The U.S. Moulding and Millwork Industry: Factors Affecting Export Success
Fact Sheet #2
The forest products industry in the Pacific Northwest consists largely of small and medium-sized firms that have traditionally followed a strategy emphasizing the production of low cost and high volume commodity products. However, the combination of raw material shortages and sagging demand within traditional markets has led many managers to re-evaluate this strategic orientation. Some managers are now considering a strategy that emphasizes the production of value-added products for both domestic and foreign markets. Despite this strategic shift, many managers think that they lack the managerial and financial resources necessary for developing and implementing a competitive strategy for entering and competing successfully in export markets.
Pacific Northwest Exports of Millwork Outpace the Nation
Moulding and millwork exports from the U.S. represent a value-added success story for the forest products industry. Exports of moulding and millwork products, primarily produced from softwood species, have increased dramatically in recent years. Between 1989 and 1991, U.S. exports of moldings, wooden doors, and wooden windows have more than doubled, increasing from $99 million to $203 million. Over the same period, exports from Washington and Oregon have tripled in value from $19.2 million to $54.5 million. Even more impressive is the fact that the share of US millwork exports from Washington and Oregon has increased from 19.4% to 26.8% in just three years. While the total value of wooden windows and hardwood moulding exports has remained stagnant, wooden doors and softwood moulding exports have experienced substantial increases. From 1989 to 1991, exports of softwood moulding and wooden doors increased nationally by 251% and 147%, respectively, while Pacific Northwest exports of these products have increased by 272% and 213%. The primary markets for all of these products are Canada and Japan, although Mexico is rapidly becoming an important market. These statistics clearly indicate that the U.S. moulding and millwork industry has begun to enjoy tremendous success in developing export markets for its products. Despite this success, however, a recent survey of the U.S. moulding and millwork industry conducted by CINTRAFOR suggests that less than 10% of U.S. moulding and millwork firms are engaged in export activities. A similar study of the secondary wood processing industry in Washington State produced similar results (see CINTRAFOR working paper 30). Factors Influencing the Export Decision Preliminary results of the national millwork survey show that most firms that are engaged in export activities have not developed export strategies. Rather, in most cases these firms have become involved in exporting in response to customer inquiries. In other words, most firms had become involved in export markets in a reactive manner rather than as part of a proactive strategy. Fully three-quarters of the exporting companies responding to the national survey indicated that they decided to export products in response to unsolicited orders received from foreign customers or export brokers. The preliminary results of the survey indicate that five factors are thought by managers to be keeping them from exporting:
* many companies have decided to focus their attention exclusively on regional markets,
* many respondents consider their firm too small to successfully engage in exporting,
* many respondents say that they have no way to identify and contact potential foreign customers,
* many respondents reported that they didn't have enough time to develop export markets, and
* many managers felt that their firms lacked the necessary resources (both managerial and financial) to compete successfully in
foreign markets.
Export Orders Can Lead to Profitable Business Relationships
As indicated by the trade statistics summarized above, a small percentage of U.S. firms have been successful in developing foreign markets for millwork products. Unfortunately, all too often export orders are considered to be less profitable than domestic orders. As a result, export orders are frequently regarded as short-term supplements to domestic sales during periods of decreased domestic demand. Not unsurprisingly, many forest products managers have adopted a strategy of accepting export orders only when domestic demand is weak. By moving into and out of export markets in response to domestic economic activity, these producers are signaling their reluctance to commit to a stable export strategy. Other producers recognize that export markets represent profitable outlets for value-added products because foreign importers are looking to develop long-term, stable trading relationships with U.S. companies. By taking advantage of such a relationship, millwork managers can diversify their customer base. Servicing export orders may require more effort, but this extra effort is usually offset by the fact that export orders can often provide a firm with the opportunity to earn higher profit margins.