Comment Column
Defensive strategies to compete with overseas exports
What makes a foreign paper mill export? What does it have to do to be successful? In which North American market segments is it likely to be more prominent?
It is important to understand the thinking behind these foreign mills, because it is only then that you can put together successful strategies to competitively absorb and compete with the offshore producer.
The famous paper price and demand cycles are global occurrences, and not limited to the U.S. All countries face crises that force them to either curtail production, or if they have the ability, export. When you know from day one that your installed capacity cannot be absorbed, you are naturally always export-minded. Very often, more attractive pricing can be achieved overseas. Large-volume orders that give better operating rates may be realized and there may be government incentives and positive foreign currency exchange.
Let's look at where this impact from offshore production is most likely to come from, in what form, and what we can do to minimize this impact and ultimately use it in our favor.
Eyes on Asia. Asia has taken over Europe's traditional spot as the world's second-largest producer of paper and board, now responsible for 29% of the world's production. So all eyes are on the Asian producers. My biggest preoccupation is not with the quantities, but with their present economic woes and whether they have the short-term capacity to overcome them. With the recent large currency problems, some of these countries have seen their money's value erode as much as 30%. What does that mean? They cannot only be competitive abroad, but will earn much-needed foreign currency for their struggling central banks. They can come here with prices that would be extremely damaging to the North American markets, but very advantageous to them. They must be discouraged from doing this.
There is no way that they will not be here, unless the U.S. government makes barriers, which to me is impossible. How can you make their presence less negative and maybe reap some benefits?
Be aware why they need to be here.
Know what products and geographical areas they are likely to be in.
Strengthen immediately your relations with those that promote, distribute, and sell your products. Make sure they have no reason to want to take these offshore grades.
Prepare your sales channels with arguments and promotional weapons to confront the inevitable comments from potential buyers. Find out whether they are true or not.
Try and make working arrangements with overseas mills that have products that compliment your line, or products you produce, but could sell more than you are actually manufacturing.
Consider joint ventures overseas if you are a large manufacturer, or sales/distribution agreements with offshore suppliers.
There is no way we can avoid the increasing presence of offshore quantities in our printing/writing markets. The quantities are going to increase and not go away. They are possible to handle as they will be geographically situated (in markets with major ports) and not more than 3% of the total U.S. tonnage sold.
Why not export? A lot of you are saying, "we already export." I propose that you take the subject of exporting as seriously as those offshore companies take putting their products into the U.S. If we could learn and copy what they are doing in our market and the numerous other overseas markets they participate in, then the North American uncoated free-sheet mills would have a powerful weapon to regulate their own market, and have the flexibility of alleviating the overproduction cycles, using the weak dollar moments, and participating in a potential 51 million ton printing/writing market.
You must be prepared to be treated just like the offshore companies are treated here-as an outsider, even an intruder at times. This normally means that you will have to give some type of advantage to the final buyer of your grades, whether this be in price, extended payment conditions, or rebates.
However, I am a devout believer that attack is the best form of defense, and your defense should be flexible and ready at any time for any market. You must become export-oriented. You must have the ability to take out tonnage from your domestic market, not only by downtime, but also by placing your products in other markets.
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