Making the Export Commitment a Bit Easier
by Harold Zassenhaus, zemg@erols.com

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For more years than I want to admit, I have counseled companies to look overseas for revenue growth, product diversification and overall company strength.  In doing so I practiced the mantra instilled in me through countless years of international trade practice, foreign commercial service experience and training: “it takes a senior management commitment; concentrate on a few markets at a time; practice consistency in good times and bad; realign your organization to anticipate and understand foreign trade practices and; success won’t happen overnight --- think long term.

Well, I now get it: For most of you it isn’t going to happen!  Especially, the warning that it takes a long time to see the results of your efforts.  You don’t want or can’t add another commitment to your plate, especially a resource taxing one that can take 18 months to roll out.

So, for those of you out there whose head was bobbing up and down to what was stated above, try a short cut --- one that doesn’t take a lot of time, involves a commitment that can start low and grow, and takes a small amount of money to get you moving in the right direction.

1. Believe this:  If you make it (and you have!) they will come.  In other words assume that foreign companies will Google your product and get in touch if they want.  Your website does or could generate a lot of traffic and I wouldn’t be surprised if a significant portion would come from overseas.  The WMMA website generates over 7,000 hits a month, about 40% of which go directly to the foreign language Buyers Guide.  This may not be the most dynamic way to attract foreign buyers and you won’t attract many customers that are computer challenged. But, you should get some legitimate inquiries.  The biggest challenge will be to keep them on your website and, later, close the deal.  But, that’s a good problem to have.  Work with your webmaster to increase the visibility of your website to foreign users.
2. Believe this:  Many foreign customers will go through a moderate amount of pain to learn about your product.  But, don’t torture him/her:  make your website a little more friendly and informative to the foreign reader, say by including metric equivalents and as many graphics as possible.  And, if you can’t translate the most important pages, employ software that does it for you.  Check out Alta Vista's Babel Fish and other translating services.  Babble Fish offers a free service!!  It may not be 100% accurate but on a few trials I was able to understand the writer’s intent.  Also, translate a few of the most important pages from your family of product literature so you can email something worth the customer’s while.
3. Price your product to make a quick sale.  I believe strongly in this one and have been preaching it for a while.  Consider this:  some of your production, marketing and administrative costs are purely domestic, so drop them when pricing for export sales.  How about the cost of your sales force, the cost of product liability insurance, domestic marketing expenses like trade fairs, especially regional ones?  And, while were on the subject, why not invite a few of the international press to come see you at the large shows like IWF and the AWFS Fair?  Also, think about this:  If you would be happy with 10% of your product going overseas, price it using marginal costing --- it’s a marginal sale, right?!  Drop the price, keep the margin, make some export sales.
4. Believe this:  making an export sale is no more risky than making a domestic one.  If you set up standard terms of payment like 20% down and the balance due at shipment with a letter of credit drawn on a US money center bank you’ve eliminated most of your risk; the largest remaining one being the buyer walks away from the sale between the time he orders and the time you ship.  And, this is no different than a local sale.  Also, what about accepting credit cards?  There are additional risks (see WMMA Export Manual, Chapter 19, Credit Card Scams) but, these can be mitigated by requiring:  (1) a faxed copy of the front and back of the card; (2) confirming identification and, (3) sticking to a policy of only shipping to the address associated with the card.  After verifying the card’s legitimacy through the credit card support office, you should be in good shape.
5. Last and most important:  communicate your efforts and policies with your staff. Make sure customer service is clued in; your CFO and accountant are somewhat familiar with Letters of Credit (along with your banker) and; talk to shipping and engineering (so they can advise about electrical requirements and minor changes that don’t kill you).

There are no guarantees.  But, if you take these small steps, exporting shouldn’t eat up much time or commitment and might even help the bottom line.  And, with today’s dollar trading lower (at this writing the Euro is up to $1.50) and expected to go even lower, you might be able to say “yes” more frequently to export inquiries.

Harold Zassenhaus regularly contributes to the Cutting Edge.  He owns an export management company that works with small and medium US companies to help them develop and implement successful international strategies.  If you need help implementing the above tips, have a short term project or need longer term assistance, contract him at:

Zassenhaus Export Management Group
7758 Wisconsin Ave., Suite 306
Bethesda, MD 20814
Tel: 301 652 0693
Email: zemg@erols.com.

Thoughts on IndiaWood, Bangalore, India,
February 29-March 4, 2008

This report incorporates Ken Anselm's thoughts on the trade fair as reported in his March 9 memo to India Task Force members. Ken is Chairman of the WMMA India Marketing Project. More information on the India Marketing Project can be found on the members’ only area of the WMMA website, http://www.wmma.org/members/imp.cfm.

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The following are observations of the fair, the Indian woodworking equipment market and potential for WMMA members both as a market in its own right and as a country for outsourcing product or component production.

The WMMA exhibited in India’s most important woodworking equipment trade fair, Indiawood, held every even year in Bangalore.  It is co-organized and sponsored by EUMABOIS.  Four members exhibited in the WMMA pavilion: C.R. Onsrud, Safety Speed Cut, Unique Machine and Western Cutters/Mattison Rotary Lathes.  Another seven shared the WMMA booth: American Adhesive Coatings, Black Bros., Mereen-Johnson, Morris Wood Tools, MultiCam, Shopbot, and JL Taylor.  Three members exhibited on their own or through their dealer: Franklin International, Thermwood and Wood-Mizer. 

IndiaWood 2008
This year Indiawood moved to a new (still under construction) exhibition complex, the Bangalore International Exhibition Centre (BIEC), located about 15 miles from the city center and consisting of 3 exhibit halls.  Hall 3 is still under construction and should be completed by June.  When completed each hall will be about 15,000 sq. meters gross with upper and lower levels.  The fair occupied 20,000 – 25,000 sq. meters with about 420 exhibitors and attracted about 20,000 visitors.  In 2006 the show was about 12,000 sq. meters, with about 300 exhibitors.

The following countries organized machinery pavilions: Germany, Taiwan, Italy and Spain --- the same as in 2006.  In 2006 the country pavilions dominated the fair.  While the country pavilions maintained their size, the largest areas were taken out by the most prominent Indian dealers or equipment producers’ sales offices: Homag India, HBR (dealers in mostly Italian and Germany equipment) and Woodtech (dealers in mostly Taiwanese machinery).  Homag India occupied most of the lower level of Hall 1 and HBR occupied about ½ of the lower level of Hall 2.

The 5-day fair ran from Friday through Tuesday. Attendance was very good and steady with Saturday and Sunday predictably generating the most traffic and Tuesday the least.  However, even Tuesday’s traffic was respectable and many attending were there to finalize purchases (more on Indian buyer habits below).  It takes about 1-2 hours to travel from the city center or the airport to the fairgrounds, depending upon traffic.  Probably for this reason, show traffic was heavier in the afternoon.

Indiawood will return to Bangalore in February-March 2010.  Due to the growth of the market, the Indiawood organizers, PDA Trade Fairs and EUMABOIS, have agreed to launch a new woodworking equipment trade fair in the odd years in New Delhi.  The fair will be called Delhiwood and is scheduled for February 2009 (dates to be determined).

WMMA Pavilion
Size: 91 sqm.
Number of members exhibiting: 4
Number of members sharing stand: 7
Number of member employees attending (in addition to those exhibiting equipment): 3
Number of Buyers Guides Distributed: 585

In advance of the fair, the WMMA, through the India Marketing Project implemented a marketing campaign consisting of:

• Printing and disseminating to a mailing list of 2,000 known end users a 4-color, 4 page brochure identifying the WMMA and 10 of the India Marketing Project members’ products and services;
• 1 page advertisements in the pre show edition of the two largest trade publications in India (Wood News and Modern Woodwork);
• Complementary 4 page “advertorials” in the two largest trade publications.
• Targeted mailing and calls on prominent woodworkers by the India Marketing Project consultant in India.

And the “show daily” featured the WMMA pavilion and USA exhibitors on the 5th day.

The mailings went out about 5 weeks before the fair and the IMP marketing consultant in India received about 20 responses requesting a time to meet during the fair.

The stand was ideally located in Hall 3, opposite the main entrance. Although Hall 3 was the furthest form the entrance it received good traffic. The pavilion design was an excellent one. However, what the designer/builder possessed in design concepts, he lacked in execution. The contractor had to be brought back a number of times to meet the specifications and the final result was a compromise delivered later than expected.

Booth traffic was steady and at times heavy as visitors were keenly interested in the equipment being exhibited and demonstrated.  Over 325 leads were generated, the large majority for those exhibiting equipment. In contrast to 2006, visitors picked up catalogs but asked few questions.  Their major focus was on the equipment on the floor.  WMMA Product Guides were shipped and 702 were distributed.  

Most of the equipment on display was sold with the exception of the door-making machine from Unique Machine Tool.  Safety Speed Cut sold both of their panel saws.  Steve Sheetz attended the show for Safety Speed Cut and estimated they might have sold 4 to 6 additional machines at list price, if the machines had been available for shipment from within India.  They took in 62 leads with 16 of those rated as strong.  The C.R. Onsrud small inverted router was sold and the company generated over 50 leads; Mattison Rotary Lathes took in the most leads with 182 leads, 30 of the leads being classified as strong.  Although the Lathe did not sell, the machine was imported into the country and will almost certainly sell in the next few weeks.

Unfortunately, Jeremy Lutringer from Unique Machine Tool took ill the day before he was to depart for India and was unable to go.  At Jeremy’s instruction the machine was not powered up.  The show drew a number of cabinet and door manufacturers and, while the machine drew interest, not being able to demonstrate its capabilities made it a hard sell. 

Likewise, Tom Onsrud was unable to attend due to conflicting schedules.  However, Tom allowed us to power up his machine and after a few practice runs, our marketing consultant (M. Kapali), Ted Krug, Rick Becker and I were able to do a decent job of demonstrating it.  Not wanting to ship the machine back to the states we negotiated a sale at a discounted price.

Lessons Learned from Participation in Indiawood 2008

1. Do not use Fi Design for stand construction.  Use alternative stand outfitters such as Pavilions & Interiors (Praveen Balan; balan_praveen@gmail.com ).
2. Do NOT use RE Rogers.  Although the official freight forwarder, we had nothing but trouble in shipping members’ equipment.  First, there was some confusion in the booking of a vessel from the US consolidating point resulting in the shipment being picked up 10 days late.  It barely made it to the show on time.  Then we received conflicting advice regarding the sale of the equipment out of bond.  Advice went from, “it can be sold out of bond, but the good need to be shipped back to the port of entry (Chennai) prior to release”, to “the items need to be returned to the US”, to “the goods can be placed in bond in Bangalore and then released”, back to the original advice.  Furthermore, RE Rogers broke open the container at the port of entry and transferred the goods to an open bed truck for the 20 hour journey from Chennai to Bangalore.  What crating was not damaged in this process was not spared in the unloading/unpacking at the fairgrounds.
3. Do not use a US government guarantee (bond) in shipping product to the fairgrounds.  Use an ATA Carnet or ship under bond using a bonded carrier.
4. Bring plenty of brochures.  Most members exhibiting or sharing the booth ran out of brochures.  I suggest a minimum of 250 or 50 per day.

The Market
The following are some basic facts on India (additional country insight can be accessed at The Economist’s country briefing website, http://www.economist.com/countries/India):

• GDP (2007): approximately $1 trillion
• GDP per head (2007): $846; $2,527 in purchasing parity terms
• Real GDP Growth: 2007-8 (April – March): 9.6%; growth through 2010: 7-8% (World Bank)
• World Economic Ranking: 12th; 5th largest in purchasing-power parity terms
• Population, est. 2007: 1,025 million
• No. of middle class consumers: 50 million;
• No. of est. middle class consumers by 2025: 580 million
• Youth Power: Over 58% of the Indian population is under the age of 20. That is over 564 million people, nearly twice the total population of the United States

Woodworking industry facts and trends

• 2006 Woodworking equipment imports: $45 million
• Import growth rate, 2006: 48%
• Estimated number of housing units needed per annum: 8.9 million.
• India will have 580 million middle class consumers by 2025; rising from today’s 50 million.2006 Furniture production (Csil): $2.9 billion.

The Indian woodworking equipment market is growing at a rate in excess of 35% per annum.  In 2006 India imported $45 million in woodworking equipment, a 48% increase over 2005 and 2.5 times more than 2004 imports.  The largest suppliers to the market are Germany (27%), Italy (20%), Taiwan (10%) and China (6%).

The Indian timber industry continues to strengthen in terms of size, diversity and quality.  In 2006 India produced about $2.9 billion of wood furniture (an 11% increase over 2005), about $300 million of which was exported (29% to the US).  Through June 2007 India exported $163 million in wood furniture.  Much of the exported furniture is “rustic” in nature.

Local demand is the driving force behind the industry and it is expected to remain so for the foreseeable future.  Not only is their 1 billion population growing but it is growing in terms of disposable income and values.  Five years ago almost all apartments were constructed without standard openings and were rented or sold without flooring or cabinets.  Today that is changing rapidly.  Along with India’s economic growth has come a commensurate growth in hotel, commercial and retail construction, much of it geared to international clientele and a large and growing number of repatriating Indians from the US and Europe.  This dynamic was seen during Indiawood.  A significant number of leads were from cabinet and door producers.

Along with the furniture industry, the sawmill and wood based panel sectors are increasing output and looking for quality and productivity enhancements.  In 2005 Indian consumption of sawn wood was 14.8 million cubic meters, less than 5% imported. Imports of hardwood logs have remained constant over the past 3 years at slightly less than 1 million m3, while softwood logs have increased dramatically from a base of about 300,000 m3 in 2005 to an estimated 750,000 m3 in 2007.

Wood based panel consumption amounted to 2.5 million m3, about 90% from local sources. Plywood makes up about 86% of panel production followed by fiberboard (9%) and then particleboard (4%). While imports account for less than 10% of consumption import growth is dramatic rising from about 94,000 m3 in 2003 to 240,000 in 2005. The trend is expected to continue. To date, Siempelkamp and Dieffenbacher have sold multi-opening presses for wood panel production but have been unsuccessful in selling a continuous line, largely due to the local inability to source sufficient raw material. However, this is expected to change as the domestic market grows and technology improves.

Woodworking Equipment Distribution Channels
Our European competitors are still experimenting with existing distribution channels and the field seems to be in flux.  Today India is dominated by 3 major equipment distributors/agents: HBR Consultants, Pvt. Ltd., which represents major Italian and German manufacturers (including Weinig); Homag India and its dealer division, Ramu Machinery Pvt. Ltd., that represents mostly Italian and Taiwanese manufacturers; Woodtech Consultants Pvt. Ltd. which mainly represents Taiwanese equipment but also represents suppliers from Italy, Spain, Australia.  Together, they probably account for over 75% of foreign equipment sales in India (detailed information on each distributor will be posted in the WMMA International Distributor Directory).  But there have been recent changes.  SCM has recently partnered with a local equipment producer, Jai, to distribute their products.  However, it is probably only a matter of time before the two agree to produce locally under license some of the SCM line.  Weinig is now having some of their molder frames produced in India.  Biesse announced during the fair that they have opened a large fabrication plant to produce some of their line, presumably for local consumption as well as distribution throughout South Asia and the booming Middle East.  Homag India has purchased Ramu Machinery, a relatively new but influential dealership.  And, Leitz opened a 2,500 sq. meter production and servicing facility 2 years back to service the local market.  Finally, Felder, one of the European companies that have been in the market the longest (10 years), has its own local sales and servicing organization using a network of independent sub dealers to satisfy the market. 

Other facts/trends learned during Indiawood 2008

• The following was learned in 2006 but reinforced in 2008:  Foreign direct investment and the increase in India professionals returning home is creating a fast growing demand for consumer goods.
• Most foreign automobile producers have set up production/assembly operations in India.  The aerospace industry is also growing quickly as are the health care products production and of course, products in support of the back office and IT services industries.  To the extent WMMA members also manufacture products for the auto, aerospace and plastics industries, there is added incentive to go to India.
• Real estate values are climbing rapidly, especially in high tech corridors of Bangalore and Hyderabad as well as major cities like Mumbai, Kolkata and New Delhi.
• Labor prices are also increasing, creating more purchasing power.  Again, think of a market where the current middle class of about 50 million people will grow to 580 million by 2025 (per McKinsey report, May 2007).
• More and more commercial and residential buildings are being constructed using standard sizes for doors and windows.  JELD-WEN reported on this in 2006 and reinforced in at this year’s fair.
• New housing construction should hit 10 million units per year by 2010.
• Local production of MDF and particleboard is both low and poor but improving markedly.  Siempelkamp and Dieffenbacher are selling multiple opening presses but no continuous press has been sold to date.  Both companies were present at IndiaWood with sizeable participation.  The feeling is that once high production, high quality MDF, OSB and/or particleboard production is introduced, the Indian secondary processing market will dramatically expand.
• India has a growing large number of rubberwood plantations.  Most imported hardwood comes from Malaysia, Myanmar, Thailand and Africa in the form of logs.  There is a growing understanding that raw material prices will climb and dictate a need for more efficient local production.
• There is a large supply of technically qualified manpower in India at reasonable rates to undertake customer support services, but these technicians must be properly trained.
• There were a number of sawmill owners at the fair looking for ways to produce downstream products.
• While European equipment sales are increasing the base is low and many are having difficulty making sales, due to price, lack of need or both.
• Even though labor rates are climbing, they are still very low and there is continuing demand for craft made furniture.
• A law was passed in mid 2007 permitting the expansion of existing sawmills.  Previously sawmills were restricted.
• Interest in newer methodologies is high but capital spending is still relatively low within the woodworking industry.  Nonetheless, most equipment exhibited at Indiawood was sold.
• There are over 34,000 wood product producers in India.  However, most are small, craft like producers with little machinery.  While most are interested in adopting newer technologies, they are reluctant or don’t have access to capital to make the investment.
• Unless the purchaser is involved in exporting product, imported machinery carries a 34% plus duty.

Marketing Strategies
The market has significant potential and WMMA members, showing patience and persistence, could be successful.  However, as with any developing market there are a number of challenges, not the least of which is price point.  Although most Indians prefer not to buy Chinese or Indian made equipment, price is a major factor.  And, even if the purchaser is committed to buying a high quality product there will be hard price bargaining before the dust settles.  This seemed especially true at Indiawood where many visitors treated the show as a discount bazaar --- it seemed as though they expected that the foreign exhibitor was going to offer large discounts.  To play into the local demand for discounts many suppliers adopt a pricing policy of adding 20% to their normal price with the assumption that through bargaining the negotiated price will fall in line with original guidelines.

This infant market has huge potential.  The driving forces will be: (1) the domestic segment with a growing urban, affluent population demanding more and better quality furniture, flooring, trim and cabinets and; (2) the commercial, retail and tourist sectors that will benefit from India’s continuing economic growth.

Members will need to have their distribution channels and servicing centers in place to take advantage of this market.  Otherwise, Indians will gravitate to traditional European suppliers in seeking high production/flexible machinery that can keep tight tolerances.

The larger existing dealerships already have a staple of foreign suppliers and are reluctant to add others unless the supplier has unique advantages.  In this regard India is no different than other developing markets like Russia and Turkey.  Yet, the WMMA members have an opportunity to bypass or complement existing dealers by creating a WMMA marketing and servicing center (the concept driving the WMMA India Marketing Project  where the individual member can benefit from:

1. local logistical service;
2. warehousing;
3. market support staff;
4. servicing staff;
5. Other HR support as required.

There are ample numbers of well educated, English speaking marketing executives that could be hired to market and even sell members’ products in India.  The cost for a senior marketing executive is $1,000 - $1,500/mo. plus expenses.

To reiterate, most Indian woodworkers will not change their tune easily ---- price is the driving force in making a purchasing decision.  On the whole, the Indian purchaser wants a quality product but at a “reasonable” price.  Some European companies have begun to tackle this issue by fabricating locally (see above).  A practical approach for some members will be to outsource component or product production.  Local production of components or product can reduce the landed price by as much as 34% just by avoiding the import duties.

India has an ample supply of metal fabrication shops able and willing to manufacture members’ products and/or components.

As a source, India provides significant advantages over other countries:

• High quality production facilities already producing for the local and overseas automotive, aerospace, plastics, medical care and IT industries;
• Relatively low manufacturing wage rates;
• English as a spoken language;
• Strong, growing economy;
• Sound banking system;
• Sound and relatively consistent regulatory environment;
• Country export incentives and duty drawbacks for imported components if incorporated into exported products 

For the above reasons, India is an ideal market for export sales as well as to outsource.  For more information on the WMMA India Marketing Project, visit the WMMA website, http://www.wmma.org/members/imp.cfm, or call Ken Anselm, President, Western Cutterheads/Mattison Rotary Lathes and Chairman of the India Marketing Project at 270 665 5302, ken@westerncutterheads.com.

 

Membership Services

A WMMA Welcome to Recent New Members

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Universal Wearparts, Inc.
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Eric Weill

Delcam Artcam
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Mary Shaw : mes@delcam.com

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