L. Lintu
L. Lintu is Industry Planning Officer. Pulp and Paper Branch, Forest Industries Division. FAO Rome.
The forestry sector has only recently recognized the importance of marketing, argues L. Lintu in this article. At all three levels of processing - the forest ecosystem itself, logging, and conversion into products - marketing has a crucial role to play. Foresters must also recognize that marketing can play a significant role in "non-wood forest products" and in services. Special conditions exist in the forest sector of developing countries which present specific problems - and opportunities - for marketing. Marketing, Lintu maintains, is a basic function that ties together the several levels of processing in the chain from the forest to the final consumer.
The application of marketing science in general, and in the forestry sector in particular, is of relatively recent origin.
The forestry sector tends to be very much production- and product-oriented. Typically, it tries hard to increase and streamline its production with improved and appropriate processing technologies and to give emphasis to products that are found to be technologically most feasible. Identification and satisfaction of the real needs and wants of the market appear too seldom to be the basis for action.
There are, of course, specific reasons for this attitude:
- most forestry and forest industries are technology-intensive, which means that technical considerations often dominate the attitudes of management;- forest-based products are usually raw materials or semi-processed goods in which the technical characteristics are important;
- some of the forest-based products are commodity-type goods with standardized characteristics that are sold in bulk with only little marketing input.
Competition with other sectors of the economy has, however, made forestry realize, in many instances, that it just cannot continue to produce what is technically most feasible without also paying increasing attention to the needs and wants of its customers.
As it has become more market-oriented, the forestry sector has realized, in addition, that its resource structure is rigid and usually difficult to modify at short notice in response to sudden changes in the market. The most sophisticated operators in the sector have therefore taken the strategic approach. They are continuously evaluating the market and concentrating their efforts to meet the needs and wants of the market where their strengths can be best used and where their weaknesses pose the fewest problems. This approach - marketing products that the customers need and which the supplier is particularly good at producing - appears to be ideal for the forestry sector.
In order to define the role of the marketing function in the forestry sector, the structure of the total product/service flow from the forest to the final consumer needs to be analysed. It is also important to identify the products and services that need to be marketed. Furthermore, since there are also various parties involved in marketing activity, their role and capability in handling the marketing function need to be known.
Levels of processing and marketing In every productive activity there is a chain of sequential actions, starting with raw materials that are processed by an industry into products. Marketing takes these products to the market to satisfy there the specific needs and wants of the customers In the forestry sector the chain of actions is repeated many times before the final consumer - individual, family or household - is reached. This is illustrated in the Figure.
The first level in the chain of actions starts with the forest ecosystem, which may consist either of natural forests or industrial plantations. The trees find a market in the logging industry. At the second level the logging industry converts the trees into logs and residues which are marketed to different wood-using industries such as sawmills, wood-based panel plants and pulp and paper mills. These industries, at the third level, convert the logs and residues into sawnwood, wood-based panels, pulp and paper and market them to the building, construction, furniture, packaging, printing and other similar industries.
It is commonly agreed that, up to this point, the processing and marketing actions belong to the forestry sector. Subsequent levels belong to other sectors of the economy, which repeat the chain of processing and marketing until the final consumers have been reached. For instance, sawnwood, wood-based panels, and pulp and paper are converted at the subsequent level into buildings, bridges, furniture, boxes, newspaper, books, etc, which are marketed to individuals, families, households, or to institutional and industrial customers, who convert these products even further before marketing them to final users.
There are differences among the forest products in respect to the sophistication and length of the repetitive chains of processing and marketing. Some products reach the final users more or less directly: fuelwood is the most significant of these. In most cases fuelwood is cut or gathered for marketing by final users themselves. The only exception is wood-based industrial energy production, where logs and residues are first marketed to an industrial energy plant which converts the wood into electricity and markets it to households or to other industries.
Non-wood forest products Wood is not the only product of the forests. There are a great number of other products which the forest ecosystem produces, commonly known as "minor forest products". In certain regions or countries they can be more significant than wood itself, and therefore the term "minor forest products" not only can be misleading, but can also do injustice to such products. Some of these, such as various food items that are gathered for self-consumption or to be sold at the local village or town markets, reach the customers directly. Many other "minor forest products", such as certain resins, gums and oils, are gathered or produced in industrial plantations for several cycles of further processing and marketing before they reach the final consumer in one form or another.
Services Forests provide, in addition to wood and non-wood products, services that can be marketed directly to final consumers or that have to undergo further development by institutions or industries before being marketed to individuals, families and households. For instance, the forest may include areas of unusual scenic beauty or an abundance of wildlife. These features or "services" can be marketed to the tourist industry, which will develop them by constructing appropriate roads, hotels and other facilities. The tourist industry then markets the service to the people. Another example of the services provided by the forests is the protection of agricultural land in the form of watersheds. A government agency can produce such a service by appropriate forest management and then "market" it to the surrounding rural communities.
The least developed area in terms of marketing in the entire forest sector is services, partly because the services are often not even recognized as having marketing potential.
The term "minor forest products" not only can be misleading, but can also do injustice to such products.
The least developed area in terms of marketing in the entire forest sector is services.
A holistic approach is therefore needed which fully recognizes the vital interplay between the forest resource, its management, industry and the markets.
Marketing ties the various levels of forestry activities together. It identifies the markets and the needs and wants to be satisfied. It contributes to the development of the products and services with which they will be satisfied. It informs the customers about availability, quality, price and service, and distributes the goods and services. It works not only from the processing end toward the customers, but also relays back from the customers to the industry/institute the market requirements and other relevant information.
In summary, marketing is comprised of the whole "technology" of identifying and satisfying the needs and wants of the marketplace, whereas processing is the range of technologies that converts raw materials into products.
Industrial marketing Industrial marketing is concerned with the marketing of goods and services to industrial users or to institutional customers who process and develop them for use as supplies in operation, repair or maintenance or by adding services to them.
The interdependency between the buyer and the seller originates from the need of the buyer to be sure of a continued supply of goods and services to keep his or her own processing unit in operation. For a supplier, an image of reliability is very important. The establishment of such an image usually takes a long time; maintaining it afterwards is equally important. Because of the great number of issues involved, the buying process in industrial marketing is complex. It involves, in many cases, not only the purchasing unit but also research and technical staff. The relationship between the seller and the buyer also has to be very close and, once established, tends to last a long time. Channels of communication need to be direct, factual and brief in order to facilitate the close relationship between the buyer and the seller.
Because of the specific features of industrial marketing all the functional units of a company have to operate in close harmony, constantly monitoring and evaluating customer requirements not only against the strengths of the company but also against those of the competitors. The marketing function in an enterprise has therefore to be fully recognized alongside other functions such as research and development, production, raw material procurement, finance and human resource development.
In the forestry sector it is particularly important to involve all major functions in marketing activities since it is extremely difficult to introduce drastic changes in response to changing market conditions. Nearly all mills have been individually designed to adapt to local conditions. Technology in the mills, once adapted, can be changed only with great difficulty and expense. Another factor that limits the possibilities of any drastic changes is the raw material base. Forest resources available to an individual mill have certain fixed characteristics that cannot easily be altered in the short term. These characteristics have an influence on the range of products that can be produced. It is therefore important for marketing to function actively and to monitor market changes continuously, reporting them to other functions of an enterprise so as to allow them adequate time to adapt. With active and well-organized marketing the enterprise can overcome some of the problems caused by the rigidity of the resource base and the technology used. A holistic approach is therefore needed which fully recognizes the vital interplay between the forest resource, its management, industry and the markets.
CUTTING TEST SPECIMENS FROM A LOG market needs affect product development
Parties involved The type and number of people participating in the marketing function also vary, depending on the level of the chain of actions, the type of product or service, type of marketing approach, and the location of markets.
At the first level it is the ownership of the forest resource that determines the participation. The owner of the forest may be a government, local community, industry or individual. There may also be local people who have user rights to some parts of the forest resource that they do not own. All the owners and the user-rights holders can act as sellers of the forest products and services, either individually or in association with the others. The channel of marketing selected determines whether there are any middlemen between the seller and the buyer. The buyers of fuelwood and some of the "minor forest products" may be the individuals who are also the final consumers. However, in most instances there are wholesaling and retailing middlemen between the seller and the final consumer to provide additional services, such as keeping inventories of a range of products and arranging credit, if necessary. The buyer of industrial raw materials, such as logs, is represented by an organization which may be a processing industry or an export organization.
The representatives of the buyers have at their disposal the support of other units of their organizations to establish and evaluate the technical and economic performance, and the quality criteria for the raw material being purchased. They have therefore the advantage of being able to establish the real value of the raw material for the industrial operation they represent. The sellers, lacking close contact with the processing industry, remain largely at the mercy of the buyers. This situation can be overcome by forming sellers' cooperatives that can afford to acquire the necessary information and negotiate with the buyers collectively.
The structure and the size of the processing industry also affects the number and type of people involved in marketing. There may be a great number of small mills that cannot afford to have any sophisticated purchasing/sales organizations or there may be only a few large-scale plants with extensive and sophisticated purchasing/sales units.
The importance of the marketing staff's technological and economic knowledge increases with the level of processing. It is not just the product itself - sawnwood panels or paper which is sold, but also its performance ability in the processing machinery of the customer and the continuous and reliable availability of the product. Therefore, staff need to be familiar with an entire range of processes and products. They also need to have the full support of the research and processing staff in order to have modifications made in accordance with a customer's wishes.
The work of the people directly involved in the marketing function is handicapped unless they are supported by a number of institutional and other infrastructural set-ups. Effective communication and transportation networks; adequate credit and banking systems; research, testing and standardization organizations; and training institutes at all levels form the basic framework needed to facilitate and support the marketing efforts of timber producers, logging companies and processing and service industries through to the final consumer. Special organizations are needed to carry out market and marketing studies supported by good data collection and dissemination facilities.
Governments have a role in facilitating the improvement of the performance of the markets, but the control function at their disposal is necessary only in exceptional cases. Through formulation of clear trade policies and the introduction and development of supporting infrastructure, governments can, contribute to the improvement of marketing efforts at various levels in the forestry sector.
FURNITURE SHOP IN BANGLADESH even small firms need marketing
INSIDE: MAKING THE FURNITURE where will it be sold?
THE FURNITURE IS DELIVERED marketing and transportation are linked
Many factors contribute to the special conditions involved in marketing forest-based products and services in developing countries. The size and structure of the domestic markets and of the domestic industry, import dependency, forest resources and their ownership and various infrastructural considerations all have an impact on marketing approaches.
Data availability The first difficulty encountered in evaluating the market potential and selecting the marketing mix variables in developing countries very often results from a lack of adequately detailed information, data and statistics. Commonly available statistics usually provide information only for wood-based products. Some limited information about the forest-based non-wood products may be found in special studies in some countries. Since the various services provided by the forests are usually very difficult to quantify on any consistent basis, any information about them is usually more qualitative in character than quantitative. The scarce availability of information sets specific requirements for the market and marketing research methods.
Size and structure of the markets The overall size of the wood products market in developing countries amounted to some US$70 thousand million in 1983, representing about one-quarter of the world total. Fuelwood comprised more than one-third of the developing country total. Imports of all wood products covered less than 15 percent of the total market in developing countries. Pulp and paper accounted for over half the imports.
The value of exports of wood products from the developing countries amounted to some US$7.5 thousand million in 1983, representing only 16 percent of the world total trade of these products. Industrial roundwood represented the largest portion, at over 35 percent, of the exports. Sawnwood and wood-based panels, with nearly equal shares, accounted together for almost half the total of developing country exports.
These overall figures indicate that the developing countries as a group appear to be highly self-sufficient in most of the wood-based products. The domestic market of developing countries is almost ten times bigger than their present export market. Only in the case of pulp and paper is there any significant import dependency. Even there, however, a clear trend exists toward increased self-sufficiency. The importance of the domestic market is further emphasized by its fast growth. Indeed, markets for wood-based products have been increasing in the developing countries at much faster rates than in developed countries, the export targets of developing countries. Various market outlook projections indicate that faster-than-world-average growth rates will continue in developing countries. Thus, the potential exists.
Fast growth, however, will also continue to attract outside suppliers, often with their advanced marketing methods, to developing country markets. It is important that industries in developing countries are able to meet competition in their own markets and take advantage of the fast growth in export markets in other developing countries. This can be done by recognizing the importance of the marketing function and by developing capabilities in this function.
A more detailed study of the available data reveals that self-sufficiency in the supply of wood products varies greatly from country to country in the developing world. Supply in individual countries is closely related to the availability of forest resources and to the size of the domestic market. For example, countries in the Near East, because of their scarce forest resources, are more highly dependent on imports than countries in other regions. In Africa, largely because of the small size of many domestic markets, the region has to import over half of its paper and paperboard requirements and almost half of the wood pulp despite the massive forest resources available.
Depending on the degree of self-sufficiency in the supply of wood products, countries can be divided into three main categories, which can be further divided on the basis of the resource availability and the size of the domestic market. The Table shows different basic market conditions in the developing world based on the above criteria. These differences have to be recognized if the marketing potential is to be realized.
For instance, in 1983 there were some 70 developing countries which were fully dependent on imports to meet their paper and paperboard demand. This was mainly because of the small size of their domestic markets, which did not allow mills of adequate economic size to operate. Some 50 developing countries had to import all their requirements for wood-based panels, partly because of the lack of suitable raw materials but mainly because of the small size of the domestic market. In these countries efforts should be directed toward improving efficiency in purchasing activities and expanding the markets to handle additional demand so that, eventually, they will be able to start using their domestic resources in meeting demand.
In sawnwood supply, developing countries with adequate forest resources were mostly self-sufficient, according to 1983 figures. Many had export surpluses. Countries in the Near East and North Africa, with scarce resources, had to rely on imports. In situations of self-sufficiency, the development of the marketing activity should be concentrated on improving efficiency to minimize the threats posed by potential outside suppliers.
The relatively fast growth of wood products markets in many developing countries will keep attracting suppliers from developed countries. This will lead to an increased need to develop the marketing abilities of local suppliers, who must compete with the product, service and delivery standards of often very experienced foreign companies. Protection of the markets with various import restrictions should always be considered only as a temporary measure.
Marketing abilities developed in serving domestic markets can be applied to export marketing as well. The long distances to the markets, especially to those in developed countries, set particular constraints in industrial marketing, where the relationship between the producer and the customer has to be close. Smaller producers in developing countries very often have to rely on agents to market their products since the establishment of their own marketing channels cannot be economically justified. In these cases agents need to be selected carefully, and producers should be ready to make available adequate backstopping to support the work of the agents. Well-developed communication and transport infrastructure would greatly facilitate such backstopping activities. In certain instances the producers could also benefit by mutual cooperation.
Size and structure of the domestic industry The structure of industrial activity varies from one level of processing and marketing to another. It varies also within the levels themselves. It is therefore possible to highlight only some major common features with implications for marketing activity.
At the first level, i.e. marketing trees to the logging industry, marketing is handled in most cases by the government forest service, which owns most of the forests in developing countries. Even with other types of forest ownership in developing countries, selling tends to be highly concentrated in a few firms. Trees are generally sold in the form of concessions to harvest and manage the forests. Buyers are either pure logging companies or local wood industries that carry out the logging by themselves. The number of buyers is therefore relatively limited and can easily be identified. This greatly facilitates marketing organization.
The second level of activity encompasses the marketing of logs to the processing industry, either within the country or abroad. This activity is carried out by the logging companies. The buyers may be numerous because of the small size of processing plants in many developing countries, although there is usually some geographic concentration. Both the logging companies and the processing industries would benefit from improved market information and cooperation.
However, other supplies of logs exist apart from the logging companies. In many developing countries small farmers often have a small wood-lot or a few trees growing as shelter-belts on their lands. The trees are cut and sold as logs, building poles and fuelwood to provide cash income. The activity of these small producers often remains outside the official records although in some areas it can be extremely significant. The marketing activities of single farmers are, of course, very sporadic and business is often concluded under conditions set largely by the buyers, who act as middlemen. Production and marketing of timber by these so-called "non-formal producers" could be at least partly improved by strengthening the existing services available to the agricultural sector with appropriate forestry know-how. A strong marketing cooperative of small timber producers could also improve efficiency.
Although fuelwood gathering as such is not an industrial activity, its products - fuelwood and charcoal - can be marketed and form a large market in developing countries. In the rural areas of many developing countries people satisfy their own requirements for fuelwood by collecting it from the forest areas to which they have user rights. Fuelwood, however, is also sold in village markets. Here, as in small towns, rural suppliers trade the product in the marketplace directly or through local dealers.
In urban markets fuelwood and charcoal are important energy sources. In major cities trade is controlled either by middlemen or, in some countries, by powerful urban merchants or syndicates. Fuelwood is gathered by rural people, collected by the middlemen and transported to their depots. There may also be wholesale depots from which the retailers get their supplies. A great number of people are involved in the whole process of gathering and marketing fuelwood. The structure of the activity is often very intricate and particular care is necessary when trying to increase marketing efficiency since the benefits gained by one group of people may represent a loss of welfare to the whole system. It would seem, however, that the role played by rural people and the benefits they obtain could be increased through an improvement of the marketing system and by rural cooperation.
Stratification of developing countries according to market conditions
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Import-dependent |
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1. With resources and with adequate markets |
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2. With resources and without adequate markets |
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3. Without resources and with adequate markets |
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Self-sufficient |
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1. With sustained adequate resources and with adequate markets |
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2. With diminishing resources and with adequate markets |
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3. With abundant resources and with adequate markets |
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Self-sufficient exporters |
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1. With sustained abundant resources and with adequate markets |
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2. With diminishing resources and with adequate markets |
In a similar way, more benefits could be directed to rural people in the process of gathering and marketing non-wood forest products. At present the role of rural people is limited to gathering, while trade is in the hands of various urban middlemen. Both in the fuelwood and the non-wood product sectors, value is added to the goods outside the rural communities and the real benefits never reach the rural areas. Consequently the basis of this specific sector of the economy is continuously eroded.
In many instances rural marketing cooperatives and credit institutions already exist in the communities to deal with agricultural products. Improvement in marketing the forest-based products of rural communities could be sought by expanding and strengthening the activities of these existing institutions. In the case of non-wood products that are used by industries outside the forestry sector, such as the chemical, pharmaceutical and food industries, close cooperation with the industries is needed.
The structure of the industry at the third level - conversion of logs and residues into products - has different implications depending on the nature of the industry and its products. However, all these industries are extremely processing-oriented. The technological problems of production, especially in developing countries, often occupy most of the attention of the management. Marketing is seldom recognized as an operational function; many industries, in fact, do not recognize it as anything other than a sales function.
Sawmilling and wood-based panel industries are often composed of a great number of small units. Their separate possibilities for organizing marketing activity in any sophisticated way are very limited. Consequently, certain types of cooperative action could benefit all of them. For instance, the use of wood in the building and construction industries could be promoted jointly by all the mills concerned. A certain type of market information is needed by all suppliers; if compiled and analysed centrally, it would be available faster and at a lower cost. Since customers of the sawmilling and panel industries in various market sectors sometimes use non-wood substitutes, the forestry sector needs to study the competitive strengths of these industries.
In all the wood products industries, but most clearly in the paper sector, a clear division exists between large and small mills in developing countries. For instance, in 1984 there were 38 large paper mills in India, representing 60 percent of the country's total paper capacity, whereas 211 small mills accounted for the remaining 40 percent. Large mills can afford to support an adequate marketing setup, but the possibilities of the smaller mills are more limited. Common marketing arrangements can be beneficial, especially in cases where the products of the participating mills supplement rather than compete with each other. The survival and growth of the small mills depend to a large extent on their ability to identify appropriate market niches and to be flexible in meeting customers' needs. Continuous contact with the market and the collection and use of detailed market information are vital in adjusting the marketing mix to the changing needs of the customers.
Customers of the wood products industries are usually extremely sophisticated. In most developing countries the converting industry existed long before the establishment of the wood products industries. The best examples are to be found in the paper industry sector. All countries, even those without their own paper production, usually have printing industry and paper conversion plants to produce packaging materials. These industries are accustomed to using high-quality imported paper and paperboard, with rapid and efficient associated deliveries and service. Consequently, their machinery has been selected and tuned to use high-quality paper and paperboard. For example, in all Central American countries practically all local newspapers are printed with four-colour offset presses. Another example from the same area is the corrugated board industry that produces cases for packaging bananas. It is most important that banana packaging cases be supplied without problems or interruptions to the banana packaging industry. The wood products industries in the developing countries therefore have to produce not only a technically high-quality product, but also to make the product available to the converting industries with the same efficiency as foreign suppliers.
WOODEN HANDLES FOR AXES AND HAMMERS what will customers wan/tomorrow?
Infrastructural support Infrastructural weaknesses in developing countries affect all levels of processing and marketing, but most seriously the first level - the forest resource itself. Rural people, in particular, need support in the form of new or strengthened institutions and improved communications and training to be able to derive benefits through a more efficient marketing of forest-based products. At the level of primary industries, well-functioning industry associations to act as spokesmen and be responsible for organizing information and data collection are often non-existent. Institutions for the development of product and quality standards and testing methods exist in some countries but often need strengthening. Banking and credit institutions need to be made aware of the opportunities offered by the forestry sector in order to persuade them to provide increased financial support. Marketing also depends very much on communication and transportation services, which may be efficient in the urban areas in developing countries but do not offer comparable service in the rural areas. Universities and other training institutions may have marketing in their curricula but not specifically oriented toward students preparing themselves for work in the forestry sector.
In removing infrastructural problems, governments should first of all fully recognize the opportunities offered by efficient marketing in the forestry sector to accelerate development, especially in the rural areas. Their role in improving marketing would mainly be in creating appropriate conditions and infrastructures. Through the formulation of clear trade policies and the conclusion of appropriate trade agreements, governments could establish the basic framework for individual companies to improve their marketing efforts.
Marketing is one of the basic functions in the forestry sector. It ties together the several levels of processing in the chain from the forest to the final consumers. Marketing can be called the "technology" through which to identify and satisfy the needs and wants of the customers in the market. As such, it is a key to the future growth and development of the sector.
THE FINAL STEP IN MARKETING horn the forest to the home
