Bolivian Company Plots Its Globalization Strategy -- Part 1.

THE JULY ISSUE of this magazine featured the subject of furniture imports and their effect on the industry. Last month I briefly touched on the issue of globalization. Since this topic should indeed be on the moinds of all secondary wood products manufacturers, I have decided to provided some additional insights to stimulate your thinking by telling (with permission) the globalization story of the Mabet Company in Bolivia that I visited in June of this year.

This month I am departing from my tradition from my tradition at Wood & Wood Products to go deep in to the forest - for reasons that will become obvious - to go and report on this interesting company. Next month, this column will focus on the manufacturing plants and review the company's strategies and how they may apply to you.

In last month's column, I mentioned that South American wood products manufacturers would emerge as viable global competitors. There are many reasons including: the proximity to the North American market, the high probability of the formation of an "Americas Free Trade Agreement", globally competitive labor rates (about $1.00 / hr for machine operators) and abundant natural resources.

Mabet, headquartered in La Paz, the capital of Bolivia, is looking to reap the global benefits of its advantage. La Paz is about the size of the state of Montana and has a population of just over 8 million. The company has been exporting solid wood (Mara Macho -- white mahogany) doors to the United States for the past eight years. It has reviewed its strategic plan and is undergoing a process of vertical and forward integration to make its globalization plan more viable for the long term.

Certified Forests

There has been a loud worldwide public outcry suggesting that the rain forests, which are so important to our global environment, are being destroyed. The movement has been the strongest in Europe and has grown in intensity herein the U.S. The Forest Stewardship Council (FSC) is the international organization coordinating the process of "forest certification."

Forest certification is a system of forest inspection to ensure that the harvesting is well managed to take into account environmental, social and economic principles and criteria. When a chain of custody is established, a product that has been manufactured from one of these forests can be "certified." Many government policies in different countries now mandate that forests be certified. For instance, all of Poland's forests are currently certified, as are most forests in Western Europe. Many South American countries; including Bolivia, demand that certain rain forests be certified.

Some companies, including Mabet, have decided to incorporate this movement into their business models. Thus, they have acquired huge forestlands and forest concessions (logging rights) and are obtaining certification of these. In addition, they plan to document a chain of custody of the logs cut for their finished products. Today they can claim and provide. certificates to prove that they manufacture "certified wood products."

Los Indios Forest and Logging

To see the primary wood products operations of the company, we had to charter a plane and fly from La Paz to a small airport 400 miles north at Riberalta. Here the company has its logging division headquarters, strategically located in the middle of the rain forest of northern Bolivia. To reach the Los Indios logging camp and sawmill, we had to four-wheel it 50 miles north almost to Bolivia's border with Brazil. The company has had to construct its own ferry crossing to access this virgin forest. From there all roads had to be built by the company.

The forest is unbelievable in its magnificence for a first-time visitor. This particular section of the company's holdings is about 38,000 acres and has been divided into 20 equal parcels. The company will work one of these a year for the next 20, years, giving the cut forest time to regenerate itself over that time. Approved professional foresters have gone, into the forest and surveyed, tagged and cataloged every tree that can be harvested.

Red flags are staked in the forest and each bears instructions as to the location of the marked trees that can be cut in that plot, typically a few acres. For example one flag may have recorded on it that there is a white mahogany tree 20 meters north, a cedar tree 40 meters to the south and so on. The location of each flag as well as each tree tagged for cutting is printed on a detailed forestry survey map. This map also contains the total inventory of each species and the estimated footage.

It is noteworthy that only trees that are in danger of dying in the near future, or are otherwise ready for cutting, are marked and harvested. Many trees -- the size that we normally cut here in the United States -- are left to grow for the next harvest 20 years later. Interestingly, seed trees are designated throughout the forest and cannot be touched. The fine for cutting or damaging one of these trees is 20% of the gross revenues of the company for that year!

To verify the proper management of the forest and to do the actual certification, a representative from a private company, such as SmartWood, will visit the forest and conduct a periodic audit of the operations. Within the areas being cut, there are designated areas in which no one is allowed to step foot. During the next 20 years, forest management professionals will use these areas to compare with cut areas around them to make sure regeneration is on schedule.

The company has a full-time crew building and maintaining the logging roads into the jungle. Again, these have been precisely chosen by the forest management professionals to minimize the impact to the environment. Small tent logging camps are set up deeper in the forest and are moved as the logging crews move through the forest.

These logging camps are remarkably clean and have their own cooks. Logging is done with chain saws and skidders much as we see in the United States. Large machines are not used and care is taken to minimize damage to the forest floor when transporting the felled logs to the nearest logging road. Interestingly, the tops and limbs are left for nature to take care of as if the tree had died and fallen by an act of nature.

The Los Indios Sawmill

The logs are trucked to the Los Indios sawmill that includes a small village where the workers stay during the week. A gasoline generator provides the electrical needs of the sawmill as well as the village. The sanitary conditions and the treatment of the workers are exemplary. Water is pumped from clear streams into an elevated tank to provide running water for showers. The company has even provided a church on the site.

While the sawmill is not equipped with up-to-date equipment today; its older band mill is in excellent mechanical condition and, produces good quality boards. The company is in the process of upgrading its operations to reduce waste and labor and is adding a second sawmill to this location.

The company harvests a dozen species from this forest. These logs are sorted by species and stored on the log yard at, the sawmill and cut. Each species has its own specifications for processing according to the end product use and is sorted accordingly. By doing this, the company minimizes waste and begins its own effort to lean manufacturing. Most of the lumber production is for internal use by the company.

The company currently trucks the lumber produced at Los Indios to its sawmill and concentration yard located at Riberalta. Lumber from both locations is then trucked the 400 miles to Mabet in La Paz for kiln drying and eventual use. A new boiler, dry kilns, dry storage and expanded lumberyard are under construction at Riberalta in order to utilize the energy from sawmill waste to kiln dry the lumber before shipping. This will also allow increased capacity on the trucks that have to travel dirt roads and climb mountains on the way to La Paz.

What is Mabet doing with this lumber and how are they leveraging their assets for successful, globalization? We will look at this next month.

Tom Dossenbach is managing director of Dossenbach Associates LLC, a Sanford, NC-based international management and productivity consulting firm.