Globalization Is Here! What Can We Do?

It seems that we cannot open a trade journal or newspaper without seeing something written about "imports" or plant closings. The cover story on furniture imports in the July issue of Wood & Wood Products reinforces this statement.

All signs point to the fact that the rapid globalization of the woodworking industry (especially home furniture manufacturing) is in an advanced stage. In my December 1999 column, I listed 15 trends to watch in this decade. I mentioned that globalization would have the greatest effect on the woodworking industry's future.

At this writing, Ethan Allen has just announced the formation of a strong strategic alliance with Markor of China. This strategy not only includes Markor manufacturing products for Ethan Allen and shipping them to the U.S., but also the sales and marketing of products in Beijing by Ethan Allen. Markor is reported to be planning to sell its products under its name in its own stores in addition to Ethan Allen's Chinese stores. Almost simultaneously, this leading U.S. furniture manufacturer announced closings of several plants in Vermont and elsewhere. Obviously, while this strategy does not bode well for the communities and employees affected, it is designed to strengthen the company in the long run.

Also in June, Furniture Brands International announced plans to close its Lane casegoods plants in Virginia this year. That production capacity will be replaced with imports. It is reported that 1,000 jobs in Altavista, VA, will be lost in the process.

These are only two of the most recent examples of the critical globalization strategies that companies throughout our industry have been forced to make over the past few years. These are tough, strategic business decisions that had be made to assure the long-term survival of the companies.

Tough Choices
Critics need to remember that the purpose and goal of every company is to make a profit. Any woodworking company with a steady decline in sales will eventually have to lay off workers and ultimately close plants or see their profits turn into a river of red ink. Our industry is experiencing increased competition from overseas companies that are shipping their products into the distribution chains of many of our product categories - not just furniture. If a company is competing against imports, that company has no option but to find a way to cut its costs. How it does that is the big issue of the day.

The fact that China has emerged as a leading source of furniture imports should not be a surprise to anyone. At a recent symposium on the globalization issue at Appalachian State University in Boone, N.C., Dr. Spencer Glendon, an expert economist on China with Wellington Management Company, reported that 33,000 Chinese are being released EACH DAY from government supported jobs to enter the private sector and "find their own way." He further stated that while we have 400,000 young people studying engineering in this country, there are 6 million in China! Since engineering is the foundation of a strong manufacturing economy, is there any doubt to where the manufacturing base is shifting?

I believe that another continent - South America - will emerge later this decade as a major supplier of wood products to the United States and will prove formidable marketing competitors to the Chinese. There are many very large companies hard at work obtaining certification of their own bountiful forests and building vertically integrated companies to produce value-added secondary wood products. They have all of the strategic resources to become successful and with the new hemispheric trade initiatives of the Bush administration - we are about to see a Latin American revolution in the area of wood products manufacturing.

Furniture, millwork, mouldings, windows, doors, store fixtures, parts, kitchen cabinets, building materials and a host of other wood products are destined to enter North America in increasing numbers - not only from China, but from South America and other developing countries.

"What Can We Do?"
There are many who think the best thing to do is to write their congressman and senators; or better yet, march on Washington in protest. Protectionism is not a choice, though. Nothing is going to stop the globalization process because it is a world social, political and economic necessity.

State government and industry leaders all over the country are scratching their heads and asking: "What can we do?" After all there are a lot of families that depend on the wood products industry for their livelihood. In addition, there are many business people who have invested their life's savings into their woodworking companies.

Two interesting initiatives have just been launched to look at ways to combat the decline in the woodworking industry. One addresses the entire secondary wood products industry in the state of Vermont, while the other is focusing on the furniture manufacturing industry in North Carolina.

The Vermont legislature and the Agency of Commerce & Community Development (Department of Economic Development) have recognized the threat to the long-term viability of the state's secondary wood products industry and has commissioned a comprehensive project on the challenge. One in every 16 jobs in Vermont's private sector is associated with the wood products industry.

The strategic objective of this project is to determine what needs to be done to make the industry a continuing healthy and viable segment of the Vermont economy and how to accomplish this objective. The project will conclude with a road map to guide the industry and the State of Vermont in these efforts. The project will bring government, industry and academia, as well as environmental players together to solve the challenges unique to the state of Vermont.

Further south in North Carolina, the USDA Forest Service and North Carolina State University's Department of Wood and Paper Science have teamed up to launch a similar study for the furniture industry in the U.S. and especially the Southeast region. Urs Buehlmann of NC State and Al Schuler of the USDA hosted a working conference on the subject at the university on June 1. It was noted that with 50% of the wood furniture sold in this country originating from outside the U.S., the situation has become critical and a threat to the entire industry supply chain.

Thirty-five executives from the furniture and supply industries as well as representatives from the state of North Carolina were in attendance. Discussions centered on the decline of the domestic wooden residential furniture industry and what can be done to make the industry "more competitive and ultimately survive in the U.S."

Many compelling questions were discussed during the all-day meeting. In addition to trying to get a handle on the major issues facing the industry, the group discussed the question of whether or not U.S. companies can be competitive in the manufacture of residential wood furniture?

Some observations made during the meeting included:

• There is general frustration with past initiatives to get a handle on the subject.
• Only one of the "Big Six" furniture manufacturers was in attendance (indicating the others may have formulated their strategies).
• Many believe the "casegoods" sector has already thrown in the towel.
• Very broad participation in the project is needed from the industry associations for it to become successful.

The group was unanimous on one point - the situation will require "Breakthrough Thinking in overcoming the odds facing the industry." (Those of you who follow this column know that I would say: "Get out the Crayons!" See December 1999 issue of W&WP.) The industry as a whole stands to learn from this initiative. In its upcoming August meeting, the Manufacturing Division of the American Furniture Manufacturers Assn. will have presentations and discussions on this subject. The concern about the future of our industry as we have known it in the past abounds everywhere.

Take It Personal
The July issue of Wood & Wood Products is filled with statistics that demonstrate globalization has already re-shaped this industry. It is past time for each company to decide if it is going to participate in the globalization process and how. Each reader may not be fortunate enough to have projects in the offering to help them as outlined above. Nevertheless, no one has the luxury to wait for such a project.

Any company that has not formulated a strategy to meet its long-term needs must do so - now! If you feel you are to small to do the planning yourself, get your association involved or team up with your suppliers and associated industries. Everyone has a stake in this issue.

In future installments of this column, I will give some perspectives from companies in developing countries on this issue of globalization as we all continue to "Plow The Sea" for profits.