Education: key to building on U.S. success in Taiwan's wood products market

Education: Key To Building on U.S. Success In Taiwan's Wood Products Market

For U.S. wood and wood products producers, the Taiwan market poses a knotty problem. Taiwan is the tenth largest market for U.S. wood products, and the potential for increased U.S. exports, particularly of softwood products, looks good. But lack of knowledge about U.S. products and intense competition from Southeast Asian countries, which often have lower prices and shipping costs, mean that U.S. exporters have their work cut out for them.

In 1990, Taiwan imported about $913 million worth of forest products, with the United States accounting for $152 million. Taiwan's wood imports, which provide more than 90 percent of domestic demand, are driven by the country's large, export-oriented processed wood products industry. In 1990, wood product exports - mainly furniture and finished plywood - ranked as Taiwan's eight largest export.

With the domestic wood products industry's increasing focus on high-quality and specialty products, significant opportunities are emerging in Taiwan for imported softwood products, hardwood lumber and medium-density fiberboard from the United States. Tightening restrictions on log exports by Indonesia and Malaysia and export taxes on lumber by Indonesia also have improved U.S. prospects.

Wood species imported from the United States are red oak, alder, ash, maple, walnut and poplar hardwoods; Port-Orford cedar, red cedar, douglas fir, hemlock, southern yellow pine and spruce softwoods.

Imports Face Some Restrictions

Imports of raw materials such as logs, lumber and veneer are duty-free. However, to protect the local industry, Taiwan has established import tariffs for the following products (tariffs are expressed in percent in parentheses): particleboard (3.75), hardwood unfinished plywood (15), hardwood processed plywood (20), softwood unfinished plywood (7.5), softwood processed plywood (10) and most furniture parts (10-15).

In addition to import tariffs, U.S. exporters face some additional problems. For example, Taiwan's manufacturers are not knowledgeable about U.S. softwoods. In addition, many Taiwan consumers consider wood-frame houses unacceptable because they believe that wood will rot in the heat and humidity, and that wooden structures cannot withstand typhoon winds. However, the U.S. industry can provide information about the ability of wood construction to withstand wind damage, damage from wind-driven water and heat and humidity.

There are two types of wood importers in Taiwan - trading companies or large producers who import directly from overseas and small importers who serve smaller plants and wholesalers. The size of purchase and the financial strength of buyers determine the number of intermediate steps through which the transaction must proceed. Usually small importers consolidate orders from several buyers to take advantage of economies of scale.

For introducing new products and new species into the market, foreign suppliers should have at least one agent/importer for their products lines. The contracting system on Taiwan is normally done on a fixed-bid, fixed-fee basis. Most large construction projects involve many subcontractors contractors who will actually purchase the materials to be used. With the pressure of fixed-bid contracts and the short-term orientation of most sub-contractors, they will be more concerned about prices. U.S. suppliers should be prepared for these types of fragmented purchases, and expect sales difficulties that may be associated with price consciousness.

Taiwan's Industry Has Six Major

Components

Reduced availability of local raw material, rapidly rising wage rates and labor shortage are forcing changes in Taiwan's basic wood products industries. Six major wood products industries and the outlook for U.S. exporters are discussed below.

Furniture: Traditionally, most of the furniture manufactured on Taiwan has been exported. Due to the stronger Taiwan currency and competition from other suppliers in export markets, Taiwan's furniture exports have decreased in recent years.

However, as Taiwan's economy continues to grow and housing construction expands, domestic demand for furniture should grow substantially. The increasing domestic demand for furniture may simply shift the market without adding new opportunities for U.S. wood products.

On the other hand, there may be some small niche markets for furniture manufactured in the United States, particularly high-end custom products. Although the market is still unfamiliar with U.S. furniture, a sophisticated marketing effort to educate end-users, wholesale buyers and architects should help to increase U.S. furniture imports into Taiwan.

Plywood: Taiwan's plywood industry grew substantially in the past 30 years, with raw materials from native species used primarily to manufacture exports to the United States and Japan. But reduced local supplies have prompted producers to import inexpensive Indonesian unfinished plywoods and re-laminate them as fancy plywoods for re-export.

Currently increasing demand for local construction may boost plywood consumption on Taiwan. However, it is expected that Indonesian panels will fill most of the demand. As many export markets for plywood were taken over by Indonesia in recent years, manufacturers feel that in the long run, plywood manufacturing is a "sunset" industry on Taiwan.

Construction: Concrete, not wood, is the traditional construction material for housing in Taiwan. The most serious obstacle to the introduction of wood is consumers' lack of knowledge and distrust of foreign wood as a building material. Taiwan's building codes are currently being reviewed and revised, which should favor U.S. wood.

With Taiwan's rapidly expanding economy, interest in wood-frame houses and log homes is growing. The U.S.-type log home and some low-rise multi-family townhouses are now used in vacation and resort areas. Because wood-frame construction can be erected more quickly than construction using traditional Taiwan methods, there is a financial incentive to using the U.S. system. However, one constraint to this type of resort construction is limited land availability.

Rapidly increasing disposable personal income, coupled with limited available space for housing in the major population centers, has resulted in a skyrocketing real estate market on Taiwan. To take advantage of every available acre, most construction in the cities in now high-rise. To be most effective in promoting the use of wood, U.S. suppliers should focus educational efforts on specific niche market opportunities rather than using a general commodity approach.

Designated Infrastructure Projects: There are several infrastructure projects scheduled in Taiwan which deserve the attention of the U.S. forest products industry. The Taipei Mass Transit Project, a combination elevated and underground railway system, may provide a good opportunity for U.S. plywood used in concrete forms. Kaohsuing, the second largest city on Taiwan, is expected to implement a similar project this year.

A six-year development plan, which began in 1991, includes a large housing project for middle-income families. Under the project, domestic housing demand is estimated at 900,000 units. The plan should afford an excellent initial market for U.S. wood-frame construction and furniture industries.

Interior Paneling: As the quality and value of both office and residential construction increase in Taiwan, demand for appearance-grade wood for interior paneling, moldings, doorskins and hardwood floors should increase as well. There also is demand for fire-retardant materials and water-resistant composite panels in newly built apartment buildings.

Taiwan's increasingly sophisticated business environment will demand more flexible office structures. Interior walls and partitions which can be modified to accommodate expanded functions also are beginning to attract attention. Effective advertising would help to develop these niche markets for U.S. industry.

Pulp and Paper: Raw materials used for making paper include wood chips, waste paper and wood pulp. Approximately 80 percent of locally produced long-fiber pulp comes from imported wood chips, especially coniferous species. Intensifying environmental concerns and labor shortages in the past two years have caused problems for the local industry. Thus, there is a significant market for paper product imports.

Competition With Southeast Asia

Most Taiwan buyers are familiar with U.S. hardwood species. The high quality and stable supplies of U.S. hardwood products and the longstanding trade relationship between the United States and Taiwan will continue to enhance Taiwan's imports of U.S. wood products.

The diminishing supply of forest products from Taiwan's traditional suppliers will created opportunities for U.S. producers. Taiwan's willingness to adopt U.S. standard sizes and the appreciated local currency should make U.S. products more competitive in this market.

However, any increased growth in imported U.S. hardwoods faces strong competition from Southeast Asian countries in terms of price, quality, freight costs and the ability to communicate in the importers' language. Taiwan's current interest in trade with China and Vietnam may lead to replacement of some U.S. hardwood imports.

The similarity between U.S. species and native Taiwan softwoods will encourage local manufacturers to use more U.S. softwoods, such as red cedar, to substitute for Taiwan cypress. Rapid expansion of the real estate market and interest in resort homes will support U.S. softwood products use in the current construction projects.

Some of the weaknesses in the marketing of U.S. softwood products are: concerns about grading, i.e., the knot structure of some U.S. softwood species is not as appealing as some Taiwan species; U.S. plywood is normally produced in 4'x8' sizes while 3'x6' is a common panel size in Taiwan; and consumers are unaccustomed to U.S. softwood qualities and grading system.

Many local manufacturers have expressed interest in obtaining more detailed information on the best uses for U.S. wood species. End-users usually have less waste from non-U.S composite panels, which are considered to be of better quality and are produced in a wider variety of sizes. Imports of low-priced pine from China and the USSR may replace some U.S. softwoods.

Appropriate and timely marketing efforts will greatly facilitate the entry of U.S. solid wood products into Taiwan's domestic market. For instance, present programs carried out by the National Forest Products Association for wood-frame housing and for government construction projects should assist in promoting U.S. softwood products.

Table : Taiwan Is Tenth Largest Market

          For U.S. Forest Products
                         1990         U.S. Share
                1,000 cubic meters     Percent
Logs                  4,169               5
Lumber                  704              25
Veneer                  100               7
Plywood                 374               0.1
Particleboard           207              57
Fiberboard              226              47
  Total               5,780              11

COPYRIGHT 1991 U.S. Department of Agriculture
COPYRIGHT 2004 Gale Group