIP).
