Market Opportunities for Alaskan
Yellow Cedar and Western Red Cedar in the Japanese Post & Beam Construction
Industry
Executive Summary
Strategic
Marketing Recommendations for Alaska Lumber Manufacturers
The
use of Alaskan yellow cedar and western red cedar has a long tradition in
Japan. Historically these species were
initially used within the temple industry where their durability and high
quality were highly prized. Following
World War II the combination of increasing housing starts and reduced domestic
timber supply created an opportunity for these species within the housing
construction and shoji screen industry.
This report provides a description of several market opportunities for
Alaskan yellow cedar and western red cedar in Japan. In addition to describing the market opportunity, the report also
provides the technical specification for each product.
This
research has demonstrated that there are a number of potential market
opportunities for cedar lumber from Alaska in Japan. These range from rough green lumber to planed and kiln-dried
lumber to potentially glue laminated yellow cedar sill plates (dodai). The most promising opportunities were found
to be yellow cedar dodai for the post and beam market, 2x4 and 2x6 dimension
lumber for sill plates in the 2x4 market, lamina for the glue laminated beam
industry, and rough, green or planed, kiln dried lumber for the shoji
manufacturing industry. Having
identified a series of market opportunities for cedar lumber from Alaska is not
enough though. A more important factor
is to provide sawmill managers in Alaska with a series of marketing recommendations
that will allow them to determine if exporting softwood lumber to Japan makes
strategic sense for their company and, perhaps more importantly, that will
assist them in determining whether their company is prepared to make the
commitment of time and resources that are critical to achieving success in the
Japanese market. The strategic
marketing recommendations developed during the course of this study are
summarized below.
1. Pre-qualify Alaskan sawmills for exporting
to Japan
One
of the great misconceptions about exporting, particularly with smaller firms,
is that they can try out a market for a while and, if export performance
doesn’t meet their expectations, they can simply withdraw from the market. This simplification overlooks the fundamental
differences that exist between doing business domestically and doing business
internationally and the fundamental expectations that foreign customers have
regarding business relationships. In
contrast to the US, business relationships in most other countries,
particularly in Asia, are viewed as long-term relationships involving long-term
commitments to work together. Leaving
an export market, and ending business relationships, can adversely impact a
company’s ability to re-enter the market in the future. Because entering an export market is such a
strategically important decision, a company needs to objectively evaluate their
commitment to exporting and their ability to compete in the export market prior
to entering a foreign market. Answering
the following questions can help a manager evaluate their readiness to begin
exporting.
a) Has the senior
management of the company made a long-term commitment to exporting to Japan? Most studies of export performance have
found that a company can expect to lose money in an export market for the first
two or three years of operation. Since
most US companies tend to plan and operate within a short-term time frame,
managers have to adopt a new, longer-term perspective when operating in a
foreign market. Thus, managers entering
an export market must be prepared to accept losses as the short-term cost of
establishing a profitable export operation.
Clearly making senior management aware of this and having their complete
support is critical to ensuring that the company can weather the difficult
initial start-up period.
b) Are company
managers risk-averse? Given that a
company can expect to lose money during the first few years of exporting,
managers must be aware of, and willing to accept, the risk that accompanies
exporting. Since most small companies
tend to be resource constrained, this is particularly true of financial
resources, it is important that managers have a realistic understanding and
expectation of the benefits and risks associated with exporting.
c) Has the
company developed a strategy to acquire timely and accurate market information? Nothing can help a company offset the risk
of exporting like having access to good market information. Whether market information is obtained from
prospective customers, prospective partners, other exporters, government
agencies, or marketing consultants, it is important for a company looking to
enter Japan to have developed a strategy for obtaining market information that
they can use as the basis for developing their own marketing strategies.
d) Is the company
able and/or willing to adapt their product specifications to meet the needs of
the Japanese market? Few forest products
companies can expect to find that their current mix of products will match the
needs of prospective customers in Japan.
Japanese customers have different expectations and product
specifications than do domestic customers and a sawmill must be prepared to
make at least some modifications to the lumber that they want to export to
Japan. At the very least they should be
prepared to respond to Japanese concerns about lumber quality and the unique
dimensions of the post and beam construction system. This is where good market information can help a company
anticipate how their product fits into the Japanese market and what types of
product modifications might be required for Japan. In addition, managers must have a clear plan for how to deal with
customer claims. Japanese customers are
notorious for demanding high quality and therefore it is important that
potential exporters have a quality control program in place to help reduce
costly claims from customers. At the
same time, claims happen and a manager should be prepared to deal with these in
a fair and equitable manner.
e) What is the appropriate
channel for getting your product into the Japanese market? This depends on the size of the company and
the extent to which the company wants to get involved in the Japanese
market. Options range from using a
freight forwarder to selling through a US exporter to selling products to a
Japanese trading company to selling direct to Japanese home builders. However, since the choice of an entry
channel often involves establishing a business relationship with a Japanese
partner, this is a critically important decision for a company.
A
final important component of pre-qualifying Alaskan firms has to do with
providing potential exporters with support services. These support services can help potential exporters understand
and be prepared for the intricacies of exporting. For example, information on the services that freight forwarders
provide would be useful. Areas where
potential exporters may need assistance include: how to obtain and complete
export paperwork, understanding the different types of export financing
mechanisms available (e.g., irrevocable letter of credit), how to conduct a
business evaluation of potential partners or customers in Japan, how to handle
complaints from customers, and basic business etiquette in Japan.
2. Develop comparative performance properties
of species used for dodai
This
report has focused on assessing market opportunities for two Alaska timber
species: Alaska yellow cedar and western red cedar. The market segment with the greatest potential is using Alaska
yellow cedar as dodai (ground sills) in post and beam construction. While there are currently a wide variety of
lumber species and products used for dodai, none can match the performance and
durability of Alaska yellow cedar. Yet
in our discussions with post and beam pre-cutters and home builders, many were
not aware of the benefits of using Alaska yellow cedar relative to other
species and products. Thus it is
recommended that Alaska lumber manufacturers develop promotional material that
clearly demonstrates the superior performance of Alaska yellow cedar in dodai
applications. This can best be done by
providing a comparison of the physical and mechanical properties of Alaska
yellow cedar relative to competing species and lumber products. Some of the physical and mechanical
properties that might be compared include:
Physical properties: durability, decay resistance, insect
resistance, shrinkage, specific gravity and moisture content.
Mechanical properties: compression strength parallel to
the grain, compression strength perpendicular to the grain, and machinability.
Similarly,
some of the species and lumber products that might be compared to Alaska yellow
cedar include Japanese cypress (hinoki), preservative treated and untreated
hemlock, preservative treated and untreated radiate pine, preservative treated
and untreated Russian larch, preservative treated and untreated Douglas-fir,
and preservative and untreated European spruce and red pine.
3. Trade mission to Japan for qualified Alaska
lumber manufacturers
Once
a prospective exporter has been pre-qualified, it is often useful to bring
qualified companies to Japan on a trade mission. This provides an opportunity for potential exporters to attend
trade shows, meet with potential Japanese customers, see how their products
would be used in Japan, and gain some familiarity with Japan, Japanese culture
and the Japanese business environment.
A trip to Japan can provide the potential exporter with valuable
experience and insights into Japan while providing a useful reference point
upon which to base their final export decision.
4. Consider
developing a marketing campaign promoting the benefits of using Alaska yellow
cedar to homebuyers in Japan
The
implementation of the 10 year Housing Warranty, in conjunction with increasing
homebuyer interest in the Healthy House concept, suggest that a marketing
program targeted to Japanese homebuyers and emphasizing the benefits of Alaska
yellow cedar dodai could be successful in encouraging new homebuyers to specify
Alaska yellow cedar dodai. Anecdotal
information derived through interviews in Japan suggest that a similar
marketing program, carried out using print advertisements displayed in subway
cars through the greater Tokyo area, was successful in increasing demand for
Aomori cedar in post and beam homes. It
should be noted that several homebuilders already highlight their use of Alaska
yellow cedar in ground sill applications in their marketing brochures (e.g.,
Yawata Homes, SxL Homes and Sweden House).
The promotional message should emphasize the three major benefits of
using Alaska yellow cedar in ground contact applications:
1. Alaska yellow cedar is a naturally durable
species with a proven track record in Japan,
2.
Alaska yellow cedar lumber provides a unique combination of durability
and dimensional stability that helps ensure the long-term performance of the
foundation system and reduces the shifting and settling of the house over time
and exposure to the elements. “The long-term structural performance of a
house is only as good as its foundation”
3.
Alaska yellow cedar is naturally durable and resists both fungal and
termite attack without the use of the toxic preservatives that are used to
treat less durable timber species. In
fact, since preservatives can only treat the outer shell of the lumber, Alaska
yellow cedar lumber is much more durable than treated lumber.
5. Consider
promoting the idea of an Alaska yellow cedar foundation system
Since
durability and long-term performance are important to homebuyers and
homebuilders, the US industry should consider promoting the idea of an Alaska
yellow cedar ground contact foundation system.
The foundation of the typical 30 tsubo (1,065 square foot) post and beam
house consists of the floor post (tsuka), girder/sleeper (obiki), floor joist
(neda), and ground sill (dodai), Figure 26.
This idea has the dual advantage of improving the structural performance
of Japanese post and beam homes while increasing the volume of yellow cedar
lumber used in the typical post and beam house from .8 cubic meters to 1.9
cubic meters. This program should
emphasize the benefits to housing performance gained by not only specifying
Alaska yellow cedar for ground sills but also for the other ground contact
foundation members. The message should
be that from a performance and durability point of view, if a builder is going
to use Alaska yellow cedar for the ground sills, then they should utilize it
for all ground contact members. The key
to the long-term performance of a structure, with respect to termite and fungal
attack, is to ensure that all ground contact components of the foundation are
produced from a highly durable species like Alaska yellow cedar.
6. Sawmills should
carefully analyze market segments to ensure a good match with their production
capabilities
Alaska
sawmills need to ensure that they analyze the Japanese market to identify those
market segments that best match their existing production capability. For example, if a sawmill is currently
cutting dimension lumber they don’t necessarily want to begin retooling their
production process to produce metric size lumber for post and beam homes. However, they should also be looking for
opportunities to increase their ability to service other market segments in the
future by broadening their product mix and investing in new production
technology.
7. Investigate
opportunities for YC and RC in products targeted to the R&R, DIY, and
outdoor use markets
Recent
trends suggest that the repair and remodel (R&R), do-it-yourself (DIY), and
decking/outdoor living markets have been growing in recent years in Japan,
despite the general economic malaise.
This growth is expected to continue and increase in the future. In order to gain a better understanding of
these market segments, their potential for growth, and to identify
opportunities for Alaskan wood products, it would be useful to conduct market
research in Japan. This project would
be designed to achieve the following objectives:
1. describe the current R&R, DIY, and outdoor
decking/outdoor living markets in Japan and project the growth of these markets
to 2010,
2. identify specific market opportunities for
Alaskan wood manufacturers,
3. describe marketing channels and pricing
strategies for wood products in these market segments,
4. describe technical specifications for wood
products in these market segments, and
5. provide a set of marketing strategies to
assist Alaskan manufacturers to enter and compete in these market segments.
TABLE OF CONTENTS
Executive
Summary.......................................................................................................................
INTRODUCTION................................................................................................................................. 1
Background
of the JapanESE MARKET FOR forest products............................................ 2
Japan's Economy....................................................................................................................... 2
Japan's Forest Resource....................................................................................................... 6
Summary of Forestry Trends....................................................................................................... 10
Japan's Softwood Lumber industry................................................................................... 12
Summary of Trends in the Softwood Lumber Industry.................................................................... 16
Japanese wood supply and demand................................................................................... 17
Japan's housing starts.......................................................................................................... 19
The Residential Construction Industry and Housing Starts.............................................................. 19
Residential Housing Types.......................................................................................................... 20
Regulatory changes in the residential construction industry................................. 23
Building Standard Law (BSL)....................................................................................................... 23
Housing Quality Assurance Act (HQAA)....................................................................................... 23
Implications for Material Specification in Residential
Construction................................................... 24
Japanese imports of Logs and Lumber.............................................................................. 27
Opportunities
for Alaskan cedar products in japan...................................................... 33
Residential Construction..................................................................................................... 33...........
The Post and Beam Market Segment........................................................................................... 33
Technical
Specifications.......................................................................................................... 37
The 2x4 Market Segment............................................................................................................ 44
Technical
Specifications.......................................................................................................... 44
The Market for Lamina for Laminated Beams................................................................................ 45
Technical
Specifications.......................................................................................................... 45
The Shoji Market........................................................................................................................ 47
Technical
Specifications.......................................................................................................... 52
Strategic
Marketing Recommendations for Alaska Lumber Manufacturers............ 55
Market
Opportunities for Alaskan Yellow Cedar and Western Red Cedar in the Japanese
Post & Beam Construction Industry
Introduction
For most US
manufacturers the decision to export their products into Japan appears to be
fraught with risk and uncertainty.
However, much of this risk and uncertainty can be reduced if the
potential exporter takes the time to develop a basic understanding of the
business environment in Japan and learn how factors such as the economy,
domestic competition, and regulatory change are affecting the business
environment. The objective of this
report is to provide the new to export manager with the information they need
to support this decision making process.
To achieve this
objective, this report will be divided into three sections. The first section will provide the reader
with some insights into the factors that have affected Japan’s economy over the
past decade. The second section will
provide a summary of the forestry and forest products sectors in Japan to
provide the reader with insights into the factors that influence the
performance of their domestic competitors in Japan. This section will also provide a short discussion of the
residential construction industry, the major demand driver for wood products in
Japan, and new building regulations that are influencing how Japanese builders
use and specify wood products. Finally,
the second section will conclude with a summary of how these economic,
marketing, and regulatory changes have affected the competitiveness of US
forest products relative to wood products from other countries.
The third section of
this report will provide a detailed competitive analysis of the Japanese market
for Alaskan yellow cedar and red cedar, including imports, prices, and types of
products imported. This information
will be combined with primary market research conducted in Japan to identify
specific market opportunities for Alaskan yellow cedar and red cedar products
in Japan. Background information will
be provided on each market including the potential size of the market,
technical specifications for wood products in each market segment, and the
opportunities for Alaskan sawmills to compete in these market segments. Finally, the most promising market
opportunities will be summarized and a series of marketing recommendations will
be provided to help Alaskan manufacturers more accurately evaluate their
competitiveness in Japan.
Background of the Japanese Market for Forest Products
Japan's Economy
The Japanese economy
has been in, or near, recession for most of the 1990-202 period, Figure 1. To a very large extent, Japan’s anemic
economic performance can be attributed to the bubble economy it enjoyed during
the last half of the 1980’s. During
this period, both land prices and the stock market experienced rapid increases
that were out of proportion with Japan’s economic performance, Figures
2-4. However, Japanese banks, suddenly
finding themselves cash rich, encouraged companies and individuals to take out
loans to invest in inflated property and stocks. In many cases, Japanese banks compounded their problems by
encouraging firms to take out new loans to purchase land and stocks using
highly leveraged and inflated assets as collateral for the new loans.
For a short period
this behavior continued to fuel the upward movement of land and stock
prices. By the early 1990s, however,
the inevitable economic slowdown, in concert with other factors, caused a
sudden plunge in land values and the stock market. During the period 1990-1993, the Nikkei 225 lost over 50% of its
value dropping from 38,000 to less than 15,000 in late 1982, Figures 2 and
3. At the same time, land values, which
peaked in 1991, began a steady decline, which has continued unchecked to
2002. During this period, land values
have declined by approximately 40%, Figure 4.
This plunge in asset values was so precipitous that many firms awoke to
find that the bursting of the bubble economy had left them with liabilities
that far exceeded the value of their newly devalued land and stock assets. As a result, bankruptcies skyrocketed in
Japan sending the unemployment rate shooting up from its post-war average of
approximately 2-2.5% to 5.3% in 2001, Figure 5.
Figure 1. Quarterly changes in Japanese GDP, 1990-2001.
Figure 2. Closing averages for the Nikkei 225,
1945-2002.
source: www.globalfindata.com
Figure 3. Closing averages for the Nikkei 225, January
1990-April 2002.
source: www.globalfindata.com
Figure 4. Changes in land values in Japan, 1960-2001.
Figure 5. Annual unemployment rates in Japan,
1960-2001.
Figure 6. Quarterly changes in the consumer price
index, 1997-2001.
To further compound
the economic troubles in Japan, shaken consumers reduced their spending,
helping to send the economy into a deflationary spiral, Figure 6.
Japan's Forest Resource
Contrary to most
people’s impression, Japan is a richly forested country with forests covering
more than two-thirds of its land area (Table 1). Almost 60% of the forests in Japan are privately owned, 31% are
owned by the national government, and other public groups own 11% (Table
2). Private forests are dispersed among
a large number of small plots with over 2.5 million owners. The average size of a forest holding is just
under 10 hectares per forest owner, although this statistic seriously
overstates the size of the typical forest holding. A breakdown of forest owners by size of forest holding shows that
approximately 58% of private forests are less than one hectare in size and an
additional 31% are less than five hectares.
More importantly, barely one percent of forest owners in Japan have
forest holdings that exceed 30 hectares.
This ownership pattern has clear implication on the ability of private
forest owners to economically manage their forests for timber production. It also restricts the ability of forest
owners to access the capital required to actively manage their forests and
improve the quality of their timber.
The age class
distribution for Japanese forests is presented in Figure 7. Almost two-thirds of the private forest
resource (65.1%) is between 21 and 50 years of age (totaling 10.78 million
hectares) while over half of the National Forest resource (54.7%) is in excess
of 71 years in age (totaling 3.85 million hectares). Similarly, the forest data shows that 59.2% of plantation forests
are between 21 years and 40 years of age (6.14 million hectares). However, the age class distribution in
natural forests is bimodal, with 35.6% of natural forests between 31 and 50
years of age (4.70 million hectares) and 37.6 % over 71 years of age (4.97
million hectares).
Timber harvests in
Japan have been generally declining over the period 1960-2000 (Figure 8). The majority of timber harvests have been on
private forests, although the prefectural and municipal forests play a
substantial role in the timber supply.
In contrast, National Forests have traditionally supplied less than 10%
of the timber harvest. From 1960-1973,
the timber harvest from prefectural and municipal forests remained fairly
constant while private harvests declined sharply. From 1973-1991, there was a reversal in this trend and harvests
on private harvests leveled off while prefectural and municipal timber harvests
began to decline. Finally, during the
1990s there has been a substantial decline in the volume of timber harvested in
Japan from all forests.
At the species level,
there have been two important changes in the mix of logs harvested (Figure 8).
First, as described above, the volume of hardwood logs harvested has
declined significantly since the mid 1970s.
Unfortunately, there is no species specific data collected for the
hardwood harvest in Japan. Second, the volume
of pine harvested in Japan has also declined significantly from 1952-1998. During this period, the volume of pine logs
harvested declined from 11 million cubic meters (28.2% of the total log
harvest) to 2 million cubic meters (10.5% of the total log harvest).
