Expanding Export Markets

Forest Products from the Southern United States

A. L. Hammett

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351586986
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Originally published in 1996. In order to increase exports and expand profits, U. S. manufacturers must be able to adapt to changing competitive pressures. This book presents methods to quantify competition and help predict profitability to help hardwood lumber manufacturers adapt to changing market conditions based on three research studies. This title will be of interest to students of environmental economics.

1 Background

Foreign trade of forest products is vital to the economy of the U.S. and especially to the economy of the South. From 1980 to 1986, annual U.S. hardwood lumber production averaged 6,229 million board feet, while exports for that period averaged 471 million board feet. In 1986, the South’s production of hardwood lumber products reached 3,400 million board feet, nearly 50 percent of the nation’s total production in that year (Ulrich 1989).

Worldwide demand for U.S. manufactured hardwood lumber has increased 100% during the ten-year period ending 1985 (Araman and Hansen 1987). While exports accounted for less than 10 percent of production in the early 1980’s, the value of hardwood lumber exports in 1983 grew to one-fifth of hardwood sales. Export markets will continue to grow for hardwood lumber producers if they remain competitive and learn more about emerging markets (Araman and Hansen 1987).

In order to improve profits, U.S. hardwood lumber producers must be aware of changing world markets and be able to adapt to changing competitive pressures. A method of quantifying and predicting these changing conditions needs to be developed to help companies adapt. Relevant factors that affect forest products trade include exchange rates, adequate supply of suitable raw material, production costs, government policies (tariffs and quotas), regional and world commodity prices, production capabilities, marketing skills, experience, and other factors. The research described in this book is designed to investigate the factors that lead to successful export of forest products. Much of the results should be applicable in other industries.

A large amount of literature has addressed either foreign trade and marketing of forest products, or hardwood lumber production and economics. However, not much research has actually been performed that links hardwood lumber manufacturing and successful international marketing in any substantive fashion. There have been numerous qualitative and quantitative analyses of international supply and demand, but few studies of individual firm characteristics and their effect on success in exporting have been completed.

Increasing Forest Product Exports

Many factors may help determine a firm’s success in exporting. The TVA Hardwood Export Program (Tennessee Valley Authority 1986) provides examples of the many factors used for assessing the export potential of a hardwood lumber mill. Important firm characteristics are divided into three broad classes: production, marketing, and logistics. Production characteristics include type and volume produced yearly, mill equipment available, quality of input logs, continuity of supply, and dry kiln capacity. One might also expect factors such as product complementarity or substitutability, and risk of undertaking new ventures to be important.

Marketing factors considered in the TVA program include the size of the domestic (and/or export) sales staff, management’s commitment to exports, use of domestic brokers or foreign distributors for international sales, and the firm’s interest in new markets. For some lumber of lower quality, the interaction between domestic markets and foreign consumer market preferences would also be an important consideration. Domestic and foreign government trade policies further affect export success.

The logistics of export marketing that influence exporting include grading, packaging, and container loading capabilities; telex, facsimile, or other equipment availability; use of a freight forwarder and international banker; and preparation of price quotations. Overall, the preceding factors, and doubtlessly many others, could influence the degree of success a firm might have in exporting hardwood lumber.

Research Objectives

This research has four main objectives. The first involves a description of business and production characteristics of hardwood lumber manufacturers which may influence export marketing. Second, the research examines changes in southern exports as compared to changes in total U.S. forest product exports. Third, the research selects possible factors that could influence international trade and marketing of forest products and collected and analyzed data from firms about these factors. The last objective is to develop quantitative means to measure the association among these possible factors, and to suggest ways to increase exports. Research activities for these primary objectives are discussed in more detail in the following sections.

Review of Business Characteristics

From the available literature and discussions with hardwood lumber manufacturers and researchers, a list of business factors that may influence trade success was developed. Factors external to firm control, such as exchange rates, tariffs, political trade barriers, or purported insect and disease problems may also affect trade and were considered in the research as well. For instance, a clear understanding of the often complex process involved in exporting and the required long-term managerial commitment to export marketing is needed before considering export participation (Evans 1990).

The second chapter reviews available literature pertinent to the South’s hardwood lumber industry, related industry export studies, the region’s export performance, and the steps involved in successful exporting. The literature review includes various Forest Service reports, academic journals, and industry, association, and U.S. government publications related to forest product exports.

Changes in Southern Forest Products Exports

The South has experienced strong growth in forest products exports, especially during the past two decades. Understanding the magnitude of and the reasons for these changes should help isolate business factors that influence hardwood lumber export success. The analysis outlined in Chapter Three focuses on changes in the South’s exports of three forest product groups: softwood lumber, softwood plywood, and hardwood lumber as compared to changes in total U.S. exports for these product groups. Shift-share analysis has been a common method to help assess changes in regional economic patterns. This method helps establish the framework for subsequent analyses of the influences of specific factors on hardwood lumber export success. Chapter Three applies shift-share analysis to the South’s and the nation’s export changes to help explain export activity and measure the contribution of the South to changes in overall U.S. exports. This analysis gives background for the research presented in subsequent chapters.

Characteristics of Hardwood Lumber Exporters

Once factors that influence trade of hardwood lumber were identified (Chapter Two), information was obtained on individual southern mills regarding their interest, efforts, and success in exporting hardwood lumber. To obtain this data, a survey of mills in seven southern states was conducted to quantify production, marketing, and logistical characteristics (see survey instrument in the Appendix). Hardwood lumber mills constitute a very dispersed industry, so only a sample of mills was contacted in the survey. Lists of manufacturers were compiled from state government forestry agencies and a mail survey of the sample was conducted to determine their business characteristics and degree of export success. The results of this canvass were used in the analyses described in Chapter Four.

Data on southern hardwood lumber firms were used to investigate the associations between their business practices and their degree of export. This investigation involved both qualitative and quantitative components. First, descriptive summaries of the survey results and firm characteristics were made. Based on these, on the relevant macroeconomic and political factors identified, and on personal examination of the responses to the survey, qualitative estimates of the production and marketing characteristics of successful exporting firms were made. T-Tests were then used to compare the factors common to exporting and nonexporting mills, utilizing the data collected in the survey. This research provides indications of which factors may influence export success.

Quantitative Analyses

The next step involved analyses of the data to quantify the influences of selected production and business factors on export success. Earlier studies provide a basis for Chapter Five, but are of limited value for analyzing hardwood lumber export success. Either they provide no measure of the relative importance of the individual mill factors or they do not consist of factors which can be influenced by public policy. Moreover they are of little value in developing a predictive model of export success. Therefore, my analyses extended the existing literature and applied new methods to evaluate factors which influence export success. These methods should provide the means to measure the influence of each individual factor in predicting export participation. Additionally, emphasis is placed on those characteristics and external factors which can be controlled to some degree by public export promotion efforts and research policy.

Various statistical means of determining relationships among export success and firm characteristics were examined, beginning with simple correlations. Multivariate analyses, such as cluster analysis and factor analysis, were considered to test hypotheses regarding firm traits and export success. Various continuous or discrete regression analyses were also examined. Logistical regression seemed particularly promising as this method could help quantify the probability of success due to a firm’s export efforts in relation to its production, marketing, or logistical characteristics.

Based on the qualitative and quantitative analyses, general conclusions were made regarding the firm characteristics and economic and political factors that influence export success. These conclusions describe the factors that could be helpful for firms interested in entering or expanding their export markets. They will also help firms identify constraints that may prohibit them from much chance of success in exporting. Summary conceptual models were developed to show the interrelationships among business, political, and economic variables influencing marketing and foreign trade of hardwood lumber. These models could be used by firms or policy analysts to help evaluate particular production and trade situations.

The concluding chapter summarizes the findings of the previous four chapters and relates results of the analyses to possible policy changes. The discussion emphasizes the implications for export promotion or research programs, further appropriate studies on the variables affecting export success, and the application of the results to new efforts to model the rate of export success.

2 Factors Affecting Exports

Introduction

Exporting of forest products is vital to the United States economy and especially to the forest products industry of the South. For example, Lindsay (1986) states that in 1983 exports of lumber products from Georgia accounted for $138 million or 6% of total lumber sales, and 1,600 jobs or 6% of the state’s total lumber industry employment. Even with record shipments of some forest products, U.S. lumber manufacturers’ total earnings decreased during the early to middle 1980s, due to depressed prices brought on by worldwide excess production capacity and the relative strength of the U.S. dollar. This chapter discusses the many factors that may influence the export of southern U.S. hardwood lumber. Much of the information presented in this chapter has been reviewed in Hammett and Cubbage (1993).

In order to improve profits, U.S. hardwood lumber producers must be aware of changing world markets and adapt to new competitive pressures. Methods of interpreting these changing conditions need to be developed to help companies increase their markets. Relevant business factors that seem to affect forest products trade include exchange rates, supply of raw material, production costs, government policies (tariffs and quotas), regional and world commodity prices, production capabilities, marketing skills, and overseas market experience. This chapter will identify these and other factors that may lead to successful exports of hardwood lumber products.

First, a review of the South’s hardwood timber resource will be made, followed by an examination of the region’s production and trade of hardwood lumber products. Next, a description of export logistics is followed by a review of existing and possible modeling applications that may help hardwood lumber manufacturers begin or increase overseas sales. Throughout the remaining chapters of this book, lumber is used as a focus product. Except where mentioned, the methods discussed would also be useful for analysis of the exportability of other products.

Hardwood Timber Resources in The South

The analyses outlined later in Chapters Four and Five of this book are based on a survey of seven southern states located in four U.S. Forest Service (USFS) Forest Experiment Station administrative regions: the South Central (Tennessee); North Central (Kentucky); Northeast (West Virginia); and Southeast (Georgia, South Carolina, North Carolina, and Virginia). For practical purposes the Southeast and South Central regions will be grouped together as the South when reviewing USFS or other regional statistics.

Hardwood Timber Supply

Through the early 1980s, projections for hardwood growth in the Southeast showed continued increases of hardwood timber supplies through the year 2030, growing stock through 2010, and net annual hardwood growth through the year 2000. Sawtimber supplies were projected to increase through the year 2010, where they would remain at high levels until a gradual decline beginning in the year 2020 (USDA 1982).

Total hardwood roundwood supplies in the South Central region were projected to increase through 2030, with total inventory of growing stock increasing through 2010. Sawtimber supplies should increase through 2030, net annual growth of hardwood should increase through 2020, and hardwood sawtimber inventory should increase through 2040. In short, the South’s supply of hardwood timber should increase or remain steady for at least the next thirty years (USDA 1982).

In order to consistently serve overseas markets, firms need access to steady supplies of hardwood timber, or in its harvested form, hardwood roundwood or logs. Ninety percent of the nation’s hardwood timber resource is located in the East, with half of this volume located in the South. The South accounts for 45% of the most productive hardwood timber stands, i.e. those with growth rates exceeding 120 cubic feet per acre per year (Haynes 1988). However, much of this volume is in small diameter trees, so production will be limited, especially of larger size and higher quality products. The number of large sawtimber size trees— large enough to efficiently be used to produce lumber—of 15” or greater DBH (diameter at breast height) has increased, the number of saplings (those less than 15” DBH) has decreased by 10%, causing concern about future sources of hardwood timber suitable for lumber production (Bechtold 1989).

Raw Material Resource Base

In the South there has been a widening gap between growth and removals of hardwood sawtimber, causing increased hardwood timber inventories (USDA 1988). In 1952 growth exceeded removals by 227 million cubic feet, with this gap growing to 965 million cubic feet in 1976 (USDA 1988). The region’s ratio of growth to removals for hardwood timber relative to other regions is very favorable at present. In 1987, hardwood growth was 4,580 million cubic feet in the South, while only 3,958 million cubic feet were removed during the same year (Haynes 1988).

In a study to assess the South’s export potential for hardwood lumber, 159 counties in five southern states were found to have considerable hardwood timber inventories, sufficient to support increased lumber production (Appalachian Regional Commission 1984). This research used growth-to-drain and inventory-to-drain ratios to ...

Table of contents

• Cover Page
• Half Title
• Title Page
• Copyright Page
• Contents
• List of Tables
• Preface
• Acknowledgments
• 1 Background
• 2 Factors Affecting Exports
• 3 Assessing Changes in Regional Exports
• 4 Determining Characteristics of Exporters and Nonexporters
• 5 Modeling Export Success
• 6 Conclusions
• Literature Cited
• Appendix: Hardwood Lumber Mill Questionnaire
• Index