W&WP March 2002

Globalization Strategies - Part 2, Your Options

By Tom Dossenbach

Last month we looked at the rapid globalization in the textile and furniture industries with some real-time statistical examples of what has happened in Henry County in southern Virginia. That installment of Management Matters concluded with a set of 15 questions designed to analyze the degree to which your company is exposed to the threat of imports in your market. Those questions can also serve as the first step in formulating a global strategy.

Your Options

Every company (manufacturer of value-added wood products or supplier to the industry) must have a globalization strategy to survive in the 21st century. Without such a plan a company is just drifting and, as I have said many times, is going nowhere and at the mercy of every storm and wave created by competition. However, you always have the option whether or not to formulate a plan for your company.

A global strategy does not mean that the company must necessarily have a presence around the world. To the contrary, it simply means that the company has looked at global competition and global markets and has determined the best strategy to prosper in that environment. "Global" means the entire world - but is made up of smaller more individual geographic entities beginning with the market in your current state or province and extending beyond.

Becoming a "global player" is not only reserved for the large manufacturer. I know several small furniture manufacturers who have carved a niche in the European market. One northeastern company with 70 employees exports to England and currently dedicates about 20 percent of its production to this market. Again, it is important to understand that a global strategy does not have to encompass every continent but can be regional. The most important point is to have a plan!

There are as many global strategies as there are companies considering them. The following are a few basic alternatives to stimulate your thinking.

Exporting is an obvious option to consider as a global strategy but is often the last consideration as companies look for ways to cut costs to compete domestically. Carving a niche and exporting your products to a foreign market is one of the choices that can contribute to your growth and profitability. Of course considerable market research must be conducted in order to identify the markets that will be most viable for your products.

For a company to ignore the possibilities of exporting is a big mistake. If a manufacturer can provide a product or service that has been made unique or distinctive, it has a starting point for exporting. Small manufacturers can find a small market to service and leave the larger markets to the larger companies.

The exporter - wherever the company is - must decide if it will engage in direct exporting where it controls the distribution channel with its own inventories and sales force or if it will engage in indirect exporting through brokers or export agents. Most exporters interested in the North American market would prefer to go the direct route - getting as close to the customer as possible. This is the reason that many furniture manufacturers have imported products, only to see their supplier try to sell directly to their customers in a few years or even months.

Importing seems to be the focus of the day as companies rush to meet lower cost demands stemming from import competition. As we looked at last month, the textile industry has followed lower cost labor and had all but disappeared from New England by the 1930s due to a move south to find cheaper labor. Now, the industry has gone off-shore.

The same thing is happening to our woodworking industry. With consumers demanding the most value for their dollar, the importation of furniture and other wood products is accelerating at warp speed. After all, it is the consumer that is creating the demand for all imported products. Can you meet these customer needs and demands? Do you want to, and can you without importing?

Some value-added wood products companies are importing parts to incorporate into their own products and some are importing fully-assembled and finished items. In all cases, those who are successful importers have done their homework before they embarked on this strategy.

A word to the wise: "Import Buyer Beware!"

Horror stories abound - illustrated by manufacturers having ordered products from overseas only to receive them four months late and after many orders by customers were cancelled. Then, after the products were shipped to retailers and on the floor for a month, the veneers cracked or joints became loose because some or all of the wood components were not properly kiln dried. I know dozens of manufacturers who have lost a lot of money because they did not know enough about the capabilities of the company they trusted to manufacture their products.

If you decide that importing should be in your strategy, you must get very involved in the affairs of the company you are looking to for products. (More about this under strategic alliances further on.)

A combination of importing and exporting may be a viable strategy for some manufacturers. Some large companies have adopted this strategy - but this is not just for the rich and famous. There is no reason a small company cannot import products to its specifications and incorporate them into an export program. Alternatively, a company can be exporting products that are made at home and importing products that are useful for their domestic market only.

This option and others are open for suppliers to our industry as well as for manufacturers of finished value-added wood products.

Stay-at-home companies in the United States are those who choose to appeal to the "Made-in-America" market and forgo globalization beyond our borders. There are thousands of wood products manufacturers who will be able to thrive in the local markets of their own countries and not have to import or export as a conscious strategy. However, it is difficult if not impossible to avoid having a least some of the parts or supplies imported from other countries.

Strategies

Licensing is seldom used as a globalization strategy in the woodworking industry but could hold opportunities for some. There are patented wooden items that could be licensed overseas or here, depending on where the patent is held. Thus, any company seriously looking into a globalization strategy should consider licensing designs or unique products as a possibility if it applies.

Joint ventures involve the creation of new entities with equity participation by both parties. This strategic approach is highly complicated and carries with it high risks. Nevertheless, it remains an option that has been utilized by the high-tech industries around the globe.

Many joint ventures have failed due to notable differences in management philosophies. Therefore, such a strategy requires an intense educational process to acquire knowledge about the business climate and inner workings of the partner and is best left to larger companies.

Strategic alliances are workable partnerships between two or more companies with similar goals - the most fundamental being the desire by all parties for everyone to make a profit and prosper for the long-term. This must be the solid foundation on which successful globalization strategies are firmly built.

Of all the options open for consideration, this one is likely to result in success for most companies if they are willing to invest the time and hard work to find and develop the right partner. I have seen strategic alliances in our industry that have worked for almost 20 years. One in particular is between an outdoor furniture manufacturer in the United States, a manufacturer in Asia and another one in Central America. These two alliances are solid - with tremendous loyalty by all parties - and a testimonial to the patience and hard work by all parties to build trust. Noteworthy is the fact that the two foreign companies have not tried to develop their own distribution channels in the U.S. market but have remained content to serve as loyal OEM suppliers.

On the other hand, I have seen ill-formed alliances fail after only a few months.

The best strategic alliances allow products to flow both ways between markets. If you are importing from Brazil, strive to export some of your product to that country.

Threats

There is a clear threat that careless efforts at importing will serve only to transfer technology to future competitors. Even today, there are countless exporters to the North American market that are preparing to dissolve their OEM status and go directly to the retailer or consumer with their products as soon as possible. Thus, many companies may be recklessly setting themselves up for disaster by playing the globalization game in a careless manner.

Our industry has always been based on relationships between manufacturers and customers. Never before have these relationships been more important than now. Every company interested in globalization must try to forge a strategic alliance that will last by seeking out ethical partners with whom you can build trust.

Opportunity

Go back to last month's issue of Wood & Wood Products and take the simple quiz if you have not already done so. Then, begin deliberations on what you think are your company's strengths, weaknesses, threats and opportunities. Your globalization strategy will emerge from this exercise if you put forth serious effort. Good luck!

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