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”3-9.1

MARKETING CHARACTERISTICS OF MICHIGAN HARDWOOD PRODUCTS EXPORTERS:
AN ANALYSIS

By
Scott Denek Dickerson

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

MASTERS OF SCIENCE

Department of Forestry

1997

ABSTRACT

MARKETING CHARACTERISTICS OF MICHIGAN HARDWOOD PRODUCTS EXPORTERS:
AN ANALYSIS

By
Scott Derrek Dickerson

The objective for this project is to evaluate the Michigan hardwood products industry’s export
marketing characteristics. This may establish some basic guidelines which will assist small- to medium-
sized Michigan hardwood lumber manufacturers in preparing to enter international markets.

Personal and telephone interviews were conducted with firms manufacturing a variety of
hardwood products for export. These companies were categorized into three groups according to their
percentages of exports with respect to total annual sales, in addition to future levels of export activity.
The respondents were also separated into two groups according to the level of value-added to their export
products and into three groups pertaining to firm size.

The results indieate that the most active exporters, with respect to export percentages, were larger
in terms of number of employees and younger with respect to average firm age. These companies have
broader marketing programs, show higher levels of commitment to expanding into foreign markets, and
produce a greater variety of products for foreign markets. All three groups show needs for enhancing
their levels of customer service. The more active exporters rated their levels of knowledge pertaining to
international business elements higher than their less active counterparts, but all three respondent groups
rated fairly close their executive training and experience levels.

On the basis of value-added, those firms adding more value tended to be larger and older than
their counterparts, had more international scopes of rrrarketing, showed greater desire to wait longer
periods of time to achieve a return on export investments and used more diverse elements in export sales
activity. Firms adding less value had higher export percentages of total production, although both groups
indieated similar desired export increases. As company size increased, so did the international orientation
of the firms’ marketing, the desired levels of future export activity, the importance of reasons for

exporting and the levels of international business knowledge.

This manuscript is dedieated to all students interested in building their careers in the hardwood lumber
industry.

iii

ACKNOWLEDGEMENTS

I owe a great deal of appreciation to the four hardwood products companies which offered me
internships during my undergraduate years. Buskirk Lumber Company showed me what a hardwood
lumber sawmill was all about, and was instrumental in stimulating my interest in the hardwood lumber
industry. Van Keulen & Winchester Lumber Company, Inc. provided me with a basic knowledge of the
day-to-day operations in a hardwood lumber dry kiln and wholesale facility. Banks Hardwoods, Inc. (and
Steve Banks in particular) gave me valuable experience in both operations and sales, as well as the
opportunity to learn about making hardwood cabinets at Middlebury Hardwood Products, Inc. I firmly
believe that my experiences with these four companies and their employees shaped my future career.

I would also like to thank my committee members for their assistance and support. Dr. Otto
Suchsland insisted that I continue through graduate school, and gave me the room to explore what I
thought would benefit my education and career. Dr. James Stevens was of invaluable assistance in
developing my thesis research and text, and Dr. Chris Peterson was very considerate in providing
recommendations for my research.

Finally, I would like to thank my wife Kristin for her unwavering support and compassion during
the last two years. She has always been there when I needed her, and given me encouragement to carry on
in my career endeavors. May I always remember that everything comes second to my wife, for she is my

life, my love, and my happiness.

iv

TABLE OF CONTENTS

 

 

 

 

List of Tables ................................................................................................................................. viii

List of Figures .................................................................................................................................. ix
CHAPTER 1: INTRODUCTION 1
CHAPTER 2: THE HARDWOOD LUMBER INDUSTRY 2
NATIONAL HARDWOOD RESOURCES ....................................................................................................... 2
Growing Stock .................................................................................................................................. 2
Species of Hardwoods for Export ...................................................................................................... 2
NATIONAL HARDWOOD PRODUCTS EXPORT POTENTIAL .......................................................................... 3
Industry Outlook ............................................................................................................................... 3
Hardwood Products Exports .............................................................................................................. 4
Hardwood Lumber Export Markets ................................................................................................... 4
Reasons for Increased Hardwood Products Exports ........................................................................... 4
Meeting Export Demands ................................................................................................................. 5
MICHIGAN HARDWOOD RESOURCES ....................................................................................................... 5
Area and Ownership ......................................................................................................................... 5
Stand Types ...................................................................................................................................... 6
Growing Stock .................................................................................................................................. 7
THE MICHIGAN HARDWOOD LUMBER INDUSTRY ..................................................................................... 8
Michigan Forest Products Export Markets ........................................................................................ 8
Timber Utilization ............................................................................................................................ 8
CHAPTER 3: LITERATURE REVIEW 10
REGIONAL U.S. FOREST PRODUCTS LITERATURE .................................................................................. 10
Eastern Region ............................................................................................................................... 10
Southern Region ............................................................................................................................. 11
Pacific Northwest Region ...................................................................... ' .......................................... 12
Regional Studies Review ................................................................................................................. l3
ADDITIONAL HARDWOOD PRODUCTS LITERATURE ................................................................................ 13
Hardwood Lumber .......................................................................................................................... l3
Hardwood Products Marketing ........................................................................................................ 14
Product Diversification ................................................................................................................... l4
SUPPORTING LITERATURE .................................................................................................................... 15
Organizational Characteristics of Exporters .................................................................................... 15
Strategic Decisions in Going International ...................................................................................... 16
Initial Stages in Internationalization ............................................................................................... 16

The International Business Process Elements .................................................................................. 17
CHAPTER 4: RESEARCH OBJECTIVE l9
OVERVIEW .......................................................................................................................................... l9
RESEARCH OBJECTIVE ......................................................................................................................... l9
CORE IV ............................................................................................................................................ 20
WHAT CONSTTI'UTES AN “ACTIVE” EXPORTER? ..................................................................................... 20

V

Additional Considerations .............................................................................................................. 22

 

 

 

CHAPTER 5: METHODS 24
SURVEY DESIGN .................................................................................................................................. 24
RESEARCH SURVEY POPULATION .......................................................................................................... 24

Survey Population Data Base .......................................................................................................... 24
SURVEY INSTRUMENT ........................................................... 25
SURVEY PROCEDURES .......................................................................................................................... 25
COMPANY READINESS To EXPORT (CORE IV) ...................................................................................... 26

CHAPTER 6: RESULTS 27
SURVEY RESPONSES ............................................................................................................................. 27
RESPONDENT CATEGORIZATION ........................................................................................................... 27
ADDITONAL RESPONDENT CATEGORIES ................................................................................................. 28
SURVEY NON-RESPONDENTS ................................................................................................................ 29
SURVEY RESULTS ................................................................................................................................ 30

Competitive Capabilities in the Export Market ................................................................................ 30
Motivation for Going International ................................................................................................. 36
Commitment of Owners and Top Management ............................................................................... 38
Product Readiness for Foreign Markets ........................................................................................... 46
Knowledge of International Business Elements ............................................................................... 49
Experience and Training ................................................................................................................. 51
NONEXPORTERS .................................................................................................................................. 52

CHAPTER 7: DISCUSSION 55

COMPETITIVE CAPABILITIES IN THE EXPORT MARKET ........................................................................... 55
Company Size ................................................................................................................................. 55
Company Age ................................................................................................................................. 56
Scope of Marketing ......................................................................................................................... 56
Current Export Markets ..................................... 57
Methods of Advertising ................................................................................................................... 58
Current Sales Force Elements ......................................................................................................... 58

MOTIVATION FOR GOING INTERNATIONAL ............................................................................................ 59
Dispose of Excess Products ............................................................................................................. 59
Stabilize Market Fluctuations .......................................................................................................... 60
Supplement Domestic Sales ............................................................................................................ 60
Risk Reduction ............................................................................................................................... 61
Long-Term Expansion .................................................................................................................... 61
Additional Considerations .............................................................................................................. 62

COMMITMENT OF OWNERS AND TOP MANAGEMENT .............................................................................. 62
Retum on Investment ...................................................................................................................... 62
Export Target Sales ........................................................................................................................ 63
Future Export Activity .................................................................................................................... 64
Manpower Allocation ..................................................................................................................... 65
Current and Future Sales Channels ................................................................................................. 65
Additional Considerations .............................................................................................................. 66

PRODUCT READINESS POR FOREIGN MARKETS ...................................................................................... 66
Types of Export Products ................................................................................................................ 67
After-sales Support ......................................................................................................................... 67
Follow-up Calls .............................................................................................................................. 68
Product/Packaging Modification ..................................................................................................... 68
Additional Considerations .............................................................................................................. 69

KNOWLEDGE OP INTERNATIONAL BUSINESS ELEMENTS ......................................................................... 69
Foreign Market Costs ...................................................................................................................... 70

vi

Tarifl‘s and Non-tarifi' Barriers ........................................................................................................ 70

 

Foreign Competition ....................................................................................................................... 71
Legal Systems ................................................................................................................................. 71
Foreign Currencies ......................................................................................................................... 72
Information Sources ........................................................................................................................ 72
Additional Considerations .............................................................................................................. 73
EXPERIENCE AND TRAINING ...................................................... ' ........................................................... 7 3
Cross-cultural Negotiations ............................................................................................................. 73
Foreign Languages ......................................................................................................................... 74
Training Programs .......................................................................................................................... 75
Trade Shows ................................................................................................................................... 75
Use of Information Services ............................................................................................................ 75
Trade Assocra' tions .......................................................................................................................... 75
Additional Considerations .............................................................................................................. 76
CHAPTER 8: SUMMARY AND CONCLUSIONS 77
SUMMARY or RESULTS ........................................................................................................................ 77
SURVEY PROBLEMS ............................................................................................................................. 80
NEEDS FOR ADDITIONAL RESEARCH ..................................................................................................... 80
CONCLUSIONS ..................................................................................................................................... 81
List of References ........................................................................................................................... 84
Appendix A - Survey Questions ...................................................................................................... 91
Appendix B - An Example of An Export Strategy: Company A ..................................................... 93
Appendix C - The Export Business Plan ........................................................................................ 111
Appendix D - A Guide for Developing a Marketing Plan ............................................................... 145
Appendix E - An Export Business Plan Outline ............................................................................. 151
Appendix F - Government Agencies and Universities Which Provide Export Information ............. 153
Appendix G - Export-Related Trade Associations .......................................................................... 156
AppendixH -Value ofU.S. Exports ofHardwoodLumberbyCountry, 1991- September 1996 ..... 158
Appendix I - Growth ofthe Value ofU.S. Exports ofHardwood Lumber by Country, 1991-
September 1996 ........................................................................................................ 159
Appendix J - Value of Michigan Exports of Forest Products (SIC 24) by Country, 1991 -1995 ....... 160
Appendix K - Growth of the Value of Michigan Exports of Forest Products (SIC 24) by Country,
1991 - 1995 ............................................................................................................. 161

vii

LIST OF TABLES '

Table 4.1 - Stages of Export Development, by % of Exports ............................................................ 21
Table 4.2 - Proposed Stages of Export Activity, by % of Exports ..................................................... 21
Table 6.1 - Respondent Firm Characteristics, by % of Exports ........................................................ 30
Table 6.2 - Respondent Firm Characteristics, by Value-added ......................................................... 30
Table 6.3 - Respondent Firm Characteristics, by Firm Size ............................................................. 31
Table 6.4 - Current Export Markets of Respondent Groups, by % of Exports ................................... 33
Table 6.5 - Respondent Current Export % of Total Sales, Future Target % of Export Sales, and

Expected Export % Increase, by % of Exports ............................................................... 40
Table 6.6 - Respondent Current Export % of Total Sales, Future Target % of Export Sales, and

Expected Export % Increase, by Value-added ............................................................... 40
Table 6.7 - Survey Population Breakdown by Primary Export Product Type, by % of Exports ......... 47
Table 6.8 - Survey Respondent Groups’ Breakdown by Primary Export Product Type, by % of

Exports ......................................................................................................................... 47
Table 6.9 - Respondent Sales and Product Characteristics, by % of Exports .................................... 49
Table 6.10 - Percentages of Respondents with Experience in Areas of International Business,

by % of Exports .......................................................................................................... 52
Table 6.11 - Percentages of Respondents with Experience in Areas of International Business,
by % of Exports .......................................................................................................... 52

Table F.l - Government Agencies and Universities Which Provide Export Information Sources 153
Table G.1- Export-Related Trade Assocratrons ................................... 156
Table H.1 - U.S. Exports of Hardwood Lumber by Country (8 Thousand F.A.S. Value), 1991-

1996 ............................................................................................................................ 158
Table 1.1 - Increases and Decreases ofU.S. Exports ofHardwood Lumber by Country, 1991-

1996 ............................................................................................................................. 159
Table I .1 - Value of Michigan Exports of Forest Products (SIC-24) by Country (5 Thousand

Value), 1991- 1995 ...................................................................................................... 160
Table K.l - Increases and Decreases of Michigan Exports of forest Products (SIC-24) by

Country, 1991-1995 ..................................................................................................... 161

viii

LIST OF FIGURES '

Figure 2.1 - Michigan Timberland Ownership by Ownership Class, 1993 ......................................... 6
Figure 2.2 - Area of Michigan Timberland by Forest type Group, 1993 ............................................. 7
Figure 2.3 - Area of Michigan Timberland by Stand-size Class, 1980 and 1993 ................................ 7
Figure 6.1 - Survey Response Rate .................................................................................................. 27
Figure 6.2 - Respondents’ Current Scope of Marketing, by % of Exports ........................................ 31
Figure 6.3 - Respondents’ Current Scope of Marketing, by Value-added ......................................... 32
Figure 6.4 - Respondents’ Current Scope of Marketing, by Firm Size ............................................. 32
Figure 6.5 - Respondents’ Current Method(s) of Advertising, by % of Exports ................................ 34
Figure 6.6 - Respondents’ Sales Force Elements, by % of Exports ................................................... 35
Figure 6.7 - Respondents’ Sales Force Elements, by Value-added ................................................... 35
Figure 6.8 - Respondents’ Primary Reasons for Exporting, by % of Exports .................................... 36
Figure 6.9 - Respondents’ Primary Reasons for Exporting, by Firm Size ......................................... 37
Figure 6.10 - Respondents’ Primary Reasons for Exporting, by Value-added ................................... 38
Figure 6.11 - Length of Time Which Top Management is Willing to Wait in Order to Achieve

ROI on Foreign Sales Investments, by % of Exports ................................................... 39
Figure 6.12 - Length of Time Which Top Management is Willing to Wait in Order to Achieve

ROI on Foreign Sales Investments, by Value-added ................................................... 39
Figure 6.13 - Future Level of Export Activity, by % of Exports ....................................................... 41
Figure 6.14 - Future Level of Export Activity, by Firm Size ............................................................ 42
Figure 6.15 - Levels of Manpower to be Allocated Toward the Expansion of International

Business Activity, by % of Exports ............................................................................. 43
Figure 6.16 - Current Sales Channels, by % of Exports ................................................................... 44
Figure 6.17 - Sales Channels to be Utilized for Exporting Within the Next 3 to 5 Years, by % of

Exports ...................................................................................................................... 44
Figure 6.18 - Current Sales Channels, by Value-added .................................................................... 45
Figure 6.19 - Sales Channels to be Utilized for Exporting Within the Next 3 to 5 Years, by Value-

added ......................................................................................................................... 46
Figure 6.20 - Levels of Value-added to Export Products, by % of Exports ....................................... 48
Figure 6.21 - Respondents’ Self-rated Levels of Knowledge Pertaining to International Business

Elements, by % of Exports ......................................................................................... 50
Figure 6.22 - Respondents’ Self-rated Levels of Knowledge Pertaining to International Business

Elements, by Firm Size .............................................................................................. 51
Figure 6.23 - Non-exporters’ Reasons for Not Exporting ................................................................. 53

ix

Chapter 1

INTRODUCTION

Two fundamental trends, the interconnectedness of the economic world and the upsurge of small
business starts in the US. and around the world, raise the issue ofexport readiness ofentrepreneurial
business (Cavusgil and Nason, 1990). Many trends in today’s business environment have compelled firms
to investigate the feasibility and profitability of expanding into foreign markets. Narrow domestic market
opportunities and increased competition have compelled some firms to increase sales and market share
through exporting. Information technology advances have shortened export order response times,
decreased costs in export data acquisition, and aided in the dissemination and availability of foreign
market information.

Export marketing is by far the most typical type of international business involvement among
firms, since it represents a less risky form of involvement and requires less commitment of company
resources than foreign direct investment (Cavusgil, 1984). As the domestic markets become more
competitive, exporting ofi‘ers a means to expand market share and increase sales. Indeed, most companies
get involved in exporting primarily to increase sales revenue (Daniels and Radebaugh. 1995). Exporting
can also be a means to dispose of excess inventory or utilize excess production capacity. In addition,
many firms export to a variety of different markets as a diversification strategy (Daniels and Radebaugh,
1995).

Initial involvement in international marketing is a gradual and incremental process (Cavusgil,
1980). Consideration of the desirability and feasibility of exporting is the first step that most companies
will have to take when investigating exporting (Cavusgil and Nason, 1990). The complex nature of
international business decisions mandates a thorough internal and external analysis of a firm’s

competitive potential, prior to making any substantial investments in the process of going international.

Chapter 2
THE HARDWOOD LUMBER INDUSTRY

National Hardwood Resources

TheeasternsectionofUnited Statesisanimportantsourceofhardwoodsforglobalhardwood
products manufacturing (Ararnan and Tansy, 1990). The United States is covered with 737 million acres
of forest land, or approximately 33% of its total area. Of this forest land, 490 million acres are classified
astimberland—forest landcapable ofproducing morethan20 cubicfeetperacreperyearandnot
withdrawn fiom timber production (Powell et al., 1992). Seventy percent of this timberland is located in
the Eastern United States.
Gmflng Stock

Hardwood growing stock in the US. continues to improve toward providing increasing amounts
of sawtimber for export-quality lumber production (Araman, 1987b). Growing stock volume on US
timberlands increased by 2.6% between 1987 and 1992, and net volume per acre has increased 33% since
1952 (Powell et al., 1992). Forty three percent of the timber growing stock in the US. consists of
hardwoods, and 90% of this is located in the eastern United States. The volume of hardwoods has
increased 7% between 1987 and 1992, and 82% between 1952 and 1992 (Powell et al., 1992). With
respect to sawtimber, the volume of hardwoods in diameter classes greater than 19 inches has doubled
since 1952. Because hardwood timber growth greatly exceeds harvest, the quantity of the US. hardwood
resource continues to improve (Powell et al., 1992).
Sflies of Ham; for Export

The major hardwood species highly demanded on the export markets are the select red and white

oaks, yellow birch, hard maple, black walnut, black cherry, and the ashes (Amman, 1987a). These are

3
referred to as the “select export species”. The select oaks have made up about two-thirds ofthe U.S.

hardwood product exports (USDA Foreign Agricultural Service, 1996).

By the year 2000, US. inventories of select export species sawtimber could increase by 42%
(Amman, 1987b). Thus, it would appear that the United States has the resources necessary to continue to
supply domenic markets, to continue as a major player in the world hardwood market for log, lumber, and
veneer products and to increase exports of further processed hardwood'products (Araman, 1987b).

National Hardwood Products Export Potential

The United States has become a major player in the export side of the world marketplace for
hardwood logs, lumber and veneer. For the past fifteen years, US. exports of these products have been
growing, and the future looks bright (Araman and Tansey, 1990). Hardwood lumber was the most
predominant commodity on the hardwood products export market from 1991 to 1996, representing
approximately 54% of the total value of US. hardwood products exports including logs, lumber, veneer,
molding, siding, flooring, and chips (USDA Foreign Agricultural Service, 1996).

W

There was an increased competition for logs in 1996, and mills experienced higher stumpage
prices accordingly. Many mill operators stated that demand was up, yet the increase in costs of raw
materials has outpaced the price increases for finished products. The prices for stumpage are actually
. increasing at twice the rate of inflation, and continued increases are predicted for the future
(Import/Export Wood Purchasing News, December 1996/Januaryl997).

There are several ways to cope with the increased stumpage prices, including greater use of
alternative species; using smaller-diameter, short logs; instituting increases in technological advances in
machinery; and intensive forest management practices (Import/Export Wood Purchasing News, December
l996/January1997). In addition to high stumpage prices, other problems for the hardwood lumber
industry include ongoing pressure from environmental groups, and the substitution for solid lumber by

materials such as medium density fiberboard, plastics, and aluminum or steel (Bezerra, 1996).

H P u E rts

Overall, the volume of US. hardwood products exports has been steadily increasing on an annual
basisinthelastsixyears. Hardwoodsidinghasexpefiencedthemostsigrrificantgrowthwimmmlvalues
of exports increasing by an annual average of 58 percent from 1991- to 1995. Veneer export values have
grown by 12 percent annually, plywood exports by 11 percent, and chips by 10 percent. Molding exports
have increased annually by 6 percent during this period, while log exports have increased by 5 percent.

Hardwood lumber exports have increased from 2.078 million cubic meters in 1991 to 2.405
million cubic meters in 1995 (USDA FAS, 1996), representing an increase of 39 percent for this period.
In terms of value, hardwood lumber exports have increased by approximately 9 percent each year from
1991 to 1996, representing an average of 15 percent of the value of US. exports of commodity wood
products.
Hardwm Lumgr Emrt Markets

For the United States, Japan has been the major wood products export market for the last six
years, consuming roughly 45% of total US. wood products exports in 1995 (USDA Foreign Agricultural
Service, 1996). Canada has been the major export market for hardwood lumber, consmning
approximately 22% of US. exports in 1995 (USDA Foreign Agricultural Service, 1996). Other major
markets for hardwood lumber have included Japan, Italy, Germany, and the United Kingdom. Appendix
H covers U.S. hardwood lumber markets in more detail.
Remus for Increased Hardwood Produgs Emrts

There are several factors which have contributed to the United States hardwood lumber industry’s
potential to expand exports. Global efi'orts to protect tropical forests have decreased supplies of tropical
hardwoods and increased the demand for temperate hardwood lumber, while third-world countries usually
lack the infrastructure Vital to efiectively market their resources (Hammett and Cubbage, 1991). European
and Japanese hardwood users have switched toward the use of more temperate hardwoods (Araman,
1989a). Taiwanese and Korean demands for raw materials to make furniture that they can sell in the

US, Canada, Japan, and Europe have also been increasing (Araman, 1989b).

5
Research for new products to utilize hardwoods and low quality wood use by pulp, pallet and

wood composite manufacturers in the US. offer new domestic markets for low quality products. In fact,
the northern US. has good markets for such low quality material, making higher grade hardwood lumber
more abundant for export nrarkets (Hammett and Cubbage, 1991). .

Adding to these reasons why U.S. hardwood exports have increased are the facts that: the US. is
the number one producer of sawn hardwoods in the world; US. production capacity has been increasing;
dry kiln capacity has been increasing at mills and yards; suppliers have been attacking export markets;
promotional efforts steadily increased through the 19805; and the US. has plentiful hardwood resources
(Araman, 1989a).

Mgg’ng Emrt ngands
In order for the US. hardwood products industry to increase its exports, Araman (1984) suggests

these companies: provide foreign customers with what products they nwd and not only what mills
produce for domestic use; increase the number of companies willing to export or get more hardwood to
current exporters; be willing to commit a percentage of production to the export market; and remain
competitive in the international marketplace. Araman (1989b) states that the US. hardwood products
industry will meet the demands for increased exports by: exporting more species in high volumes;
exporting more upgraded lumber, exporting more dimension; exporting more character marked lumber,
dimension, and veneer; and through improved processing and utilization of US. hardwood resources.
Michigan Hardwood Resources

Am and Ownership

The 1993 inventory conducted by the United States Forest Service revealed 19.3 million acres of
forest land in Michigan, which accounts for about halfof the state’s 36.4 million acres of land. Forest
land in Michigan increased about 5% between 1980 and 1993, while timber land increased approximately
7%. This resource base, combined with that of the adjacent Great Lakes states, provides an ample supply
of select hardwood species to support the future manufacture and export of hardwood products.

Of the 18.6 million acres of timberland in Michigan (Figure 2.1), almost half is owned by

individuals (8.4 million acres). A full third of Michigan’s timberland (6.6 million acres) is administered

6

by various government agencies, while smaller portions are owned by corporations which do not operate
primary wood-utilizing plants (2.1 million acres) and forest products industries (1.5 million acres)
(Leatherberry and Spencer, 1993). Approximately 1 percent is owned by county and municipal entities,

and less than one percent falls under “other” ownership.

 

Fomt rut-try Comstun‘a'pu
8% 1%
Pvtvua Corporla

anna Noolrdmtrid

Nuionl For-t
‘45

 

20%

 

 

 

Figure 2.1 - Michigan Timberland Ownership by Ownership Class, 1993.
(source: Leatherberry and Spencer, 1993)

Stand Tym

Michigan’s timberland area (Figure 2.2) grows mostly hardwood trees, with three-fourths of its
timberland area occupied by hardwood forest types (Leatherberry and Spencer, 1993). This indicates a
strong supply base for the manufacture of hardwood products. In terms of select hardwood sawtimber
species for export, Araman (1987a) ranked Michigan third out of the twenty-five eastern states in which
these species occur. Hardwood species account for 72 percent of the 1993 Michigan timberland volume

statistics.

 

 

 

 

 

 

 

 

 

 

 

8
a
:5
2.
go
2
1
0
ml.- .pm- apruce- odr- mta- dm
hater birch In hdrorv rad-jadr uh
birch pim oott
owls
Fora-t group type
Figure 2.2 - Area of Michigan Timberland by Forest Type Group, 1993.
(Source: Leatherberry and Spencer, 1993)
Growing Stock

Stocking on timberland areas (Figure 2.3) continues to improve, and the area of sawtimber stands
increased from 5.5 million acres in 1980 to 8.6 million acres in 1993. There has been a corresponding
decline in poletimber-sized stands with respect to the increase in sawtimber-size stands, indicative of a

continuing maturation of forest stands in Michigin (Leatherberry and Spencer, 1993).

 

 

 

“In. 0| acres
5 0‘ O \l O O

duh)

 

obtinb
Stand typo

 

 

 

Figure 2.3 - Area of Michigan Timberland by Stand-size Class, 1980 and 1993.
(Source: Leatherbeny and Spencer, 1993)

Timber removals from growing stock in 1992 represented 44 percent of net annual growth.

compared with 45 percent in 1979 (Leatherberry and Spencer, 1993). Overall, sawtimber volume

8
increased from 45.5 to 71 billion board feet between inventories in 1980 and 1993, respectively. This

increase in sawtimber volumes indicates a potential for increased activity in hardwood sawtimber harvests
and hardwood lumber exports.
The Michigan Hardwood Lumber Industry

As stated previously, the need for expanding Michigan’s forest products industry into the global
market is evident. Michigan’s hardwood products industry continues to have expandable and profitable
export trade, as evidenced by only six percent of the state’s hardwood grade lumber being exported in
1994 (Gregson, 1995). This is well below the national average of 16% exports of high grade lumber
produced in small- to medium-sized hardwood products companies (Weekly Hardwood Review, 1996).
Although state-level trend data for hardwood lumber exports was unavailable, annual international
exports of lumber and other non-furniture wood products from Michigan have increased on the average of
nine percent from 1989 to 1995 (University of Massachusetts, 1992, 1994, 1995, 1996).
Mi hi Forest P E rt M ets

Canada has been Michigan’s primary export market for wood products other than furniture,
consuming 51% ($50 million) of these products in 1995 (University of Massachusetts, 1996). Other
major markets in 1995 included Germany ($12.5 million), Germany ($11.5 million), Mexico ($11.5
million) and Japan ($4.8 million). Appendix J details Michigan’s forest products export markets.
Timber Utilg’ tion

Loggers delivered nearly 625 million board feet of Michigan sawlogs to mills in 1990. Aspen,
hard maple and soft maple supplied 53% of the growing stock harvested in Michigan in 1990. Overall,
there was a decline of 4 percent in sawlog production from 1988 to 1990. Major sawlog species included
hard maple, red oak, aspen, red pine and sofi maple (I-lackett and Pilon, 1993). In 1990, Michigan
imported 8 million board feet of sawlogs from Wisconsin, Ohio, Indiana and Minnesota. The major saw
log species imported into Michigan in 1990 were red oak, basswood and hard maple.

Michigan and the eastern US. states have a strong hardwood resource base to sustain and
develop the production of hardwood lumber and various other hardwood products. These states have large

areas of timberlands which contain the species that are currently in demand in the international

9
marketplace, and exports of hardwood products are increasing on an annual basis. The US. hardwood

resource base is improving in terms of sawlog quality timber availability, and will provide an adequate

mpplymengdomesficmnsumpfionandexpandhgexponsofhardwoodpminthefuture.

Chapter 3

LITERATURE REVIEW

Despite the need for organizational readiness in successfully initiating international business
within the hardwood products industry, little research has been conducted on how Great Lakes hardwood
products companies’ organizational structure may affect their ability to successfully penetrate foreign
markets. Exisungexponaudieshmeaddreswdmehammmmdumymwvwareasofme
U.S., but data on export activities of hardwood lumber producers of Michigan is strictly descriptive
(Stevens, 1994). A more detailed study of current hardwood products exporter practices was necessary in
order to effectively analyze the potential for these companies to successfully expand into overseas markets.

Regional U.S. Forest Products Literature

The literature on US. forest products exporters varies according to region, but to date there has
been little if any focus on the export behavior or organizational structure associated with wood products
producers in the Great Lakes area. Hardwood products export studies which have been conducted are
briefly described below by region.

Eastern Eggion

lfiu and Bush (1993) assess the Eastern hardwood lumber industry to determine barriers and
incentives associated with export activity, and address management perceptions and practices which
involve export activities. Their study maintains that non-exporting companies with no interest in
becoming exporters perceived themselves as too small to export and were satisfied with the domestic
market and that a lack of information concerning international markets kept non-exporters from
marketing their products overseas. [fin and Bush also found that foreign trade shows were an important
means of increasing sales overseas. Ringe, Graves and Hansen (1987a and 1987b) published two articles

on hardwood lumber producers from Kentucky, and indicate that firm size is not a significant factor in

10

11
successful foreign trade. Ringe et al. (1987a) also maintain that a full understanding of export markets,

procedures, and customer desires, as well as a strong commitment to fulfilling them are essential elements
of successful exporting among hardwood lumber companies. Their articles also indicate that a lack of
knowledge was significant in hindering the exporting among these firms. Ringe et al. (1987b) address
export species, grades, and markets to determine the nature of foreign consumers, and maintain that
hardwood lumber exporters must be aware of the product characteristics sought by each customer to
satisfy their target markets.

Araman (1987b) determined that the eastern US. has the resources necessary to continue as a
major player in the world market for hardwoods and to increase exports of further processed hardwood
products. Araman (1987a) examined the eastern US. in terms ofhardwood resources, and ranked
Michigan third in terms of hardwood sawtimber availability.

ern ' n

Hammett, Cubbage, and Luppold (1991) compare the characteristics of Southern Appalachian
hardwood lumber exporters and nonexporters, and state that mills selling to international markets had
greater production levels, larger lumber inventories, and sawed more of their product from higher lumber
grades- In addition, Hammett et al. (1991) also found that exporting firms had significantly more people
responsible for lumber sales and marketing than non-exporters, used a variety of advertising media, and
served more geographically diverse areas in the domestic market. Hammett and DeForest (1992)
presented keys to Southern hardwood lumber exporting success, and state that exports are important to
southern exporters for creating a greater marketing base, achieving higher profit margins, eliminating
cyclic production schedules, selling excess inventory, and achieving personal satisfaction. Hammett and
DeForest (1993) describe Southern hardwood lumber exporter practices and problems, and identified that
mills which intend to begin exporting need market-specific information, need to manufacture products
desired in international markets, and require assistance with export logistics. Their research indicated
that the stabilization of seasonal market fluctuations and expanding into more diverse markets were
important motivational factors in exporting hardwood lumber. Hammett and DeForest (1993) also

concluded that a lack of knowledge about what international customers desire is a greater obstacle to

12
exporting than the inability to produce hardwood lumber to their specifications. The authors found that

the majority of southern hardwood lumber exporters used agents or brokers, and that a number of those
firms used more than one channel to get their products to foreign markets. Additional findings included
that these firms had significantly more personnel allocated toward export endeavors, that trade shows
were important to these firms in increasing sales, and that southern hardwood lumber exporters did far
more advertising than non-exporters.

Hammett and Cubbage (1991) describe lumber exporting in the south in terms of forest resources,
the hardwood industry, exporting methods and current research, and mention that little research has
studied individual firm characteristics and their efiect on success in exporting. Guldin (n.d.) identified
key elements for Southern forest products firms to consider when estimating the export potential of their
products, and found that central to management’s concern is the a lack of knowledge about exporting
channels and distribution methods.

Pgifig N oflwggt Legion

Gottko and McMahon (1989a and 1989b) wrote two articles on the export activity of Oregon
lumber producers during the 1980s. The first article describes attitudes and practices of lumber exporters
and nonexporters, and maintains that exporters were significantly larger than non-exporters, that non-
exporters had more negative attitudes about exporting, and that neither exporters or non-exporters tended
to be customer-oriented. This article also states that Oregon lumber producers considered the anticipation
of profit potential overseas as the most important reason to consider exporting among both exporters and
non-exporters. Gottko and McMahon (1989a) also state that less than one third of their survey
respondents had written business plans, but that three-fourths of those who did had marketing strategies in
their plans. Gottko and McMahon (1989b) evaluate export activity of Oregon lumber producers, and
indicate that a marketing strategy that employs aggressive market selection of target countries and use an
appmpfiatemixofmarkeungelementsisthemosthkelywaytoincreaseexpons.

Gottko and McMahon (1989b) call for additional research on 1) the possibility of a firm’s
establishing and operating a department of export headed by an export marketing manager; 2) direct

versus indirect exporting; 3) the types of products to be exported; and 4) such marketing decisions as the

13
number of countries exported to, the years exported to each one, and the number of customers served in

each.

It is evident that past studies of hardwood products exporters reveal a need for strong export
commitment, thorough market research, distribution channel development, and increased information
acquisition from agencies and organimtions which support export activity.

Regional studies of U.S. hardwood products exporters provide valuable insight as to the
marketing characteristics of their associated lumber exporters, but to date no current studies have focused
on Michigan hardwood products exporters. In addition, the existing studies do not provide a systematic
description of the various elements associated with international business. To aid in the analysis of the
Michigan hardwood products export industry, as well as to define an export strategy and explain the
various elements of exporting in general, additional literature was reviewed. This literature is described
in detail below.

Additional Hardwood Products Literature

A variety of literature was incorporated into Appendices B and C, in order to develop and
substantiate a strategy for hardwood lumber companies to expand into international markets. Some of
these articles are described below.

Hardwood Lumbgr Mgrketing

McClintock (1987) states that US. hardwood lumber companies do not maintain forward-
looking, effective marketing programs based on an understanding of customer requirements. Idassi et al.
(1994) maintain that a central theme in competitive strategy in the hardwood lumber industry will be
creating and delivering value to the customer, attainable by developing a customer-oriented marketing
strategy. This article also provided evidence that “product-oriented marketing methods, by themselves,
were ineffective in creating and delivering value for hardwood lumber companies (Idassi et al., 1994).”
Araman (1989a) describes some packaging characteristics of hardwood lumber exports, and notes that

companies should endeavor to improve their product appearance for export markets. Bush, Sinclair, and

l4
Araman (1990) state that srnall- to medium-sized hardwood lumber companies should gear their domestic

marketing strategies toward focusing on particular markets.
ardw M n

Araman (1989b) argues that US. hardwood firms need to increase demand for species other titan
select export species, upgraded lumber, and high grade dimension. Araman (1984) indicates a good
potentialforhardwoodexports, andarguesthatthefutureofhardwoodexportincreasesdependsonthe
' acceptance of less-preferred species, increased logging and lumber production, increased acceptance of
character-marked veneer, and increased shipments of strip and dimension stock made fium No.1 and No.2
Common lumber.
MM

An additional area of interest with regard to exporting was in the vertical integration of
operations (Appendix B). This was considered as a means for lumber companies to expand their presence
in foreign markets, and as a strategy to customize their service to foreign customers. Mater (1990)
investigated ‘value-added’ products in the hardwood industry, and stated that ofi‘ering value-added
specialty items ofiers a good chance to compete in the international marketplace. Hansen and Araman
(1985b) argue that there are many possibilities and opportunities of exporting standardized hardwood
dimension blanks, and that the export of dimension would: alleviate problems caused by foreign
misunderstand of US. grading rules; facilitate the shipment of only useable material overseas; and take
some of the pressure off the more limited supplies of higher-grade hardwood timber resources. Hansen
and Araman (1985b) conducted a study on the investment requirements of a small-scale hardwood
dimension facility, and indicate this type of facility seems suited for a firm wishing to enter the wood
business on a small scale, to sawmill operators wishing to upgrade and expand their product offering, and
to small furniture and cabinet manufacturers wanting more control of their raw materials situation.
Araman (1990) states that the market potential for hardwood dimension stock and furniture parts is
growing in both the domestic and international marketplaces.

Araman (1988a) investigated Pacific Rim and Middle Eastern markets for US. hardwood

lumber, and proposed the markets for standardized rough dimension in these markets could help answer

15
the problems associated with limited high-grade resoum. Cohen (1992) proposes that adding value

incrementally, by providing product refinements or adding products to existing product lines through a
graduflpmwinenhanceforestproductsexportstolapan.
Supporting Literature

In addition to forest products-related research, studies related to general firm characteristics and
practices within a wide variety of industries were investigated. Since these references are not industry-
specific, they served as general guidelines to enhance the analysis of Michigan hardwood products
manufacturers. The literature also aided in developing an export strategy for these companies (Appendix
B), and to explain the various elements of an international business plan (Appendix C).

'onal a eri 's {E rters

Activities associated with successful exporters of diflerent industries are valuable in acting as
benchmarks when evaluating firms which are considering going international. Cavusgil (1984) describes
organimtional characteristics associated with export activity, and maintains that although a company’s
size may assist in accruing certain advantages in exporting, there is not a true relationship between firm
size and export behavior.

Kaynak and Kothari (1984) focus on international marketing policies for small and medium-
sized manufacturers in North America, and cite several reasons why firms in Nova Scotia and Texas
refrained from exporting: presence of foreign competition; lack of information on foreign markets; large
domestic market; difiiculty in obtaining foreign distribution; difficulties associated with collecting
payment for goods; paperwork associated with international transactions; and domestic and foreign
government restrictions or requirements. Rabino (1979) identifies perceived barriers to exporting
encountered by small high-technology manufacturing companies in New England: lack of exposure to
other countries; large domestic market; lack of staff time; paperwork and management of export
Operations; lack of foreign language skills; and different safety and quality standards. Bilkey and Tesar
(1977) describe the export behavior of smaller-sized Wisconsin manufacturing firms, and state that the
development of exporting occurs in stages, and that firm size was relatively unimportant for export

behavior when accounting for the quality and dynamism of management.

16
S 'c “on: in in Intern tional

Individual components of the process of expanding into foreign markets have been explored to
develop an understanding of what constitutes an international business strategy. Simpson and Kujawa
(1974) propose that an export stimulus (e.g., and unsolicited order fi'om a foreign customer) is a
significant but not sufficient condition for a positive export decision, and that important variations
between exporters and non-exporters in cost, profit, and risk perceptions may well account for different
responses to similar stimuli by these two groups. The export behavior of firms is addressed by Cavusgil,
Bilkey, and Tesar (1979), citing influences such as favorable expectations of exporting, market
development planning, systematic exploration of export feasibility, and high aspiration for firm growth as
important variables in a firm’s decision to export.

Thorelli and Becker (1980) discuss strategic planning in international marketing, propose “that
without a plan that specifies objectives and provides for the means of obtaining those objectives, an
activity loses much of its purposefulness and direction.” Thompson and Strickland (1995) address issues
related to creating and implementing strategy in business, stating that crafting a strategy is an exercise in
entrepreneurship, and that the challenge is for company managers to keep their strategies closely matched
to such outside drivers as changing buyer preferences, the latest actions of rivals, market opportunities and
threats, and newly appearing business conditions.

Initial Staggg in Interngtionglization

Initial stages of the internationalization process are critical to successful exporting. Cavusgil
(1980) provides valuable insight on the stages of the internationalization process of firms, and describes
initial involvement in international marketing as a gradual, incremental process. Dichtl, Leibold,
Koglmayr and Muller (1983) investigate the firm’s decision to go international and state that iruportant
variables considered by exporters include the management’s anticipation of a significant impact
emanating fi'om exports on the firru’s grth as well as a high degree of commitment to export
marketing. Dichtl et al. (1983) point to management’s lack of detemrination to consistently explore the

conditions for successful foreign market operations as an primary reason for refiaining from exporting.

17
Information acquisition and export entry decisions in small firms are described by Reid (1984),

who argues that smaller companies were operating on a limited information basis due to their lack of
information soru'ce utilization, and that the extent ofawareness and usage ofgovernrnent programs in
general is positively related with new export market entry. Reid (1984) also indicated that membership in
trade organimtions had a positive correlation to success in expanding international sales. Reid (1981)
states that, other than ratio of sales to export sales, indicators of export performance should include
measures of growing export commitment such as firm growth, absolute level of exports, relative growth of
export sales, rate of new market expansion, and rate of new product introduction into foreign markets.
Th; Internam nal Business Process Elemgts

There are a multitude of areas of interest which a potential exporter must address in developing
an export business plan Distribution channel selection, market research, negotiations processes, pricing
issues, and foreign travel are just some of these issues. Thorelli (1990) discusses how building networks
can benefit companies involved in international business, since the increasing complexity of modern
markets and government-business relationships call for resources greater than those at the command of
any single firm. This article defines the importance of the relationships between an exporter and its
distributors, with regard to potential expansion within foreign markets. Delvin and Bleackley (1988)
discuss guidelines for success in strategic alliances with foreign partners, stating that developing
relationships with suppliers, producers, and distributors are a central aspect of a company’s future
direction and are a key strategic option. Beeth (1973) discusses guidelines for developing quality
distribution channels, and finds that developing distributor networks is a continuous process of analyzing
potential partners and evaluating existing relationships, and that finding excellent distributors is all-
important in ensuring success in international markets.

Cavusgil (1985) offers guidelines for export market research, and concludes that a nrarket-
oriented clustering of countries is essential for determining potential export markets. Ghauri (1986)
developed guidelines for international business negotiations, and states that a respect for difierent
perspectives and environments is of utmost importance in successfully negotiating contract terms between

a buyer and seller. Cavusgil (1988) describes the process of export pricing, and maintains that pricing

18
complexities exist due to the large number of variables that affect international pricing decisions and the

uncertainty surrounding them. In addition, Business International (1987) describes the advantages of

trade fairs in meeting potential suppliers and customers.

Chapter 4

RESEARCH OBJECTIVE

Overview
A more detailed study ofcurrent hardwood lumber export practices is necessary in order to
analyze the potential for Michigan’s hardwood lumber industry to efi'ectively expand into overseas
markets. Despite the need for organizational readiness in successfully initiating international business
within the hardwood lumber industry, little research has been conducted on how Great Lakes hardwood
products companies organizational structure and marketing strategies may affect their ability to
successfully penetrate foreign markets.
Research Objective
The objective for this project is to provide a comprehensive evaluation of Michigan hardwood
products exporters in terms of organizational structure and management behavior with regard to
exporting. It will attempt to identify those marketing and organizational characteristics which set “active”
exporters apart from their less intemationally-oriented counterparts, and formulate an export strategy and
business plan for hardwood lumber companies. This may serve to establish basic, systematic guidelines
which may assist small- to medium-sized Michigan hardwood lumber manufacturers in preparing to enter
international markets. These guidelines may in turn increase activity in exporting if appropriate for their
objectives. The research highlights some of the current trends in successful hardwood products exporting,
and defines implications of challenges and opportunities which may have an impact on the decision-
making process of managers interested in going international. The research also addresses some
questions pertaining to Michigan’s hardwood products exporters:
1. What constitutes an “active” exporter?

2. How are Michigan hardwood products exporters conducting international marketing?

19

20
3. What do hardwood lumber companies, not currently exporting, need to consider when preparing to

expand into international markets?
4. Why are companies not currently exporting uninterested in the international market?
CORE IV

An additional benefit of this research was derived from providing interested companies with an
artificial-intelligence, decision-support model in the analysis of those firms’ readiness to export their
products overseas. As of yet, CORE IV and other decision-support models produced by MSU’s CIBER
have not been widely disseminated (Cavusgil, 1995), and their use within the forest products industry has
been minimal to nonexistent. This instmment may potentially provide a valuable service to Michigan
hardwood products manufacturers, through the use of a professional evaluation tool in the analysis of their
firm’s readiness to export.

What Constitutes an “Active” Exporter?

In developing the analysis for this study, it became necessary to define the characteristics of an
“active” exporter. As companies gain greater expertise and experience in exporting, they diversify their
markets to countries that are farther away or have business environments that differ from that of their
home country (Daniels and Radebaugh, 1995). Kotabe and Czinkota (1992) propose that there are five

stages (Table 4.1) which companies experience in developing their export activities.

21

Table 4.1 - Stages of Export Development.
(Source: Massakki Kotabe and Michael R Czinkota. 1992.)

 

 

 

 

 

 

 

STAGE 1 Partial Interest in Company fills unsolicited orders but makes no effort to
Exporting explore the feasibility of exportinmlarly.

STAGE 2 Exploring Exporting Company actively explores the feasibility of exporting but
currently exports less than 5% of its total sales.

STAGE 3 Experimental Exporter Company exports on an experimental basis to countries that
either are geographically close to it or a culture similar to its
own. Ergrorts represent more than 5% of its total sales.

STAGE 4 Experienced Exporter Company is experienced and exports more than 5% of its total

with Limited Scope sales. It adjusts export ofi‘erings optimally in response to
changes in the foreign environment (for example, exchange
rates, tariffs, etc), although it still exports only to countries
that are either geographically close to it or have cultures
similar to its own.

STAGE 5 Experienced Exporter Company is experienced and exports more than 5% of its total

 

 

sales. However, it also explores the feasibility of exporting to
either countries that are not geographically close or have
cultures dissimilar from its own.

 

As Table 4.1 indicates, an “active” exporter may be defined as one which exports over 5 percent

of its total sales and is currently exploring the feasibility of exporting to more countries which are

geographically distant from as well as culturally different than its own. Using these criteria, the survey

respondents were first separated into two groups: those which export 5% or less of their total sales, and

those which export over 5% of their annual sales. Those companies which export over 5% of their sales

were further separated into two groups, categorized according to a desired increase in exports levels, as

well as a perceived future export activity on a regular basis (with either a moderate or aggressive level of

target sales). These three groups of respondents were categorized into levels (Table 4.2) modified from

those proposed by Katobe and Czinkota (1992).

Table 4.2 - Proposed Stages of Export Activity.

 

 

 

 

 

 

LEVEL 1 Experimental Exporter Company explores the feasibility of exporting but currently
exports less than 5% of its total sales.
LEVEL 2 Experienced Exporter Company exports over 5% of its total sales, but does not
with Limited Scope desire increases in future exports.
LEVEL 3 Experienced Exporter Company exports over 5% of its total sales, and desires
with Broader Scope increased percentages of future exports.

 

 

 

22
The desire for increased percentages of exports in relation to total sales, as well as a perceived

regular export activity, is indicative of higher commitment by upper management to the international
market as a source of future company growth and profitability.
Ad itional Considerations

There are several descriptions of the characteristics of active exporting firms. In reviewing the
export decision process of small- and medium-sized firms, Dichtl et al. (1984) describe several
organizational characteristics which distinguish active exporters:

The typical exporting firm... has a definite price edge on the market and is more

diversified in marketing techniques such as selling and merchandising the product titan

the non-exporter. Their management has very favorable expectations regarding the

effect of exporting on the firm’s growth, plans for developing the firm’s market, takes a

favorable view of the impact of exporting on the firm’s market development, and the

annual sales of the companies concerned amount to $1 million or more.

Simpson and Kujawa (1974) describe personal characteristics exhibited by exporters in
comparison to non-exporters:

Exporters assess their chances of success on export markets higher than non-exporters.

They also enjoy a higher level of education, display less fear of risks involved, estimate

the costs of export activities to be lower, and perceive less difficulties regarding

communication than their colleagues focusing on the local market (Dichtl et al., 1984).

Although these are descriptions of exporters in the 19805, the fundamental elements associated
with exporters are their perception of exporting as a long-term, favorable means to expand their markets
and increase their firm’s profitability, and their proactive approach to expansion into foreign markets.
For the basis of this analysis, it was assumed that as the level of export percentages of total production
increased, so would the firms’ long-term view of exporting as well as their involvement in developing
export markets.

Percentages of exports in relation to total annual production is just one of many possible means of
distinguishing categories of exporters. Ifju and Bush (1993) grouped exporters in the Eastern US.
hardwood lumber industry according to their ratio of domestic to foreign sales as well as by their desire to
participate in export markets. Ringe et al. (1987) separated Kentucky hardwood exporters based on their
total annual manufacturing capacity. Tesar and Tarleton (1982) defined “aggressive” exporting firms in

Wisconsin and Virginia as those who sought their first export order, and “passive” exporters as those who

23
did not. Additionally, hardwood products exporters may be separated according to what types of products

they ofl‘er for international markets.

Chapter 5

METHODS

Survey Design

The survey focused on those Michigan hardwood products companies currently exporting, as
indicated by their response to a recent Michigan DNR survey. The instrument incorporated questions
derived from a professional export evaluation program, COmpany Readiness to Export (CORE) IV,
developed by Dr. S. Tamer Cavusgil of Michigan State University’s Center for International Business
(CIBER). Additional questions specific to the hardwood lumber industry were incorporated into the
instmment. A sample of the questionnaire is located in Appendix A. The data were analyzed to assess
ways in which Michigan hardwood lumber producers may more efl‘ectively establish foreign trade.

Research Survey Population

The research drew its sample from the Michigan Department of Natural Resources forest
products producers directory data base. The producers were stratified by their current level of export
activity to select hardwood products manufacturers currently exporting within a certain range of products.
There are currently 3145 forest products producers listed in the Michigan DNR data base, 2200 of which
are mills or manufacturers. Of the 2200 mills and manufacturers, 370 are listed as exporters and 305 are
listed as “interested” in exporting (Michigan Department of Natural Resources, 1994). The firms which
are “interested in exporting” represent a potential initial increase of 14 % in the number of companies
which export their products outside the United States.
Survey Population Data Base

The MDNR data base is maintained in the computer database program Microsoft Access. A
query was conducted to delineate those companies producing a variety of raw and semi-finished hardwood

products, including logs, lumber, dimension, veneer, flooring, architectural millwork, and moldings. A

24

25

variety of companies producing different products were sought to increase the survey population to
determine if any differences in exporting characteristics existed according to the products exported.

Several inconsistencies in the Michigan DNR forest products manufacturers data base were
evident as the companies were contacted. Of the 103 firms initially contacted, 46 were actually exporters
of hardwood products, 37 were nonexporters, and 20 were not in the hardwood products industry or were
closed. This means only 45% of the companies initially selected from the MDNR data base as exporters
of specified hardwood products were actually exporting hardwood products.

Survey Instrument

The primary survey instrument incorporated personal and phone interviews utilizing a set of
questions pertaining to the firms’ marketing and sales efforts in international business. It consisted of a
series of questions which address critical management issues related to exporting:
0 Competitive capabilities in the domestic market
0 Management motivation for exporting
0 Commitment of management to exporting
0 Product readiness for foreign markets
0 Management knowledge of international business elements
0 Experience and training of management

These issues and many of their respective survey questions are related to the categories of
questions incorporated into the CORE IV program. The program’s questionnaire was utilized to construct
the survey instrument, which had to be useable in a ten to fifteen minute interview session. A random
sample of companies were interviewed in person where travel and time constraints permitted or over the
telephone otherwise. The results from these interviews were intended to benchmark management and
marketing methods utilized in exporting hardwood products, and to determine different strategies used in
exporting.

Survey Procedures
Initially letters were sent to the perspective companies to introduce them to the project. These

were followed up by a phone call to inquire as to whether a personal interview was possible. In most

26
cases, a phone interview was requested, since most of the companies were located at distances prohibitive

of personal interviews. Once the interviews were completed, a letter of thanks was sent to the

interviewees. In addition, packets of information were distributed to the interviewee including a list of

private and public information resources and a bibliography of international business and export articles.
Company Readiness to Export (CORE IV)

CORE IV was designed to function as a decision-support tool which assists managers of small- to
medium-sized companies in developing a systematic approach to analyzing their firm’s readiness to
export. The program addresses six primary criteria: competitive capabilities in the domestic market;
motivation for going international; commitment of owners and top management; product readiness for
foreign markets; skill, knowledge and resources; and experience and training. CORE presents the user
with numerical scores and interpretations for them, presents a list of the company’s strengths and
weaknesses in the context of exporting, provides a set of recommendations, and ofi‘ers a tutorial session
which encapsulates frequently encountered tasks in exporting (Cavusgil et al., 1980).

The CORE IV program weights the answers to generate an evaluation of the firm’s
organizational and product readiness to enter foreign markets. Organizational readiness is based upon
managerial characteristics indicative of successful initiation of international business. These measures
include the management’s previous international experience, the level of upper management’s motivation
for expanding into international markets, the commitment of management in developing business abroad,
the willingness to invest in international development, and other similar factors. Product readiness is
associated with measures of the firm’s product’s potential in international markets. These measures
include product adaptability to differential markets and product uniqueness (Cavusgil, 1996a).

It should be noted that although CORE IV was made available to the survey respondents, only
three opted to utilize the program. This may be due to the sensitive nature of the information requested in
the CORE survey, the time it would take to complete the lengthy survey, or simply because the managers

did not desire the service.

Chapter 6

RESULTS

Survey Responses
Of the 46 exporters in the survey population, 37 agrwd to participate in the survey, 8 declined
interviews, and 1 company could not be contacted, providing an overall response rate of eighty one
percent (Figure 6.1). Of the 35 nonexporters, 6 indicated an interest in exporting, and 29 were not
interested in exporting. Those companies which were not exporting or interested in exporting were asked

why to determine if any particular reasons were prevalent.

 

Non- N3 Comact
Participants 2%
1 7%

  

Participants
81 %

 

 

 

Figure 6.1 - Survey Response Rate.

Respondent Categorization
The individual survey respondents currently exporting were categorized into three groups for
analysis. Those firms of which exports represented 5% or less of their annual sales were designated as

Experimental Exporters. Of those companies which exported over 5% of the total annual sales, two

27

28
groups were defined according to their desired level of export increases and/or future level of activity. If

thefirmhadnodesiredincreaseinprojectedtargetexports,theyweredesignatedasExperienced
ExporterswithLimited Scope, andiftheyindicatedadesiretoincreaseinfimuetargetexports, theywere
designated as Experienced Exporters with Broader Scope. For firms which did not indicate a future target
level of exports, the level of exporting activity was taken into account. In this case, those firms which
indicated an “occasional/as required activity” level of frmre exports were grouped with the Experienced
Exporters with Limited Scope. Those firms which indicated a “regular activity” (with no-, moderate, and
aggressive-target) level of future exports were grouped with the Experienced Exporters with Broader
Scope.

This grouping was intended to separate the exporters into three groups of export-level activity,
with Experimental Exporters being least active, Experienced Exporters with Limited Scope as moderately
active, and Experienced Exporters with Broader Scope being most active. Overall, there were 16
companies exporting 5% or less of their total annual sales, 10 firms which exported over 5% of their sales
but had no projected increase in target exports, and 11 companies which exported over 5% of their annual
sales and had an increase in projected target exports.

Additional Respondent Categories

The analysis of export marketing characteristics is a complex issue, especially when considering
companies which produce a variety of goods for international trade. In order to better analyze the
implications of the results, the respondents were additionally categorized according to characteristics
other than their percentages of exports in relation to total annual production. This additional analysis was
meant to give a broader view of how Michigan hardwood products exporters may difier in their
international business activities. Two additional means of separating the respondents were based on the
value-added to their primary products for export and their size. The results from these classifications
were incorporated into the results whenever they highlighted significant difi‘erences between the
respective groups.

Categorizing the respondents according to the level of value-added to the export products was

accomplished by separating firms which produced logs, lumber and veneer fi'om those companies which

29
manufactured semi-finished products such as dimension, molding, millwork and flooring. The two

groups were designated as “Less Value-added Exporters” or “More Value-added Exporters”, in reference
to the level of domestic processing required prior to shipping their products overseas.

Another means of further dividing the respondents for further analysis was by classifying them
according to their size. Since production measures were different for difi‘erent products manufactured (i.e.
- board feet for logs and lumber, square feet for veneer and flooring, and parts for dimension and furniture
components) and production data was not available from all respondents, the firms were divided
according to their number of employees. Following natural breaks in the data, the respondents were
assigned to one ofthree groups: those with l to 40 employees, 41 to 100 employees, and over 100
employees.

Survey N on-Respondents

Companies unable to be contacted may pose a potential problem to bias caused by non-
respondents. The nine firms which declined interviews stated they either did not have time to participate
in the project or that they did not discuss their marketing programs with people outside their company.
General information on those firms which did not participate (the number of employees and year of
establishment) was obtained from the Michigan DNR forest products manufacturers directory for
comparison with the respondents.

Overall, eight of the nine companies which refused to participate in the survey were found to be
younger and smaller than the three groups of firms which did participate in the survey. Average size for
these firms was approximately eighteen employees, and average age was twenty years.

The products manufactured by non-respondents were typical of those firms which did participate
in the survey and included lumber, dimension, moldings, flooring, and furniture parts. This indicates that
the firms which declined interviews were typically smaller and younger, typically matching those
companies which were categorized as the most “active” exporters in the survey population. This may, in
fact, have caused an understatement of the characteristics associated with the Michigan hardwood

products firms most actively involved in exporting.

30
Survey Results

The survey responses were broken down into categories related to a firm’s capabilities associated
with successful export characteristics, as defined by the CORE IV program.
gramme—CW

The first set of questions addressed activities and organizational attributes which reflect a level of
competitive advantage in the export market. Some general firm characteristics for the three groups based
on percentages of exports are presented in Table 6.1. The firms’ average age tended to decrease with in
relation to an increase in export activity. Generally speaking those firms with the highest levels of export
activity were considerably larger in terms of their number of employees, and had one more salesperson on
theirstafi’. Ananalysisofannual saleswasnotpossibleduetothefactthatmostcompaniesdeclined

providing that information.

Table 6.1 - Respondent F inn Characteristics, by % of Exports.

 

 

 

 

 

 

 

 

Average company Average number of full- Average number of
age (in years) time employees salespersons
Egrerimental Exporters 39 80 2
Experienced Exporters with 37 60 2
Limited Scope
Experienced Exporters with 26 176 3
Broader Scope

 

Firm characteristics based on the level of value-added to their primary export products (T able
6.2) showed a considerable increase in age for those companies which added more value to their products.

In addition, the number of employees and sales persons also increased with the level of value-added.

Table 6.2 - Respondent F inn Characteristics, by Value-added.

 

Average company Average number of full- Average number of
age (in years) time employees salesgrsons

 

Less Value-Added Exporters 26 94 2

 

 

 

 

 

More Value-Added Exporters 51 118 3

 

 

 

31

When considering firm size as a means of categorizing the survey respondents (Table 6.3), the

smallest firms tended to be younger than those with more employees. The average number of sales

persons also rose with the number of full-time employees.

Table 6.3 - Respondent Firm Characteristics, by Firm Size.

 

 

 

 

 

 

 

 

Average company Average number of full- Average number of
agriin years) time employees salespersons
1 to 40 employees 28 14 2
41 to 100 employees 43 69 3
over 100 employees 40 381 4

 

 

Additional items of interest were also addreswd, such as the firms’ current scope of marketing
(Figure 6.2) and current export markets (Table 6.2). The respondents were asked to describe their

marketing efforts as either a local, regional, national, or international range of activity.

 

 

 

 

 

 

I Era-maul E mortars

 

 

.Expuin‘ud Exporters with
Limtsd Scope

 

 

 

lEroarianond Emirate with
Brod. Sana

 

Percentage of respondents

 

 

 

 

 

 

 

Loci Regional

inonn
Scope of ntnrksting

bumtiond

 

 

 

Figure 6.2 - Respondents’ Current Scope of Marketing, by % of Exports.

A very small percentage of respondents in the Experimental Exporters category had only local or
regional marketing activity, while those companies exporting 5% or less and firms exporting 5% or more
(but with no future increase in export targets) had mostly national marketing programs. Not surprisingly,
those companies which were most active in their exporting endeavors had primarily intemational scopes

of marketing.

32

 

70%

 

 

n
o
I!

(II
o
as

 

n
O
1!

 

u
o
I!

 

 

lLssn Vim-added
.Mors Visa-dost!

 

 

N
o
I!

 

 

Percentage n! respondents

3
a

 

 

 

 

o
1‘

Locd Regional Nuiond Wand

 

Scope of marketing

 

 

Figure 6.3 - Respondents’ Current Scope of Marketing, by Value-added.

It is apparent that those firms which add more value to their export products have primarily
either a national (38%) or international (62%) scope of marketing (Figure 6.3). Twenty-five percent of
those firms adding less value to their products have local or regional scopes of marketing, while almost

forty percent have national or international scopes, respectively.

 

80%

 

N.
o
:R

 

n
0
3R

 

or
O
I

 

 

 

.1 to 40Errploysss
.41 to 100 Eamon.
IOvnr loofinploysas

 

 

 

 

 

u
o
I!

 

N
O
1‘

 

Percentage nl respondents
b
o
it!

3
ll

 

 

 

 

o
'1

Loci Regional Nationn Hermann
Scope of Marketing

 

 

 

Figure 6.4 - Respondents’ Current Scope of Marketing, by Firm Size.

 

33
When separated according to firm size (Figure 6.4), the highest percentages of the small and

medium sized firms concentrate their marketing on a national level, while the majority of the largest firms
tend to have international scopes of marketing.

The markets for export were grouped according to region for the respondent group based on
percentages of exports (Table 6.4). Canada, Mexico, and Japan were listed separately since they are some

of the major export markets for US hardwood products exports.

Table 6.4 - Current Export Markets of Respondent Groups, by % of Exports.

 

 

 

 

 

 

 

 

 

 

Markets Experimental Experienced Experienced Total
Exporters Exporters with Exporters with (all groups)
Limited Scope Broader Scope
Canada 75% 50% 46% 59%
Europe 44% 60% 46% 49%
Japan 44% 40% 36% 41%
Asia (excluding Japan) 31% 20% 64% 38%
Mexico 38% 0% 27% 24%
South America 0% 0% 18% 5%
Africa 0% 0% 9% 3%
Australia 0% 0% 9% 3%
More than one 56% 50% 73% 59%
market

 

 

 

 

 

 

There were a wide variety of markets for each respondent groups, and greater than 50% of each
group were currently exporting to more than one market. The areas of higher export percentages included
Canada, Europe, Japan, Asia and Mexico. This trend coincides with current primary export markets for
US. forest products in which Japan is the leading importer, followed respectively by Canada, Germany,
Korea, the United Kingdom, and Mexico (Foreign Agricultural Service, 1996). An interesting aspect of
this information lies in the fact that a higher percentage of the more active exporters sought international
sales in more than one market.

Another area of interest was in the current methods of advertising utilized by the respondent
groups based on percentages of exports (Figure 6.5). These methods included trade directories and

journals, the Internet, and word-of-mouth. Various other methods were grouped together due to their

relatively infrequent use.

34

 

 

IEm-imal Eroortara

Ciro-intend Exports" wth
Lirmnd Senna

Pareantaga nl ras'nndants

Ibo-m Ewertats with
Brad. Snaps

 

 

 

 

Diraaonaa Trade ruamat We rd~ot~ Ott- Nona
jean-ls "ninth

Currant ad vartlslnp mathodr

 

 

 

Figure 6.5 - Respondents’ Current Method(s) of A dvertising, by % of Exports.

In terms of advertising, almost all the companies surveyed were listed in some form of
manufacturers’ directory. This should have been obvious since the list of perspective companies to be
surveyed came from the Michigan DNR Wood Products Manufacturers Directory. The only company
which wasn’t listed in a directory (to its knowledge) was one which was referred to by another respondent.
The Experienced Exporters with Broader Scope had higher percentages of use of trade journals. the
Internet, and word-of-mouth. Other forms of advertising mentioned by respondents included direct mail,
videos, yellow pages. newspapers, associations, and trade shows.

The last item of competitiveness addressed current sales and distribution activities. in terms of
their sales force elements. Figure 6.6 shows current use of different sales elements among those firms

separated according to percentages of exports.

35

 

80%

 

- Ew-imd E wort-rs

flEiwarranoad Exporters win
Limtad Scope

IEmarranead Export-s wth
Bro-tar Scope

Percentage ol respondents

 

 

 

 

Dirac! salon Mluaetunra‘ Distributors Mouth-tons
yapraaarlatw.

Currant salsa torso elements

 

 

 

Figure 6.6 - Respondents ' Sales Force Elements. by % of Exports.

It was apparent that all three groups placed a heavy emphasis on maintaining a direct sales force.
and there was no discernible pattern among the three groups in terms of their use of distributors. The
Experienced Exporters with Broader Scope had the highest usage of manufacturers’ representatives.
There was a slight increase in the use of a combination of two or more elements with the increase in

export activity.

Percentage ol respondents

M mmm' Distributors
rapt-natives

Currant sales force slamm-

 

Figure 6.7 - Respondents ' Sales Force Elements, by Value-added.

36
When looking at the respondents separated by value-added (Figure 6.7), both groups of firms

placed the heaviest emphasis on direct sales, although higher percentages of those companies adding more
value used manufacturers representatives and distributors to handle sales. Overall, twice the percentage of
the firms adding more value utilized more than one sales element.
Motivation for Going Intgmatiggi

There are many reasons why a company considers exporting products to the international market.
Five primary reasons were presented to the respondents, and they were asked to rate each category on a
seale of l to 5, with 1 being “not important” and 5 being “very important” (Figure 6.8). The five
eategon'es included the disposal of excess products and/or utilizing ests production capacity, stabilizing
seasonal market fluctuations, supplementing domestic sales with occasional export sales, reducing risks by

selling to diverse markets, and contributing to the iong-terrn expansion of the firm.

 

 

 

 

 

 

 

I E autumn E nortere

 

 

 

[Emerieneed Exporters with
United Scope

level ol Importance
[scale of I to S)
N

[Bani-teed Emortae w‘th
Broader Scope

 

 

 

 

 

 

diepoee of etbiiize uppiem reduce rieke comribute
erroeee mitet donutic to long-
produete "cremation eeiee term
exp-tion

Motivation tor exporting

 

 

 

Figure 6.8 - Respondents’ Primary Reasons for Exporting, by % of Exports.

Overall, all three groups considered each reason for exporting fairly consistently, with the
Experienced Exporters with Limited Scope and Experienced Exporters with Broader Scope giving fairly
similar responses to each reason except for disposing of excess products and/or utilizing excess production
capacity. The most important reason listed by all groups was to supplement domestic sales, with

contributing to the long-term expansion of the firm second-most important. The third most important

37
reasons for exporting given was disposing of excess products, while stabilizing seasonal market

fluctuations and reducing risks by selling to diverse markets were rated least in importance.

 

 

 

,_._______;,.
(.1 to GOEnplavaes
.61 to iOOErrolowoe

.Ovcr 100Errnlcvees ‘

 

 

 

level of importance [scale o! I to 5]

dnpouoi stabilize eupplermnt reduce mite contribute
rrnrkor domeetic to long
pro ducts iluctuellc m nice term

expnron
Motivation ior Exporting

 

 

 

Figure 6.9 - Respondents ' Primary Reasons for Exporting, by Firm Size.

When considering firm size (Figure 6.9), it is apparent that as the company size increased, so did
the importance given for each reasons for exporting. The only reason given which did not fit this trend
was disposing of excess products, which the medium- and large-sized fimrs rated approximately equal.

As with the categories based on percentages of exports, supplementing domestic sales and contributing to

the firms’ long-term expansion were the most important reasons for exporting.

 

 

 

 

IL.“ denddod
.More Value-deed

level o0 Inpoeteace
[scale o! I to 5)

 

 

 

diapoaa oi etfiiliu ”plan-e reduce rieka careribute
exceee mum don-tic to long-
producte "tremor-om eelaa term
exp-nip n

Motivation tor going international

 

 

 

Figure 6.10 - Respondents’ Primary Reasons for Exporting. by Value-added.

There was also a noticeable trend in reasons for exporting when eategorizing the firms by levels
of value-added (Figure 6.10). With the exception of reducing risks by selling to diverse markets, the firms
adding more value to their primary export products rated all reasons for exporting somewhat higher than
the those firms adding less value to their export products.

Commitment of Owners and Top Management

A very important prerequisite to establishing successful export operations lies in establishing the
commitment of upper management to going international. Several questions were considered in
analyzing the survey respondents, the first of which dealt with the length of time management was willing
to wait in order to break-even on their investments to develop international. sales (Figure 6.11). Return on
lnvestrnent (ROI) is defined as a measure of performance of an investment, ealculated as the ratio of the
return from the investment to the average amount invested (Hoskin. 1994). R01 is generally computed as
follows:

ROI = Return / Average lnvestrnent
The types of marketing investments for exporting would include (for example) travel to the foreign

markets, developing customer and distributor relationships, and market and product research. Five

39
lengths of time were proposed to the respondents, in periods of up to 2 months, up to 6 months, up to 1

year, up to 2 years, and over 2 years.

 

 

 

 

 

 

- Samaria-red Ermortere

 

IErourenced Exportue with
United Scope

 

 

.Eioerienoed Exporters with
Broder Scope

Percentage o0 respondents

 

 

 

 

 

 

 

 

 

UptoZ Uptoo Uptoi Upto2 Overz
flown trom- you vale yore

Desired length oi ratrun on export investment

 

 

 

Figure 6.11 - Length of Time Which Top Management is Willing to Wait in Order to Achieve Return On
Investment (ROI) for Foreign Sales Investments, by % of Exports.
For the majority of the Experimental Exporters and the Experienced Exporters with Limited
Scope, a short-term ROI (up to 2 months) was most desirable. This contrasts with the Experienced
Exporters with Broader Scope. of whom the majority were willing to wait longer periods of time (up to 6

months and more) to achieve returns on their international business investments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60%1
a
i 50$4
3 40%-
b
t; ILueVelu-eddad
e 30%« IMoreVdue-nrided
2‘
g 20%1
h
e
I.
10%.
0%1

 

Uptoernrern Uptoonontrn Upto‘lyen Upto2yeue Over2veae

Deeired length of return on export investment

 

 

 

Figure 6.12 - Length of Time Which Top Management is Willing to Wait in Order to Achieve Return On
Investment (ROI) for Foreign Sales Investments, by Value-added

40
When looking at desired export ROI according to value-added (Figure 6.12), those companies

which add less value place a heavy emphasis on achieving a short return on their export investments,
whilethcmajorityofcompaniesadding morevaluetotheirproductsarewillingtowaitsixmonthsor
more to break even on their international marketing investments.

The next category pertained to future exports as a percentage of total sales in 3 to 5 years. This
was compared to current average export percentages to determine which companies should be grouped
into the three respective descriptions of exporting activity (Table 6.5).

Table 6.5 - Respondent Current Export % of Total Sales, Future Target % of Export Sales. and Expected
Export % Increase, by % of Exports.

 

 

 

 

 

 

 

Average current export Average target export %

%oi‘totalsales oftotalsaleewithin3t05
years
Experimental Emorters 3% 1 1%
Experienced Exporters with Limited Scope 31% 32%
Experienced Exporters with Broader Scope 21% 42%

 

The data in Table 6.5 shows the trends according to how the three groups were defined according
to export activity. The three groups gave increasing amounts of future export target percentages, with
regard to increasing levels of exporting activity. The Experienced Exporters with Broader Scope had the
largest increase in target exports. It was interesting to note that the Experimental Exporters had a larger
desired increase in exports as a percentage of total sales than that of the Experienced Exporters with
Limited Scope. This may be a result of categorizing the respondents first by current levels of exports;
those companies which are not exporting a large percentage of their total production but interested in
increasing their export percentages may inherently desire a larger increase of exports in the future.

Table 6.6 - Respondent Current Export % of Total Sales, Future Target % of Export Sales, and Expected
Export % Increase, by Value-added.

 

Average current Average target export Difference of current
export % of total % of total sales export % and future
sales within 3 to 5 years target export %

 

Less Value-Added Exporters 20% 32% 12%

 

 

 

 

More Value-Added Exporters 8% 20% 12%

 

 

 

 

41
When looking at export percentages according to value-added (Table 6.6), it is apparent that the

companies adding less value to their export products have higher current percentages of exports (20%)
than thox which add more value to their products (8%), yet both groups have the same desired increases
of exports (12%, respectively). Thus it appears that the companies whose primary export products are
hardwood logs, lumber and veneer export higher percentages than the older firms exporting semi-finished
goods.

The respondents were also asked to identify the level of export activity they expected to develop
within the next 3 to 5 years (Figure 6.13). The levels of activity were (in order of increasing amounts)
either occasional/as required. regular with no target level of export sales, regular with a moderate level of

export sales. or regular with an aggressive level of export sales.

 

 

 

 

lemme Eroortere

 

 

 

 

lErouienced Exportere with
United Scope

 

IEroar-weed Exportere with
Brewer Sope

 

Peeeeeee'e e! eeepeedeeee

 

 

 

 

 

 

Occuionel Reade (no Regina Regina
or as target lundeute leggreeeive
tenured eeleel taget target
edee) eeleel

Future level at export eetlvlty

 

 

 

Figure 6.13 - Future Level of Export Activity (within 3 to 5 years) , by % of Exports.

The levels of activity specified by all three groups of respondents varied throughout the range of
activity levels, with no apparent pattern. The Experimental Exporters and the Experienced Exporters
with Limited Scope were predominantly in the lower three ranges of activity, while the Experienced
Exporters with Broader Scope were concentrated in the upper three levels, indicating an increasing level

of target export activity with increasing levels of export percentages.

42

 

 

 

 

 

 

 

.1 to 40Errpleyeee
.41 to 100Ermloyeee
I0ver100Erruloveee

 

 

 

 

Percentage 00 nape-dent-

 

 

 

Occ-ionel Regal (no Regal Read.
or as target eeleel lmderete leagreeeive
neared target eeleel target eeleel

Future levele of export eetlvlty

 

 

 

Figure 6.14 - Future Level of Export Activity (within 3 to 5 years) , by Firm Size.

Future levels of export activity based on firm size (Figure 6.14) showed a concentration of the
small firms toward exporting on an occasional basis, medium firms exporting on a regular basis with
either no target sales or moderate target sales, and large firms exporting on a regular basis with aggressive
levels of target sales.

One method of ascertaining the level of motivation toward going international was by
determining what level of resources, with regard to the alloeation of manpower. the firm was willing to
apply toward expanding international business activity. The respondents were asked to select from four
amounts of time which they would be willing to use from their sales forces (Figure 6.15). These included
nranpower amounts of occasional/as required, up to half-time of one person, up to full-time of one person,

and more than one full-time person.

43

 

 

 

 

 

 

I Eroerirmd Eroortere

 

 

.Experienced Exporters wth
Lunted Scope

 

 

Percentage of respondents

.Etoeriaroed Exporters Nth
Breeder Scope

 

 

 

 

 

 

Gee-tonal Upto rnlt- Upton!- Overt
oree tinnotl tine on full-tine
reou'red pernon pereon pneon

Future export «remover nlleontlone

 

 

 

Figure 6.15 - Levels of Manpower to be Allocated Toward the Expansion of International Business
Activity, by % of Exports.

It is apparent that most respondents were only willing to allocate sales personnel on a part-time
basis. This would be indicative of the allocation of personnel only to accommodate the needs of exporting
at levels in which they are required, except for the fact that some respondents did indicate they would
allocate personnel at some level other than merely when it was required. The fact that the less active
exporters were not willing to allocate full-time personnel to exporting may be a result of their smaller
sales smfis. One third of the Experienced Exporters with Broader Scope did mention a willingness to
have one full-time person or more than one person assigned to export sales, yet overall these companies
were twice as large in terms of personnel and, on the average, had one more salesperson per company.

The last questions in this section pertained to current sales channels and sales channels to be
used within the next 3 to 5 years (Figures 6.16 and 6.17). These included domestic nriddlemen. foreign
middlemen and foreign product distributors, and direct sales to foreign customers. In addition. the use of a
combination of two or more sales channels was calculated. In order to analyze future sales channels, it
was necessary to look at the current channels utilized by the respondents.

In addition to the current sales channels, the respondents were also asked if they were exporting
in response to unsolicited orders only. They were not asked this question in terms of future sales

channels, since all respondents identified one or more of the other three future channels, and it was

44
assumed that all companies would respond to an unsolicited export order in the future if they were still

involved in international business transactions.

 

 

 

 

.Eroerimd Exporters

IEroerieneed Exporter- mh
Urmed Scope

Percentnge nl reepnndente

.Ereserienced Expert's nth
Brod. Scope

 

 

 

 

 

 

Donnetic Foreign Direct R-porne More thn
rriddlerrm neddlerrm sales to ore err-m
unolieiterl
oroere

c ur rent eelee ehennele

 

 

 

Figure 6.16 - Current Sales Channels, by % of Exports.

 

 

,___!
I .Expenml Exporters

 

IExverIenec-d Exporters wrth
erted Scope

 

IExpenenoad Exporters Nth
Broader Scope

Percentage nl respnndents

 

\
l
l
l
l

p. ,f. fi,__

 

 

 

Domttc Foreign Direct Morothm
mddlerren rnddterven sales a re
ml

Future eulee channels

 

 

 

Figure 6.17 - Sales Channels to be Utilized for Exporting Within the Next 3 to 5 years. by % of Exports.

The use of different current channels was scattered among the groups, with no apparent patients
of use according to the levels of export activity. The most Experienced Exporters with Broader Scope had
the highest percentage of firms which utilized a combination of two or more channels, although they

equally favored direct sales and the use of foreign middlemen. The less active Experienced Exporters

45
with Limited Scope favored the use of foreign middlemen, followed by domestic middlemen, and then

responding to unsolicited orders. The least active Experimental Exporters primarily responded to
unsolicited orders, while a minority of them chose to use foreign middlemen, domestic middlemen, and
direct sales.

With regard to future sales channels, all three groups indieated an increase in the use of all
channels, except the Experienced Exporters with Limited Scope reducing the use of foreign middlemen by
about 10%. All three groups also showed signs of increasing the use of a combination of domestic

middlemen, foreign middlemen, and direct sales.

 

80$

 

~r
O
I

 

O
o
a!

 

or
O
at

 

 

 

 

 

.Leee Vduredded
.More Value-deed

 

 

 

 

 

u
0
IR

 

 

Percentnge e! reepnndente
&
o
I

 

 

 

Current eelee ohnnnele

 

 

 

Figure 6.18 - Current Sales Channels, by Value-added.

 

 

 

 

 

Percentnge nl respondents

ILeee Vita-added
IMoro Velue-ddnd

 

 

 

" ' " .' , "' Drreaealee Moretrmomm

Future enlee chennnle

 

 

 

Figure 6.19 - Sales Channels to be Utilized for Exporting Within the Next 3 to 5 years, by Value-added.

When studying current sales channels based on value-added to export products (Figures 6.18),
the companies adding less value favored the use of direst sales most, while those firms adding more value
favored the use of foreign middlemen. Responding to unsolicited orders was fairly equal between the two
respondent groups. When looking at future sales channels (Figure 6.19), both groups stated they were
interested in increasing the use of all channels. with the more value-added firms stating significant
increases in the use of domestic middlemen, direct sales and more than one channel.

Product Readiness for Foreig! Markets

There were a variety of products associated with the manufacturers surveyed (see Table 6.7).
Initially, the study was focused on Michigan hardwood lumber exporters. The product base was expanded
to create a viable population (there were only fifteen hardwood lumber producers contacted which

currently exported), and to provide a better analysis on product differentiation in terms of market strategy.

47
Table 6.7 - Survey Population Breakdown by Primary Export Product Type, by % of Exports.

 

 

 

 

 

 

 

 

 

 

 

 

 

Type of hardwood product Number of companies

logs 4

lumber 15

dimension 2

veneer 5

architectural millwork, moldings, and decorative trim 3

flooring and home components 4

furniture, furniture components or miscellaneous 4
products

Total 37

(combination of more than one product 3pc) 10

 

The survey groups were also analyzed according to the primary types ofproducts which they

manufacture for export markets (Table 6.8), to determine if there were any differences in the level of

export activity according to products offered in international markets.

Table 6.8 - Survey Respondent Groups ’ Breakdown by Primary Export Product Type, by % of Exports.

 

 

 

 

 

 

 

 

 

 

 

Product Type Experimental Experienced Experienced Total Weighted
Exporters Exporters with Exporters with Average
Limited Scope Broader Scope (all Longs)

logs 6% 30% 0% l 1%

lumber 44% 30% 45% 41%

veneer 6% 10% 27% 14%

dimension 6% 10% 0% 5%

nrillwork 19% 0% 0% 8%

floorin 0% 10% 27% 1 1%

parts 19% 10% 0% 11%

Total 100% 100% 100% 100%

more than one primary 19% 20% 45% 27%

product

 

 

 

 

 

All three categories of respondents showed a high percentage of hardwood lumber exports,

ranging from 30% to 45% of those companies surveyed, and 41% on an overall weighted average. The

Experimental Exporters ranked lumber as their primary export product (44%), with millwork and parts as

second highest (19% each). The Experienced Exporters with Limited Scope placed lumber and logs

equally high (30% respectively), with the remaining categories making equally at 10% each except for

millwork The Experienced Exporters with Broader Scope listed lumber as their primary export product

(45%) and veneer and flooring as second highest (27% each). No other products were exported by the

 

48
Experienwd Exporters with Broader Scope. It is apparent that the Experimental Exporters and the

Experienwd Exporters with Limited Scope varied most by products offered for export, while the
Experienced Exporters with Broader Scope offered only lumber, veneer, and flooring to their international
markets.

Interestingly, a higher percentage of the Experienced Exporters with Broader Scope offered more
than one primary product for their foreign customers. This does not indicate that all of these companies
ofier only these products for export, since a portion of firms in all groups indieated that they exported
more titan one product which did not include their primary export product.

An interesting aspect of the types of products offered by the three respondent groups based on
percentages of exports was in the levels of value-added to their products (Figure 6.20). Although there
was no noticeable trend in the data, it was apparent that the majority of the firms adding less value to their
primary export products were categorized as Experienwd Exporters with Broader Scope, indicating that a
large portion of these firms had larger percentages of exports and/or more aggressive levels of future

export activity.

 

 

 

 

a
U
i
t
‘.‘
C ILeee Value-added
3 .Mora Value-Med
a
i
I
e
u
I
I.
Exporters Emortars Eroorters
with United veth Brenda
Scope Scope

Levels of value- added

 

 

 

Figure 6.20 - Levels of Value-added to Export Products, by % of Exports.
There were three questions which pertained to the respondents’ export products and their levels
of customer service, which would indieate potential levels of attractiveness in foreign markets (Table 6.9).

Two of these pertained to the provision of after-sales support for customers in foreign markets and

49
whether or not the sales staff made follow-up calls to foreign customers. The third question asked

whether or not the company’s product(s) and/or product packaging could be made suitable for foreign

 

 

 

 

 

customers.
Table 6.9 - Respondent Sales and Product Characteristics, by % of Exports.
Possess a willingness Execution of follow- Product and/or
to provide after-sales up calls to foreign packaging made
support for foreign customers suitable for foreign
customers customers

Experimental Exporters 81% 75% 75%

Experienced Exporters 50% 60% 90%

with Limited Scope

Experienced Exporters 73% 73% 91%

with Broader Scope

 

 

 

 

It was apparent that none of the three groups placed an extremely high level of importance on
providing after-sales support to foreign customers or in making follow-up calls to customers alter the sales
transactions had taken place, as indicated by average percentages in the 50% to 80% range. It did seem as
if all three groups considered their products and/or packaging able to be modified for foreign markets, as
evidenced by average percentages in the 75-91% range; when compared on the basis of value-added, 92%
of the companies adding less value indicated an ability to modify their products and/or packaging for
foreign markets, while only 69% of the firms adding more value indieated this characteristic.

Knowflgg of Interngjong! Bugim Elemeng

The knowledge of a company’s sales and export sales team may ultimately have an effect on the
sales performance of the firm, especially in the international business environment. The respondents were
asked several questions pertaining to the companies managers’ and sales teams’ knowledge on a variety of
issues. Figure 6.21 illustrates the difi‘erences between five different categories of knowledge, including
foreign market costs, tariffs and non-tariff trade barriers, foreign competition, legal systems which afi‘ect

legal agreements, foreign currencies, and export information sources.

 

50

 

 

 

 

|
I .Eroerrenced Exporters wth

l letad Scope

Level of Inn-ledge
[scale el 1 to 5)

'Eroennlntd Ermartars i
l
l
l
l
l

l
.Elmaranced Exporters Nth ;
Breeder Scope

 

 

 

foreign units n1 lorargn legal to reign export
m-lter trade convention svsterra ma arrrenaea tniormatlon
coats DINOII egraermrxs sources

Elements of international business knowledge

 

 

 

Figure 6.21 - Respondents ' Self-rated Levels of Knowledge Pertaining to International Business Elements
(scale of l to 5) . by % of Exports.

Overall the Experienwd Exporters with Broader Scope had rated themselves as having
considerably higher levels of knowledge in all six categories. Those companies exporting 5% or less of
their products rated themselves fairly close to the Experienced Exporters with Limited Scope, and
marginally higher in four out the six categories. The one category in which all three groups rated
themselves fairly closely was in legal systems and agreements which afl‘ect legal agreements, which also
had the lowest scores for all three groups (except foreign competition for the Experienced Exporters with

Limited Scope).

51

 

 

 

.1 to 40Errployeee ‘
.41 to 100En'ploynoe;

.Over 100 Errplovees

Level nl Inn-ledge (scale a! I In 5)

 

 

 

to reign taritie ml to reign legal foreign wort
what true correct-tion avatar. arrl uremia trio maria n
coats burners urn-mus

Elements of International business knowledge

 

 

 

Figure 6.22 - Respondents ' Self-rated Levels of Knowledge Pertaining to International Business Elements
(scale of I to 5) , by Firm Size.

When analyzing the data according to firm size (Figure 6.22), it is apparent that as the size of the
firm increases, so does the self-rated levels of knowledge of international business elements. This trend
was evident with all six elements except knowledge of legal systems and agreements where the medium-
and large sized firms rated themselves fairly equally, and in export information sources where the small-
and medium-sized firms also rated themselves approximately the same.

Experience and Training

Another important factor in establishing a competitive export staff is in building the levels of
experience and training of the team member(s). Tables 6.10 and 6.11 list several areas of experience
which may assist an export manager in conducting business more efficiently, and the percentages of
respondents within each group which had some level of experience in (or knowledge of) each item. These
items include receiving training in cross-cultural negotiations, having a foreign language competency, and
attending export seminars or training programs. Other areas of interest include participating in trade
shows or fairs, using government and/or private information services, and belonging to trade

organizations.

52
Table 6.10 - Percentages of Respondents with Experience in Areas of International Business, by % of

 

 

 

 

 

Exports.
Training in cross- Foreign language Attendance
cultural negotiations competency export seminars
or training
programs
Experimental Exporters 13% 13% 31%
Experienced Exporters with 0% 0% 30%
Limited Scope
Experienced Exporters with 9% 27% 36%
Broader Scope

 

 

 

 

Table 6.11 - Percentages of Respondents with Experience in Areas of International Business, by % of

 

 

 

 

 

Exports.
Participation in Use of government Belong to trade
trade shows or fairs and/or private organizations or
information services associations
Egperimental Exporters 44% 44% 81%
Experienced Exporters with 10% 20% 70%
Limited Scope
Experienced Exporters with 55% 73% 73%
Broader Scope

 

 

 

 

All three groups of respondents had very low percentages (0-27%) in both cross-cultural
negotiation training and foreign language competencies. Low scores (10-55%) were also shown in
attending export seminars and participating in trade shows. The percentage range increased (20-73%)
with the use of information sources, and all three groups had higher percentages (70-81%) with belonging
to trade associations. The lowest averages were indicated by the Experienced Exporters with Limited
Scope, while the Experimental Exporters faired marginally higher. The Experienced Exporters with
Broader Scope had the overall highest percentages, indicative of higher levels of experience and
interaction with entities associated with international business activities.

Nonexporters

Of the 103 companies listed in the Michigan DNR data base, 37 firms were producing but not

actuallyexportinghardwoodproductswithintheprevioustwoyears. Thesefirrnshadbeenlistedinthe

Michigan DNR directory as exporters, but for a variety of reasons were not currently exporting their

 

 

53
products. These firms represent a non-random sample of non-exporters in Michigan producing similar

products to those of the survey.
Of the 37 firms not currently exporting, only 17% indicated an interest in developing export
markets for their products. Figure 6.23 illustrates the percentages of respondents within this group which

gave difi‘erent reasons why they did not export.

 

70%

a
o
I

at
O
I

N a
O O
3 I

8
a

Percentage of non-exporters
8
I

 

o
I

swam quive Perceived Ott' roman More that
don-stir: praviou atraeagic or- roman
"not apart-nee die-dung.

Ramona for not exporting

 

 

 

Figure 6.23 - Non-exporters ’ Reasons for Not Exporting.

The respondents were able to give more than one reasons why they did not export, although most
(80%) stated only one reason. The primary reason given for not exporting (69% of respondents) was a
satisfaction with the domestic market. In addition. one firm maintained that they had attempted exporting
in the past but had a negative experience in doing so, and 20% felt that they had some sort of perceived
strategic disadvantage. Negative previous experiences included having export orders canceled. Perceived
strategic disadvantages include not having an adequate inventory base to fill export orders, not owning dry
kilns. not being able to aflbrd container loading equipment, and not being able to compete efiectively due
to the higher transportation costs associated with exporting.

It is obvious that most of the companies contacted which were not interested in exporting cited a
suflicient domestic market as their primary reason for not exporting. This issue, in addition to perceived

strategic disadvantages such as a lack of dry kilns or insufficient inventory, coincide with the findings of

54
Hammett and Deforest (1993) and Itju and Bush (1994). Negative experiences may cause a firm to

hesitate from attempting exporting (Hammett and DeForest, 1993 ). It should be noted that most business
ventures should be taken with the rational conception that problems or failure in any endeavors, both
domestic and foreign, are situations which will eventually increase the overall knowledge of business.

Perseverance is necessary to snowed as an exporter (Gottko and McMahon, 1989a).

Chapter 7

DISCUSSION

In analyzing the survey results, the aggregate results of the survey were compared to “optimum”
answers receiving high scores in the CORE program. This chapter comments on the survey results, and
addresses some fundamental principles associated with preparing a firm to execute a successful
international business strategy.

Competitive Capabilities in the Export Market

It has been shown through empirical studies that companies which excel in their domestic
markets are inherently better suited to initially sued in foreign markets (Cavusgil and Nason, 1996).
This section focuses on the characteristics of the respondents in an attempt to reveal characteristics which
may indicate success in firms considering engaging in international business activity.

Company. Size

The general firm characteristics reveal a trend of increasing number of employees with the
increase in level of export activity in terms of percentages of exports. This is parallel to the findings of
Hammett et al. (1991) with respect to hardwood lumber exporters. It should be noted that the
Experienced Exporters with Broader Scope, which had considerably larger number of employees, also had
(on the average) an additional sales person, perhaps offering an opportunity to develop an export manager
from within the organization. In terms of value-added to products for export, those companies adding
morevaluealsohadhighernumbersofemployees, althoughthismaybedueinparttothevarioustasks
associated with higher levels of manufacturing.

Although the size of the firm may influence the resources available to expand into international
markets, firms may not want to consider this as being he a significant factor in the decision to export, as

indicated by Cavusgil and Nason (1996) and Ringe et al. (1987a). Obviously, larger firms may inherently

55

56
have more resources to allocate toward expanding international activity (Cavusgil, 1984). These

resources include manufacturing capacity (Hammett et al., 1991), monetary resources, and experienced
personnel (Cavusgil and Nason, 1996). Although there is inconclusive evidence, larger firms tend to do
better in export marketing (Cavusgil and Nason, 1996), but in contrast, hardwood lumber firm size has
not been found to be a significant factor in determining export success (Ringe et al., 1987a).
922221.42:

Theresultsofthesurvey showadecreasingageofthefirmswithincreasingexportpercentages
of total production, although the mean age for the youngest group was still twenty years. This finding
contradicts the past research on exporters, and may reflect a more proactive attitude toward exporting in
the younger, more active Michigan hardwood products companies. This may also coincide with the types
of equipment owned by the younger firms, such as dry kilns, planets, etc., which would enable the
companies to better tailor their products to foreign customers’ needs.

When comparing firms on the basis ofvalue-added, it is apparent that those firms adding more
value to their products are twice as old as the companies exporting less value-added products. Since those
firms adding more value to their products had lower percentages ofexports in terms oftotal annual
production, it would hold that the age of a firm does not necessarily indicate higher levels of export
activity.

Some of Marketing

In terms of scopes of marketing as a function of percentages of exports, it appears that only the
Experienced Exporters with Broader Scope had a primarily international emphasis, while the other two
groups placed more attention toward the domestic market on a national basis. This may coincide with the
fact that the Experienced Exporters with Broader Scope had inherently higher percentages of exports.
While those firms which had lower percentages of exports may have a more national emphasis on the
current marketing activities, they may develop their marketing toward a more international focus if they
intend to build their levels of international sales.

Those companies which added more value to their export products also had higher percentages of

international marketing scopes than the firms which added less value. Although the more value-added

57
firmshaveloweroverallpercentagesofexports, theyhave moreinternationalscopesofmarketing. This

may be due to higher levels of competition in the domestic market within more finished product categories
suchasflooring, dimensionandpanels, orsimplybecausetheymaybeabletoachievehigherprofit
margins in foreign markets than those firms adding less value to their export products. Another possible
reason may be due to more complicated market structure or dimcult market penetration associated with
semi-finished goods.

When looking at the respondents according to firm size, as the average firm size increased, so
did the scope of marketing. Since firm size decreased with higher levels of export percentages (Figure
6.2), thismaybeduetolargerfirmshavingtoseekabroadermarketbaseinwhichtoselltheirproducts.
Asafirmgrowslarger, itmayhavetoseeknewmarketsasitsaturateslocalandregional markets. In
addition, larger firms may have an inherently larger available pool of manpower to broaden their
marketing efforts, as indicated by an increasing number of sales persons with increasing conrpany size.

Companies interested in exporting should consider that by serving an increasing national base of
customers, it may be possible to develop skills necessary in expanding into foreign markets. Research has
found that active hardwood lumber exporters sold more of their production to areas outside their local area
or state (Hammett et al., 1991), which would increase the level ofexperienoe ofthese firms in serving
geographically diverse markets.
Current Emrt Markets

While many markets were being served by each respondent group, the three markets receiving
the heaviest amounts of exports were Canada, Europe, and Japan. This is a very likely scenario since
Japan ranked first as the heaviest importer of US hardwood products in 1995-96, while Canada ranked
number two and Mexico placed sixth (USDA Foreign Agriculture Service, 1996). These rankings also
hold for total values of imports of US. hardwood lumber. An interesting aspect of this export market
information liesinthefactthatwhile 50%ofthefirsttwogroupsexportedto morethanonemarket, 75%
of the Experienced Exporters with Broader Scope serviced more than one major market. This coincides
with current empirical research which indicates that more active exporters focus on more than just one

foreign market (Gottko and McMahon, 1989b).

58
A careful analysis of potential markets warrants close attention to market information and its

subsequent analysis. Appendix C describes market analysis in greater depth, while Appendices H and I
provide examples ofmarket—specific information which may be used in analyzing markets for export
potential.

Mgggg gt: Advegtjging

Advertising and promotions are the principal methods producers use to improve their corporate
recognition (Guldin, n.d.). There are a variety of methods used in advertising, and many of the survey
respondents utilized more than one. This is parallel to the findings of Hammett and Deforest (1993).
Manufacturers’ directories was used by nearly all the respondents, a point attributable to the fact that the
data base used to contact these companies was derived from the Michigan DNR Forest Products
Manufacturers Directory. Trade journals were also popular among the respondents, and would prove to be
an effective method ofadvertising since they are directly related to the types ofcompanies and products
associated with those firms which advertise in them.

Overall, the Experienced Exporters with Broader Scope utilized the widest variety of advertising
instruments. This may be due to the fact that these companies are attempting to cover a broader range of
markets. The increase in marketing scope and percentages ofexports in the Experienced Exporters with
Broader Scope may suggest that a company which wants to export its products should consider increasing
activity in foreign market advertising (Hammett et al., 1991). This may serve to increase potential foreign
buyer awareness of the company and its products, as well as develop the company’s reputation on a global
level within the industry.

Current Sales Force Elements

A final note on competitive capability pertains to the firrns’ current sales elements. One of the
complex aspects of export marketing is the need to work with additional distribution channels and other
types of intermediaries (Cavusgil and Nason, 1996). When separated according to percentages of exports,
allthreegroupsplawdaheavyemphasisonhavingadirectsalesforceandalowemphasisonusing
distributors, while the Experienced Exporters with Broader Scope placed a higher importance on using

manufacturers’ representativesthantheothertwogroups. Theinterestingaspectofthisinformationlies

59
inthefacttlutastheperoentagesofexportactivityincreased,sodidtheuseofaoombinationofthesales

force elements.

Whenoonsidefingmerespondenmacmrdingmmevalue-addedmmenexponproduas both
groupsplaoedaheavyemphasisondirectsales, althoughthefirmsaddingmorevaluetotheirproducts
placed heavier emphasis on using distributors and manufacturers’ representatives than those companies
adding less value. The companies adding more value, on the average, had a higher percentage of
companies which utilized more than one sales element in selling their products overseas.

In developing export markets, companies should consider building a strong sales force presence
incorporating a combination of all three sales elements: direct sales force, manufacturer’s representatives,
and distributors (Cavusgil and Nason, 1996). This assumption is reinforced by current research channel
(Hammett et al., 1993) and the fact that the Experienced Exporters with Broader Scope showed the
highest percentage of using more than one sales element.

Motivation for Going International

Therearemanyreasonswhyaoompanywouldseekforeignmarketsasameanstoexpand
market share. The following items were proposed to the survey respondents in order to gain a better
insight as to why Michigan hardwood products exporters sought foreign markets for their products. These
include some of the more important issues facing any firm wishing to engage in international business,
according to the CORE IV program.

As noted earlier, those firms which added more value to their primary export products rated most
of the reasons for exporting somewhat higher than the firms which added less value to their export
products. This may indicate that the companies which add less value have greater chances of selling their
products in the domestic market (and don’t consider exporting as important to the profitability of the
firm), or that those firms adding more value exist in a competitive domestic market and look toward
foreign markets as a means of expanding total annual sales.

Dim of Excg Produm
Disposing of excess products and utilizing excess production capacity was an important reason

for exporting among the Experimental Exporters and Experienced Exporters with Broader Scope, when

60
categorized according to percentages of exports. This may be attributed to the size of the firms in

questions, since this was not an important reason for the small companies, but rated among higher among
themedium-andlarge-sizedcompanies. Thismaybeattributabletothefactthatlargercompaniesmay
have inherently larger inventories, and would benefit from expanding sales in foreign markets to
eliminate items not readily salable in the domestic market.
Will-mm

All three respondent groups, categorized by percentages of exports, rated the stabilization of
market fluctuations fairly low. This was also an unimportant reason when looking at the respondents
according to firm size. This finding coincides with suggestions in international business literature
(Hackett, 1977), but diverges with research on hardwood lumber exporters (Hammett and Deforest, 1993).

While export markets can provide a cushion against downturns in domestic demand, they only do
so when overseas markets have been assiduously cultivated during times of domestic prosperity (Guldin,
ml). The constant development and maintenance of export markets, both in times of domestic market
prosperity and down-turns, should be considered for companies interested in expanding international
sales, for “although it is useful for some companies to be able to sell products into another country because
its seasons are opposite of the home market, it is a poor reason to get into foreign markets solely for the
purpose of stabilizing market fluctuations” (Cavusgil and Nason, 1996). Although there is nothing wrong
with developing certain markets when others decline in activity, the opportunistic attitude toward
cultivating foreign markets during times of domestic market slumps, and then decreasing activity or even
ignoring them in times of domestic market growth may give foreign customers a negative impression of
the firm’s oommitrnent to servicing their needs on a continual basis.
Su lement 'c

It is apparent that the primary reason for exporting among all three respondent groups is to
supplement domestic sales with export sales, when separating them both in terms of percentages of
exports and firm size. Although supplementing domestic sales by exporting to foreign markets may
increase annual sales, exporting solely for this reason may inhibit the development of commitment to full-

scale internatiorml business activity. “To start exporting only for the purpose of supplementing domestic

61
sales is a poor reason, and exporting for such companies is never likely to be important to the company’s

sales and profitability” (Cavusgil and Nason, 1996).

Afirmwhich intendsto makeexports aviable elementoftheirbusiness strategy should make an
honestcommitrnenttoanexportprogrambysettingasideaspecificpercentageofoutputforexportthat
can be guaranteed for three to five years (Keller, 1981). Because the amount of output allocated for export
influences the choice of marketing channels, the initial commitment of volume and assortment of products
should be made prior to beginning the export feasibility study (Guldin, n.d.).

W

When looking at the respondents according to percentages of exports, the more Experienced
Exporters with Broader Scope rated reducing risks by selling to diverse markets as the least important of
the five reasons given for exporting. This contradicts the suggestions of current literature on export
strategy, since empirical studies of exporting suggest that successful exporting is associated with the
willingness to take risks. Cavusgil and Nason (1996) note that “experienced exporters often comment that
export sales can compliment domestic sales very favorably, and also that balancing marketing efforts
betweenbothdomesticandexportmarketsgivestheinternational marketeranedgeoverthepurely
domestic marketer.”

The data does indicate an increasing level of importance for reducing risks with increasing
average size of the firm. In fact, other research on Southern hardwood lumber exporters suggests that risk
reduction by creating more diverse markets is an important factor in these firms’ decision to expand on an
international basis (Hammett and DeForest, 1993). Their findings also concluded that exporting Southern
hardwood lumber companies were, on the average, twice as large as non-exporters.

Although many firms inherently consider international business transactions as more risky, due
to the possibility of product claims or non-payment, a firm engaging in international business should seek
ways to protect itself through the compliance of financial contracts. Ilju and Bush (1994) suggest that
US. hardwood lumber exporters are most interested in reducing the risk involved in transactions with
foreign buyers and that an increased emphasis should be placed on the types of services which provide a

means to improve risk management.

62

W

The second-most important motivation for exporting among all three groups, both in terms of
percentages of exports and firm size, was to enhance the firms’ long-term expansion. “A company should
only launch into export markets if that business will contribute to the company’s long-term expansion”
(Cavusgil and Nason, 1996). From the initial phases of considering exporting, hardwood lumber
companies should consider taking a long-term approach in developing their organintion as well as their
export markets.
Additional Qansifirations

Another reason given to export was to respond to unsolicited orders. Although there is nothing
wrong with taking unsolicited orders to learn about foreign markets, a strategy relying solely on filling
such orders will never yield significant favorable results (Cavusgil and Nason, 1996). One primary reason
for exporting involves realizing potentially higher profit margins from foreign sales (Gottko and
McMahon, 1987a). Other favorable reasons for exporting applicable to hardwood lumber manufacturers
include expanding into key world markets, enhancing the company’s competitiveness by acquiring market
knowledge, improving long-term return on investment for the entire company, and proempting aggressive
moves of other competitors in global markets (Cavusgil and Nason, 1996). Higher market growth outside
oftheUnited Stateshasalsobeenaprimary motiveformarryfirmsseekingtoincreasetheirmarketshare
(Hammett and DeForest, 1993).

Commitment of Owners and Top Management

Successful exporting requires the commitment of top management. (Brady, 1978; Marion, 1981;
Dichtl, Leibold, chlmayr and Muller, 1983; Ringe et al., l987a). The following items were considered
determinants of the survey respondents overall commitment to exporting, to ascertain how each group
regarded their current and firture international business endeavors.
W

Achieving a rapid return on investment is desirable, but when expanding into foreign markets it
maybenecessarytoexpectaslowerretumthanindomesticmarkets(CavusgflandNason,1996). Both

the Experimental Exporters and Experienced Exporters with Limited Scope desired a rapid return on their

63
investments, while the Experienced Exporters with Broader Scope gave a higher emphasis on longer

ROIs. This indicates that the more Experienced Exporters with Broader Scope had a much longer-term
vision of their international business activities.

When looking at the respondents according to the levels of value-added, it is apparent that the
majority of the companies exporting lower value-added products sought an ROI within two months of
their investment, whereas the majority of the companies adding more value were willing to wait six
months or longer. Since those companies adding more value to their products have more international-
related scopes of marketing, as well as potentially more capital tied up in the finished product, they may
be willing to wait longer to achieve returns on their investments. It may also indicate a willing to sacrifice
profits in the short-term to achieve a sustained competitive advantage by expanding markets overseas in
the long-term

Cavusgil and Nason (1996) explain that “experienced exporters suggest an initial period of
approximately two to three years before exporting effort return profits.” Cavusgil and Nason also indicate
that “if current research points to a single most important determinant of success in foreign markets, it has
to be a whole-hearted commitment to developing export markets, which means a willingness to take
reasonable risks and sacrifice profits and ROI in the short range.”

Hardwood lumber companies often have much-nwded capital invested in their inventory, and
desire a rapid turnover rate to compensate for low profit margins. It should be noted that a company may
not want to consider expansion into any market if it does not expect to achieve a profit in the long-term
and build a sustained competitive advantage. This would mandate the need for thorough market research
to determine costs associated with the production, marketing, transportation and documentation associated
with export activities, with respect to expected returns on these investments.

W

Although all three respondent groups, based on their percentages of exports, indicated an average
increase in future exports as a percentage of their total sales, only the Experienced Exporters with Limited
Scope and Experienced Exporters with Broader Scope showed signs of future export activity greater than

30%. As mentioned earlier, this was a primary factor in dividing the respondents into their respective

64
groups. Ofmetwomomacfivegrmms,theExpenenoedErtponemwimBmaderSmpeshowedan

intention of increasing exports more than 20% in the next three to five years. This is an important factor
in determining the commitment of managers toward expanding international business, since Cavusgil
and Nason (1996) state that “the greater the willingness to commit the resources necessary to obtain a
significant share of a company’s business in foreign markets (for example, 30% or more), the greater the
likelihood of their success.”

Since the Experienced Exporters with Limited Scope had lower desired increases in exports than
the Experimental Exporters, it was necessary to look at the data fiom the perspective of value-added to
export products. In this light, it was apparent that the companies adding less value to their products had
higher current export levels as a percentage of annual production, perhaps indicating that less-finished
products require less complicated marketing or have greater foreign demand. Both groups, although
different in terms of current export percentages, were similar in terms of expanding their international
markets. This may also indicate that Michigan’s future hardwood products exports may consist of higher
percentages of less-finished goods (such as logs, lumber and veneer) than the semi-finished products.
Futug Emg Activig

Another means of dividing the respondent groups according to their export activity was
according to the level of future export activity they envisioned for their firms. Although there was no
apparent pattern to the respondents’ answers, it was obvious that the Experienced Exporters with Broader
ScOpe gave more consideration to developing exports as a regular activity, in most cases with some level
of sales targets.

A noticeable trend did occur when categorizing the respondents according to firm size. As firm
sizeincreased, sodidthefuture level ofexportactivity. 'I'hiswasinterestingsincethelargerfirmsalso
had more international scopes of marketing and used a wider variety of sales channels. When considering
that the size of the groups increased with levels of export activity, the data may indicate that larger firms
may have to become more aggressive in developing new markets for their products, especially if their

regional or national markets are saturated.

65
Firms interested in developing foreign markets may want to consider the implications of how

high they set their goals for exports, especially in the initial stages of developing an international business
plan. “Exportingismostmooessfiflwhenitisdoneasanmtegralpanofflnwemnmmkefingprowss,
since sporadic and occasional export efforts are usually too fi'agmented to result in significant gain for the
company” (Cavusgil and Nason, 1996).
Man r All ' n

The results of the survey indicated a. reluctance of the firms to allocate full-time personnel toward
handling export activities among all three respondent groups, when categorized by percentages of exports.
Thismaybesomewhatunrealisticinlightofthefactthatmanyoftherespondentssoughttoincrease
export percentages, yet indicated that they were uninterested in allocating the very important resource of
personnel toward achieving target export increases. The appointment of a full-time export sales person
should be considered by companies interested in expanding international sales, since it may allow
companies to better cultivate export markets (Hammett and Deforest, 1993; Cavusgil and Nason, 1996).

In many cases, the respondents stated that the person responsible for exporting was the senior
manager, while in other cases it may have been a sales person, manufacturer’s representative, or
a distributor. Cavusgil and Nason (1996) explain that not only should the firm consider appointing a full-
time export representative, but also that senior management should participate in the process of
developing export strategy and procedures. The selection of the export representative is covered in more
detail in Appendix C.

urrent tu h nel

Of the three respondent groups based on percentages of exports, only the Experienced Exporters
with Broader Scope had a large percentage of companies which utilized a combination of sales channels.
All three groups indicated a desire to increase the use of the listed sales channels. When looking at the
respondentsaccordingtovalue-added,bothgronpsagainindicatedafiuureincreaseintheuseofa
combination of sales channels. This may indicate that although both the oonrpanies adding less value and
those adding more value intend to increase their export percentages, those firms adding more value to

their export products anticipate making greater changes in their future sales patterns.

66
As stated earlier, a combination of channels increases flexibility and performance in developing

international markets. The response to unsolicited orders would be a natural and often important channel
for any firm to use in developing overseas customers (Gottko and McMahon, 1987), but in itselfdoes not
lend to successful exporting (Cavusgil and Nason, 1996). A company should consider the development of
multiple channels for sales activity to ensure broader coverage of foreign markets. as well as to diversify
their marketing efforts.

Additional Qonsiggrations

It is also important for hardwood lumber companies interested in exporting to consider other
areas of interest with respect to developing upper management’s commitment toward going international.
The strategic emphasis should be placed on developing strong market shares in key global markets.
Market planning and budgeting should be assigned for each foreign market, and each product or service
line. In addition, establishing long-term relationships with overseas customers is beneficial to developing
foreign markets.

Product Readiness for Foreign Markets

Although a firm may have products desired in markets overseas. it is sometimes necessary to
alter those products or their packaging to meet the needs of foreign customers. In addition. the level of
sales servicemmfiredforfomignnmrkasmaynwdtobemcreasedtomeawstomerdenmndsand
expectations. This section addresses the types of primary export products of the survey respondents
(according to their levels of export percentages), and highlights just a few of the sales requirements which
may enable firms to better service foreign customers.

It should be noted that there was a trend for the Experienced Exporters with Limited Scope to
have lower percentages than the Experimental Exporters. This was only due to the method of
categorizing them according to their levels of export percentages and future export activity, but may
reflectareluctanceonthepartoftheExperimentalExporterswithLimitedScopetoenhancetheir

chances of mcceeding in increasing their exports by developing the skills of their export sales stafi'.

67
W

The greatest concentration of primary production for export among all three groups was in
hardwood lumber, with all three groups having fairly consistent percentages of exports of this product
The Experimental exporters’ next highest categories of products were millwork and parts, while the
Experienwd Exporters with Limited Scope exported the same percentage logs as lumber. The only other
categories of export products for the Experienced Exporters with Broader scope were veneer and flooring.

The most interesting fact pertaining to the types of products offered by all three respondent
groups was that as the level of export activity increased, so did the percentage of firms which offered a
combination of products to foreign markets (including goods other than their primary export products).
Whereas approximately one fifth of the Experimental Exporters and the Experienced Exporters with
Limited Scope exported more than one product, almost half of the Experienced Exporters with Broader
Scope offered a combination of products to their export markets. Current research indicates that more
progressive exporters offer a variety of products to tailor their production to the needs of a broader base of
foreign customers (Cavusgil and Nason, 1996).

The fact that the majority of the Experienced Exporters with Broader Scope were firms adding
less value. to their primary export products may indicate that those types of goods may have the greatest
chance of success in foreign markets. As foreign countries attempt to add more value to their export
products, the possibility of supplying them with raw or less-finished materials may be greater than
offering finished goods which may compete with local manufacturing.

W

The survey indicates that greater than 50% of the respondents are willing to provide after-sales
support for their customers. For sports flooring or other more processed hardwood products, consulting
on installation or maintenance may be necessary. Since hardwood lumber is not an overly-complex
product in terms of product attributes, after-sales support may mainly entail ensuring customer satisfaction
anddeterminingcustomerneeds. Incaseswherethereisadisputeconcerninggradeorqualityissues
such as wane, sapwood, checks or staining, a representative or distributor in the foreign market should be

able to handle these issues efl‘ectively and in a timely manner to aid in ensuring customer satisfaction.

68
Providing after-sales support for customers, both in the domestic and foreign markets, is part of

establishing strong partnerships over time. In some cases, after-sales support may be contracted through
an overseas agent. A representative in foreign markets should be fully knowledgeable of the standards
andattributesofthefirm’sproducts,aswellasoftheparticularrequirementsoftheirrespectivemarket.
Fo -u alls

Today more companies are recognizing the importance of retaining current customers.
According to current studies, companies can improve profits anywhere from 25% to 85% by reducing
customer defections by 5% (Kotler, 1994). The smvey indicates a willingness of over 60% of the
respondents to follow up on sales with phone calls or some other form of correspondence. Companies
interested in deve10ping export markets should consider developing customer communication, since it has
been noted that maintaining a current customer is much less expensive than developing a new one
(Kotler, 1994). It would also be advisable to ensure customer satisfaction through a variety of tools
including complaint and suggestion systems, customer satisfaction surveys, and lost customer analysis
(Kotler, 1994).

MW

Greater than 75% of all respondents stated that packaging needed to be adapted to ship their
products overseas. Thismaybeduetothenatureoftheproductsshippedoverseas, asindicatedbythe fact
that the majority of companies adding less value to their products stated they were able or willing to
modify their products for foreign markets (only two thirds of the firms adding more value indicated the
same). This may indicate another unrealistic expectation of those companies interested in exporting but
uninterested in modifying their products for foreignmarkets, which may perhaps enhance the possibility
of higher growth in less value-added products exports.

Commodities such as hardwood lumber are considered bulky products with high transportation
costs. Intheworstcase,thecostoftransportingaumbernoaforeignmarketmaybesuchahigh
percentageofthe landedcostinthatmarketthatafirmmayfindituneconomical toexport (Cavusgiland
Nason, 1996). In almom all export shipments, hardwood lumber has to shipped overseas in a container, to

alleviate product damage and/or pilferage en-route to its destination. When shipping to Canada,

69
containersforhardwoodlumberwereusuallynotrequiredduetotheuseofflat-bedtrucksorrailcars.

Additionally, export shipments of lumber are usually kiln-dried to alleviate spoilage during shipment in
containers and to reduce shipment weight

In addition to containers, hardwood lumber may be end-coatedwith specially-formulated paint to
identify the shipments with the company’s desired color. Logos painted on the sides of lumber packs may
also aid in reducing pilferage, as well as itemized end-tallies listing the contents of each pack. “Based on
what (a firm) knows of the desires of the distributors and potential end-users, (a company) should
determinewhat changesareneededinordertoincreasetheirproduct’sappealtotheexportmarket
(Cavusgil and Nason, 1996).” Hardwood lumber packaging is discussed further in Appendix C.
Additional Consigntions

It will be important for hardwood lumber companies to ensure their products are competitively
priced in foreign markets, especially in the initial stages of exporting. This would coincide with the fact
that there is a high substitutability for hardwood lumber, especially concerning lumber from Eastern and
Southern US. states. Inventory levels and availability should be investigated and monitored in detail, to
ensure the ability to fill and sustain export shipment requirements. Storage requirements of distributors
shouldalsobeevaluatedtoensurecompliancewiththeirneeds. ‘

Knowledge of International Business Elements

When categorized on the basis of percentage of exports, the Experienced Exporters with Broader
Scope had higher self-rated levels of knowledge than the other two groups in all six categories, while the
latter two groups rated themselves fairly equally in terms of their knowledge. This would indicate that
higher levels of knowledge may aid exporters in expanding international business transactions, which
coincides with the findings of Hammett et al. (1991). In fact, a lack of knowledge of foreign markets has
been found to be an impediment to hardwood products companies interested in exporting (Ifiu and Bush,
1993). It should be noted that the level of knowledge may be a direct result of the levels of activity in
exporting among these firms; higher levels of export activity and experience may inherently lead to higher
levels of knowledge in international business activities. The same could be stated when considering the

size of the firm, since the respondents showed an increasing self-rated level of knowledge with an increase

70
incompanysize. Thefollowingsectionsdescribesomeofthebasicareasofexportknowledge,intermsof

the respondent groups’ self-rated proficiency.
W

The Experienwd Exporters with Broader Scope claimed to have higher knowledge of costs
associated with exporting their products overseas than their less aggressive counterparts. This is probably
due to the higher level ofintemational business activity ofthese firms. By increasing the levels of
experience through higher levels of export activity, a firm’s management may become more
howledgeable of the costs associated with international business transactions. This would reduce the
chances of those firms initially overestimating these costs (Brady, 1978), increasing the feasibility of
exporting overseas.

0n the basis of firm size, the largest firms rated their level of knowledge considerably higher
thantheirsrnall-andmedium-sizedcounterparts. Thismayalsobeduetothelargerfirmshavinghigher
levels ofcurrent exports than the small- and medium-sized firms (18% versus 11% and 12% respectively).

Careful consideration to the costs associated with getting the shipments into foreign markets
should be weighed prior to engaging in any international business activity. Cavusgil and Nason (1996)
explain that knowing costs in a foreign market, or knowing where to get those cost estimates as they are
needed, is vital to the attainment of profitability from exporting. There are a wide variety of private and
government agencies, associations, and firms which may provide information associated with foreign
market costs. Appendix F lists just some of the government agencies and university departments which
may provide such services.
Tariffs and Non-tariff Barriers

Tarifl's are defined as a governmental tax levied on goods, usually imports, shipped
internationally, and are noted to be the most common type of trade control (Daniels and Radebaugh,
1995). Non-tariff barriers include quotas, subsidies, import licensing, customs barriers, product standards
and certification. Indeed, government regulations pertaining to exports can be very complex, and afi'ect
firms in a variety of ways depending on the country and the products exported. Even the Experienced

Exporters with Broader Scope, as well as the largest firms, did not rate themselves very high in terms of

7l
knowing the government policies affecting international business. Knowledge of the mechanics and

consequences of tariffs is an important element of international business knowledge, since they can add
considerably to the landed cost of the product in the importing market.
F rei om ' ion

The Experienced Exporters with Broader Scope rated themselves high in terms of knowing their
foreign competition The largest companies also indicated a higher level of this knowledge in comparison
to their smaller counterparts. Literature indicates that a detailed knowledge of competitors is important in
ensuring expansion in foreign markets.

Knowing the number, size, structure and other characteristics of firms which will be competing
for customers may assist a firm to effectively compete in foreign markets. The National Trade Data Bank
(Appendix F) is just one source of information pertaining to industry statistics. Attendance of trade shows
(discussed further in this chapter) is also a very effective means to evaluate competition In addition,
visiting potential customers and distributors may also reveal insights as to which companies are servicing
sectors of a market, as well as information pertaining to their products and/or service.

m

Knowledge of legal systems which affect key legal agreements was also one category in which
even the Experienced Exporters with Broader Scope did not rate themselves very high When comparing
the respondents in terms of firm size, all three groups again did not rate themselves very high.

In an exporter’s first sales transaction, the exporter should have a sales agreement which protects
them in the transaction, therefore it is important that the exporter have legal counsel who can help them
through the development of the appropriate legal agreements. Since legal systems and contract
requirements are very complex fields of knowledge, it is often prudent for a firm interested in exporting to
contract services regarding legal matters from an outside source. There are a large number of legal firms
in the 0.8. which specialize in providing legal assistance to exporters. Financial institutions which aid in
financing exports may also have in-house legal counsel to ensure proper and timely payment, as well as

insurance, for companies with little or no legal knowledge of foreign market requirements. Many

72
government agencies are also available to either provide legal counsel, or guide companies to firms which

are capable of tending to these matters.
Fo ' i

Foreign currencies can have positive or adverse impacts on international business transactions,
depending on knowing one currency’s strength against another. The Experienced Exporters with Broader
Scope rated themselves as having much higher levels of knowledge pertaining to international currencies
than their counterparts, while the largest firms only rated themselves marginally higher than their
counterparts. This type of knowledge is very helpful in effectively negotiating international business
transactions. Even though it is desirable for US. exporters to conduct international transactions in
doflamthemmaybefimeswhenanmmonermaydesimtodaalmtheirhomecunency.

Itisalsoimportanttobeawareoftheeconomicuendswiththetargetmarket, sincethat
environment will have a direct efiect on the value of the country’s currency. Hoskin (1994) notes that the
exchange rate for a given currency is influenced by the difl’erential inflation rates in the two countries as
well as by trade policies, trade surpluses or deficits, and other factors. Exchange rate fluctuations can
affect the value and profit margin of an international transaction. Ringe et al. (198%) caution that the
exporter must be aware of how changes in exchange rates from the time of negotiation to the time of
payment might afi‘ect the profitability of the shipment. Financial elements of exporting are discussed
further in Appendix C.
Information @595

Lack of knowledge about foreign markets is the major cause of failure in exporting (Cavusgil and
Nason, 1996). Market research is extremely helpful in successfully implementing an export strategy
(Ringe et al., l987a; Northeastern Foresz Alliance, 1989; Ifju and Bush, 1993, 1994). The Experienced
Exporters with Broader Scope, as well as the largest firms, rated themselves higher in terms of their
knowledge of export information sources, indicating the significance of these types of resources.

Often, a considerable amount of time and money is needed to gather information on foreign
markets, and managers must be aware of the requirements to build their market intelligence base. The

desirability and feasrbility of gathering foreign market information may thus depend on the resources

 

73
available to the individual firm (Reid, 1984; Cavusgil and Nason, 1996). Market information and export

assistanceisdiscussedinfirrtherdetailinAppendixC.
WW

Another area of knowledge which may contribute to success in international business is in
developing a budget for foreign market development. This would include determining the availability of
timeandmoneytosustaininternationalbusinessexpansion,especiallyintimesofstrongandweak
domestic market performance.

Experience and Training

Infiveofthesixareasofexperienceortraining, allthreerespondent groups(basedontheir
percentage of exports) indicated low levels of these attributes. This may again reflect unrealistic
expectations of these firms in expanding export markets, since training is an essential element of
developing an export program (Nason and Cavusgil, 1996). The only category listed in this section in
which all three groups actively participated was in the membership of trade organizations. It was noted
that the Experienced Exporters with Limited Scope showed the lowest averages for all six categories. It is
difficulttodetermineexactlywhythistrendoccurred, sincethosefirmsindicated higherexport
percentages than the Experimental Exporters and also desired increases in their experts. It should be
noted that the Experienced Exporters showed less self-rated levels of knowledge in international business
elements than the Experimental Exporters in four of the six given categories.

This section lists several areas in which exporters or firms interested in exporting may consider
developing their export staff’s expertise in international business.
Cross-cultural N a ns

Knowing how to address people from difl'erent cultures is very helpful in establishing a positive
reputation in foreign countries. 0f the 37 survey respondents, only a few stated they had received some
sort of formal training in cross-cultural negotiations. This may indicate that the actual negotiation
process comprises a less important element of an international business transaction in hardwood products
than in other industries. This would especially hold true if those companies were indirectly exporting

through domestic intermediaries, yet as a company progresses toward directly exporting to foreign

74
distributors and/or customers, it may become increasingly important for an exporter manager become

proficient in dealing with buyers in a foreign market.

Negofiafionchamdefisficsamjuflomaspeaofmemanyaflmraldifiaenwstcherdst
between countries. Cavusgil and Nason (1996) note that an exporter’s management should be traveling to
foreign markets to meet customers and to develop relationships with partners in those markets. Cultural
differences, such as history, politics, and language, may have an impact on the outcome of an
international business transaction. Coinciding with this outlook is that of Ghauri (1996) who states that
while “respect for different perspectives andenvironments is ofutrnost importance... it is not necessary to
adapt or change oneself to local environments - it is more important to be aware of these differences and
to show them due respect or acceptance.” Cross-cultural negotiations and negotiator characteristics are
discussed further in Appendix C.

Foreigd Luggage!

Another area of low involvement by all three respondent groups was a knowledge of foreign
languages. Although English is spoken prevalently in 44 countries (Daniels and Radebaugh, 1995), it
often times necessary to use a translator to converse with people in other countries. Indeed,
communication has been noted as a primary barrier to exporting (Rabino, 1979).

Indirect exporting (through an intermediary) negates the need for learning another language,
since the middlemen take responsibility of conducting the business transactions. But when a company
decides to export directly, it may become more important to study another language to demonstrate a
representative’s cultural awareness, as well to gain a competitive advantage in the international business
setting (Daniels and Radebaugh, 1995). As Cavusgil and Nason (1996) note:

Ifkey members of (a firm’s) management team have competency in one or more foreign

languages, (their) company is much more likely to succeed in exporting. If none of (the

company’s) key managers has a competence in a foreign language, (they) will be at a

competitive disadvantage in (their) exporting efforts, because it is likely that the leading

global competitors will have that competency.

Of course, the second language preferable to any exporter would depend on which foreign
markets are most desirable. Ifthe use ofEnglish in particular markets is not widespread, then the

utilization of an interpreter or the development of the exporter’s language skills may be necessary. Due to

75
the time associated with learning another language, it may be useful to learn one which is used more

extensively in international trade, such as French, Spanish, Japanese or Chinese. Even though it often
takesyearstomasteranotherlanguage, itshowsasignofrespectforaforeigncustomer’sculmreforthe
seller to have studied their language, even at a very basic level, prior to a business meeting. Foreign
languages are addressed further in Appendix C.

Mam

Again, a low percentage of all respondent groups indicated that they had not participated in any
form of export training programs nor attended any private or government-sponsored export seminars.
Many hardwood lumber exporters consider training programs important in developing international
business expertise (Ifiu and Bush, 1994). There are a variety of private and government-sponsored
training programs available to potential or current exporters. These programs may offer low-cost means
of building the export manager’s knowledge of international business elements and the mechanics of
exporting.

Trade SM!

Current research on hardwood lumber exporters maintains that those firms considered trade
shows beneficial to export activity (Hammett and DeForest, 1993; Ifju and Bush, 1994). The survey
results show that a low percentage of respondents had attended trade shows, from 10% (Experienced
Exporters with Limited Scope) to 55% (Experienced Exporters with Broader Scope). As mentioned
earlier, trade shows and foreign travel can yield a wealth of customer, market, and competitor
information. Cavusgil and Nason (1996) state that attendance at foreign trade fairs is one of the most
effective ways to get a perspective of (a firm’s) industry on a regional and global basis. The participation
in trade shows is an inexpensive means of promoting a firm’s products, and is discussed in more detail in
Appendix C.

Qse g Infdrmatim grvices

Current literature suggests that the use of information sources is important to developing export

markets (Hammett and Deforest, 1993; Ifiu and Bush, 1994). A much higher percentage (73%) of the

Experienced Exporters with Broader Scope, in comparison to their less active counterparts, stated that

76
they had actually used or were using some form of private or government information service. By setting

more aggressive export goals for the company, the Experienced Exporters with Broader Scope would
inherentlyneedmore informationtosuccessfullysupporttheirmarketingefl'orts. Ofcourse, theparticular
information service utilized would depend on the type of information or services needed. Those
companies starting to assess the feasibility and profitability of exporting may need a much broader base of
information than the exporter who is fine-tuning his or her knowledge of specific areas of interest.

Tr_a_de Minions

Thefinalquesfionpenaimngtoexponsldnsandexpenencemlawdtomemembashipinvarious
trade organizations. The majority of all three respondent groups belonged to some sort of trade
association, although it was not determined whether these organizations aided in those companies
developing their export activities. The importance of trade associations in assisting firms to develop their
export activities is substantiated by Reid (1984). Trade associations can be very helpful to their members
in developing international business, providing that trade association has made a commitment to that
effort (Cavusgil and Nason, 1996; Hammett and DeForest, 1993). Appendix G lists several trade
associations which assist hardwood lumber companies in developing export opportunities.

Additional ansiderations

It would be beneficial for the export managers to have had experience working and/or living in
foreign markets. This would include short-term project work or study experience. Travel enhances the
cultural perspective of managers, and provides valuable experience in dealing with foreign markets (Ilju
and Bush, 1994). Research indicates that executive trips to foreign markets serve as the primary source of
information product decisions and assessment of risks and are also helpful in the actual processes of sales
negotiations and customer liaison (Cavusgil, 1980).

Experience in working with domestic trade facilitators (e. g. banks, law firms, freight forwarding
companies, market research firms) would also be beneficial for export managers (Cavusgil and Nason,
1996). Gaining experience in building trust and relationships with foreign companies, as well as in
international business transactions, would also build the confidence and capabilities of an exporter

manager.

Chapter 8

SUMARY AND CONCLUSIONS

Summary of Results

In terms of company characteristics, the most Experienced Exporters with Broader Scope tended
to be larger and younger. More of these firms had international scepes of marketing and had a higher
percentage servicing more than one export market Looking at the respondents in terms of value-added to
theirexportproducts,thosefirrnsaddingmorevaluetotheirproductsweretwiceasoldastheir
counterparts, tending to have a larger international scope of marketing yet a lower percentage of exports.
Whencomparedinterms offirm size, the srnallerfirmswereyoungerthanthemedium-andlarge-sized
firms. The scope of marketing increased from a local level to an international basis as firm size increased,
and the larger companies tended to export higher percentages of their annual production than the small-
and medium-sized firms.

Overall, more active exporters (based on percentage of exports) advertised through a variety of
difierent media, including trade journals, directories, the Internet, word-of-mouth, and direct mail. They
also showed the highest percentage of firms using more than one sales element, including direct sales,
sales representatives, and distributors. Those firms adding more value to their export products also tended
to use more than one element for their international sales.

All three respondent groups indicated that supplementing domestic sales with export sales and
contributing to the long-term expansion of the firm were important reasons for exporting. The
ExperiencedExporterswithLimited Scopemteddisposingofexcessproductstobenotimponantbutthe
Experimental Exporters and Experienced Exporters with Broader Scope did rate this as important. The
least important reasons for exporting were reducing risks by selling to diverse markets and stabilizing

seasonalmarketfluctuations. Whencomparingtherespondentsintermsoffirmsize,asthesizeofthe

77

78
firm increased, so did the level of importance associated with each reason for exporting. Supplementing

domestic sales and contributing to the long-term expansion of the firm were also the most important
reasonsforexportingamongthesethreegroups.

Those companies showing the most active exporting showed a greater willingness to wait longer
periods to break-even on their foreign market investments. On a basis of value-added to export products,
agreaterpercentageofthecompaniesaddingmorevalue statedtheywerewillingtowaitlongerperiodsof
time to achieve a return on their foreign market investments. The most active firms (in terms of
percentages of exports) indicated greater target increases for export sales in the future, as well as higher
levels of export activity, whereas both groups of respondents (based on value-added) showed similar
desired increases in export sales. The majority ofthe respondents showed a reluctance to allocate full-
time personnel toward expanding their international business. Only the Experienced Exporters with
Broader Scope indicated that a large percentage ofthem were using a combination ofsales channels,
including direct sales, domestic and foreign middlemen, although all three groups indicated that they
intendedtoincreasetheuseofalltlueeofthesechannelsinthefirture. Whencomparedintermsofvalue-
added, both groups of respondents also stated they were interested in expanding the use of multiple sales
channels.

The survey respondents produced a variety of hardwood products for export, although a greater
percentage of the most active exporters tended to export more than one product. More than halfof all
three respondent groups stated that they provide after-sales support to their customers, while greater than
two-thirds of the respondents indicated that they made follow-up calls to their customers. The majority of
all respondents stated that their products and/or packaging could or were made to suit the needs of foreign
markets, except when categorized by value-added; the majority of those firms adding less value to their
export products stated they could modify their products or packaging for international markets, whereas
only two-thirds of the firms adding more value stated they were able to do this for their foreign customers.

Overall, the most Experienced Exporters with Broader Scope had higher self-rated levels of
knowledge concerning various elements of international business. Awareness of foreign market costs,

foreign competition, foreign currencies, and sources of export information were rated high among this

79
group, while their knowledge of tariffs and non-tarifi‘ barriers to trade and legal systems and agreements

were considered lacking. When comparing the firms according to size, self-rated levels of knowledge
increased as company size increased.

Only a few of the respondents stated they had some sort of training in cross-cultural negotiations,
aswellasacompetencyinanyforeignlanguage. Allthreegroups(basedonpercentagesofexports)also
indicated a low attendance of export training programs or seminars. A high percentage of the most active
exporters indicated that they had used some form of export information services, and the majority of all
three groups stated that they were members of at least one trade organization.

It should be noted that, given the goals ofthese companies in terms ofincreasing export
percentages, the data suggests that the exporters may experience difficulty further cultivating foreign
markets due to overall low future allocations of resources toward exporting. Since these companies are
alreadyexportingtovaryingdegreesofactivity, theymayalready havetheessential resourcestosustain
current levels of exports. These companies should consider the implications of not allocating essential
manpower to export programs, developing effective training programs for their export sales staff, or
instituting more aggressive follow-up procedures for their foreign customers.

Determining an efiecfive desired length of time to achieve returns on foreign market investments
woulddependonthefirmanditsresourcesaswellastheproductsmppliedtoforeignmarkets. As
mentioned previously, many companies have a great deal of capital tied up in their products, so some
companies may need to achieve faster returns than others. It would benefit a firm interested in developing
foreign markets to investigate the lengths of time for achieving an ROI for each customer as well as the
particular markets in which they intend to export.

Of those firms which did not export, the most common reason for abstaining from international
trade was a satisfaction with the domestic market. Another reason pertained to perceived strategic
disadvantages such as the lack of dry kiln facilities or equipment to load export containers. Another
reason had to do with negative previous experiences with international orders, such as having export

orders canceled after they had been prepared for shipment.

80
Survey Problems

One important item ofinformation not present in the survey was the length oftime each
companyhadbeenexporting. Thiswouldhaveprovidedinsightastothelengthoftimeneedcdtoachieve
status as an “aggressive” exporter.

Another problem related to the nature ofthe data base from which the potential survey
respondents were drawn. The erroneous data concerning the status of the individual firms as exporters
and non-exporters shows that the Michigan DNR data base is in need ofrevision to reflect the true nature
of the hardwood products manufacturers current marketing focus. This factor may have inhibited the
research from contacting all hardwood companies within the selected product range which may be
currently exporting their products.

Needs for Additional Research

One area which would benefit hardwood lumber companies interested in exporting would entail
the analysis ofthe costs associated with producing and transporting various products to different overseas
destinations. This would give a future exporter an insight into a very important element of the pricing
strategy.

Another area of research would focus on the number of countries exported to, the years exported
to each one, and the number of customers served in each (Gottko and McMahon (198%). This would aid
in identifying the markets deemed most attractive by hardwood lumber exporters, as well as help in
determining which markets are under-served.

A study of hardwood lumber exporters in the Great Lakes region as a whole would also serve to
identify any trends among these manufacturers, since they are located within a geographical area which
has similar hardwood timber resources.

Since public assistance is an important and low-cost means of sourcing information and
assistanceinexporting, astudyofthepemepdonsofMichiganhardwoodproductsexponersmayseweto
identify what types of information are most sought-after, and what types of deficiencies this form of

assistance holds.

81

Conclusions

There are a multitude of organizational and marketing elements which must be considered when
a firm is preparing to export its products to foreign markets. This surveyjust highlighted some ofthe
more important aspects associated with international marketing practices, and answered just a few of the
many questions pertaining to exporting. The survey respondents were asked to define aspects of their
current competitive characteristics, describe their motivation for going international and their
commitment to expanding into international markets, and rate their levels of knowledge and experience in
international business activities.

It is difiicult to define a “successful” exporter on the basis of the company’s level of exporting.
Whentakingtheviewthat the sruveyrespondentsareallcurrentlyexportingto somedegree, theymayin
fact all be “successful” exporters, depending on their individual goals related to international business.
Thekeyissueiswhetherornotthesefirmswillbeabletoachievetheirexportinggoalsgiven the
resources that they are willing to allocate to the international business process.

In defining an “active” exporter, it was assumed that the level of export activity was a function of
the percentages of annual production exported, in combination with the desired increases for future export
percentages. Other characteristics associated with active exporters include having a positive attitude
toward exporting and accepting the risks associated with international transactions, actively seeking the
first export order, estimating the costs associated with exporting and planning to develop export markets.

The task of analyzing exporters for trends in their marketing techniques is a complex task, since
there are many factors which may drive an individual firm to use various marketing methods. These
factors may include the types of products offered to foreign markets, the size of the particular firm, the
international markets which the companies seek to develop, etc. To better analyze the survey respondents,
they were additionally categorized according to the level of value-added to their export products, as well
asbythesizeoftheirfirmsintermsoftheirmunbersofemployees.

It would appear that Michigan hardwood products exporters are younger and larger as they
increase in export activity. The decreasing age of the more active firms diverges from current literature

on hardwood lumber exporters, although the size of these firms compliments current research. The firms

82
engaging in more active levels of exporting become increasingly dedicated to committing resources

toward exporting their products overseas, although the majority of all respondents were not willing to wait
long periods of time to achieve returns on their export investments. The active exporters have more
internationally-oriented scopes of marketing, use a variety of sales force elements, and seek to increase the
use of multiple sales channels. These firms have higher self-rated levels of knowledge concerning
international business elements, although there are no significant difi‘erences in the respondents’ levels of
experience and training in international business activities. With the exception of the respondents’ desire
for returns on export investments and the active firms’ levels of experience and training, these findings
are parallel to current hardwood products research.

When the respondents were categorized according to value-added products, they tended be older
and larger when adding more value to export products, although they had less percentages of exports in
relation to their total annual production. The companies adding more value tended to have more
intemationally-oriented scopes of marketing, were willing to wait longer periods of time to achieve a
return on their export investments, used a greater variety of sales force elements and sought greater
increases in their use of multiple sales channels.

When looking at the respondents in terms of their size, the larger firms tended to be older than
the smallest firms and had higher percentages of exports. As firms size increased, so did the international
orientation of their scopes of marketing. As the size of the firms increased, there was a noticeable
increase in the level of importance for all given reasons to export. In addition, the self-rated levels of
knowledge tended to increase with the size of the companies. These findings support current research on
hardwood lumber exporters.

Available empirical evidence points conclusively to the decision-makers attitude, experience,
motivation, and expectations as primary determinants in firms engaging in foreign market activity (Reid,
1981). Hardwood lumber companies interested in exporting should consider preparing their organizations
for the rigors of international trade by increasing their scope of markets, strengthening their commitment

to going international, developing their products to suit the nwds of foreign customers, and increasing

83
their knowledge and experience in terms of the many elements which are associated with exporting and

international business.

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APPENDICES

APPENDIX A

APPENDIX A

SURVEY QUESTIONS

om ' C abilitiesintheE rtM

9:59.“?

9‘

M .

9.

Approximately how long has your firm been in business?

How many full-time employees do you have?

How many sales people do you have?

What is your current scope of marketing (local, regional, national, international)?

What markets does your company marktn to (Canada, Mexico, South America, Europe, Japan, Asia,
Africa, Australia)?

What methods of advertising do you use (directories, trade journals, Internet, word-of-mouth, other,
none)?

. How would you describe your sales and distribution activities (direct sales, manufacture’s

representatives, distributors)?

for in Int rn onal

On a scale of l to 5, 1 being not important and 5 being very important, how would you rate the
following motivating factors for your company to expand into foreign markets

a. dispose of excess products/utilize excess production capacity

b. stabilize seasonal market fluctuations

c. supplement domestic sales with occasional export sales

d. reduce risks by selling to diverse markets

e. contribute to the long-term expansion of the company

Commitment of Owners and Top Managment

10.

11.
12.

13.

14.

15.

16.

How long is your company willing to wait before achieving the break-even point on their foreign

market investments (<2months, <6 months, <1 year, <2 years, > 2 years)?

What is your average yearly sales as a percentage of total sales?

What percentage of your total sales should be represented by foreign market sales within the next 3 to

5 years?

Which of the following ways does senior management envision exporting?
a. occasional activity
b. regular activity (no target sales)
0. regular activity (moderate target sales)
d. regular activity (aggressive target sales)

How much of the following time descriptions is senior management willing to allocate to

international expansion efforts?
a. occasional/as required
b. up to half-time of one person
c. up to full-time of one person
d. more than one full-time person

Which of the following descriptions best characterizes your firm’s export activity?
a. exporting through domestic middlemen
b. exporting through foreign middlemen
c. direct sales to foreign customers
d. exporting only in response to unsolicited orders

Which of the following channels does your firm intend to use to sell to foreign markets within the

next 3 to 5 years?
a. domestic middlemen
b. foreign middlemen
c. direct sales to foreign customers

91

92

Produg Readiggg fgr Fgggigg Markm
17. What types of hardwood products do you export?

18.

19.
20.

Is your company willing to provide after-sales support competitively for customers in foreign

markets (Y es/No)?

Does your sales team make follow-up calls to customers (Y es/No)?
Is your product and/or packaging made suitable for foreign customers?

Skill, Knowledg and Resources

21.

On a scale of 1 to 5, 1 being poor and 5 being excellent, how would you rate your sales team’s
knowledge of:

a. foreign market costs

b. tarifi's and non-tariff barriers

c. foreign competitors

d. legal systems and legal agreements

e. foreign currencies

f. export information sources

E5291 3; and Tm'ning

22.
23.

24.
25.
26.
27.

Does your management have training in cross-cultural negotiations?

Do key members of your management team have language competency in at least one foreign
language?

Have you/do you attend any export seminars or training programs?

Has your company participated in domestic or foreign trade fairs?

Have you/do you use any government or other information sources?

Are you involved with any forest products trade organizations?

APPENDIX B

APPENDIX B

AN EXAMPLE OF AN EXPORT STRATEGY: COMPANY A

The successful development an international business strategyis considered an incremental,
systematic process (Cavusgil, 1980). It is then assumed that the description of the development of an
export strategy should be defined in a systematic process, in order to give the prospective exporter a
guideline to develop an export strategy in an incremental manner. The purpose of this appendix is to
provide an example of how a smaller-sized hardwood lumber wholesale company, for this purpose named
“Company A”, might decide to enter into international markets, and then expand its presence within those
markets.

Initial Assumptions

There are many aspects of Company A which may give it a competitive advantage over its
competitors. These can include management capabilities, personnel expertise, financial resources,
product attributes, and production techniques and facilities. Since the first four elements mentioned can
vary widely from firm to firm, it is the production characteristics which may be used as the general
standard by which Company A will be defined for this analysis.

Hardwood Lumber Company Production Characteristics

Hardwood lumber companies can incorporate a wide base of production capabilities, depending
on their size and types of products offered. For instance, if Company A is control of a sawmill, it may
have a more stable supply of hardwood lumber. Also, if Company A owns timber land, it may have a
relatively stable supply of timber to support its sawmill. These types of assets would give Company A a
sustained competitive advantage over its competitors, since it would have achieved backward vertical
integration and have better control over the supply and quality of its raw materials in the long-term
production of hardwood lumber. Forward vertical integration, in which Company A would purchase or
establish a secondary processing facility which uses lumber as its raw materials, could also give it an
advantage over its competition. An example of this type of subsidiary would be a dimension mill or

flooring production facility. It could also take the form of a plant producing a more finished product like

93

94
architectural millwork or cabinet components. Additional competitive capabilities would include the

possession of dry kilns, surfacing equipment, double-end-trim saws and rip saws. These types of
equipment would allow the lumber company to tailor its lumber to the needs of a more diverse population
of customers. Vertical integration is discussed further in this appendix.

We

For the purposes of this study, we will assume that Company A is a wholesale lumber company
which has dry kilns. This type of asset, or access to them, would be instrumental in facilitating the export
of hardwood lumber overseas (Araman, 1989a; Hammett et al., 1991; Hammett and Deforest, 1993).

By kiln-drying lumber, there is minimal possibility of spoilage while the shipments of lumber are
enclosed in containers en-route overseas, not to mention a drastic reduction in weight to minimize
transportation costs. Realistically, a Michigan hardwood lumber company without dry kilns could at best
service the Canadian or Mexican market, since containers are not necessary to cross the US-Canadian or
US-Mexican borders.

Access to or possession of primary and/or secondary manufacturing facilities and equipment will
not be considered, except in the proposition of alternatives to producing only kiln-dried hardwood lumber.
Michigan Hardwood Lumber Company Competitive Analysis

Competitive analysis is the process by which a company attempts to define and understand its
industry, identify its competitors, determine the strengths and weaknesses of its rivals, and anticipate their
moves (Thompson and Strickland, 1995). A very simple form of analysis involves defining the strengths,
weaknesses, opportunities and threats (SWOT analysis) of an industry or company. This competitive
analysis will focus on Company A in the Michigan hardwood lumber industry.

Strengths

Michigan has a strong natural resource base of standing hardwood timber. The stand structure is
maturing into sawlog size trees, and a variety of select export species exists in these forests. The presence
of hard maple, red and white oak, birch, cherry, and ash indicate a good source of export material for
Company A The proximity of Michigan to other Great lakes states may also provide a means for

Company A to obtain lumber which may not be presently available in the state.

95
TheMichiganhmdwoodlumbermdustryhasbeenestabhshedformanydecades, andisknown

for producing high-quality lumber. The experience of marketing their products to other areas in the US.
mayhavepmfidedCompanyAwimMSirwssshlkusefidmdevelopmgexponsmarkem.

There is a stable domestic demand for hardwood lumber, providing a solid economic situation to
support Company A’s growth into international markets. The presence of a large market for low-grade
material would provide a means for Company A to market its non-export grades of lumber.

In addition to the market and manufacturer attributes, the high costs associated with starting a
hardwood lumber company may inhibit many entrepreneurs from entering this market without substantial
financial backing.

Weaknesses

One of the primary weaknesses of the Michigan hardwood lumber indusz is that it consists of
many fragmented, smaller companies. This indicates that Company A has less financial resources and
lower inventory volumes available to fill export orders. In addition, Company A may have little or no
export experience, and perceive barriers to exporting as a hindrance to international business activity.

The geographical distance to coasts may create a disadvantage in terms of transportation costs.
The bulky nature of hardwood lumber would necessitate a thorough understanding of the distribution
process in order to be competitive in the international marketplace.

The maturity of the hardwood lumber industry also creates a very competitive environment for
Company A, in which margins are reduced and raw material costs are elevated. In addition, other
northeastern states may provide readily available substitutes for Michigan hardwood lumber.

Although there are high start-up costs for lumber mills, the lower costs to establish a lumber
brokerage may create the opportunity for these types of businesses to proliferate if the profitability of the
industry is very attractive. This could increase the competition affecting Company A’s markets.
0pm ities

The market growth in the Pacific Rim has opened export opportunities for Company A. The
legislation passed to prohibit the harvesting of tropical timber has stimulated the demand for US.

temperate hardwoods, in addition to the desire of foreign companies to manufacture hardwood goods

96
which appeal to US. consumers. In the absence of export knowledge, domestic middlemen may assist

Company A in developing these export markets.

It may be possible for Company A to develop foreign markets by focusing on market segments
not currently serviced to capacity, or by pinpointing potential customers which may require increased
customer service. Product differentiation may be feasible through adding product characteristics such as
surfacing and customer-specified lengths and widths. By initially exporting to smaller customers
overseas, Company A may develop its foreign market base, building its reputation and brand
identification.

If Company A becomes interested in expanding, the possibility of vertical integration may afford
it better control of its value chain. This may be accomplished by purchasing timberlands or primary or
secondary processing facilities. Hardwood dimension may also ofl‘er additional opportunities to meet
unsatisfied foreign market needs. A cooperative effort between Company A and other hardwood lumber
companies to fill export orders may also ensure that adequate inventory is available for international
transactions.

Lastly, Michigan government agencies may provide information and services which will aid
Company A in identifying markets, their requirements, and potential customers. This may also serve to
increase the Company A’s knowledge of the mechanics of exporting, to facilitate more efficient foreign
transactions.
limit—ts

The threats of hardwood substitutes such as plastics and metals may have an impact on the future
consumption of hardwood lumber, creating less demand for Company A’s hardwood lumber. In addition,
southern hardwood species of oak rnay compete on a basis of price to the nondiscriminating foreign
consumer.

Domestic middlemen and foreign lumber distributors may contribute to the competition for
acquiring raw material, as well as increase competition for end-user customers in foreign markets.

Lastly, the performance of foreign economies will have a direct impact on the demand for

Company A’s hardwood lumber by hardwood products manufacturers overseas.

97
My

SincetheMichiganhardwoodlumberindustryisatamaturestage, theprimarymeansof
buildingacustomerbasewillentailCompanyAacquiringmarketsharefromitscompetitors. Thiswould
mean that Company A should focus its efl'orts on first identifying lucrative markets for its products, and
then identifying the specific needs of the customers within each market segment.

The stable domestic economy and demand for hardwood lumber will enhance the financial
situation of Company A. The economic performance of foreign countries may dictate which of those
markets may be most attractive in terms of future growth. To cope with the threat of substitute products,
Company A may promote its lumber in terms of appealing characteristics to the domestic market, for
attracting overseas manufacturers wishing to export their products back to the United States. Company A
may also publicize the energy-intensive methods of production for materials such as steel and plastics.

By building market share in foreign markets, Company A may establish its reputation and
develop customer and distributor relationships, in an attempt to counter aggressive moves by competing
domestic and foreign lumber companies and middlemen. Developing channels of distribution may also
increase the possibilities of reducing shipping costs by receiving discounts on consolidated shipments
overseas, and reducing the time associated with processing international orders.

Lastly, by accessing the many information sources available to small companies, Company A
may increase its knowledge of foreign markets and the mechanics of exporting. This would serve to
increase their overall competitiveness within both the domestic and foreign marketplaces.

Basic Export Strategy for a Hardwood Lumber Company

In terms of hardwood lumber companies, exporting is recommended to be approached as a
gradual, systematic process following three major steps: indirect exporting, direct exporting, and product
diversification. The first two strategies concern the selection of channels to be used for exporting, while
product diversification implies expanding markets through the incremental development of new products

to tailor production to a greater variety of customer needs.

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Indim Emrting
The first phase of Company A’s export strategy would involve indirect exporting. This is when
the exporter deals through an indirect domestic intermediary before entering the international
marketplace. Guldin (_) describes indirect exporting further:

If the sale is negotiated and title exchanged for payment in the United States, exporting
is called “indirect”. The entire sale is transacted in an environment where conventional
domestic business practices, payment procedures and contract laws apply. Export
merchants buying wood products are treated like domestic customers. Some firms may
already have consummated sales to export merchants without being aware of the fact.
This highlights a major concern of using indirect exporting - the short extent of control
allows little information to be gathered on foreign markets and consumers’ needs.

By exporting indirectly, Company A may gradually gather information and experience associated
with the mechanics of exporting. Guldin ( ) further explains the benefits of indirect exporting:

This approach has several advantages. Sales require only a limited number of
middlemen, so channel control problems are simplified. Another major advantage of
indirect exporting is stems from the fact that the export merchant takes title to the goods
and profits from their resale... the producer is paid for his products quickly in dollars,
need not extend credit to new foreign customers, and bears no risk of losing money due
to currency fluctuations. Third, export merchants provide valuable sorting functions...
this provides a profitable sales outlet for small volumes of high quality or specialty
products that a single producer would not normally be able to market separately at a
premium price. The fourth major advantage of indirect exporting is that export
merchants... are used to working with small mills.

Although indirect exporting through domestic middlemen may benefit Company A in the short-
term, it would be advisable for the firm to expand exports by marketing through more direct channels in
the future:

Exporting through domestic market intermediaries such as export trading/management
companies may be a good alternative if you are planing marginal and intermittent
exporting. Such intermediaries will reduce the burden of export transactions in retum
for a commission However, although such an indirect exporting approach may be
advisable for early phases of involvement, (a company) should consider a more direct
approach as soon as possible to fully benefit from exporting. Direct involvement in the
foreign market through agents and distributors, then later enhanced with (its) own
marketing subsidiaries, will give (a company) the opportunity to gain first-hand
familiarity with the export markets and all that is involved in serving them from (its)
home market (Cavusgil and Nason, 1996).

It is clear that for a smaller-sized, intemationally-inexperienced lumber manufacturer such as
Company A, indirect exporting provides a very uncomplicated, low-risk alternative to direct sales in

foreign markets. Less expertise and effort is required of Company A and, in the case of export merchants,

99
the entire transaction is domestic and all overseas risks are borne by the middleman (Ringe et al., 1987b).

The disadvantages of indirect exporting are that the charges for export services reduce Company A’s
profit marginsrealizedwithexporting, andCompanyArelinquishesthegreaterextentofcontroloverthe
marketing functions. If indirect channels are chosen, the reputations of middlemen should be established
and trusted (Ringe et al., 1987a).

Dim Eppprting

The second stage of the process would be for Company A to engage in direct exporting. This
entails Company A negotiating a sale with an import merchant in a foreign market.

Direct exporting offers better market information, the ability to develop in-house

expertise in international marketing, and the potential for increased sales and profits.

The firms, however, must make a greater investment, hear more risk, and deal with

more “red tape” and middlemen than if an indirect exporting channel is used. Direct

exporting requires a greater extent of control, because more of the channel functions are

:e‘lSrmed by the producer and intermediaries before title passes to the buyer (Guldin,

Direct exporting, as the term implies, involves the sale of lumber directly to overseas customers;
additional efl’ort on the part of Company A in preparing overseas documents and in making arrangements
may be required, but higher revenues than with other types of sales can often be realized (Ringe et al.,
l987b). Ringe et al. (1987b) point out that in direct exporting, producers retain greater control over their
export operations, thereby reducing the potential for damage and pilferage. They also indicate that while
indirect exporting is often recommended for smaller companies, the majority of independent exporters in
their study exhibited a strong preference for maintaining direct control over their export operations.

By shifting to direct exporting, after acquiring export knowledge and experience through indirect
exporting, Company A may increase its profits and exercise greater control over its marketing channels.
If direct exporting is preferred, full understanding of foreign trade procedures and customer desires is
necessary as is a strong commitment to fulfilling them (Ringe et al., l987a).

Product Diversification
The third phase of export expansion would be involve Company A diversifying its product base

to include more value-added goods. These may be in the form of hardwood dimension, panels, millwork,

100
flooring, or other products or components in the semi-finished form By diversifying Company A’s

product base, it may be possible to expand its market share by attracting additional customers.

Cohen (1992) states that there are two means ofincreasing thevalue ofsolid wood products:
secondary manufacturing and incrementally adding value in the primary process. While those companies
with stronger financial resources may be in the position to establish or purchase a full-scale secondary
woodproductsfacility, srnallercompanies suchasCompanyAmayelecttograduallyaddvaluebyfirst
offering options in the manufacture of hardwood lumber. These would include product options such as
surfacing, cutting to lengths, or ripping to widths. Gradually Company A may add even more processing
to its lumber, in the form of rough or finished dimension blanks.

Byincrementallyaddingvaluetoitsproducts, CompanyAmaygraduallydifl‘erentiate its
products and services from those of its competitors. Hill and Utterback (1979) define incremental
innovations as extensions of existing technology that improve product performances, cost, or quality step
by step. Incremental improvements in products and processes are not as dramatic as major product
innovation or major process change (Cohen, 1992). The concept of adding value is discussed further in
this appendix.

Conclusions

For the purposes of this study, it is important to note that the particular export strategy selected
by Company A would depend on its financial resources and the existing production equipment. It would
therefore be argued that small- to medium-sized lumber companies such as Company A should initially
focus on specific market segments in overseas markets in an effort to differentiate their products, while
medium- to large-sized companies may choose to diversify their product base to satisfy unmet needs in
different markets. In deciding which course of action to pursue, Company A must weigh the potential
risks involved with middlemen handling the lumber shipment against the degree of effort they wish to
expand in preparing overseas orders (Ringe et al., 1987a).

The Market Segment Focus
There are three potentially successful generic approaches to outperforming other firms in an

industry: (1) overall cost leadership; (2) differentiation; and (3) focus (Porter, 1980). Although each of

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the three generic competitive strategies discussed by Porter (1980) may work to increase Company A’s

competitive advantage, if Company A is not interested in undertaking large capital investments, the
market-segment focus strategy may be the most appropriate (Bush et al., 1990). This could be
substantiated by the facts that low cost production involves investments in more efficient production
machinery and/or timberlands, and producing and marketing a new product entails extensive product and
market research in combination with capital investment. Both of these strategies may be beyond the
means of small companies (Bush et al., 1990).

Customer 1?st

McLintock (1987) argues that US. hardwood lumber companies do not maintain forward-
looking, effective marketing programs based on an understanding of customer requirements. Customer
orientation involves a commiunent to the understanding of customer needs and a willingness to adjust to
market forces to satisfy these needs. The method is based on the philosophy of establishing close working
relationships with customers on an individual basis (Idassi et al., 1994). This entails not only identifying
the customer’s desired level of product attributes, but also developing an effective means to collect
customer feedback on delivered products. Gottko and McMahon (1989a) state that if a company focuses
on the latter three elements as well as on a product, it is said to be consumer-oriented. As Idassi et al.
(1994) note, “learning about customers is important, but in itself such information does not ensure that
customers are satisfied; competitive business strategies must be developed from customer value
information that will ensure that value is created and delivered.”

In addition to focusing on particular markets in exporting, a central theme in competitive
strategy is reafiirmation of the importance of being customer-oriented by creating and delivering value to
the customer (Idassi et al., 1994). Before accepting an overseas order for hardwood lumber, Company A
must fully understand what the buyer is looking for (Ringe et al., 1987b). A successfirl marketing strategy
includes emphasis not only on the product itself but also on the such non-product elements as pricing,
promotion, and distribution (Gottko and McMahon, 1989a). Gottko and McMahon found that Oregon

lumber producers considered communicating with customers and selling to be the most important

102
consumer-oriented components of a marketing strategy. To effectively service particular markets, it is

imperative that Company A aims to satisfy the individual requirements of each market’s customers. .
Vertical Integration

Since hardwood lumber is not considered an “adaptable” product in terms of physical
characteristics, product adaptation beyond quality and physical appearance is non-existent, except as
semi-finished goods. Although exporting hardwood logs is a more lucrative market for log producers, the
sale of unprocessed hardwood material overseas may aid in the elimination potential jobs within the semi-
finished or finished forest products industry. By exporting extremely high grade hardwood logs for veneer
producers overseas, this material becomes less available for domestic uses.

Company A may eventually consider the possrbility of expanding its operations vertically in an
attempt to control a greater extent of its value chain, once it has the financial resources to support such a
strategy. Downward vertical integration within the hardwood lumber industry may be achieved by
purchasing or establishing a primary processing facility such as a sawmill. Company A may achieve
upward integration by purchasing or establishing a secondary processing plant to produce a finished or
semi-finished product.

By controlling a sawmill, Company A may be able to ensure quality control from the very start of
the manufacturing process. It could monitor local forest management, timber contracts, logging activities
and sawmill operations, in addition to dry kiln and surfacing operations. This may possibly alleviate
Company A of some quality variability in inbound green lumber, as well as ensure supply scheduling
conformance.

Another implication of Company A expanding its operations vertically may pertain to the
availability of stock for filling overseas orders, which consumes a large volume of high-quality stock. One
problem with channeling a large percentage of the high-quality lumber to just a few foreign customers is
that regular domestic customers have to be sold the “left-overs”. This reduction in the availability of
premium lumber may in turn create customer dissatisfaction within Company A’s domestic market. By
vertically integrating a primary processing facility, in a strategic location with reference to available

resources, Company A may increase the availability of desired species and higher grades of lumber.

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Product Diversification: Hardwood Dimension

The mill that adapts completely to overseas markets often must change its product line to suit the
needs ofits customers (Hammett and Cubbage, 1991). This section focuses on one means in which
CompanyAmaygraduallyincreasetheprocessingofitslumbertomeettheneedsofabroaderhardwood
products market.

W

Adding value to a product may be defined as providing more service with the sale, engaging in
some additional fabrication of the product, or by doing subassembly or assembly of components before
they are sold to the customer (Porter, 1980). Two different means of increasing the value of solid wood
productsaresecondary manufacturingandincrementallyaddingvalueduringtheprimaryprocess
(Cohen, 1992). In the case of the hardwood lumber industry, this could entail producing more finished
products such as dimension or millwork, or adding lumber features such as surfacing, straight-line-rip-
one-edge, or double-end trimming. Adding value requires: an understanding of what connotes value to
the customer, the ability to assess what value can be added domestically prior to shipment; and the
gradual incremental evolution toward exporting value-added products (Cohen, 1992).

Adding value to a solid wood product does not necessarily require secondary manufacturing
(Cohen, 1992). Value can be added through sorting products by dimension or species, process control,
quality control, choice of grading systems, material handling, packaging, and marketing; none of which
require secondary manufacturing (Sinclair and Cohen, 1991). Although there are a variety of products a
hardwood lumber company may manufacture to meet a wide range of customer needs, especially if they
incorporate secondary processing facilities, the focus of this section is on the production of hardwood
dimension for export markets.

Manufapgring Hpflgood Dimgnsion

Hardwood dimension are pieces cut fiom hardwood lumber to meet specified measurements
usable by hardwood products manufacturers. The definition of hardwood dimension is described by
Araman and Lamb (1985):

Hardwood dimension stock is kiln-dried material that has been processed to a size and
quality that permits maximum utility by users in assembling their products. The users

104

of this material are typically companies that produce furniture, cabinets, millwork, toys,
novelties and other similar woodworking operations. The material is produced in
specified thicknesses, widths, and lengths; it may be solid or glued up, including panels.
Furniture dimension stock may be classified as rough, semi-finished, or finished. Rough
dimension stock consists of rectangular pieces of wood cut and ripped to specific sizes
and normally rough surfaced on two faces. Serni-finished dimension stock is rough
stockthatismachinedoneortwostepsfimherinthemanufacturingprocess. Itmay
include such steps as re-ripping, finish surfacing, moulding, trimming, shaping, and
mitering.
Araman and Lamb (1990) also describe the cross-cut-first production process of manufacturing
hardwood dimension and edge-glued panels, after the lumber drying process:
As needed, dry lumber is moved from the dry storage area to an unstacker that feeds the
cut and rip line. A cut-off saw equipped with a back gauge is used to cut the lumber into
pieces. A conveyor carries the pieces through a rough planer. The material then moves
to a sorting table and individual lengths are packed off into carts. The carts are moved
to straight-line rip saws for ripping the pieces into fixed and random widths. This
material is also packed off into carts. A salvage saw will recover parts from the waste
material.
The random width material goes to the edge-glued panel operation. Here, the material
moves by conveyor over the glue rolls and the pieces are placed into panels and clamped
in a clamp carrier. Alter gluing, the material is stored for final curing and then surfawd
on two faces and end-trimmed square.
The fixed width stock, if going to semi-finished dimension stock, will be further
processed through a molder and end-trimmed and mitered. Also, panels can be ripped

to the fixed width pieces for molding or further processing. All of the material will then
move to a dry storage area to await packaging and shipping.

Hardwood Dimension Market Outlook

The projected outlook of the demand for dimension is bright (Hansen and Aramn, 1985). The
United States is looked to as a large, reliable source of raw material and for finished products such as
furniture parts, finished furniture parts, and knock-down furniture pieces. There have been indications
that foreign markets may be receptive to purchasing pre-cut hardwood blanks versus rough or planed
lumber (Hansen and Araman, 1985a). Cut-to-size dimension blanks account for almost one-third of total
US. dimension and component export shipments. American hardwood dimension and component
exports continue to grow, having increased by an annual rate of 10% during the past five years, and

expected to continue increasing for the next several years (Lawser, 1996).

105
Mus for Emrting Dimension

The production of dimension blanks would reduce the volume of waste transported overseas
(Araman, 1985), thus lowering the shipping cost per-unit utilized by the final customer. Trade in
dimension would also eliminate some of the misunderstandings currently existing because of foreign
markets’ lack of knowledge of US. lumber grades (Araman, 1985). Foreign buyers would no longer have
to inspect, re-grade and further handle lumber on its arrival, or reprocess and re-dry lumber to meet local
standards (Hammett and Cubbage, 1991). In addition, secondary processing would provide additional
value-added activities in the United States, creating jobs and reducing the energy needed to transport
usable material overseas.

Some additional arguments for the manufacture of secondary wood products to increase the value
added to lumber include (Mater, 1990):

0 when log costs rise, secondary processing can increase income to make up the difference

0 secondary products earn higher profits by meeting specific customer needs, thus bringing higher
prices

0 secondary processors can plan to smooth the ups and downs associated with primary products

0 making products instead of commodities permits quick response to new markets, and allows a
producer to respond to new trends

0 secondary products broaden the customer base

0 in the long run products, not commodities, help protect all wood markets from continued
encroachment by competing materials such as steel and plastics

Utilization of Lower Lumber Grades

Perhaps one of the most compelling arguments for producing dimension stock is the fact that
Company A could efl‘ectively utilize intermediate and lower grades of lumber, as well as lesser-used
species found on US. forest lands (Lawser, 1996). This not only means better resource utilization, but
also an expansion of the resource base available for export and alleviation of the pressure on the more
limited supplies of higher-grade material (Araman, 1985). IfCompany A has determined exporting as an

attractive and feasible means to expand, then there may an inherently larger amount of lower-grade

106
material lefi in its inventory. Hansen and Araman (1985b) found that the dimension plant they described

would be particularly suited for investment by sawmill operators, since they would benefit by having a
means to use some of their medium- and low-grade lumber (1C and 2C). This concept could also be
applied to Company A if it purchased green lumber from sawmills in random grade bundles.

By utilizing lesser-used hardwoods not readily disposed of in the domestic or foreign markets, in
the manufacture of dimension, Company A may be able to take advantage of lower prices of these species.
This would present a significant advantage in term of raw materials costs. One disadvantage of using
lesser known species is that they are not known in foreign markets with respect to color, machining
properties, and finishing characteristics (Ringe et al., l987b). Also, Ringe et al. (1987b) maintain that
some foreign buyers express a regional preference for certain species, and that lighter colored woods are
preferred in may of the foreign markets.

Generally, the markets for the top grade lumber are the most profitable though output in these
grades is limited. In terms of producing dimension, sawmillers are satisfied to cover their costs in the sale
of below 2C material. Therefore, the lC/2C lumber, which accounts for 50% of a typical sawmiller’s total
production, must have adequate and profitable outlets if the sawmiller’s profit picture is to be positive
(Araman, 1989b). This would indicate that sawmills offer a good source of low- and medium-grade
lumber at moderate prices to supply Company A’s production of hardwood dimension blanks.

Additional Regpns For Producing Dimensig

With a dimension facility as a subsidiary, Company A would have ready access to production
material since it manufactures and markets hardwood lumber. The feasibility and ease of acquiring and
operating a dimension facility would depend on the level of processing Company A achieves with its
inventory. If Company A surfaces and/or double-end-trims its lumber, perhaps to feed its boilers and run
its kilns, then the initial stages of lumber processing have already been accomplished prior to the
dimension facility receiving its inbound lumber. Also, the machinery required to produce dimension stock
is similar to that of a lumber company which already surfaces, rips or trims to width and length

specifications, providing a smoother transition into that type of manufacturing.

107
Standardized hardwood blanks and dimension may offer a more diversified market for Company

A. In addition, by establishing a hardwood dimension mill to manufacture custom-order and/or
standardizedblanks, CompanyAcouldalsocontrolthequalityofhardwoodcomponentsfiomthestartof
the drying process.

Current and potential customers may be surveyed to determine the receptivity of dimension
products in both the foreign and domestic markets. Made-to-order semi-finished stock may become more
lucrative as domestic and foreign businesses continue to out-source non-core activities.

Standard-Sized Blanks

Hardwood blanks are rough-dimension parts of specific size (Araman, 1985). This surrounds the
ideathatofthethousandsofsizesofhardwooddimensionusedbywoodpmductsmanufacmmrs, thereare
a great many parts and panels which could be ripped from a particular number of dimension sizes with
minimal waste. The standard-size blank concept opens up many opportunities and seems particularly
well-suited to meet the demands of the international markemlace (Araman, 1985). The goal in
developing the proposed standards was to reduce the number of different sizes for production and
inventory (Araman, 1988a). Standard sizes would increase Company A’s yields and lower its product
costs, ofi‘ering inventory advantages and reduced shipping volumes which lower stripping costs (Hammett
and Cubbage, 1991).

Araman (1988b) researched the possibility of creating a series of standard sizes for rough
hardwood dimension blanks. He noted that there were several advantages to manufacturing stand-size
blanks for overseas consumption: many standard lengths could be cut at one time suing either the longest
length first or an optimizing cut-off technique; random width cuttings could be produced; the gang-
ripping first option could be used; the material could be made in the green condition and then kiln-dried,
eliminating the drying of non-usable material; and the dimension could be manufactured to fill and
maintain an inventory.

Working with standard-size rough dimension needs for the European and Japanese

markets, acondensedsetofstandardsizeswasdevelopedthatcouldbeusedforboth

markets. The lengths range from 12 to 72 inches in 4-inch increments, and from 84 to

108 inches in 12-inch increments. Overseas requirements for longer piwes can be

satisfied with lumber. The widths are in groupings 2+, 2-3/8+, 2-3/4+, and 3-1/8+
inches, or they could be provided in random sizes with a 2-inch minimum. The

108
thicknesses are listed at 4/4 and 5/4. It should be noted that atmospheric conditions in

Europe and Japan dictate the need for 10 to 12 percent kiln-dried moisture content

ratherthanthecustomary6t08percentneededformostoftheUnited States(Araman,

1988a).

From a strategic marketing perspective, value-added wood products must create more value for
Company A’s customers. Value can be added. from the customer’s perspective. by either lowering price
relative to the product performance or by increasing performance relative to the price (Cohen, 1992).
Some customer-related advantages of buying standard-sized blanks include: reduced manufacturing;
reduced waste; reduced inventory storage needs; and reduced stripping costs.

Qapgt‘ al Outlays

The initial stages of producing dimension do not necessarily have to include large capital outlays.
Hansen and Araman (1985b) studied the manufacture of hardwood dimension on a small scale, and
proposed a ‘modest’ capital outlay for the establishment of a small dimension plant. Of course, ‘modest’
would depend on the financial resources available to Company A. Araman and Lamb (1990) propose that
the initial capital costs can range from $200 thousand to over $3 million depending on the facility size
and production capacity. If Company A was relatively small, lumber would be purchased kiln dried and
processing would be limited to the production of rough dimension for domestic or export customers, and
employ approximately six workers and two administrative people. If Company A was a larger facility that
had dry kilns and the equipment to process 32,000 board feet per day into rough dimension stock in a two-
shifi operation, a dimension facility would cost about $3 million and may employ up to seventy people.
The addition of moulders, uim saws, and other equipment needed to produce semi-finished dimension
could cost and additional $100 thousand to 81 million (Araman and Lamb, 1990). Araman and Lamb
(1990) calculate the internal rate of return on a small dimension mill in between 20 to 40 percent, whereas
the large dimension plant would bring a return of over 40 percent.
ennui-m

Opportunities for increasing the value-added to wood product exports continue to exist.

However, building new manufacturing facilities to produce products targeted to an export market
without developing a cultural understanding and a long-term relationship can lead to great

difficulties (Cohen, 1992).

109
Perhapsthe most importantaspectsofmanufacturinghardwoodblanksarethat itwouldpermit

Company A to ship a higher valued product and to keep jobs at home for American labor (Araman, 1985).
Infact, mommtesmmfimberresourceswektodivanfymnmgmordermsavejobsmmm
areas (Mater, 1990).

Summary

There are a wide range of variables associated with international business in general and
exporting specifically. The main concerns of a firm which intends to expand internationally should
include determining market potential, selecting the pace for internationalization, growth alternatives, and
market entry strategies. Early international success factors include a strong product demand, product
uniqueness, product quality, and a customer orientation. Potential barriers to exporting include import or
export restrictions, cost and availability of shipping, exchange rate fluctuations, credit policies, and
expansion of distribution. Some critical elements in international operations involve product quality,
distribution channel development, competitive pricing, and the extension of credit (Cavusgil, 1980).

As successful internationalization of the firm is a gradual, systematic process, a long-term
approach will be imperative in building productive relationships with foreign companies. Exporting
should initially be accomplished on a selective, reactive basis, in order to gradually build international
business experience (Cavusgil, 1980). Initial international business transactions should be accepted only
when risk and economic commitment are reasonable, utilizing domestic intermediaries such as export
agents and financial institutions. Aggressive follow-up prowdures must be implemented to increase the
chances of retaining customers. Gradual information gathering and organizational development over a
period of years can increase a company’s capabilities in serving foreign markets, and competitors should
be closely monitored in both their domestic and international activities. In the meantime, it will be
important to strengthen the firm’s domestic tmsiness, in order to reinforce the company’s position when
competing in the foreign market. Unsolicited overseas orders may be filled whenever possible, and upper
management should initiate or continue to visit foreign facilities, participate in nade shows, and advertise

in trade journals. Ultimately, future contractual agreements may enable Michigan hardwood products

110
producers to increase their overseas sales volumes, build their customer relationships and expand their

business activities abroad.

APPENDIX C

APPENDIX C

THE EDORT BUSINESS PLAN

Once the upper management has made the commitment to expand business overseas, they must
determine which foreign markets appear most attractive in terms of profitability and growth potential. A
business plan must then be defined, to outline the goals and objectives and to construct a budget and
timeline for activities.

The mechanics of exporting add extra steps and costs to an international marketing sale

that not incurred when marketing domestically. In addition to selecting a target market,

designing an appropriate product, establishing a price, planning a promotional program,

and selecting a distribution channel, the international marketer must meet the legal

requirements of moving goods from one country to another. The exporting process

includes the licenses and documentation necessary to leave the country, an international

carrier to transport the goods, and fulfillment of the requirements necessary to get the

shipment legally into another country. The mechanics of exporting are sometimes

considered the essence of foreign marketing (Cateora, 1996).

Daniels and Radebaugh (1995) propose a general export business plan (Appendix E) to aid
companies interested in establishing international business activity. Cateora (1996) discusses a general
marketing plan (Appendix D) which may be applied to exporting, and Kotler (1994) also presents a
marketing plan which may benefit any manager in developing a marketing strategy. The following export
business outline has been formulated in the context of these references, with some modifications, to
facilitate an orderly and systematic approach to describing the basic business elements associated with
exporting hardwood lumber and hardwood products. This outline is by no means exhaustive; it is meant
to serve the prospective exporter as a guideline in approaching the mechanics of exporting.

Executive Summary

The planning document should open with a short summary of the plan’s main goals and

recommendations. This permits higher management to grasp quickly the plan’s major thrust (Kotler,

1994). A table of contents should follow the executive summary.

111

l 12
Business History
General Information
Various types of information may be presented pertaining to the company’s current markets,
products, competition, distribution and macroenvironment situations. A brief summary of financial
statistics on the firm’s performance may also be presented. Kotler (1994) provides a brief description of
these elements:

Sizeandgrowthofthemarketsmaybeshownforseveralyearsintotalandbymarket
and geographical segments. Data may also be presented on customer needs,
perceptions, and buying-behavior trends. In terms of products, the sales, prices,
contribution margins, and net profits may be shown for each major product in the line
for several past years. The major competitors are identified in terms of their size, goals,
market share, product quality, marketing strategies, and other characteristics that are
needed to understand their intentions and behavior. Data on the size, location and
importance of each distribution channel is also presented. Finally, the
macroenvironment situation refers to the broad trends - demographic, economic,
technological, political/legal, socio-cultural - that bear on the product line’s fixture.

Ex rt Feasibil tud
Prior to engaging in international activity, it is imperative for the company to address the issue of
determining the feasibility of success in particular markets of interest. Guldin (n.d.) describes the
mechanics of such a study:
An export feasibility study should begin with a review of the major business and
economic trends and the firm’s past performance in its sector of the wood products
industry. The goal is to estimate the significance of exporting as an alternative to
domestic markets, and the firm’s capacity to serve both markets. Once a particular
market is identified as offering attractive profit potential, the study proceeds to examine
alternative channels for distributing the firm’s product to consumers within that market
segment. An export marketing channel is a channel of interdependent institutions and
entities that forms to facilitate the uansfer of a wood producer’s output to users in
another counUy. Marketing channel options and strategies should be examined from the

perspective of the conuol a producer can exercise over the channel and, ultimately, the
profits from exporting.

Individual Company Msmwt

A general guideline for developing an export strategy would begin with considering the
desirability and feasibility of going international. One method of determining a company’s potential for
expanding overseas is to obtain counseling through one of many private or government agencies.
Appendix F lists several government agencies which provide information or services to firms interested in

exporting their products to overseas markets, and itemizes a few of the publications available. Another

113
sound method of self-analysis would incorporate the use of computer programs such as CORE IV. This

would offer a systematic assessment of the company’s strengths and weaknesses, and offer suggestions on
how to improve the organization and its product
Objectives

This section describes the financial and marketing objectives associated with exporting the firm’s
products. Financial objectives may include provisions such as the improvement of return on investment,
the increase of net profits, or the improvement of operating cash flow. The financial objectives must be
converted into marketing objectives (Kotler, 1994). For example, if the company wants to increase its
profit, and it has a certain profit margin, then it would have to set a goal in export sales which would
facilitate the attainment of the increase in profit

Market Research

The objective of market research is to identify the most profitable foreign markets for the firm’s
products. In order to effectively conduct market research, a firm must: classify its product; find countries
with the largest and fastest growing markets for its product; determine which foreign markets will be the
most penetrable; define and narrow down those export markets the firm intends to pursue; talk to US.
customers doing business internationally; and research the export efi'orts of US. competitors (U .S. Small
Business Administration and AT&T, 1995).
Market Analysis

In order to effectively serve a particular market segment well, a frrrn must fully understand the
needs of the customers in the segment (Bush et al., 1990). There are four primary segments in the market
for hardwood lumber: furniture, cabinet, dimension and flooring, and molding/millwork manufacturers.

In approaching its market analysis, the firm should first conduct a preliminary screening by
clustering, ranking, and targeting specific markets (Cavusgil, __). Market selection can thus be seen as
a decision process which involves narrowing down from a considered set of markets for entry what can be
regarded as part of the total market space available for future export activity (Reid, 1981). It would be
recommended that the senior management select one or two initial target markets, then expand gradually

(Cavusgil and Nason, 1990). Some measures of market attractiveness may include industry size and

I 14
growth, geographic location, or government regulations. Management could then determine individual

market industry potential, through market segmentation. market access potential, and industry trend
analysis. Past industry behavior, economic stability, barriers to market entry, and supply and distribution
systems would be evaluated for desirability. Trend analysis, regression, or indicators of attractiveness may
be analyzed to determine important market characteristics. The evaluation of company sales potential
would follow, incorporating activities such as partner selection, competitive analysis, marketing strategy
formulation, and risk assessment. Some measures of sales potential may include financial resources,
operational readiness, and management motivation to expand or change their supply base.

Assistance in gathering information may be requested from either from a private or public
source, to include trade associations, world trade clubs, and government agencies. Appendix F lists
government agencies which may provide useful information on markets. Other sources include
distributors, suppliers, advertising agencies, moondary statistics, and trade fairs. Information may also be
obtained through the use of surveys, trade audits, competitor analysis, or sales potential calculations.
Marketing Information System

Marketing managers, in order to carry out their analyses, planing, implementation, and control
responsibilities, nwd information about developments in the marketing environment (Kotler, 1994). The
four elements of a Marketing lnforrnation System (MIS) described by Kotler (1994) are the internal
records system, the marketing research system, the marketing intelligence system, and the marketing
decision support analysis. The role of the MIS is to assess the manager’s information needs, develop the
nwded information, and distribute the information in a timely fashion to the marketing managers (Kotler,
1 994).

Egpprt Assistance

There is a wide variety of information which may assist an export manager in developing an
overseas market, as well as a wide variety of public and private firms which may assist them in their
international business endeavors. Hammett and DeForest (1993) found that some of the most p0pular
sources of export sales assistance among southern hardwood lumber exporters were state economic

departments, lumber manufacturing or trade associations, and university or extension organizations.

115
Hammett and DeForest (1993) found that some ofthe most common types ofexport assistance received by

southern hardwood lumber exporters included trade leads, overseas market information, trade contacts,
logistics and financing information. Appendix F lists just some of the government and university
agencies which lend export assistance, while Appendix G gives names of some uade organizations which
also assist hardwood lumber exporters.
Marketing Plan

A market consists of all the potential customers sharing a particular need or want who might be
willing and able to engage in exchange to satisfy that need or want. A marketer is someone seeking a
resource from someone else and willing to offer something of value in exchange. Marketing is a social
and managerial process by which individuals and groups obtain what they need and want through
creating, offering, and exchanging products of value with others. Marketing management is the process of
planning and executing the conception, pricing, promotion and distribution of goods, services, and ideas
to create exchanges with target groups that satisfy customer and organizational objectives (Kotler, 1994).

International marketing poses a considerably more complex environment than marketing in the
domestic arena. This is due primarily to the cultural differences between the United States and other
countries. Psychic or cultural distance is proposed to be a function of the differences between any two
countries in terms of their level of development, the level of education, business and everyday languages,
cultural differences and the extent of commercial connections (Cavusgil, 1980).

Kaynak and Kothari (1984) address three critical elements in creating an export marketing plan:
1) an accurate assessment of the exporter’s objectives in a foreign market; 2) an informed understanding
of the competitive situation facing the exporter within an overseas market; and 3) an understanding of
how much market demand exists for the company’s product(s) abroad. In developing a marketing plan, it
is essential to delineate both short- and long-term objectives for the firm. Gottko and McMahon (1989a)
found that less than one-third of the Oregon lumber producers had prepared written plans for the future,
and that among those which did, the exporters tended to have longer planning periods than the non-

exporters.

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Amarken’ngmr'xisdefinedasthesetofmarketingtoolsthatthefirmuwstopursueitsmarketing

objectives in the target market (Kotler, 1994). Competence in managing the elements of the marketing
mix is a major determinant of the firm’s long-run performance and commitment to international
marketing (Cavusgil, 1980). A popular four-factor classification of the primary marketing tools is
referred to as the “4 Ps”: product, price, place, and promotion. These four elements of a marketing plan
are discussed in the following paragraphs.

Produg Differeng’ation

By establishing a solid reputation for producing high quality hardwood lumber, an introduction
of its products via unsolicited orders and occasional direct shipments may gradually create a positive
image for a firm throughout the foreign hardwood products industry. In exporting hardwood lumber,
there are several ways to create a positive image of a firm’s product, the most important of which would
be quality. A firm should take great care to ensure that its shipments of hardwood lumber to domestic and
foreign markets meet the quality and grade specifications set forth by the national Hardwood Lumber
Association (1996). Attention to ensuring the absence of drying defects such as checks, splits, cracks,
warp, and stain are paramount to establishing a reputation for high quality lumber. Many of these defects
are preventable by utilizing properly dried lumber and alleviating processing problems (Cesa, 1992).
Reinspection after drying, to remove poorly dried boards, will ensure that only quality lumber will be
shipped.

Hardwood lumber loads for export are normally shipped in containers for protection and security
(Araman, 19893). Most bundles are accompanied by a tally sheet showing the measurements of all the
boards (Araman, 1989a). Since packaging is very important on the export market (Araman, 1989a), a
lumber company should add quality features such as double-end trimming, end-painting, and company
logos on the sides of lumber packs. The use of heavy strapping and corner protectors may also help to
enhance the product’s image and reduce damage in shipment. In some cases companies actually put
wrapping over the lumber (Araman, 1989a). In addition, ensuring that board wane faces inside the pack

enhances the lumber packs’ overall appearance.

1 l7
Priging Str_a_t_eg§es
Assessing whether a product can be made and sold at a profit is another important factor to
consider when planning a firm’s marketing strategy (Cesa, 1992). There are basically two types of factors
to consider when developing a pricing strategy. Tangible factors include fixed costs. variable costs, and

profit.

Fixed costs include expenses such as building and equipment expenses, which require
payment whether a product is produced or not. Variable costs, such as raw material,
labor, and electrical costs, are expenses which are incurred in manufacturing a product
and vary based on production levels. Raw material (lumber) costs are of particular
importance to wood products manufacturers. For example, according to the National
Dimension Manufacturers Association, raw material (lumber) can be 40 to 60 percent of
the production cost to manufacturers of dimension and component parts. Profit is the
amount of monetary return desired as the reward for producing and marketing a product
(Cesa, 1992).

Intangible factors vary in importance depending on the company size, product line, product life
cycles, and time (Cesa, 1992).

Export pricing is a complex issue, and simple decision rules are often inadequate. The

complexity lies in the large number of variables that afi'ect international pricing

decisions and the uncertainty surrounding them. These variables can be classified as

either internal or external to the organization. The internal group includes corporate

goals, desire for control over prices, approach to costing. and degree of company

internationalization. The external group includes competitive pressures, demand levels,

legal and government regulations, general economic conditions, and exchange rates

(Cavusgil, 1988).

Cavusgil (1988) notes that there are six important influences on export pricing: the nature of the
product and/or industry; location of the production facility; the chosen system of distribution; the location
and environment of the foreign market; US. government regulations; and the attitude of the firm’s
management. Many firms’ export pricing strategies are also influenced by industry-specific factors, such
as dramatic fluctuations in the price of raw materials and predatory pricing practices by foreign
competitors (Cavusgil, 1980).

Firms typically choose one of three approaches to pricing. These can be called the rigid cost-
plus, the flexible costs-plus, and dynamic-incremental pricing strategies (Cavusgil, 1980). Cavusgil
(1980) explains the differences between these three types of pricing strategies:

The rigid cost-plus price strategy establishes the foreign list price by adding

international customer costs and a gross margin to domestic manufacturing costs. The
final cost to the customer includes administrative and R&D overhead costs,

118

transportation, insurance, packaging, marketing, documentation, and customs charges,
as well as the profit margins for both the distributor and the manufacturer. Although
this type of pricing ensures margins, the final price may be so high that it keeps the firm
form being competitive in major foreign markets. Nevertheless, cost-plus pricing
appears to be the most dominant strategy among American firms. Approximately 70%
of (US) firms use this strategy.

Flexible cost-plus price strategy is identical to the rigid strategy in establishing list
prices. Flexible strategy, however, allows for price variations in special circumstances.
For example, discounts may be granted, depending on the customer, the size of the
order, or the intensity of competition. Although discounts occasionally are granted on a
case-by-case basis, the primary objective of flexible cost-plus pricing is profit. Thus,
static pricing is still a static element of the marketing mix... The flexible cost-plus
pricing strategy... may be the most logical strategy for companies that are in the process
of moving away from their traditionally rigid pricing policies.

The dynamic incremental strategy... is based on the assumption that fixed and variable
domestic costs are incurred regardless of export sales. Therefore, only variable and
international customer costs need to be recovered on exported products. This makes it
possible for a company to maintain profit margins while selling its exported products at
prices below us. lists. It is assumed that unused production capacity exists and that the
exported products could not be otherwise sold at full cost. Companies can thus lower
their prices and be competitive in markets that may otherwise be prohibitive to enter or

penetrate.

The descriptions of each pricing strategy make it clear that unless a firm has excess production

capacity, or is in possession of excess inventory, hardwood lumber companies should utilize either a rigid

cost-plus or flexible cost-plus strategy. Most exporting firms appear to establish their pricing policies

metively, changing only when external pressures force the issue (Cavusgil, 1980). Although this strategy

may be defensrble, it is noted that creating pricing policies in this manner may cause the firms to lose

valuable sales during the transition periods.

Cavusgil (1980) proposes a decision process for systematically determining export prices to

increases global competitiveness:

1. Verify the export market potential.

2. Estimate the target price range: floor, ceiling, and expected prices.

3. Determine the company sales potential at given prices.

4. Analyze the import, distribution and transaction barriers.

5. Examine the corporate goals and preference for pricing strategy.

6. Select the suitable pricing strategy: rigid cost-plus, flexible cost-plus, or dynamic-incremental.

l 19
7. Check the consistency with current price setting.

8. Design the implementation: select the tactics, distributor prices, and end-user prices.
9. Monitor the export market performance and make adjustments as necessary.

In terms of price control among wood products exporters, Guldin (rid) notes that market share
plays an important role:

Wood products exporters seldom capture a large enough share of the total foreign

market for their product to be able to dictate or manipulate the price consumers pay.

Thus, price control options available to the producer are restricted to how the amormt

received is divided among (the firm) and the various middlemen in the channel.

Issues to consider when quoting prices to foreign customers are discussed in the section
pertaining to financial decisions and the pro forma statement.
Lug

Price, another key marketing-mix tool, stands for the various activities the company undertakes
to make the product accessible and available to target customers (Kotler, 1994). This includes the
identification and recruitment of various middlemen and marketing facilitators so that the firm’s products
are efiiciently supplied to its target market. It also entails developing the linkages between them to
enhance the efficiency of delivering service to the customers. A firm must understand the various types of
users, retailers, wholesalers, and physical distribution firms and how they make their decisions.
Promgion Stgtgm’ a

Promotion is communication used by companies to inform customers about who they are and
what they are selling. Types of promotion include advertising, selling, packaging, and, to a lesser extent,
public relations (Cesa, 1992). Financial incentives such as extended credit, price concessions, or cash
incentives, merchandise, and expense paid “show-me” trips and vacations have all been used to build
goodwill for producers and enhance corporate images (Guldin, n.d.). Various means of advertising used
by hardwood products exporters are discussed in Chapters 6 and 7. Other means of advertising include:
eatalogs; print advertisements such as pens, coffee mugs, etc; and conducting trade seminars and
workshops. A large part of any advertising campaign should be aimed at middleman promotions (Guldin,

n.d.). Packaging, as discussed earlier, also plays a key role in brand quality identification.

120
A firm has to hire, train, and motivate salespeople (Kotler, 1994). The sales stafl‘ofa firm is

often in direct contact with customers, and the image of the company which they convey to the uses of
theirproductshasadirectreflectionontheorganization. Thefirmalsohastosetupcommunicationand
programs consisting of direct marketing and sales promotion (Kotler,. 1994).

A very efiective means of promotion is by participating in trade shows. For competitive reasons
alone, participation in such shows is becoming an essential component of any global marketing strategy
(Business International, 1987). Industry associations organize annual trade shows and conventions.
Firmssellingproductsandservicestotheparucruarindusmbuyspaceandsetupboothsanddisplaysto
demonstrate their products at the trade shows (Kotler, 1994). Obtaining booth space at a trade show
enables a firm to promote its products to a select audience that, by its very nature, is interested in the type
of product the firm is manufacturing (Cesa, 1992). Trade shows can also serve as a market-test method,
since they draw a large number of buyers, who view products in a few concentrated days. The vendor can
observehow much interestbuyersshowinaproduct, howtheyreacttovariousfeaturesandterms, and
how many express intentions to place orders (Kotler, 1994).

Preliminary Marketing Plan
. To facilitate a systematic, detailed marketing plan, it is often helpful to utilize a general guide for
its initial design.
Marketing Plan gum

Some basic elements which constitute a marketing plan are described by Kotler (1994), and are
detailed Appendix D: V
1. executive summary: outlines the plans’ goals and objectives
2. current marketing situation: describes the internal and external environments
3. opportunity and issue analysis: analyses the main opportunities and threats facing the company
4. objectives: develops marketing goals from financial goals
5. marketing strategy: outlines the mechanics of the marketing plan

6. action programs: represents the broad marketing thrusts to achieve the business objectives

12 l
7. projected profit and loss statement allow the product manager to build a supporting budget

8. controls: concerns the controls for monitoring the plan’s progress
M Info ti

There are wide variety of information sources, both public and private, fiom which a firm
interested in exporting may obtain market information. For example, the USDA Foreign Agricultural
Service (1996) produces a publication which highlights exports of various forest products to specific
markets, both in terms of values and volumes. When evaluating a particular market for signs of
attractiveness, two obvious aspects would be total consumption and more importantly consumption
growth.

Marketgrowthmaybeconsideredonthebasisoftotal amounts, andpasttrendsintermsof
steady increases, decreases, or fluctuation between the two. Two basic examples of market analysis
information for hardwood lumber consumption are located in Appendices H and I. Appendix H lists the
value of US. exports of hardwood lumber by country for the last five years. Appendix I characterizes the
markets from Appendix H in terms of market growth. When identifying those countries which import the
highest value of US. hardwood lumber, Canada, Japan, Italy, Germany, and the United Kingdom rank in
the top five. But when considering which of these markets ofi‘er the highest opportunity for future market
growth, Indonesia, The Peoples Republic of China, Hong Kong, Thailand, and Portugal, and Thailand
lead in average yearly percentages of import increases. This may indicate that these markets may ofier
more potential for smaller companies interested in exporting, since those markets with the higher import
values may already be saturated and highly competitive in terms of prices.

Appendices J and K offer similar information on export markets for forest products from
Michigan. Canada, Germany, Mexico, Japan and Spain are currently the largest markets for these
products (Appendix J), yet looking at the markets in terms of growth (Appendix K) the areas of highest
potential include South Africa, Mexico, Finland, France and Taiwan.
W

The cultural distance between the United States and other nations varies according to the given

countries. Most writers agree that decision-makers are likely to explore first those foreign markets which

122
they perceive as having some similarity with their home market (Reid, 1981). While there is a great

difference between the culture of Japan and that of the United States, there is far less of a cultural
difi'erencebetweentheUS. andCanada. Ifthecustomergroupsisculturallysimilartotheproducing
group, then it is not a daunting task to understand their concepts of performance (Cohen, 1992). This is
one reason why Canada is such a good prospect for initial export activity. Other reasons for developing
export opportunities in Canada include a close geographical proximity and a stable currency exchange.

Exports of US. hardwood lumber to Canada have increased steadily, although at slower rates
than the Pacific Rim and Europe (Araman, 1988b). In the first halfof 1996, Canada was responsible for
importing $193 million FAS value of US. hardwood lumber, or roughly 21% of the total value of
hardwood lumber exported fi'om the US. during that period (USDA Foreign Agricultural Service, 1996).
This makes Canada the number one importer of US. hardwood lumber in 1996. Canada’s demand for
US. hardwood lumber is expected to remain strong due to its preferences for fine hardwoods and its
limited supplies of them. Another reason for continuing strong demand is that some Canadian firms
process U.S. lumber and logs for export (Amman, 1988b).

Legal Considerations

Aggnt and Distributor Amman“

Beeth (1973) describes the importance of a distributor contract in terms of its impact on both the
buyer and the seller:

An active, aggressive, changing distributor list produces more sales. In addition,
aggressive policies tend to keep the medium distributors on their toes.

The lengthy distributor contract has only one important clause: the cancellation clause.
The remainder is mainly a listing of who does what, written in legalese.

What happens to the distributors stock in case of cancellation should be spelled out. It
will vary considerably from country to country because of local laws, but in no case
should the manufacturer be required to take back any obsolete or otherwise unsaleable
inventory. If the manufacturer must agree to take back any other inventory, it should be
at the net f.o.b., factory price, less a hefty restocking charge, unless local laws force (the
firm) to do otherwise.

Prior to signing a distributor contract, the cancellation clause should be checked by a
local lawyer to minimize any local indemnification requirements to distributors upon
cancellation.

123

Since the laws governing a distributor contract vary widely from country to country,

their impact on cancellation of distributor contracts must be taken into account when

choosing the country from which (the firm) wants to service and supervise distributors.

Fo i rnmen E rt 1 '

Cateora (1996) describes some of the general reasons why many countries engage in export
controls:

There are many reasons why countries impose some form of regulation and restriction

on the exporting and importing of goods. Export regulations can be designed to

conserve searce goods for home consumption or to control the flow of strategic goods to

actual or potential enemies. Import regulations may be imposed to protect health,

conserve foreign exchange, serve as economic reprisals, protect home industry, or

provide revenue in the form of tariffs.

To comply with various regulations, the exporter may have to acquire licenses or permits from
the home country and ascertain the potential customer has the necessary permits for importing goods
(Clark, 1994). In the United States, most items requiring special permission or a license for exportation
are under the control of the Department of Commerce (Cateora, 1996). Export licensing controls
administered by the Department of Commerce include exports of commodities fi'om the US. A general
license permits the exportation of certain commodities with nothing more than a declaration of the type of
product, its value, and its destination; a validated license is a specific document authorizing exportation
within specific limitations.

All regulations imposed by the Department of Commerce are published in the Export

Administration Regulations, periodically revised and supplemented by the Current

Export Bulletin. Most commodities can be exported from the United States under a

general license, but a validated license is required when exporting strategic goods or

when exporting to unfiiendly countries. An exporter must consult the Commerce

Control List and Country Groups Supplement of the Export Administration Regulations

to determine whether a validated or general license is required for shipment of a
particular commodity to a specific country (Cateora, 1996).

Dispute Resolution

It is advisable to specify how and where any disputes will be resolved, as well as which nation’s
law would be applied. Mangers should bear in mind that different countries have varying arbitration laws
and systems which may apply (AT&T and the US. Small Business Administration, 1995). This should

be discussed in the contract negotiations with the foreign buyer.

124

Conn-g Nggo_tiatigns

Ghauri (1986) describes the generic stages associated with the international business negotiations

process:

1.

The ofler: begins with the first contact between the parties concerning a particular venture, and ends
when the vendor has submitted a final ofi'er.

Informal meetings: occur alter the buyer has received the offer; the parties meet to discuss the terms
and to get acquainted

Strategy formulation: when the parties try to build their relative power, the buyer compares the offers
submitted by different vendors, makes checklists and assigns pro and con arguments to all competing
vendors. The seller decides on what points concession is most likely, and to what extent his firm can
concede.

Face-to-face negotiations: observations reveal that it is always the party having the relative power
which arranges the agenda. A “tough” strategy is when one party starts with a high initial offer and
avoids making concessions; a “soft” strategy is when the granting of concessions enhances trust and
facilitates negotiations. It is in this stage when parties take the initiative by asking questions about
the other party, the offer, price, quality, delivery, and credit possrbilities. After the negotiations, a
summary of the discussions should be prepared to facilitate swifi contract preparation.
Implementation: once the terms are agreed upon, a contract is drawn up and signed.

Ghauri (1986) suggests some basic ways in which international business executives may prepare

for international negotiations:

Identijjz the contents of the deal: these include implications of the deal, the concepts at stake, the
“fit” of the deal with organizational objectives, and possible economic , political, or other restrictions
between the countries.

Create alternatives: the parties, particularly the buyers, should investigate available market
alternatives and numbers of suppliers, their relative positions and technology levels.

Put oneself in their shoes: develop an understanding of the other party’s position, and foresee their

reactions to the firm’s arguments.

125
0 Develop the appropriateness of the message: the information exchanges should be tailored to the

other parties to the deal.

Cavusgil (1996b) provides some helpful hints to conducting business negotiations in a multi-

cultural environment:

0 Prepare oneself and set objectives in advance.

0 Don’t go alone; use observers.

0 Have patience; take time to establish trust and friendships.

o Recognize language difficulties; avoid using slang.

0 Research and follow their traditions and customs.

0 Focus on conflicts; avoid personal attacks.

0 Listen carefully.

o Recognize silence as a powerful tool.

0 Be careful with open legal references; this may be considered offensive.
- Don’t pressure if no conclusion is reached; suggest another meeting.
0 Avoid making concessions until all issues are discussed.

Ilké (1964) defined a good negotiator as having a “quick mind but unlimited patience, one that
knows how to dissemble without being a liar, inspire trust without trusting others, be modest but assertive,
charm others without succumbing to their charm, and possess plenty of money and a beautiful (spouse)
while remaining indifferent to all temptations of riches and (members of the opposite sex)”

Respect for different perspectives and environments is of utmost importance. It is not necessary
to adapt or change oneself to local environments - it is more important to be aware of these differences
and to show them due respect or acceptance (Ghuari, 1986).

Manufacturing & Operations
Production Facilities
As discussed in Appendix B, the production facilities of the firm would depend on its size and

types of products, as well as the decision and ability to establish additional facilities in different locations.

126
Mill location affects prospective exporters in two ways: inland fieight costs and log quality

(Guldin, n.d.). This substantiates an additional argument against low-cost strategy for Michigan
hardwood lumberproducersbasedonthefactthatthesecompaniesareatadisadvantage withreqiectto
transportation costs, due to the geographical distance to coastal shipping ports. Many export companies
seek producers which are geographically closer to their ports of departure. An exception may be if those
firms outside an “optimal” geographic radius offer products which are scare in the nearby market and in
high demand overseas. For example, Guldin (n.d.) states:

In the southern U.S., export merchants usually purchase common export-quality

products from producers within a ZOO-mile radius of major southern ports. Over that

distance, the price paid the producer, minus trucking costs, usually yields an aweptable

profit. Ifthe products sought are scarce, they can command a premium price making

400 to 800 mile hauls profitable.

For Michigan hardwood lumber producers, the high quality and species of hardwood resources
available to produce select grades lumber should give them an advantage in offering export-quality lumber
in high demand, such as hard maple, red and white oak, and ash Thus, although the transportation costs
may place them at a disadvantage with respect to their competitors in other states, this setback may be
offset by the regional availability of high-grade hardwood sawtimber for lumber production.

Inventon and Pagumn Qapagity

Prior to initiating export sales, it would be prudent to determine what types of products the target
markets are interested in, as well as the future availability of these items. For hardwood lumber, it may be
necessary at times to broker various grades. thicknesses, and species from other companies, in order to
maintain a continuous flow of goods overseas.

Supnliers

A variety of hardwood lumber suppliers may be necessary to fill orders for high-quality
shipments. The most important aspects of determining which suppliers will best suit the firm’s export
needs would focus on availability and quality of their lumber. It may be necessary to cultivate
relationships with suppliers closer to export ports, in order to decrease shipping costs. Regional

characteristics of lumber may also play an important role in supplier selection.

127
Distribution
Distribution of hardwood lumber is usually accomplished by truck, train, or ship. The proximity
of the company’s production facilities to ports of export would determine the mode of transportation
utilized. Cateora (1996) describes the difi'erences in exporting fiom domestic marketing in terms of
transportation:

Whenever and however title to goods is transferred, those goods must be transported.
Shipping goods to another country presents some important differences from shipping to
a domestic site. The goods can be out of the shipper’s control for longer periods of time
than in domestic distribution; more shipping and collections documents are required;
packaging must be suitable; and shipping insurance coverage is necessarily more
extensive. The task is to match each order of goods to the shipping modes best suited
for swift, safe, and economical delivery. Shipping costs are an important factor in a
product’s price in export marketing; the transportation mode must be selected in terms
of total impact on cost.

Thereareseveraltypesofdistributorswhicheanassistacompanyingettingitsproductsto
customers in foreign markets. Guldin ( ) describes export marketing channel options:

Channel intermediaries are usually specialists. They can either specialize in providing
particular marketing services or in handling particular products. A producer seeking to
construct a market channel for exporting forest products tailors the channel to meet the
firm’s needs, as well as those of its overseas buyers, by combining one or more service
and product middlemen into a distribution network. Service middlemen keep
transactions and products flowing smoothly through the distribution channel by
“routinizing” transactions, but provide little channel direction. Service middlemen are
commonly agents who profit from fees charged for their services. A product middleman
restricts the availability of a firm’s products to his clientele and should be viewed
primarily as a purchasing agent who serves to focus the demand of a large group of
customers for whom he buys. Product middlemen are frequently merchants, taking title
to the goods and profiting from resale, although product middlemen who are agents
carrying a line of goods for a commission on sales are not rare.

In the initial stages of exporting, a firm may want to consider working with an export agent or an
export broker. These people are familiar with export documentation, payment methods, and specific
country markets. Indeed, [flu and Bush (1993) cited communication with export distributors or brokers as
an important stimulus to exporting with eastern hardwood lumber manufacturers. Export agents assist a
firm by setting up customer contacts and selling the firm’s products to them, but they control the majority
of the marketing. Export brokers purchase products directly from a firm and resell them to foreign

customers (Cesa, 1992).

128
Onceafimhasbewmemomfamfliarwithmepmcessofexporungitmaywishtobypass

domestic middlemen in favor of selling to foreign distributors. A distributor is a merchant in a foreign
coundythatpurchasesproductsfiomthemanMrerandsellsthematapmfit (DanielsandRadebaugh,
1995). The use of foreign distributors may help to introduce a company’s lumber into a target market.
Close communication with export distributors should be maintained, in order receive feedback which
would indicate deficiencies (Cavusgil and Nason, 1990). By interacting with domestic middlemen and
foreign businesses, useful data may be gathered on customer and market requirements and preferences,
costs of production and shipping, and elements of international negotiations and transactions. Cultural
information on attractive target market segments may also be compiled, to construct segment profiles
which may aid in successfully introducing the company and its products to those areas. The producer’s
most successful tool to help forge an export marketing channel is the promise of profits. The producer
must allow each middleman to an adequate profit from fees, commission, or resale as an incentive to push
the products expeditiously through the export marketing channel (Guldin, n.d.).

The most involved form of exporting is by selling direct. This is the sale of goods directly to
distributors or final consumers rather than trading companies or other intermediaries in order to achieve
greater control over the marketing function and to earn higher profits (Daniels and Radebaugh, 1995).
This places greater responsibility for the pricing, shipment, and documentation of exports on the exporter.
Brady (1978) found that firms using direct export channels had significantly more export experience than
firms using indirect channels, because inexperienced firms usually began using indirect channels and then
switched to direct channels as they gained exporting experience. Brady (1978) also concluded that
executives of exporting firms felt that direct exporting provided more control over marketing programs
and fed more information back to the producer.

W

Since hardwood lumber is a natural resource, susceptible to the presence of disease, there are
regulations for importing these goods into other countries which must be addressed prior to shipment from
the United States. For example, regardless of the channels employed, oak lumber exported to the

European community must be kiln-dried to 20 percent moisture content, free of all bark, and certified as

129
such by an inspector, to prevent the spread ofoak wilt disease (National Forest Products Association,

1985). This phytosanitary inspection can be performed at the exporter’s facilities, often involving some
delay, or at the port, involving a fee and increasing the risk of damage and pilferage (Ringe et al., l987a).

An additional benefit of inspection would address potential disputes between the buyer and seller.
“Since the exporter can receive payment before the lumber arrives overseas, the importer faces the risk of
documentation that does not faithfully describe the shipment, or the receipt of lumber that does not meet
the desired quality standards. Requiring inspection by a third party an inclusion ofan inspection
certificate in the terms of the letter of credit can reduce this risk (Dun’s Marketing Services, 1986).”
Shipping Containers

Hardwood lumber exported to foreign markets is typically shipped in metal containers with a
capacity of 11 to 14 thousand board feet. Like phytosanitary inspections, the loading of lumber into ocean
fieight containers can be done either at the exporter’s facilities or at port facilities (Ringe et al., l987a).
Of the hardwood lumber exporters surveyed by Ringe et al. (l987a), most preferred to expend the
additional efi'ort to load the containers themselves, and avoid the potential for damage and pilferage by in-
port containerization.

All countries regulate the marking of goods and containers on imports and noncompliance can
result in sever penalties. The exporter must be careful that all marking on the container conforms exactly
to the data on the export documents because discrepancies are often interpreted by customs ofiicials as an
attempt to defraud (Cateora, 1996). A basic source of information for American exporters is the
Department of Commerce pamphlet series entitled Preparing Shipment to (Country) which details the
necessary export documents and pertinent US. and foreign government regulations for labeling, marking,
packing, and customs procedures (Business America, 1994).

Shipping Mentation

In general, there are four main categories of export documents that may be necessary in order to

ship a product to a foreign destination. These documents may be provided by the seller, the US.

government, a foreign government, and/or the buyer (Stern et al., 1994):

130
0 Commercial documents: these refer to the underlying business transaction between the buyer and

seller”, the pro forma invoice, discussed further, is one of the primary commercial documents.

0 Banking documents: these include letters of credit, drafts connected to the letters, and any other
agreement between a bank and the seller and buyer.

0 Transportation documents: documents that facilitate or monitor merchandise in transit are called
transportation documents; these include bills of lading, delivery instructions, dock receipts, insurance
certificates, transmittal letters, packing lists, shipper’s letters of instruction, freight release forms, etc.

o A bill of lading is a contract between the owner of the goods and the carrier (Daniels and Radcbaugh,
1995).

a Government control documents: This category includes import licenses and other documents that
may be required by customs in an importing counuy:

0 Export declaration: controls exports and is used to compile trade statistics (Daniels and
Radcbaugh, 1995); this is the principal US. government export control document.

0 Consular invoice: this is a document sometimes required by importing countries as a means
of controlling imports (Daniels and Radcbaugh, 1995).

0 Certificate of origin: this indicates where the products originate and usually is validated by
an external source, such as the chamber of commerce, it helps countries determine the
specific tarifl‘ schedule for imports (Daniels and Radcbaugh, 1995).

Resource uirements

As stated in Chapter 8, Michigan and the Great Lake States have an abundant supply of

hardwood species, of which annual growth exmds annual harvests (Leatherberry and Spencer, 1993).

This suggests that Michigan hardwood lumber produces have a competitive advantage in terms of supply

of raw materials.

ISO 9000

In the future, export customers requirements may become even more stringent, as the world
moves increasingly toward environmentally sound management practices for its forest resources. In

addition, the European Union, and other major US companies, have become increasingly aware of the

l3 1
need for total quality management throughout their value chains. Quality management refers to all

activities of the overall management frmction that determine the quality policy, objectives and
responsibilities and implement them by means such as quality planning, quality control, quality assurance
and quality improvement within the quality system (Peach, 1995). ISO 9000 is a series of three
international standards and supplementary guidelines on quality management and quality assurance,
which were first published in 1987 and revised in 1994 by the International Organization for
Standardization (Struebing, 1996). The primary requirement of ISO standards is the documentation of
how each system element functions, and specifications of how the firm’s quality assurance process must
occur. The company is expected to adhere to its guidelines, while reviewing each process and
implementing changes when necessary (Peach, 1995). The company is then responsible for proving its
conformance to the approved guidelines (Struebing, 1996).

In 1994, several large US. furniture manufacturers started to jointly encourage their suppliers to
pursue ISO 9000 certification (Avery, 1994). These furniture companies included I-Iayworth, Steelcase,
and Herman Miller, some of Michigan’s largest hardwood-using finished products manufacturers.
Purchasing managers of these companies and suppliers alike agreed that by standardizing quality systems
specifications through a program such as ISO 9000, both suppliers and manufacturers could reduce the
cost of doing business (Evans-Correia, 1993). As many of the large companies in the US. have started
similar initiatives, it is increasingly likely that many smaller suppliers, such as hardwood lumber
companies, will have to conform to these types of quality assurance specifications in the future. It may
onlybeamatteroftimebeforethese standardsareevenappliedtothcmanagementofnaturalresoums, a
situation in which hardwood lumber companies may have to certify that their suppliers are conforming to
environmentally-sound land management practices.

Personnel Strategies: The Export Organization

There are several ways in which a firm may improve its organization with respect to going
international, the Senior and middle management must make first contacts, by either direct mail,
telemarketing, or participation in export forums. Indirect exporting through domestic middlemen or

piggyback exporting with other companies will increase knowledge on international business transactions.

132
Once the organization is thoroughly prepared, it may increase its level of involvement in international

business activity.
11W

As evidenced by the survey analysis, a very important move~ toward going international would
undoubtedly involve solidifying the upper management’s commitment and motivation to expand business
abroad. The company goals and upper-level management’s vision reflect the firm’s desire to succeed in
domestic markets, but should also include the goal of expanding internationally when targeting exports as
a means to increase profitability. For Michigan hardwood products producers, a greater percentage of
upper management time and company resources are necessary in developing opportunities abroad. The
goals set toward developing export markets should be communicated throughout the entire organization,
to aid in establishing a company-wide mentality toward building international expansion efforts.
The Emrt Managgr

The internationalization process incorporates organizational change when necessary. The
addition of a part-time or full-time international sales representative would significantly increase a
company’s chances of succeeding in foreign markets. Indeed, the relative status of the separate (export)
organizational unit or personnel within organization reflects the relative significance attached to foreign
marketing (Cavusgil, 1980). The appointed export representative should possess the education,
experience, and marketing skills which may be indicative of potential success at home or abroad.
Hammett et al. (1991) found that southern hardwood lumber exporters’ sales managers tended to be
slightly younger and possess significantly more education than the sales managers of non-exporting firms.
Daniels and Radcbaugh (1995) point out that the criteria for an export manager and his or her selection
are not easy to identify:

The qualifications for an export manager are complex. There are a wide variety of skills

necessary to successfully compete in today’s global markets. A company may recruit an

export manager fiom within its organization, fiom another company, or from a college

or university. Business schools are increasing their international ofl‘erings and

requirements, but there is no consensus as to what students should learn for

international responsibilities. Two distinct approaches are to convey specific knowledge

about foreign environments and international operating adjustments and to train in
interpersonal awareness and adaptability.

133
Since exposure to the target markets and their cultures could be extremely helpful in developing

an educated “international perspective”, travel expenses would be incurred in preparing an export
representative for effectively competing in each market. Hammett and DeForest (1993) found that the
majority of southern hardwood exporters had sent representatives on overseas sales trips, and that those
trips were thought by 42% of the responding companies to have increased export sales. Reid (1984)
indicated that there was an overwhelming agreement among exporters on the importance of personal
visits to foreign markets for gathering export information.

The export representative’s skills should be strengthened through relevant additional education,
including seminars and programs associated with exporting. The representative would need to interact
with all levels of management in order to effectively coordinate export activities, including procurement,
production, inventory, and distribution. This would coincide with the need for a more decentralized,
flexible organizational structure, which may enable a company to become more responsive to changing
customer requirements, increasing customer demands, and decreasing efi'cctive response time.
Exmriencc grid Emrtisc of Existing Personnel

The benefits of taking a long-term approach in exporting start with developing management’s
international business skills through limited overseas transactions. The interactibn with US middlemen,
foreign businesses, and related associations will also serve to establish a firm’s reputation in the overseas
market. Participation in trade shows and in-country visits will serve to introduce the company to a
broader base of potential customers than just shipping indirectly through intermediaries, and allow the
export managers to become more familiar with diverse cultures. In addition, word-of-mouth advertising
will increase customer awareness of the firm’s product.

Training Needs

In general, training refers to a planned effort by a company to facilitate the learning of job-
related knowledge, skills, or behavior by employees (Noe et al., 1997). Noe et al. (1997) define the
components of instructional design:

1. conducting needs assessment (organizational analysis; person analysis; task analysis)

2. ensuring employee’s readiness for training (attitudes and motivation; basic skills)

134
3. creating a learning environment (identification of learning objective and training outcomes;

meaningful material; practice; feedback; observation of others; administering and coordinating
P708111!!!)

4. ensuring transfer of training (self-management strategies; peer and management support)

5. selecting training methods (presentational techniques; hands-on techniques; group techniques)

6. evaluating training programs (identification of training outcomes and evaluation design; cost-benefit
analysis)

There are a wide variety of methods to ensure international business representatives acquire the
knowledge necessary to efficiently conduct export operations. Government and private training programs
and seminars are available to facilitate this type of learning.

Language training should be an important part of the export manager’s training. The choice of
language would be a function of the employer’s target markets. One poll of US. companies put Spanish
clearly in front with 44 percent of responses; Japanese followed at 33 percent; the only other languages
receiving at least 1 percent of responses were French (8%), Chinese (6%), German (5%), and Russian
(1%) (Daniels and Radcbaugh, 1995).

Hiring Needs - Shgrt and Long Term Mgirements

The need to hire an additional sales representative calls for a procedure for the selection and
placement of the individual. The export manager should have characteristic qualities associated with
efiicient sales staff, such as a solid foundation of knowledge about the hardwood lumber industry and an
adequate level of sales experience. They should also display a willingness to travel, as well as a desire to
learn the mechanics of exporting in general. In addition, it is important for an international sales
representative to be aware of the cultural issues surrounding international business transactions.

Financial Decisions
Identificm’ n g fly flmpfions

When considering exporting, a company must address financial issues which it deems important

with respect to the advantages it expects to accrue from international business transactions. These include

additional costs and revenues, changes in profit margins, and various difficulties which may be

135
encountered in exporting. Financial disincentives refer to economic conditions that discourage exporting

(Ringe et al., l987a). Some financial problems identified by Ringe et al. (1987a) among hardwood
lumber exporters include unfavorable exchange rates and payment terms and reduced market volumes and
prices due to ccononric recession. Additional disincentives included the strengthening of the US. dollar
(decreasing the volume of orders from foreign customers), and losses associated with shipment rejections

and bankruptcies of intermediaries.

Foreigg Cumncig
Hoskin (1994) describes the importance of currency exchange rates in reference to international

business transactions:

In purchase and sale transactions, the contract, either explicit or implicit, between the
buyer and seller can be denominated, or expressed, in foreign currency units or US.
dollars. If the transaction is denominated in foreign currency units, the US. firm will
either receive foreign currency (in a sale transaction) or pay in foreign currency (in a
purchase transaction). A US. buyer will (then) have to convert the foreign currency it
receives into US. dollars.

In order to convert foreign currency units into US. dollars, a conversion rate, or
exchange rate, must be used. Exchange rates fluctuate continuously and are reported in
the financial press (The Wall Street Journal, Barrons, etc). These exchange rates or
prices are either stated in a direct quote as the number of dollars per foreign currency
unit or in an indirect quote as the number of foreign currency units per ‘US. dollar. The
exchange rate for a given currency is influenced by the differential inflation rates in the
two countries as well as by trade policies, trade surpluses or deficits, etc.

Terms of SQ;
Cateora (1996) describes the terms of trade in international business:

Terms of sale, or trade terms, differ somewhat in international marketing from those of
the United States. In US. domestic trade, it is customary to ship FOB (free on board,
meaning that the price is established at the door of the) factory, freight collect, prepaid,
and/or COD (cash, or collect, on delivery). International trade terms often sound similar
to those used in domestic business but generally have different meanings. International
terms indicate how a buyer and seller divide risks and obligations and, therefore, the
costs of specific kinds of international trade transactions. When quoting prices, it is
important to make them meaningful.

Some of the most common trade terms include (Cateora, 1996):
o CIF (cost. insurance, fieight) - to a named overseas port of import. A CIF quote is more meaningful
to the overseas buyer because it includes the costs of goods, insurance, and all transportation and

miscellaneous charges to the named place of debarkation.

136
C&F (cost and fieight) - to named overseas port. The price includes the cost of the goods and

transportationcoststothenamedplace ofdcbarkation. Thecostofinsuranceisbornebythebuyer.
FAS (fi-ee alongside) - at a named U.S. port of export. The price includes cost of goods and charges
for delivery of the goods alongside the shipping vessel. The buyer is responsible for the cost of
loading onto the vessel, transportation, and insurance.

FOB (free on board) - at a named inland point of origin; at a named port of exportation; or a named
vessel and port of export. The price includes the cost of the goods and delivery to the place named.
EX (named port of origin) - the price quoted covers costs only at the point of origin. All other
charges are the buyer’s concern

It is important for the exporter to understand exactly the meanings of terms used in quotations.

A simple misunderstanding regarding delivery terms may prevent the exporter fiom meeting contractual

obligations or make that person responsrble for shipping costs he or she did not intend to incur (Business

America, 1993).

Methods of Payment

The US. Small Business Administration (1995) describes the basic concerns of a company in

ensuring payment in export sales:

To succeed in the international marketplace, small firms must offer their customers
competitive payment methods. A small business exporter’s principal concern should be
to ensure that he or she gets paid in full and on time for each export sale. Foreign
buyers have concerns as well, such as ensuring that their orders arrive on time and as
requested. Therefore, the it is important that the terms of payment be negotiated
carefully to meet the needs of both the buyer and the seller. The payment method used
can significantly affect the financial risk ofthe buyer and seller in an export sale. In
general, the more generous the sales terms are to a foreign buyer, the greater the risk to
the exporter.

There are several methods of payment for international transactions (U SSBA, 1995), listed in

descending order in terms of security:

Payment in advance: requiring payment in advance of shipment as a term of sale is not uncommon,
but in many cases it is too expensive and too risky for foreign buyers.
Letters of credit: these are one of the most common and safest payment methods available; the

typical procedures for the issuance of letters of credit is explained in detail at the end of this section.

137
0 Documentary collections (drafts): these involve the use of a draft, drawn by the seller on the buyer,

requiring the buyer to pay the face amount either on sight (sight draft) or on a specified date in the
future(futuredraft);thedmflisanuncondifionalordcrtomakesuchpaymentinaccordancewithits
terms. Becausethetitletothegoodsdoesnotpassuntilthedraflispaidoraccepted, to some degree
both the buyer and seller are protected.

0 Consignment: under this type of payment method, no money is received by the exporter until after the
goods have been sold by the purchaser, title to the goods remains with the exporter until such time as
all the purchase conditions are satisfied. Consignment is very risky to the exporter, since there is no
way to predict how long it might take for to sell the goods, and also since the exporter would have to
pay the costs of recovering the goods from the foreign consignee in the event they were never sold.

c Open account: this means that the goods are manufactured and delivered before payment is required;
in international business transactions, this method of payment should not be used unless the buyer is
credit worthy and the country of destination is politically and economically stable, or unless the
receivables are covered by export insmance.

o Other payment methods, such as consignment sales or countertrade (Daniels and Radcbaugh, 1995).

Projected Cash Flows .

In order to assess the feasibility and profitability of exporting, the future revenues and costs
associated with the transactions will have to be assessed. Cash flow from operations is defined as sales
less cost of goods sold, other costs, and taxes (Brealey and Meyers, 1991). Financial analysis of
operations and investment opportunities is a complex undertaking, but a brief description will be provided
for calculating the present value of an investment, such as capital investment to support exporting.

One of the basic principles of finance is that “a dollar today is worth a dollar tomorrow”, given
the fact that a dollar today can be invested to start earning interest immediately. If an investment is not
expected to ofl'er a return until a later point in time, such the investment in equipment to support export
activities, it will be necessary to calculate the present value of the investment. To calculate the present
value of a delayed payofi', it is necessary to multiply the payoff by a discount factor which is less than one

(Brealey and Meyers, 1991). The discount factor is expressed as the reciprocal of 1 plus a rate of return:

138

Discount factor =

 

(1+?)

where the rate ofretum r is the reward that investors demand for accepting delayed payment (Brealey and
Meyers, 1991). Most often this is compared to the rate of return for a risk-free investment option, such a
government bonds.

To calculate present value, expected future payoffs must be discounted by the rate of return
offered by comparable investment alternatives, or, the opportunity cost of capital. The basic formula for
calculating the present value of is as follows:

Present Value = discount factor * C
where C denotes the expected payoff at the time in the future. The concepts of present value and the
opportunity cost of capital make sense even for risky investments. It is proper to discount the payofl‘ of an
investment by the return ofiered by a comparable investment, but a manager has to think of expected
payofis and the expected rates of return on other investments (Brealey and Meyers, 1991),
Pro Forma Financial Statements

Conducting international business transactions involves the risk of experiencing currency
fluctuations between the two countries. The proforma financial statement is a binding agreement that
can protect the seller against adverse currency fluctuations and can be used by the buyer to apply for
foreign exchange (U .8. dollars) or to open a letter of credit. “Pro forma” means that the invoice is only a
quotation, although the actual invoice for a sale would look identical (Stern, et al., 1994). Stem et al.
describe information included on the Pro forma invoice:

0 insurance and shipping costs

0 terms of payment

0 delivery point and other details
0 volumes

0 list of requested products

0 product descriptions

139
gross and net shipping weights

prices

Even if some of the costs change before the product is delivered, US. companies can protect

themselves fiom fluctuations that may have a negative impact by putting an expiration date on the pro

forma invoice (Stern et al., 1994). Stem et al. (1994) recommend addressing the following issues when

quoting a price directly to a foreign buyer:

Make sure the price quotation is in the local language and have a bilingual response procedure.

State the duration of the offer. Ifyou are nmning specials, let the consmner know the exact
beginning and final dates of the ofi’er. State how long delivery is expected to take.

Be sure to state the currency the prices are quoted in, and indicate the forms of payment you will
accept.

Define shipping and handling costs and clearly state whether they are included in the price or will be

an additional cost.

Emrt Financing

In the United States, small businesses typically turn to their local banks for working capital

financing. However, most smaller banks do not retain staff with expertise in international trade (U SSBA,

1995). Prior to approaching a bank about borrowing capital, the manager should define the purpose of the

loan, the amount to be borrowed, and how the loan will be repaid. The US. Small Business

Administration (1995) briefly describes some key definitions associated with capital:

Venture capitalists vs. lenders: venture capitalists invest in a business with the expectation that as
the business grows, their equity in the business will grow exponentially, lenders make their money on
the difference between the rate at which they borrow money and the rate at which they lend it to their
customers.

Services vs. lending: international trade services include advising, negotiating, and confirming
letters of credit; many banks international divisions are not authorized to lend capital.

Working capital financing vs. trade financing: permanent working capital is the amount of money

needed to pay short-terrn liabilities that remain steady over a period of several years, for example,

140
non-fluctuating accounts receivable; uade finance generally refers to financing the fluctuating

working capital needs of a business, including specific export transactions.

ThemmnumemuspfivammumesoffimndngandseMwsavaflablemananfirmsmmrested
in exporting their products to overseas markets. These include private trade financing companies, export
trading companies and export management companies. Another source are factoring houses, which
purchase export receivables on a discount basis, which enables the exporter to receive immediate payment
for goods. Forfaiting houses also allow the exporter to relinquish their rights to future payment in return
for immediate cash.

Government sources of finding include the US. Small Business Administration’s Regular
Business Program, which ofl‘ers money for fixed assets or working capital to companies which are
operated for profit and fall within size standards set by the USSBA Another source is the Export
Working Capital Program, again ofi’ered by the USSBA, which supports single transactions or multiple
export sales. A manager interested in seeking funding assistance from the government should contact the
US. Small Business Administration (Appendix F) for additional information.

Tax Conseguences of Emit M’vity

If the advice “consult your tax accountant” applies to domestic business, it applies tenfold to
international business (Butler, 1997). Differences in national taxation laws would apply to a firm which
is operating a foreign subsidiary, such a distribution facility or sales office. In that case, the source of
income is generally taxed by the foreign government of the country in which the operation is located
(Daniels and Radcbaugh, 1995).

In the United States, a foreign tax credit for income taxes paid to a foreign government prevents
double taxation of foreign earned income. Foreign branches of a US. corporation are treated as a part of
the parent rather than as a separate legal entity (Butler, 1997). Prior to exporting goods to overseas
markets, a manager should consult with the firm’s tax accountant to determine which laws will apply to

the shipment of goods overseas.

14 l
Potentigl Risk and Sources g Protection

There are many risks associated with exporting, the most important ofwhich is ensuring
payment for goods or services ofi‘ered to foreign customers. Export credit insurance programs reduce an
exporter’s risk and can be obtained through an insurance agent or broker or from Ex-Im Bank’s
(Appendix F) Insurance Division The US. Small Business Administration also offers short-term
insurance geared to meet the needs of smaller, less experienced exporters.

Credit Documentation

The International Chamber of Commerce (1985) publishes an excellent guide to educate the
export executive on the mechanics of trade documentation. Documentary credit is defined as a
conditional bank undertaking of payment for international business transactions. Payment is made on
behalf of the buyer against documents which may represent goods and gives (the buyer) rights in them.
Because the documentary credit is a bank undertaking, the seller can look to the bank for payment, instead
of relying on the ability or willingness of the buyer to pay (International Chamber of Commerce, 1985).
Thebuyermayhave to makeanadvancedepositofrequestingtheissuanceofthecreditorthey maybe
required to place the issuing bank in ftmds at the time documents are presented to the overseas banking
correspondent of the issuing bank The seller only has the right to demand payinent if they meet all the
requirements of the credit (International Chamber of Commerce, 1985). There are several types of credit
which vary in terms of revocability.

Payment through a letter of credit was found to be the most preferred method of payment by
hardwood lumber exporters in Kentucky (Ringe et al., I987b). Ringe et al. (1987b) explain that although
this procedure is essentially the least risky (except for payment in advance) for the exporter, some risk
does potentially exist for both the buyer and seller. “Nonpayment can occur if the seller fails to meet the
requirements of the letter of credit or, in the case of an unconfirmed letter of credit, if the financial
institution of the buyer, the political stability of his or her country, or its importing policy changes. Full
understanding of the terms and compliance by all who handle the lumber (staff, fieight forwarders,

carriers, etc.) will minimize the risks of nonpayment (Ringe et al., 1987b).

142
“Despite the protection available to buyers, letters of credit are not always available in all

markets. Firms beginning to export or entering new export markets may experience dimculty in

obtainingthemuntiltheybecomeknownandtrustedbyimporters. Experiencedfirmsmayalsoencounter

difi'rculty in obtaining letters of credit as this method of financing can be expensive to buyers (Ringe et al.,

1987b).”

A summary of the credit documentation procedure is as follows (International Chamber of

Commerce, 1985):

l.

2.

8.

The buyer and seller conclude a sales contract providing for payment by documentary credit.

The buyer then instructs their bank (the “issuing” bank) to issue a credit in favor of the seller.

The issuingbankasksanotherbank, usuallyinthecotmtryofthc seller, toadviseorconfirrnthe
credit.

The advising or confirming bank then informs the seller that the credit has been issued

Assoonasthesellerreceivesthecreditandissatisfiedthat(theseller)canmeetitstermsand
conditions, (the seller) is in a position to load the goods and dispatch them.

The seller then sends the documents evidencing the shipment to the bank where the credit is
available (the nominated bank). This may be the issuing bank, or the confirming bank, or a bank
named in the credit as the paying, accepting, or negotiating bank. Ifthe credit allows for negotiation
by any bank there will not be “nominated bank” and documents may be sent to any bank willing to
negotiate under the credit.

The bank then checks the documents against the credit. Ifthe documents meet the requirements of
thecredit, thebankwillpay, acceptornegotiate, accordingtothetermsofthecredit. Inthecaseofa
credit available by negotiation, the issuing bank or the confimring bank will negotiate without
recourse. Any other bank, including the advising bank if it has not confirmed the credit, which
negotiates, will do so without recourse.

The bank, if other than the issuing bank, sends the documents to the issuing bank.

143

9. 111eisafingbankchecksmedocumentsandiftheymeetthecreditmqtnnments, either:

a. effects payment in accordance with the terms of the credit, either to the seller if they have
sentthedocumentsdirectlytotheimringbank,ortothebankthathasmadefiindsavailable
to (the seller) in anticipation, or

b. reimburses in the pre-agreed manner the confirming bank or any bank that has paid,
accepted or negotiated under the credit (Article 21, UCP)

10. When the documents have been checked by the issuing bank and found to meet the credit
requirements, they are released to the buyer upon payment of the amount due, or upon other terms
agreed between (the buyer) and the issuing bank.

It is apparent that the length of time to prepare the transaction as well as the documentation
necessitates a thorough understanding of the documentation requirements. Attention to detail and
accuracy in completing the documents will help to ensure a timely response by the banks, and reduce the
possibility of having to correct mistakes which may lengthen response time by the respective parties.

Implementation Schedule

Kotler (1994) describes the importance of the organization in terms of successfully implementing
a business strategy:

Even a clear strategy and well thought-out supporting programs may not be enough.

The firm may fail at implementation. Strategy is only one of seven elements, according

to the McKinsey Consulting Firm (Peters and Waterman, 1987), that the best-managed

companies exhibit... the first three elements - strategy, structure, and systems - are

considered the “hardware” of success. The next four - style, stafi', skills, and shared

values - are the “software”.

The first “son” element, style, means that employees in that company share a common

way of behaving and thinking. The second, skills, means that the employees have the

skills needed to cany out the company’s strategy. The third, stafling, means that the

company has hired able people, trained them well, and assigned them to the right jobs.

The fourth, shared values, means that the employees share the same guiding values and

missions. When these “sofi” elements are present, companies are usually more
successful at implementation (Deal and Kennedy, 1982).

Follow-up Procedures
The last section of a business plan outlines the controls for monitoring the plan’s progress

(Kotler, 1994). Management should continuously monitor the firm’s performance, comparing actual

144
levels of activity, efficiency, and profitability with predicted levels, in order to ensure that the firm’s goals

are being met at all stages of its export activity.

APPENDIX D

APPENDIX D

A GUIDE FOR DEVELOPING A MARKETING PLAN

1. Cultural Analysis
A. Introduction (company, products, target countries)
B. Brief Discussion (country’s relevant history)
C. Geographical Setting
1. location
2. climate
3- towgmphy
D. Social Institutions
1. family
a. the nuclear family
b. the extended family
c. family dynamics
2. education
a the role in society
b. literacy rates
3. political system
a. political structure
b. political parties
c. government stability
(1. special taxes
e. roles of local government
4. legal system
a. organization of the judiciary system
b. type of law (code, common, socialist, Islamic) .
c. participation in patents, trademarks, and other conventions
5. social organizations
a. group behavior
b. social classes
c. clubs and other organizations
d. race, ethnicity, and subcultures
6. business customs and practices
E. Religion and Aesthetics
1. religion and other belief wstems
a. orthodox doctrines and structures
b. relationship with people
c. prominent religions
d. religion membership
e. powerfirl or influential cults
2. aesthetics
a. visual arts
b. music
c. performing arts
d. folklore and relevant symbols
F. Living Conditions
1. diet and nutrition
2. housing
3. clothing
4. recreation and other leisure activities

145

146
5. social security
6. health care
G. Language
1. official language(s)
2. spoken versus written languages
3. dialects
H. Executive Summary
1. Sources of Information
J. Appendixes
II. Economic Analysis
A. Introduction
B. Population
1. total
a. growth rates
b. number of live births
c. birthrates
2. population distribution
a. age
b. sex
c. geographic areas
d. migration rates and patterns
e. ethnic groups
C. Economic Statistics and Activity
1. Gross National Product (GNP)
a. total
b. rate of growth
personal income per capita
average family income
distribution of wealth
minerals and resources
surface transportation
a. modes
b. availability
c. usage rates
d. ports
7. communications systems
8. working conditions
9. principal industries
10. foreign investment
11. international trade statistics
a. major exports
(1) dollar value
(2) trends
b. major imports
( 1) dollar value
(2) trends
c. balance-of-payments situation
d. exchange rates
(1) single or multiple exchange rates?
(2) current rate of exchange
(3) trends
12. trade restrictions
a. embargoes
b. quotas

9999’!"

147

c. import taxes
d. tarifl‘s
e. licensing
f. customs duties
l3. economic activity not included in cash income activities
a. countertrades
b. foreign aid received
14. labor force
a. size
b. unemployment rates
15. inflation rates
D. Developments in Science and Technology
1. current technology available
2. % of GNP invested in R&D
3. technological skills of the labor force and the general population
E. Channels of Distribution
1. middlemen
a. retailers
(1) number
(2) size
(3) customary markup for various classes of goods
(4) methods of operation (cash/credit)
(5) scale of operation
(6) role of chain stores and specialty shops
b. wholesale middlemen
(1) number and size
(2) customary markup
(3) method of operation
c. import/export agents
d. warehousing
e. penetration of urban and rural markets
F. Media
1. availability
2. costs
3. agency resistance
4. coverage
5. percentage of population reached by media
G. Executive Summary
H. Sources of Information
I. Appendixes
III. Market Audit and CompetitiVLMarket August}
A. Introduction
B. The Product
1. innovation as perceived by the target market
relative advantage
. compatibility
complexity
. trailability
. observability
2. major problems and resistance
C. The Market
1. market description
a. geographical region(s)
b. available transportation and communications

tun-90's»

148

c. consumer buying habits
(1. distribution of the product
e. advertising and promotion
f. pricing strategy
2. comparison of company’s product and the competition’s product
a. competitor’s product(s)
(1) brand name
(2) features
(3) packaging
b. competitor’s prices
c. competitor’s promotion and advertising methods
d. competitor’s distribution channels
3. market size
a. estimated industry sales
b. company’s your estimated sales
4. government participation in the marketplace
a. helpful agencies
b. pertinent regulations
D. Executive Summary
E. Sources of Information
F. Appendixes
IV. Prelimim Marketing Plan
A. The Marketing Plan
1. marketing objectives
a. target market(s): specific descriptions
b. expected sales
c. profit expectations
(1. market penetration and coverage
2. product adaptation or modification
a. core component
b. packaging component
c. support services component
3. promotion mix
a. advertising
(1) objectives
(2) media mix
(3) message
(4) costs
b. sales promotions
(1) objectives
(2) coupons
(3) premiums
(4) costs
c. personal selling
d. other promotional methods
4. distribution: from origin to destination
a. port selection
(1) origin port
(2) destination port
b. mode selection: advantages and disadvantages of each mode
(1) railroads
(2) air carriers
(3) ocean carriers
(4) motor carriers

149
c. packing
(l) marking and labeling regulations
(2) containerization
(3) costs
d. documentation
(1) Bill of Lading
(2) dock receipt
(3) air bill
(4) commercial invoice
(5) Pro forma invoice
(6) shipper’s export declaration
(7) special documentation
e. insurance
f. freight forwarder
5. channels of distribution (micro analysis)
a. retailers
(I) type and number ofretail stores
(2) retail markups for products in each type ofretail store
(3) method of operation for each type (cash/credit)
(4) scale of operation for each type (small/large)
b. wholesale middlemen
(1) type and number of wholesale middlemen
(2) markup for each class of products by each type
(3) method of operation for each type (cash/credit)
(4) scale of operation (small/large)
c. import/export agents
d. warehousing
(1) type
(2) location
6. price determination
a. cost of the shipment of goods
b. transportation costs
c. handling expenses
( 1) pier charges
(2) wharf fees
(3) loading and unloading charges
(1. insurance costs
e. customs duties
f. import taxes and value-added taxes
g. wholesale and retail markups and discounts
h. company’s gross margins
i. retail price
7. terms of sale
a. Ex works, fob, fas, c&f, cif
b. advantages/disadvantages of each
8. methods of payment
a. cash in advance
b. open accounts
c. consignment sales
(1. sight, time, or date drafts
e. letters of credit

150

B. Pro forma financial statements and budgets
1. marketing budget
a. selling expense
b. advertising/promotion expense
c. distribution expense
d. product cost
e. other costs _
2. Pro forma annual profit and loss statement (first year and fifih year)
C. resource requirements
1. finances
2. personnel
3. production capacity
D. executive summary
E. sources of information
F. appendixes

(Source: Cateora, Phillip R, 1996.)

APPENDIX E

APPENDIX E

AN EXPORT BUSINESS PLAN OUTLINE

I. Executive Summary
A. Key elements of the plan
B. Description of business and target markets
C. Brief description of management team
D. Summary of financial projections
11. Business History
A. History of company
B. Products/services ofl‘ered and their unique advantages
C. Domestic market experience
D. Foreign market experience
E. Production facilities
F. Personnel - international experience and expertise
G. Industry structure, competition
III. Market Research
A. Target countries
1. Primary
2. Secondary
3. Tertiary
B. Market conditions in target countries
1. Existing demand
2. Competition
3. Strengths and weaknesses of the economy - barriers to entry, etc.
IV. Marketing Decisions
A. Distribution strategies
1. Indirect exporting
2. Direct exporting
3. Documentation
4. Direct investment, strategic alliances
B. Pricing strategy
C. Promotion strategy
V. Legal Decisions
A. Agent/distributor agreements
B. Patent, trademark, copyright protection
C. Export/import regulations
D. ISO 9000
E. Dispute resolution
VI. Manufacturing and Operations
A. Location of production facilities
B. Capacity of existing facilities
C. Plans for expansion
D. Product modification necessary to adapt to local environment
VII. Personnel Strategies
A. Personnel needed to manage exports
B. Experience and expertise of existing personnel
C. Training needs of existing personnel
D. Hiring needs in the short term and long term

151

152

VIII. Financial Decisions
A Pro forma financial statements and projected cash flows assuming export activity

B. Identification of key assumptions
C. Current sources of funding - private and bank funding
D. Financial needs and firture sources of funding

E. Tax consequences of export activity
F. Potential risk and sources of protection

IX. Implementation Schedule
(Source: John D. Daniels and Lee H. Radcbaugh, 1995.)

APPENDIX F

APPENDIX E

GOVERNMENT AGENCIES AND UNIVERSITIES WHICH PROVIDE EXPORT
INFORMATION

Table F.l - Government Agencies and Universities Which Provide Export Information Sources.
(Source: Dr. James A. Stevens and Scott D. Dickerson, 1996.)

 

Center for International Trade Development
Oklahoma State University

(Contact: Zona Noyles)

204 CITD

Stillwater, OK 74078

(405)744-7693

(405)744-8973 - FAX

Export Marketing: Getting Started (free)

Export Marketing Information Series -publications
with information on market research, marketing
planning, pricing, international business plans,
documentation, etc.

 

Center for International Business and
Research (CIBER)

Michigan State University

7 Eppley Center

East Lansing, MI 48824-1121
(517)353-4336

(517)432-1009 - FAX

Company Readiness To Export (CORE 110 - software
($300)

Partner - software ($2000)

Distributor - sofiware ($2000)

Freight -sofiware ($2000)

Advances in International Marketing - by S. Tamer
Cavusgil & C.N. Axinn ($73.25)

 

Center for International Trade in Forest
Products (CINTRAFOR)

College of Forest Resources

Box 352100

University of Washington

Seattle, WA 98195-2100
(206)543-8684

(206) 685-0790 - FAX

(ofiers a variety of papers and fact sheets pertaining
to the forest products industry)

“Exporting Value-added Wood Products to Europe:
A Quality Imperative” - by H. Ekstmm ($7.50)
“Developing Intangible Resources: The New
Battleground for Export Success Among Small- and
Medium Sized Firms” - by Illinitch et al. ($7.50)

 

Michigan Department of Natural Resources
Forest Management Division

PO Box 30452

Lansing, MI 48909-7952

(517)373-1275

Michigan Forest Products Manufacturers Directory
($ 15)

 

 

 

Michigan Jobs Commission
International and national Business
Development

201 North Washington Square
Lansing, MI 48913

(517)335-5884

(517)335-1947 - FAX

Wood Products Export Directory ($12) - a listing of
forest products-related companies which are
involved in exporting

International Business Partnerships (free)

Foreign Subsidiaries in Michigan ($25)

 

 

153

 

154

 

 

 

 

 

 

 

 

6 Michigan Small Business Development Developing Your International Business Plan (flee)
Center International Business Resources (flee)

Wayne State University Law CostflVo Cost International Resources (flee)
2727 Second Avenue The Magic Guide to the NYDB (flee)

Detroit, MI 48201 Trade Secrets: The Export Answer Book ($25)

(3 l3)964- l 7 98

(313)964-3648 - FAX

7 Michigan State Library (contact the Government Desk or the Reference
717 West Allegan Desk; CD ROM for the National Trade Data Bank
Lansing, MI 48909 and other government and private references
(517)373-5400 available for use or loan)

8 Michigan State University (offers assistance in sourcing information or services
Department of Forestry associated with international business in forest
(Contact: Jim Stevens) products)

126 Natural Resources
East Lansing, MI 48824
(517)432-3353
(517)432-1143 - FAX

9 Michigan State University (provides access to a variety of information
Main Library depending on the user’s needs)

Circle Drive
East Lansing, MI 48824
(517)353-8700
Government Documents Section (517)353-
8707
Business Library (517)355-3380

10 US Chamber of Commerce International Quick-Reference Guide [$25
International Division Publications (members), $35 (nonmembers)]

H Street, NW lSO9000: A Satellite Seminar - 2 hour video ($75)
Washington, DC 20062-2000 IS09000: An Introduction for US Businesses ($5)
(202)463-3173

(202)463-3114 - FAX

11 USDA A Guide to Exporting Solid Wood Products [$28
Foreign Agricultural Division (US), $56 (international)]

Information Service Agexporter [$51/yr. (US), $59/yr. (international)]
USDA, Room 5074 Food & Agricultural Export Directory [$19.50 (US),
Washington, DC 20250-1000 $39 (international)]
(202)720-9445 Wood Products: International Trade and Foreign
Markets [$35 (US), $188 (international)] - published
5 times/yr. .
12 USDA Forest Service Northeastern Forest (provides a variety of publications on the forest

 

Experiment Station
Route 2, Box 562-B
Princeton, WV 24740
(304)425-8106

 

products industry)
Bulletin of Hardwood Market Statistics (flee)

"US Hardwood: the Market in Europe ” - by West &
Hansen

 

 

155

 

 

 

 

 

 

 

l3 USDA A Business of Details - Exporting High Value U.S.
Agricultural Marketing Service Agricultural Products (video & Publication) (free)
Transportation and Marketing Division Agricultural Export Transportation Workbook (free)
(Contact: Bryan McGregor)

Washington, DC 20230

(202 )690- 1 3 l4

(202)690-1340 - FAX
http://www.usda.gov/ams/tmdsea.htm

14 US Department of Commerce Business America
International Trade Administration Commercial News USA (flee)
14th and Constitution Avenue, NW Export Programs: A Business Directory of US
Washington, DC 20230 Government Services (flee)

(202)482-0543 How To Get The Most From Overseas Exhibitions
Trade Information Center International Countertrade: A Guide for Managers
(800)USA-TRAD and Executives
http://www.ita.doc.gov International Countertrade: Individual Country
Practices
National Trade Data Bank - CD ROM ($360/yr.)‘.
call (800)STAT-USA to order

15 US Export-Import Bank (Eximbank) (offers a small business package containing
Business Development Group information on how to get started in exporting)
8ll Vermont Avenue, NW
Washington. DC 20571
(800)565-EXIM
(202)565-3900
(202)565-3931 - FAX

16 US Government Printing Office Atlas of Eastern Europe ($.16)

Superintendent of Documents Background Notes (all countries) ($58/set or $20/yr.)
Washington. DC 20402 SIN 044-000-91214-7
(202)512-1800 Business America ($6l/yr.) ISSN 0190-6275

Export Yellow Pages (flee)

Export Trading Company Guidebook ($8.50)

Export Administration Regulations ($87)

World Fact Book ($23) S/N 041-15-00167-1

World Population ($4.50) S/N 003-024-06706-4

17 US Postal Service International Direct Marketing Guide to Canada
lntemational Product Management (free)

Room 1140 International Marketing Resource Guide (flee)
L’Enfant Plaza, SW USPS Worldpost Services (flee)

Washington, DC 20260-6520

(202)268-2263

18 US Small Business Administration SBA tlas (free)

Office of International Trade Breaking Into The Trade Game (free)
Washington, DC 20416 Is Exporting For You? (flee)
(202)364-6644 The Facts About... International Trade Assistance

 

 

(free)

 

 

APPENDIX G

APPENDIX G

EXPORT-RELATED TRADE ASSOCIATIONS

Table 6.1 - Export-Related Trade Associations.
(Source: Dr. James A. Stevens and Scott D. Dickerson, 1996.)

 

American Association of Exporters and
Importers

11 West 42"d Street

New York, NY 10036

(212)944-2230

(212)382-2606 - FAX

(a private association which deals with uade
regulations and policies)
Weekly Trade Alert - AAEI member publication

 

American Hardwood Export Council
(AHEC)

1111 19‘h Street, NW

Suite 800

Washington, DC 20036
(202)463-2720

(202)463-2787 - FAX

(an association of wholesalers and retailers; may
provide some forms of assistance to companies
interested in exporting)

 

Lake States Lumber Association (LSLA)
500 South Stephenson Avenue

Suite 301

Iron Mountain, MI 49801
(906)774-6767

(906)774-7255 - FAX

Export Committee Contact:

Larry Wright (615)724-9190

(the LSLA Export Committee provides information
to forest products companies interested in exporting)

 

National Customs Brokers and Forwarders
Association of America (NCBFAA)

One World Trade Center, Suite 1153

New York, NY 10048

(212)432-0050

(212)432-5709 - FAX
http://www.ncbfaa.org/ncbfaa

[a trade association which sells it’s membership list
of customs brokers and freight forwarders ($25
annually”

 

 

 

National Hardwood Lumber Association
(NHLA)

PO Box 34518

Memphis, TN 38184-0518
(901)377-1818

(901)382-6419 - FAX

Directory of North American Hardwood Exporters
($25) - lists NHLA exporting members, their
products, consumersandbuyersintheUSand
abroad (over 1200 listings)

NHLA Membership Directory ($85)

 

 

156

 

157

 

 

 

Small Business Exporters Association
(SBEA)

4603 John Taylor Court

Annandale, VA 22003
(703)642-2490

(703)750-9655 - FAX
http://www.sbeaorg/sbea

The Export Expert - software on export questions;
includes information on the many facets of getting
started in exporting and a lot more ($169.95)
International Sales and the Middleman: Managing
Your Agents and Distributors ($40 or flee to new
members)

 

 

 

APPENDIX H

VALUE OF U.S. EXPORTS OF HARDWOOD LUMBER BY COUNTRY
1991 - September 1996

APPENDIX H

Table H.1 - U.S. Exports of Hardwood Lumber by Country (3 Thoust FA.S. Value), I 991-1996.

(Source: USDA Foreign Agricultural Service, 1996.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Country 1991 1992 1993 1994 1995 Jan - Sep
1996

Canada 169,841 199,581 238,313 255,471 259,841 192.556
Japan 138,446 132,802 152,362 134,501 151,170 103,241
Italy 70,719 79,549 67,812 87,857 89,062 65,522
Germany 53,009 80,125 93,810 85,029 97,104 65,522
United Kingdom 63 .572 64,607 65,837 60,830 67,952 52,198
Mexico 32,801 42,790 48,379 54,828 56,658 49.77 1
Taiwan 68.67 3 71,801 75,044 75,362 70,466 46,694
Spain 35,804 46,916 40,631 47,484 50,142 45,506
Republic of Korea 16.028 21,535 31,178 50,377 52,301 40,169
Belgium-Luxembourg 62,7 10 67,417 63,880 60,321 63,969 37,524
Hong Kong 6,227 7,589 15,449 24,309 32g24 30,885
Netherlands 21,346 27,526 26,834 24,053 21,292 18,508
France 31,896 28,480 35,391 28,466 26,170 18,216
Republic of South Africa 14,881 15,737 21,234 20,858 18,399 15,387
Thailand 4.660 6,834 12,799 13,731 19,691 14,148
Saudi Arabia 6.826 6,606 8,426 5,657 9,878 10,91 1
Portugal 3,828 6.895 4,542 5,638 . 6,039 7,123
Peoples Republic of 1,191 1,003 1,574 1.855 5,851 7.058
China
Malaysia 3.965 4,674 7,557 3,886 6,492 6,240
Sweden 3,917 4,805 5,900 7,346 8,197 6,135
Denmark 3,124 4,170 4,579 7,229 5,915 5,870
Ireland 5,526 5,735 5,691 6,014 6,106 5,031
Indonesia 685 2,425 3,282 4,272 7,843 4,836
Greece 4,041 5,406 3,676 4,382 6,818 3,908
Australia 3,029 4.103 3,428 4,204 5,677 3,839
All Others 35,329 35,346 39,682 44,136 55,968 45,135
Total World Exports 862,074 974,456 1,077,280 1,1 18,094 raorgu 905,275

 

158

 

APPENDIX I

APPENDIX I

GROWTH OF THE VALUE OF U.S. EXPORTS OF HARDWOOD LUMBER
1991 - September 1996

Table I. l - Increases and Decreases of U.S. Exports of Hardwood Lumber by Country, 1 991-1996.
(Information Source: USDA Foreign Agricultural Service, 1996.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Country 1991 - 1992 1992 - 1993 1993 - 1994 1994 - 1995 Jan/Sep Average
1995-1996 Growth
' (1991-
1996)
Canada 17.5% 19.4% 7.2% 1.7% -5.5% 8.1%
Japan -4.1% 14.7% -11.7% 12.4% -13.5% -0.4%
Italy 12.5% -14.8% 29.6% 1.4% -11.7% 3.4%
Germany 51.2% 17.1% -9.4% 14.2% -11.7% 12.3%
United Kingdom 1.6% 1.9% -7.6% 11.7% -0. 1% 1.5%
Mexico 30.5% 13.1% 13.3% 3.3% 17.9% 15.6%
Taiwan 4.6% 4.5% 0.4% -6.5% -16.2% -2.6%
Spain 31.0% -13.4% 16.9% 5.6% 28.0% 13.6%
Republic of 34.4% 44.8% 61.6% 3.8% 5.5% 30%
Korea
Belgiurn- 7.5% -5.2% -5.6% 6.0% -25.3% -4.5%
Luxembourg
Hong Kim 21.9% 103.6% 57.3% 32.6% 32.6% 39.6%
Netherlands 29.0% -2.5% -10.4% -11.5% 8.8% 2.7%
France -10.7% 24.3% -19.6% -8. 1% -9.6% -4.7%
Republic of 5.8% 34.9% -l.7% -11.8% 7.5% 6.9%
South Africa
Thailand 46.7% 87.3% 7.3% 45.4% -5.7% 36.2%
Saudi Arabia -3.2% 27.6% -32.9% 74.6% 55.1% 24.2%
Portugal 80.1% -34. 1% 24.1% 7.1% 90.0% 33.4%
Peoples Republic -15.8% 56.9% 17.9% 215.4% 71.0% 69.1%
of China
Malaysia 17.9% 61.7% -48.6% 67.1% 38.6% 27.3%
Sweden 22.7% 22.8% 24.5% 11.6% 5.5% 17.4%
Denmark 33.5% 9.8% 57.9% -18.2% 24.2% 21.4%
Ireland 3.8% -0.8% 5.7% 1.5% 1.3% 2.3%
Indonesia 254.0% 35.3% 30.2% 83.6% -13.3% 78%
Greece 33.8% -32.0% 19.2% 55.6% -12.5% 12.8%
Australia 35.5% -16.5% 22.6% 35.0% -11.1% 13.1%
All Others 0.0% 12.3% 11.2% 26.8% 15.7% 13.2%
Total World 13.0% 10.6% 3.8% 7.4% -1.7% 6.6%
Exports

 

159

 

APPENDIX J

APPENDIX J

VALUE OF MICHIGAN EXPORTS OF FOREST PRODUCTS (SIC 24) BY COUNTRY,

1991 -1995

Table J .l - Value of Michigan Exports of Forest Products (SIC-24) by Country (3 Thousand Value), 1991-
1995. (Source: University of Massachusetts, 1996, 1995, 1994, 1992.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Country 1991 1992 1993 1994 1995
Canada 26,604 40,455 51,139 56,590 49,958
Germany 17,335 11,332 18,264 16,700 12,571
Mexico 1237 1,393 1,677 7,639 1 1,503
Japan 5,401 3,720 3,613 4,335 4,810
Spain 8,940 2,261 3,729 2,854 3,928
Belgium 2,439 2,702 1,010 1,623 2,393
Taiwan 682 570 1,343 1,125 1,839
Great Britain 14,31 1 10,537 4,986 3,174 1,485
Finland 190 455 993 1,232 1,022
Italy 1,228 1,499 1,607 3,336 696
France 434 1,156 536 295 614
South Korea 512 563 802 1,054 451
South Africa 229 114 858 326 409
Hong Kong 332 258 235 315 360
Singapore 332 306 226 522 359
Total World Exports 84,441 79,222 94,371 104,824 97,900

 

160

 

APPENDIX K

APPENDIX K

GROWTH OF THE VALUE OF MICHIGAN EXPORTS OF FOREST PRODUCTS (SIC 24)
BY COUNTRY, 1991 - 1995

Table K.1 - Increases and Decreases of Michigan Exports of forest Products (SIC-24) by Country, 1991-
1995. (Information Source: University of Massachusetts, 1996, 1995, 1994, 1992.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Country 1991 - 1992 1992 - 1993 1993 - 1994 1994 - 1995 Average

Growth
(1991-1996)
Canada 52.1% 26.4% 10.7% -11.7% 19.4%
Germany ~34.6% 61.2% -8.6% -24.7% -1.7%
Mexico -9.4% 20.4% 355.4% 50.6% 104.3%
Japan -31. 1% -2.9% 20.0% 11.0% 08%
Spain -74.7% 65.0% -23.5% 37.7% 1.1%
Belgium 10.8% -62.6% 60.6% 47.5% 14.1%
Taiwan -16.5% 135.7% -16.3% 63.5% 41.6%
Great Britain -26.4% -52.7% -36.4% -53.2% 42.2%
Finland 140.0% 118.1% 24.1% -17. 1% 66.3%
Italy 22.0% 7.2% 107.6% -79.1% 14.4%
France 166.3% -53.6% -45.0% 108.3% 44.0%
South Korea 9.9% 42.6% 31.3% -57.2% 6.7%
South Africa -50.3% 654.8% -62.0% 25.3% 142.0%
Hog Kcfl -22.3% -9. 1% 34.4% 14. 1% 4.3%
Singapore 49% -26.2% 131.1% -31.2% 17.2%
Total World Exports -6.2% 19.1% 11.1% -6.6% 4.4%

 

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