Taiwan's Solid on U.S. Solid Wood Products

When change comes to Asia, its ripples may be felt for generations. Consider the island-nation of Taiwan, which was, for many years, both a major producer of quality hardwoods and a regional powerhouse in wood manufacturing.

That picture radically changed with the depletion of commercial timber and the flight of wood processing industries to neighboring countries with cheaper labor. These trends have altered Taiwan's wood consumption within the space of only a decade or so.

Today, Taiwan again appears to be at an important turning point in its wood consumption profile. Although most of its timber is off limits to commercial exploitation, supporting industries that once processed local wood remain strong, and many Taiwan-based companies are now important players in the regional and global trade of lumber and lumber products.

Initially, Taiwan firms manufacturing lumber, paper, furniture and decorative wood products adapted to the change by shifting from locally sourced to imported raw materials. As labor and other operating costs rose steadily during the 1980s and 1990s, most firms shifted some or all production offshore.

Today, the most common destinations for Taiwan investments in wood processing include Vietnam, China and the Philippines.

While much production has relocated offshore, key operational decisions tend to remain under the control of Taiwan-based executives, who govern decisions on a huge volume of wood.

An example of this hidden impact: Estimating that roughly a third of Chinese, Vietnamese and Philippine furniture exports benefit from Taiwan-originated investment, the power of Taiwan log and semi-finished wood buyers far exceeds the $300-$400 million per year derived from Taiwan's own production of wood furniture.

As far as domestic operations are concerned, some 2,000 firms have wood processing or production facilities in Taiwan. The majority are small operations, employing a staff of 10 or fewer.

How Much Wood Would Taiwan Trade?

Approximately $1.16 billion worth of wood and wood products, excluding furniture, cleared customs in Taiwan during 1999, off slightly from the nearly $1.25 billion for the previous year.

Hardwoods. Both Taiwan and Chinese cultures appreciate the aesthetic value of hardwoods and, as incomes rise and quality-of-life issues increase in importance, families are increasingly likely to purchase hardwood home improvement products such as parquet flooring, wall panels, and dining room tables of solid wood.

When it comes to wood preferences, consumers tend to like temperate and tropical hardwoods about equally.

When marketing finished and semi-finished hardwood products to Taiwan customers, it is important to stay abreast of trends and preferences. For example, more than 90 percent of dining tables sold in Taiwan are round, while the rapidly growing market for rectangular wood tile parquet flooring is particularly hungry for tiles made of unique species.

Demand for do-it-yourself materials is expected to become more sophisticated and U.S. suppliers of hardwood materials and kits should see significantly increased opportunities within the next five years. The time for market contact and development work is now.

With a well-developed regional wood processing network and growing demand for wood furniture and decorative products (particularly those designed to Chinese or Asian specifications), the highest value sector will likely continue to be semiprocessed wood products, such as hardwood dimension lumber, hardwood veneer and hardwood plywood.

Such intermediate products can be further processed at facilities in Taiwan or elsewhere, taking advantage of lower labor costs.

The total Taiwan import value for the semiprocessed products and hardwood plywood segments totaled nearly $300 million in 1999, accounting for around a quarter of total wood and wood product imports (excepting furniture) during that year.

Softwoods. Much of the softwood imported into Taiwan continues to come in as plywood, which tallied $163.5 million in 1999, and dimensional lumber, which racked up $95 million over the year.

A significant percentage of dimensional lumber is used by the construction industry to create the temporary supports and casts for concrete pours in building construction. At present, around 95 percent of Taiwan's new buildings are constructed of concrete. Plywood sheets are used in many applications, from interior decorating to facing on temporary structures, and in signs.

So Where's the Growth?

A stable economy, coupled with rising income over the next three to five years, is expected to generate healthy growth in demand for

* imported finished wood products--including "high end" furniture, hardwood flooring and other decorative products where U.S. manufacturers have competitive strength; and

* pressure-treated softwood lumber for wood-frame construction, including single and multiple dwellings, small businesses, academic office buildings, glulam long-span structures and outdoor recreation structures.

Industry analysts suggest keeping an eye out for gains in the reinforced concrete sector of Taiwan's construction trades to presage better demand for plywood and second-grade softwood.

A Strong, Savvy Regional Leader

Taiwan buyers tend to be intimately acquainted with the full range of wood products available, and shrewd at matching their needs with supplier countries. While Taiwan's (and Chinese) preferences tend toward darker tropical hardwoods, U.S. hardwoods such as maple and oak have many advocates, thanks to fashion trends toward lighter and brighter woods, availability concerns, and rising prices.

The strength of Taiwan importers and Taiwan's open trade policies especially affect competition in supplying traditional market segments such as logs, plywood, veneer and furniture. Relationship-building and price negotiations are paramount considerations here.

In contrast, in new-product areas such as wood frame housing and wide-span structural (glulam) wood construction, the door is open.

Here, education and promotional efforts not only present opportunities to develop significant new export revenue, but are absolutely essential to address the many questions in the minds of potential customers.

Most architects and builders are unfamiliar with wood construction principles and techniques. Consumers, many of whom have never been in a wood frame building, are generally concerned about the longevity and safety of wood-frame structures and wonder how well they hold up, compared to concrete buildings.

And practically all of Taiwan wants to know how well U.S. wood will hold up against termite damage. In the land made famous by the ferocious Formosan termite, there's a need for pressure-treated wood in nearly all outdoor/structural applications.

How To "Grow" Your Market

1. Manage Customer Relations Well.

Taiwan remains a price-competitive market for both business-to-business and retail transactions. A well-developed relationship with your buyer will help buffer against competing suppliers, but in general, unless you supply a unique product or enjoy a specific supplier advantage, expect purchase price to be a recurring topic of discussion.

2. Know Your Competition. To address price concerns effectively, maintain a good understanding of what competitors can and cannot provide in terms of products and sales and services.

3. Get To Know Who's Who. A small circle of a dozen or so importers handle most log and lumber imports. Most have historical roots in Taiwan's early logging industry and are typically private, family-controlled enterprises. This makes relationship-building and responsiveness to client requests exceptionally valuable in securing a steady sales relationship.

4. Keep an Eye on the Ecolabeling Trend. At present, concerns about sustainable forest management practices are not strong enough to overcome the added-costs that convey with these concepts. The government does not have an active certification or labeling program to identify wood harvested from such sources. Still, ecolabeling is a trend that could potentially snowball in Taiwan; experts consider it worth following.

5. Offer Education. By sponsoring or supporting promotions with an educational component, suppliers can target architects, builders and consumers, planting acorns of market development for structural wood usage in Taiwan.

The author is a reports and marketing officer at the Agricultural Trade Office in Taipei.

An Island Haven for Wood

Approximately $1.16 billion worth of wood and wood products (excluding furniture) cleared Taiwan customs during 1999, constituting more than 1. percent of all imports into Taiwan that year.

Once a Lumbering Giant, Today's Taiwan Has Less To Fell

As you look out from a high-rise window in densely populated Taipei, it may not be not readily apparent, but a large part of the island of Taiwan is cloaked in forest. In fact, nearly 60 percent of its land mass is wooded.

But, when it comes to wood products, it's another matter to tell the (domestic) forest from the (foreign) trees.

In Taiwan, timber from virgin stands of cypress, fir, camphor and oak provided essential hard-currency exports up through the 1970s.

But today, Taiwan's extensive forest canopy doesn't translate into a huge pile of lumber. As it turns out, overharvesting of timber, escalating labor costs, and growing appreciation for the importance of forest ecosystems have diminished Taiwan's commercial forestry industry to its present output of around 50,000 square meters per year.

In light of Taiwan's current harvest ban on non-plantation timber and current economic disincentives against logging, only 500 hectares in Taiwan actually produce commercial timber.

Most of the annual harvest is currently channeled into low-value applications, with over a quarter of output volume going up in smoke-as firewood.

Although most timber is now off limits to commercial exploitation, supporting industries that once processed local wood remain strong. Many Taiwan-based companies are important players in the Asian regional and global trade of lumber and lumber products.

Initially, Taiwan firms made the transition from locally sourced to imported wood products for manufacturing lumber, paper, furniture and decorative wood products. But as labor and other operating costs rose steadily throughout the 1980s and 1990s, most shifted at least some production to such destinations as Vietnam, China and the Philippines.

Still, key operational decisions tend to remain in the hands of Taiwan-based executives, who govern such matters as installed equipment, order receipt and scheduling, changes to capacity and raw material purchases. Thus, the power of Taiwan's log and semi-finished wood buyers is greater than what could be expected, given the $300 to $400 million per year that Taiwan's wood furniture production consumes.

About 2,000 firms are registered as having wood processing or production facilities in Taiwan, a majority of them small operations.

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