EXPORTING WOOD PRODUCTS: ADVANTAGES AND RISKS

The decision to enter the export market requires the producer to commit sufficient managerial, economic, and financial resources to the task. Each company must weigh the advantages and disadvantages of exporting to determine if projected profits, possible losses, and inherent risks justify management's commitment to exporting.

The advantages of exporting wood products include new marketing and financial opportunities (which allow the firm to grow financially and corporately), diversification of risk, and increased financial leverage and credit. In addition, revenue derived from export sales permits spreading fixed costs over a greater number of production units. Wider margins may therefore be realized on higher-valued products.

Producing for foreign markets can also have its downside. Tailoring wood products to foreign standards and specifications requires skilled personnel for production and shipping operations. Also, manufacturing goods to foreign specifications may not be possible with existing high-speed, high-volume manufacturing practices, requiring a change in the production process. Therefore, production costs per unit may be higher if new machinery and personnel are required. If wood products designed and produced to foreign specifications need to be sold on the domestic U.S. market, they may require additional processing such as resawing, planing, or sanding.

Common mistakes made by companies entering the export market are:

Failing to obtain qualified export counseling (inability to understand market demand).

Failing to develop an international marketing plan (inability to focus on best way to serve new markets).

Insufficient commitment by top management to overcome the initial difficulties and financial requirements of exporting.

Insufficient care in selecting overseas agents or distributors.

Filling orders from around the world (the shotgun approach) instead of establishing a basis for profitable operations and orderly growth by actively seeking customers in targeted areas.

Neglecting the export business when the U.S. market booms.

Failing to treat international customers on an equal basis with domestic counterparts.

Failing to understand or respect foreign cultural differences with respect to business practices and product usage.

Unwillingness to modify products to meet the regulations or cultural preferences of other countries.

Failing to print service, sales, and warranty messages in locally understood languages.

Failing to consider the use of an export management company or other marketing intermediary knowledgeable in foreign distribution channels.

Failing to consider licensing or joint-venture agreements.

Success or failure in exporting hinges on an exporter's willingness to allocate sufficient resources to research foreign demand, develop contacts, and produce, market, ship, and sell wood products overseas. These activities are referred to as trade servicing.

Last modified: Wednesday, February 11, 2004