The Marketing Of New Zealand Forest Products

INTRODUCTION

In New Zealand economy, forestry and wood processing are hugely important. Commercial forestry which earned $ 3.7 billion and contributed 2.8 % to GDP is New Zealand’s third largest export (Forest Owners Association, 2011). Currently, New Zealand has 1.8 million ha of plantation forest as commercial which represents 7 % of total area. The figures are relatively the same in the last 3 years. Two notable features in the plantation forestry are: (1) Radiata pine (Pinus radiata) dominance 90 % by area, and (2) the average age of plantation estate is 15 years.

Forestry exports in New Zealand are now based on fast-growing sustainable forest management plantation. This is in contrast with the mid of 19th century, when the last time forest exports were as significant as now, when the exploitation came from natural forests (Horgan and Maplesden, 1995). In 2009, only 0.08 % of total harvest came from natural forest (Forest Owners Association, 2011).

This essay critically reviews the role of marketing inNew Zealandforest products industries, both domestically and globally in the past, present and some in the future.

DOMESTIC MARKET

Clearance and conversion of (natural) forest to farmland in New Zealand in the 19th century had created environmental concern; as a result, a Royal Commission on Forestry was established in 1913 (Horgan and Maplesden, 1995). The commission suggested the planting of fast-growing exotic species to meet timber needs. By 1936, more than 300,000 ha of plantation forest estate was established with Radiata pine as the main species.

Radiata pine was accepted by domestic market step by step (Horgan and Maplesden, 1995). It was sold ungraded and used for box making and concrete forming several decades ago. Research and market manipulation by the government encouraged local markets to use this material. Radiata pine has started to have a role in home building and furniture production, and overtook the market segments of Rimu (Dacrydium cupressinum), a limited supply native timber. Now, Radiata has various uses including: decking, fencing, exterior cladding, window sashes, pergolas, landscaping, shingles, barge boards, and exterior trim (Forest Owners Association, 2011). If Radiata is untreated, it can be used for furniture, mouldings, trim, and panelling. Radiata is also used for panel products, such as plywood, MDF, and laminated veneer lumber.

Since Agrifax records began in 1993, the domestic log prices are at their highest point now (Davidson, 2011). The reason may be because the rebuilding efforts after the Canterbury earthquake. In addition,New Zealand government has planned to spend $ 8.5 billion on the Christchurch rebuilding, which is expected to contribute more in the national economy in the coming months.

In New Zealand, there are several major supplier of building materials, such as Bunnings Warehouse and PlaceMakers, who distribute wood based products.  Both of them are examples of companies who realize that marketing is very important in their business.

There are four similar marketing strategies that they have. Firstly, both of them believe in their team (Ratcliff, 2011; Close, 2011). For instance, Bunnings always makes their TV advertisement with their employees, not actors (Ratcliff, 2011).

Next, Bunnings and Placemakers have committed to their customers and participated in the communities (Ratcliff, 2011; Close, 2011). They do online feedback, customer services, and market services. Their customers are given by special prices which 10 – 15 % cheaper. There are special orders desks in Bunnings for something special which can be viewed by customers at many different on-line catalogue stands (Ratcliff, 2011). During the 2005 / 2006 financial year, Bunnings directly contributed more than $1.3 million to a variety of community groups and charities, and helped raise a further $3.2 million.

Third, they aware of environmental issues, and joined as active members of the New Zealand Imported Tropical Timber Group (ITTG), which formed in 1994 under a charter of understanding between tropical timber importers, retailers and environmental organisations, with appropriate government observers, committed to the sourcing of sustainable timber products. Bunnings also make catalogue from recycled paper not the glossy one as their commitment to environment.

Finally, although there were Christchurch  earthquakes, they did not lose their customers because their stores were well constructed which allowed them to jump back into business very quickly with their wide range of products.

Despite their similarity in marketing, Bunnings and PlaceMakers have two differences. As a start, PlaceMakers, the retail trading arm of Fletcher Building Limited in New Zealand, has partnership scheme as a major theme in their business (Close, 2011). Each PlaceMakers store is a joint venture between a local business partner (Joint Venture Partner) and Fletcher Distribution Limited.

Secondly, PlaceMakers offers time savings for trade customers. This can help to increase profit of their trade customers through reducing labour cost for hourly construction teams waiting for materials and offsetting a lower material costs. Optimizing profits with high prices will shift the trade customers to Bunnings which offers the lowest price on specific supplier items.

THE ROLE OF NEW ZEALAND GOVERNMENT IN FOREST MARKETING

Following the First and Second World Wars, the government as the largest owner of commercial forest in the past had a strong influence in national production, sales, and promotion (Bull andFerguson, 2006). This role has changed today only as facilitator. The focus of the government’s efforts is on removing trade barriers and supplying market information for potential exporters / investors (Horgan and Maplesden, 1995). The Ministry of Forestry should take a role with major responsibility which should be helped by customs, commerce and foreign affairs and trade. The role also can be complemented with the government-owned New Zealand Trade Development Board (NZTDB) whose responsibility is for managing and promoting exports and attracting foreign investment inNew Zealand. NZTDB services including market research to special product promotions.

The marketing of New Zealand forestry products is assisted by government funded research through Ministry of Research Science and Technology (Horgan and Maplesden, 1995). Organizations and individuals can submit their proposals to get public funding via The Public Good Science Fund (PGSF) which is divided into several classes, two of them are Plantation Forestry and Wood and Paper Processing. PGSF helps to develop the range of products from existing resource, to improve the competitiveness quality from existing products, and to fund the development of markets and international trade databases which are stored electronically and easier to be accessed.

To publicize Radiata, the New Zealand Forest Owners Association (FOA), the New Zealand Timber Industry Federation (TIF), the Radiata Pine Remanufacturers Association (RPRA) and the New Zealand Forest Industries Council actively organize conferences (Horgan and Maplesden, 1995). FOA mission is “to actively promote sustainable commercial forestry inNew Zealandwith a view to creating a favourable economic, political and social climate for the profitable operation of members’ businesses” (Forest Owners Association, 2011 p.38).  Approximately 75 % of the owner and manager of plantation forestry become FOA members. In addition, FOA promotional activities are funded by log exporters, the major component inNew Zealand.

FOA marketing activities includes providing and publishing promotional brochures and technical manuals for their members to involve in trade exhibition and organize seminars and workshops (Horgan and Maplesden, 1995). The challenges in the marketplace and limitations in the available material will be overseen by Promotions Committee.  The technical material is primarily produced in English but then it is translated into the languages of target markets, such as Mandarin, Japanese, and Korean.

FOA with RPRA and TIF has frequently joined exhibition trade fairs in theUSA(Horgan and Maplesden, 1995). There are overlapping membership and interests in these organizations. This phenomenon is common in all ofNew Zealandorganizations which the difference among them is usually the scale of operation.

EXPORTS

The domestic market in New Zealand has limited size for forestry industry, so most of its wood products are exported for improving GDP growth. There is a record about a small trade export of sawn timber toAustraliaby 1940s (Horgan and Maplesden, 1995). Ten years later, pulp and paper (newsprint) were exported toAustralia and log to Japan as a trial. To meet a rapid growing supply deficit, Japanese trading houses were looking for raw materials inNew Zealand. Japan had continued the log trade and absorbed 90 – 95 % of all exports of New Zealand log.

Initially, exports were seen as surplus to domestic needs rather than as a long-term strategy (Horgan and Maplesden, 1995). The view began to change in the late of 1960s when plantation forest industry was developed to supply international markets. Since then, New Zealand Government started to sell their forest to private sector which this also introduced foreign investments, particularly from North American and Asian groups. The increase of competition forced the forest companies investing more in marketing and having (permanent) representatives in all of their major overseas markets.

Radiata pine as a main New Zealand forest product has succeeded to compete internationally with other species. Four value propositions for New Zealand pine in the international market are: (1) comes from sustainable plantation resource; (2) basic wood qualities, which are even grained, uniform colour, excellent machining and finishing properties for indoor furniture; (3) consistent kiln-dried sawn product delivered to market; (4) sustainable supply available long term (Bunnings, 2011).

Log exports begin to consider as a primarily step for industrial development in a long period of time (Janett, 2011). In 1970s, Japan was the largest market of New Zealand wood, especially A and J types. After Korean War,New Zealandstarted to export A and K types of wood toKorea. Ten years later, the Korean market was getting stronger in contrast with Japanese’s. Now, Japanese market is nearly non-existent and although Korean market is still strong, it is slowly declining.

Recently,China is the big log market forNew Zealand. In fact, the New Zealand export to the ‘sleeping giant’ country reaches 60 % of its total exports (Janett, 2011). Furthermore, softwood log exports to China increased seven-fold since 2005, replacing much from the Russian Federation(Pepke, 2010). Log imports of China from New Zealand increased more than 200 % since 2000 as they consider buying log from a more responsible source (Ganguly and Eastin, unknown). Lumber for the Chinese market is also rapidly growing as well as logs (Davidson, 2011). There is a current research report indicating  that China is also potential for New Zealand products in D.I.Y home improvement materials market and high grade furniture market (Xian, 2010). However, for all of forestry products,Australiais still the biggest main destination, followed byChin a(17 %), Japa n(14%), Korea (11 %), the USA (7 %), and Indonesia (4 %) (ForestOwners Association, 2011).

New Zealand now also has a new market,India. It is believed that India is potentially bigger and will surpass China due to its demography and population (Janett, 2011). The growing exports of New Zealand Radiata to India as their manufacturers are getting more experienced in the use of this product. 100 % of the New Zealand export is predicted to be consumed eternally because it is not a substitute of other markets, not like in China when New Zealand replacing the Russia Federation. However, India is a comparatively difficult for exporters due to shipping costs and logistics complexities (Janett, 2011), but NZ is their closest supplier.

Wood innovations are important to increase the market, especially overseas. In the development and commercialization of innovative wood products, there are 3 important factors: technology, governance, and collective learning (Priest, 2011; Bull andFerguson, 2006).

Figure 1. The link of technology, governance, and collective learning (Bull andFerguson, 2006)

More efficient utilization of wood fibre will bring more potential profits. For example z-plank LVL (Laminated Veneer Lumber) scaffold planks which is sold hugely to North America, has profitability up to 37 % and revenue from $ 0.6 to 25 million (Priest, 2011).

LVL is complemented with sophisticated technical literature, design software, expert technical support and engineering advice (Priest, 2011). Furthermore, through differentiation and premium pricing over competing materials, it has avoided the problem of commodity products traditionally. The value proposition of LVL focuses on the advantages over timber and steel, which are: lightweight, fast installation, dimensional stability, specifically designed strength, cost effectiveness. Together with OSB and PSL, LVL is still in the expansion phase of the product life cycle.

This business had a tough time in 2002 when the existing markets, Asian and Australian, were not meeting growth expectations (Priest, 2011). LVL then tried to enter North American, which is a high risk segment in the most litigious market in the world, with 7 key strategies: product development and innovation, in-market partnering, in-market representation, concentrated focus on marketing and branding, sales, and supply chain management.

CUSTOMER RELATIONSHIPS

Along with the increase in plantation timber, so does competition among the production firms. For competing, the producers should have value such as good market segmentation and customer relationship. The market segmentation will help to determine how to supply the right products for the right market. Kotler and Armstrong (2010) said that the companies should divide the market into segments of customers (market segmentation) and decide how to differentiate and position themselves in the marketplace (value proposition).

The marketing effort of individual companies now is customer-focused, in contrast with the past when the sellers suffer from marketing myopia which the focus is only to the specific products that they offer (Kotler and Armstrong, 2010). The view of customer-satisfying process is vital (Levitt, unknown). Selling is different with marketing which integrate the effort to discover and create satisfy customer needs.

The key to develop and manage customer relationships is customer value and customer satisfaction (Kotler and Armstrong, 2010). To build profitable customer relationships, the managers should be able to understand the marketplace and customer needs, design a customer-driven marketing strategy, and construct marketing programs (Priest, 2011).

Many New Zealand large exporters have had permanent representatives in their main overseas market. They also have marketing divisions where their staffs meet the clients regularly to discuss the products and improve the services. To overcome the delivery issue, the exporters invest in importing firms and wholesale outlets, as a result, they able to supply directly from the stock rather than should to send the orders for processing toNew Zealand.

The example of the company which have overseas permanent representative is CHH Futurebuild, whose business is LVL product. Futurebuild do in-market partnering and in-market representation inNorth America, their main market (Priest, 2011). They partnered with a USA-based company to be established in several issue, such as : operations beach-head for container unloading, inventory control, storage and product distribution ; sales development ; engineering and technical support ; product and process development ; links and networks to the industry through credibility ; and licensed a proprietary product testing procedure specifically designed for scaffold planks. Through in-market representation, Futurebuild has advantages which allowed them to run business as a ‘domestic’ ones with on ground inventory, debtors, credit control, domestic suppliers; allowed them to run business as it was their own; a greater understanding of the market and its opportunities, the logistical and supply chain considerations; employed local people; and formed a very close working relationship and ensured the exact alignment with their USA partner (Priest, 2011). As a result, Futurebuild was viewed by their USA customer has a serious commitment. This marketing techniques was applied prior to CHH has been purchased by Graeme Hart 4 – 5 years ago.

In the modern era, marketing through e-commerce is becoming the need. Now, wood products are being sold online every day in all parts of the world. To be a true e-marketplace, it should be independent and neutral, the buyers and the sellers are linked electronically, and dynamic (McVicar, 2011). The benefits of e-marketplaces are enhancing discovery, providing product and price transparency, managing manual processes automatically, providing ‘real time’ market information, and preserving existing relationship. Buildpro as one of e-marketplace for wood products based onNew Zealandhas specific models, which are: closed market, buy and sell the product, add a margin on the way, collaboration with other e-marketplaces, promote and empower the products (McVicar, 2011).

CURRENT ISSUE

There are several issues inNew Zealandforest product marketing. As a start, unfortunately, New Zealand timber is not like kiwi fruit that comes from a single desk as a representative for international trade although this is already discussed since many years ago (McVicar, 2011).

Secondly, most New Zealand industrial forests now have overseas owners.New Zealand is attractive because the positive image ofNew Zealandpine brand is powerful in the international market and their plantation forests are highly productive and sustainably managed. The NZ forest industry supplies 1.1 % of world forest product trade and 8.8 % of Asia Pacific’s only from just 0.05 % of the world’s forest resource and an annual harvest area which is equivalent to 0.0009 % of global forest coverage (Forest Owners Association, 2011). On the other hand, the overseas investments also bring advantage. For example, many investments in theNew Zealandcurrency come fromJapan. Davidson (2011) reported thatNew Zealandcurrency had peaked against the US dollar in April 2011 and had dropped 17 % against Yen, although there was earthquake.

Next, the current issue about environmental values has changed the international market and trade of wood and forest products (Janett, 2011). The earthquake, tsunami, and nuclear issue inJapanhave caused more attention in global carbon markets. There are schemes, such as ETS, REDD + (for tropical countries), and California (for theUSA), which are give incentives to not cut the trees as carbon credit to prevent deforestation. Potentially, wood prices will be determined by the conservation programs. In long term, log prices may rise.

CONCLUSION

New Zealand commercial forestry has integrated into the global market during the last quarter of century. The role of marketing is getting vital due to the raise of export markets. Most of the destination is in Asia Pacific and American countries. Furthermore, there is an indication of the importance of the application modern marketing techniques, such as customer relationships based upon value-propositions.

REFERENCES

Bull, L. and Ferguson, I.(2006). Factors influencing the success of wood product innovations in Australia and New Zealand.Forest Policy and Economics 8 : 742 – 750

Close, G. (2011). Placemakers Riccarton  (Guest Lecture of Forest Products Marketing and International Trade Class). Christchurch :University ofCanterbury

Davidson, J. (2011). Forestry Market Report. NZX Agrifax Limited : April 2011

Donnely, R. (1992). Markets, Strategy, and Capital – a Perspective on a Current Radiata Pine Lumber Export Opportunity. NZ Forestry : May 1992

Donnelly, R. (2011). Forest Products Marketing and International Trade Class : Study Guide. Christchurch : University of Canterbury

ForestOwners Association. (2011). New Zealand Plantation Forest Industry: Facts and Figures 2009/2010

Ganguly, I. and Eastin, I.(unknown). Economic and Environmental Aspects of China’s Wood Products Industry. Cintrafor News : Winter

Horgan, G.P. and Maplesden, F.M. (1995). The role of marketing in developing exports of plantation-grown New Zealand radiata pine. Unasylva. 183(46):29-36

Janett, D. (2011). Log marketing in domestic and export markets (Guest Lecture of Forest Products Marketing and International Trade Class). Christchurch :University ofCanterbury

Kotler, P. and G. Armstrong. (2010). Principles of Marketing. 13th edition. TheUnited States of America : Prentice-Hall.

Levitt, T. (unknown). Marketing Myopia (Reading for Forest Products Marketing and International Trade Class).Christchurch :University ofCanterbury

McVicar, R. (2011). E-commerce (Guest Lecture of Forest Products Marketing and International Trade Class). Christchurch :University ofCanterbury

Pepke, E. (2010). Forest Products Annual Market Review 2009-2010. Geneva Timber andForest Study Paper 25

Priest, A. (2011). Overview LVL Product and Marketing (Guest Lecture of Forest Products Marketing and International Trade Class). Christchurch :University of Canterbury

Ratcliff, P. (2011). Bunnings Warehouse Riccarton (Guest Lecture of Forest Products Marketing and International Trade Class). Christchurch :University of Canterbury

Xian, W. (2010). The Current Situation of Furniture Market in Shanghai and Beijing (Report). Christchurch :University of Canterbury

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