China's wood products flooding market.

So-called "power-retailers" such as Wal-Mart, Lowe's and Home Hardware are proving to be major drivers in the forest-products industry worldwide, and are expected to continue to be a powerful driver for at least the coming decade.

This tip for Ontario's forest products industry was provided by Swiss forest industry consultant Lars-Goran Sandberg, chairman of Timwood AB in Sweden. He was a keynote speaker at the Reinventing the Forest Product Industry Conference held Mar. 25 and 26 at the Canadian Ecology Centre near Mattawa.

Timwood, in its study of the international wood industry, identified two areas of wood consumption. The first is the building-with-wood sector that includes housing components. The other area is in the living-with-wood sector, which focuses on finished products like furniture.

Sandberg says wood companies around the world should consider moving away from simply producing dimensional lumber and start moving into value-added areas such as housing components as more demand comes for finished wood products, such as housing components as well as living-with-wood products.

"It's becoming a global trend; builders do not want to have a lot of work at the building site," Sandberg says. "What they are looking for are suppliers than can supply them with finished components that can be assembled at the construction site very quickly and can increase production. Builders are ... looking to their suppliers to give them cost-effective solutions."

Given different forces of influence involved in the purchasing of wood products, wood products manufacturers also have to start considering the requirements of the different consumers involved when developing their marketing strategies, he says.

"We think that the world economy is still very much dependent on the North American side for economic growth," he says.

Population and housing growths in this part of the world all show upward trends past 2010, resulting in a subsequent demand for more housing and finished wood products such as furniture, says Sandberg. Countries such as China and those in South America are poised to respond to increased demands for finished products by exporting such things as finished furniture.

Sandberg says harvesting in China has been cut back considerably because of environmental concerns, but the emphasis now is on the importation of raw materials in order to take advantage of low labour costs in the development of final products.

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"This has resulted in boosting exports of finished products, including wood furniture export to the United States that has exploded in the last several years," he says.

This has resulted in a number of North American furniture companies having to compete against this influx of finished products from Chinese manufacturers.

"Russia is an area you're going to have to watch very carefully as it develops over the next several years," Sandberg says.

Russia has about 850 million hectares or 22 per cent of the world wood resources, but production in that country declined after the decline of the Soviet Union. Production has come up to about 150 million to 170 million cubic metres of wood harvested at this point, although there is at least another 50 million cubic metres that could be harvested economically without additional investment in infrastructure. Exports on both the Asian and European sides of Russia are picking up, but there are also considerable resources of wood being harvested and exported illegally.

"There is a clear tendency to go more to private initiatives," says Sandberg. "We think as they move forward over the next five to 10 years, there will be more of this tendency, but it is a gradual process."

As the Chinese economy continues its drive into private ownership and profit, Sandberg projects a growing, richer middle class with an interest in purchasing things with a western flavour, and it is this market where retailers such as Swedish-based Ikea are targeting their marketing efforts.

Although Japan is reliant on imports of wood products. Sandberg says there is a decreasing population with a subsequent decrease in the demand for new housing.

When one examines trends in the area of living with wood. Japan is highly reliant on imports of finished wood products from elsewhere in the world. China in particular has captured this market.

"The traditional distribution system in Japan has also been collapsing," says Sandberg. "Where once there were layers and layers of distribution, that has been collapsing. There is more and more direct marketing happening so companies have to look at how efficient their distribution system is if they are considering going into the Japanese market."

The major influence for the world's wood industry, however, is the power retailers such as Wal-Mart and Home Depot. Sandberg says their influence is crossing borders around the world with companies like these representing the lion's share of growth in the industry for components and finished wood products.

The computer system that runs Wal-Mart's distribution is said to be as powerful as the United States' National Defence computers, he says.

Sandberg says this increasing influence means producers and distributors now have to adapt and develop new marketing tools to deal with the changing market requirements for product performance and innovation.

By ANDREW WAREING

Northern Ontario Business