Session 11 ic2011 lyon

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Session 11 ic2011 lyon

  1. 1. A Case Study of the Forest Products A Case Study of the Forest Products Industry in Central America Scott Lyon Graduate Research Assistant Henry Quesada Assistant Professor Department of Wood Science and Forest Products Virginia Tech June  2011
  2. 2. Outline• To quantify wood products demand for Central American countries• To quantify Appalachian wood products exports to Central America • North American Industry Classification System (NAICS) • NAICS 321: 3311 (lumber, sawmill, millwork), 3312 (veneer,  engineered wood, trusses, plywood) 3219 (pallets, mobile  d d l d) ( ll bl homes) • NAICS 337: 3371 (wood kitchen cabinet, wood household, wood  institutional furniture), 3372 office furniture, 3379 related  institutional furniture) 3372 office furniture 3379 related products • Examine results to identify market opportunities in Central  American countries for  Appalachian wood products pp p• To determine main strategies to export Appalachian wood products  to Central America
  3. 3. Current CA forest situation Current CA forest situation • F Forest Coverage tC 6 5 4 Costa Rica El Salvador million ha 3 Guatemala Honduras 2 Nicaragua Panama 1 0 Forest CoverageMairena and Hernandez (2005), Cuellar (2004), Revolorio (2004), ANAM (2006), Guevara (2004) Quesada (2008)
  4. 4. Demand Analysis Demand Analysis Production of Wood Products in 2009 1,200 1 200 1,000 8001000 m 3 m  600 400 200 0 * Consumption does not include fuel woodFAOSTAT(2010)
  5. 5. Demand Analysis Demand Analysis Central American Imports of NAICS 321 & 337 Globally by Country 160 140 120 Costa Rica 100 Panama El Salvador llions 80 Guatemala $ Mil Honduras 60 Nicaragua 40 20 0 2005 2006 2007 2008International Trade Centre (2010)
  6. 6. Market Opportunities Market Opportunities• Population Explosion p p – 11 million (1950) to 40 million (2008)• Deforestation • Illegal Logging • Decrease of Reforestation• Tourism • Expansion of the Panama Canal  • Inexpensive Cost of Living Inexpensive Cost of Living • CAFTAFox (1990), Saxe (1999), World Bank (2010)
  7. 7. Market Opportunities Market Opportunities • Forest Products Industryy – Limited source of local supply – Local industry shrinking – Lacks governmental support – Small amount of plantations – Climate conditionsLa Nacion (2006, 2007 and 2008), Costa Rica Central Bank (2008), Salamone (2000),  FAO (2008), Siglo XXI (2006, 2007, and 2008),La Nacion (2006 2007 and 2008) Costa Rica Central Bank (2008) Salamone (2000) FAO (2008) Siglo XXI (2006 2007 and 2008)Quesada (2008) , La Prensa (2006, 2007, and 2008), 
  8. 8. Appalachian Forest Products Exports Appalachian Forest Products Exports Appalachian Region Exports of NIACS 321 & 337 Globally 2.5 25 xports (Billions US) 2 1.5 321 1 337 Value of Ex 0.5 V 0 2005 2006 2007 2008 2009US Department of Commerce. Trade Stats Express (2010)
  9. 9. Update on Appalachian Wood Products  p pp Exports*• Why the decrease? Why the decrease? – Unstable financial markets  – Tighter credit g – Inflation – Higher freight rates g g – Soft housing markets  – Rising labor…production cost in China – Future flow of capital spending: inland China,  Vietnam and Indonesia*Virginia Forest Products Export News letter (Fall 08)
  10. 10. Demand Analysis Demand Analysis Appalachian Region Exports of NAICS 321 & 337 to pp g p Central America   30 US) rts (billion U 25 20 15 321 ue of expor 337 10 5 Valu 0 2005 2006 2007 2008 2009US Department of Commerce. Trade Stats Express (2010)
  11. 11. Project Justification Project Justification • “the United States forest product companies have  overlooked Central America as an opportunity to  expand their markets.” A. Salamone (2000) • Appalachian region suffered from the economic crisis • Increase product competiveness  – Expanding export markets – Improving product promotionWang et al. (2010)
  12. 12. Objectives • Identify main competitors of forest product  companies in Central American countries. • Investigate distribution channels of forest products. • Investigate local production, demand, and policy of  forest products in Central American countries. • Determine drivers and barriers of the sale of  Appalachian hardwood lumber and building  materials in Central American countries. t i l i C t lA i ti*Smith, Miller and Parhizkar (2008) Quesada (2008)
  13. 13. Research Methodology Research Methodology• Secondary sources• Qualitative – Government agencies Government agencies – WP importers• Quantitative – WP retailers – WP manufacturers
  14. 14. Qualitative Results Qualitative Results• How many people were interviewed? yp p – 20 companies  ‐ 8 agencies• Main competition local and SA – Low effort from USA• Natural forest/plantations • Lack gov Lack gov support• Poor wood industry• Pine – Importing from SA – Furniture• Specialized Wood Products
  15. 15. Interview Results Interview Results • HardwoodsGuanacaste (Enterolobium cyclocarpum), Black Cherry (Prunus serotina), Black Walnut (Juglans nigra)
  16. 16. Qualitative Results Qualitative ResultsBarrier Country(ies) ProblemPrice Central America Competition with Chilean wood productsLumber Dimensions Costa Rica, Guatemala, El Use “Varas” for lumber Salvador dimensionWood Product Knowledge Central America Builders, Architects, and Designers lack knowledge wood and wood productsWood Product Distribution Guatemala, El Salvador Lack of proper distribution of wood products to the country and end-usersLanguage Central America Most buyers only speak Spanish
  17. 17. Qualitative Results  Qualitative Results• El Salvador El Salvador  – Highest population density – Scarce raw material source Scarce raw material source – Strict environmental regulations –AAccessible by neighboring countries ibl b i hb i ti
  18. 18. Interview Results Summary Interview Results Summary• Price products competitively Price products competitively• Offer products to meet demand• Partner with wholesalers ih h l l• Gain relationships with potential buyers
  19. 19. Survey of Retailers & Manufacturers Survey of Retailers & Manufacturers• Questions focused on: Questions focused on: – Supplier attributes – Product attributes Product attributes – Retailer/manufacturer  promotion strategy promotion strategy – Supplier promotion strategy – Importing barriers Importing barriers – Wood products purchased –P i i Pricing
  20. 20. Survey Results Survey Results• 300 firms were surveyed 300 firms were surveyed  and 247 valid• Primarily small furniture Primarily small furniture  manufacturers –L Less than 25 employees th 25 l
  21. 21. Survey Results Survey Results Wood Products Purchased by Respondents Plywood 39Medium density fiberboard 33 Particle board 31 Softwood lumber 31 Oriented strand‐board 27 Hardwood lumber 22 Veneer 21 Doors 19 Hardwood flooring 15 Pressure treated lumber 15 Cabinets 13 Logs 11 0 10 20 30 40 50 Frequency
  22. 22. Survey Results Survey Results Supplier Type Supplier TypeDirect from manufacturer 166 Wholesaler 144 Broker 85 Government/State 16 0 50 100 150 200 Frequency
  23. 23. Survey Results Survey Results Wood/Wood Product Attributes Product Quality 4.77 Price 4.76 Delivery on time 4.66 Volume Discounts 4.57 Warranty on product 4.53 Color 3.53 3 53 Kiln‐dried 3.51Environmentally Certified 3.43 Packaging 3.19 3 19 Brand 3.12 1 2 3 4 5 Low Importance High Importance
  24. 24. Survey Results Survey Results Potential Barriers for Appalachian wood products companies Price 4.81 4 81 Delivery on time 4.74 Transportation and logistics 4.63Quality of Appalachian products 4.44 International policies 3.78 U.S. Governmental policies 3.72 Language  barrier 3.53 1 2 3 4 5 Low  Importance    High Importance
  25. 25. Strategy for Appalachian Companies Strategy for Appalachian CompaniesProduct Promotion Place PricingHigher value Future added Patience and Competitive price! Commitment distribution product! channel Quality Personal Sell Local partners Similar Assortment Websites On time Warranty Communicate Discounts
  26. 26. Conclusions• Annual consumption of wood products is more  ua co su pt o o ood p oducts s o e than 4 million m3 per year p g y• Environmental pressures hurting local industry• USA, Canada, Chile, and Brazil:  high quality• Potential strategies for Appalachian wood products  companies are: • To partner with local wholesalers • Start sales relationships • Offer higher value added • Keep p p prices similar or slighted superior g p Quesada (2008)
  27. 27. Acknowledgments• Federal‐State Marketing Improvement Federal State Marketing Improvement  Program (FSMIP)
  28. 28. Thank you!Contact information: swlyon@vt.edu

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