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2018
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As the trade war escalates, the wood industry should avoid low-end competition.
Recently, the China National Forestry Industry Association has put on its agenda the task of organizing enterprises to actively participate in international rights protection efforts related to forestry products involved in the “301 Investigation” and in addressing trade barriers to forestry products. “Given that China is a major global producer and trader of forest products, the U.S.-China trade war and the ‘301 Investigation’ will impact China’s international trade in forest products and have broader repercussions,” said Shi Feng, Secretary-General of the China National Forestry Industry Association, at the 2018 World Flooring Industry Business Summit held recently. He went on to note that the U.S. government’s requirement—put forward by the U.S. plywood and flooring industries—that softwood plywood be included in the $50 billion product list subject to a 25% import tariff is particularly concerning.
Recently, the China National Forestry Industry Association has put on the agenda organizing enterprises to actively participate in international rights protection efforts related to forestry products involved in the "301 Investigation," as well as in addressing trade barriers to forestry products in international markets.
“Given that China is a major global producer and trader of forest products, the U.S.-China trade war and the ‘301 investigation’ will impact China’s international trade in forest products and have broader repercussions,” said Shi Feng, Secretary-General of the China National Forestry Industry Association, at the 2018 World Flooring Industry Business Summit held recently. Regarding the U.S. government’s request to include softwood plywood in the $50 billion product list subject to a 25% import tariff, aimed at the U.S. plywood and flooring industries, the China National Forestry Industry Association has promptly communicated and consulted with its member companies and immediately submitted our rebuttal comments to the U.S. government.
According to data from the State Forestry Administration, in 2017, the total value of China’s forestry industry exceeded 7 trillion yuan for the first time. The trade volume of forest products reached 150 billion U.S. dollars. Over the past five years, the average annual growth rate of the forestry industry’s total output value has been 12.1%, and China continues to maintain its position as the world’s largest producer and trader of forest products.
“This has drawn attention from major trading nations and triggered abnormal trade interventions.” According to Shi Feng, in addition to the “332” and “337” investigations already faced, as well as the “double anti-dumping” investigations on engineered wood flooring and plywood and the patent investigation into floor locking mechanisms, the most severe and far-reaching issue this year has been the U.S. “301 investigation,” which involves tariffs and related matters on forest products.
In a trade war, absolutely avoid losing your composure.
“What the trade war fears most is losing one’s composure and shooting oneself in the foot,” said Ding Minghao, Special Assistant to the General Manager of Shenghuojia Flooring. Since the U.S.-China trade war began, some flooring companies have been planning to set up factories in countries with low labor costs, such as Vietnam and Cambodia. From the perspective of individual companies’ survival and development, this approach is perfectly understandable. However, from the standpoint of the entire Chinese flooring industry, it may not be a wise choice. On the one hand, this strategy does not actually expand demand in the flooring market; instead, it simply shifts production to a location with lower costs in order to poach orders from domestic companies—effectively undermining its own competitiveness. On the other hand, this approach merely seeks to maintain low-cost competitiveness, perpetuating a mindset of low-end competition, which is detrimental to the transformation and upgrading of flooring companies.
In Ding Minghao’s view, China is the world’s largest producer and exporter of flooring, and it’s simply impossible to build new factories in a short period of time and completely replace China’s existing production capacity.
Ding Minghao believes that the proactive approach to addressing the trade war is to enhance the brand competitiveness and standard competitiveness of Chinese enterprises. Currently, Shenghuajia Flooring has established three global R&D centers in places such as Milan, Italy. In addition to conducting research and development on fashion trends and products, the company has also participated in drafting numerous national and international standards for the flooring industry and is the sole drafting unit responsible for the national standard on antique-style wood flooring. To boost the influence and voice of Chinese flooring companies in the global market, it is essential to seize the commanding heights in standard-setting and gain leadership in the standards arena.
Finding Opportunities in the Trade War
“The trade war is more than just a ‘war’,” said Lin Haidi, General Manager of Jiangsu Bell Decorative Materials Co., Ltd. As the trade war escalates, flooring companies are compelled to rethink, from a strategic perspective, what their overarching corporate design should be—whether it’s focusing on customers, sales volume, market share, or profit. Only by clarifying these priorities can companies determine precisely what steps to take next.
Lin Haidi believes that the proactive approach to dealing with the trade war is not simply relocating factories to Southeast Asia or other countries to address the manufacturing stage of products. This is because, no matter where Chinese enterprises choose to invest, they must adapt to local cultures, laws and regulations, and national policies. Undeniably, in the long run, both going global and attracting foreign investment are trends that are here to stay. As the business environment and trade policies continue to evolve, more and more companies are opting for multi-regional or even multinational production strategies—strategies that not only enhance customers’ confidence in a company’s strength but also help reduce the risk of overconcentration of production capacity.
In Lin Haiti’s view, with an eye toward long-term development, companies need to pay more attention to front-end sales—that is, setting up sales offices in the markets where their customers are located, bringing themselves closer to consumers and reducing the many intermediaries between the factory and the end consumer.
Although the U.S. is a very important market, the trade war has compelled companies to accelerate their efforts to tap into other markets and, through overseas markets, help them maintain competitiveness.
Segment the international market
“Given the current state of the international market, flooring companies should enhance their product design and innovation capabilities and focus on extending their vertical supply chains,” said Lu Qingxun, General Manager of Jilin Dunhua Sentai Wood Industry Co., Ltd. Currently, export-oriented flooring companies are overly focused on increasing output value, production volume, and sales revenue—but they have failed to achieve true market dominance and control over specific product categories or particular markets. On the contrary, their excessive emphasis on sheer volume to capture market share has led them to neglect product upgrades and weaken technological innovation, often resulting in an oversupply of low-end, low-value products.
“At this stage, many international brands are squeezing the sales channels of Chinese export enterprises across various product categories,” Lu Qingxun believes. In the face of an escalating trade war, targeting niche international markets will be an effective approach for companies pursuing brand-building strategies.
Lu Qingxun cautioned that while it’s important to segment international market channels, maintaining traditional partnerships remains essential. Moreover, he suggested starting with specific product categories and targeted markets—currently, the low-end market is already severely saturated, but the mid- and high-end markets still hold significant untapped potential—to cultivate products that win recognition among end consumers and gradually break free from international market channels dominated by foreign brands. He believes that whether or not a trade war occurs, reducing volumes, elevating product design standards, and focusing on extending the vertical supply chain are effective strategies for turning challenges into opportunities. (Reporter: Zhou Chunyu)
Reprinted from: China Trade News
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