Plywood export monopoly
Plywood export monopoly
The fall in both the volume and value of Indonesian plywood
exports last year should cause grave concern because that wood
product alone contributes more than 14 percent of the country's
total export earnings. Final export figures for the whole year
have yet to be announced by the Central Bureau of Statistics but
for the first nine months of last year the exports were nine
percent smaller than those in the corresponding period of 1993.
We would like to accept the analysis of the Indonesian Wood
Panel Association -- the plywood export monopoly -- which blamed
the export fall on the economic recession in major importing
countries, such as Japan and South Korea.
However, the explanations ventured on the basis of anonymity
by major plywood companies and the representatives of importers
lead us to a worrisome conclusion: The export fall might not be a
temporary down cycle caused by economic recession.
Blaming the plywood export decline -- the first over the past
10 years -- largely on the economic recession in major importing
countries seems to be too simplistic an inference. For example,
Japan's economy last year was not worse, but was instead better
than that in 1993, even though its recovery was still very weak.
And South Korea's economy posted a respectable growth rate. In
fact, the average growth rate in the industrialized countries
last year was estimated to have doubled the 1.3 percent expansion
of 1993.
For sure, the decline in exports to South Korea from 1.2
million cubic meters in 1993 to about 700,000 cubic meters last
year was not caused by economic recession, but by what Korean
importers see as the Indonesian Wood Panel Association's arrogant
marketing policies. Many importers in Korea have turned to
Malaysia because they have been upset by the association's heavy-
handed marketing practices since early 1993. The association
requires all buyers to file orders through an association-
appointed sole importer in Seoul. The sole importer itself is
merely the extended marketing arm of Indo Kor Co. Ltd., a
subsidiary of the association in charge of handling exports to
Korea.
In fact, many plywood companies and importers predicted a few
years ago -- when the association began appointing a sole
importing agency in each of the major importing countries or
regions -- that Indonesian exports would sooner or later be
challenged by suppliers with a more efficient exporting
mechanism. It is regrettable, though, that none of them was
willing to speak openly for fear of upsetting the politically-
well connected Chairman of the Indonesian Wood Panel Association,
Mohammad (Bob) Hasan.
Indeed, the system of sole importing agency not only increased
the export chain and consequently the exporting costs, but also
completely barred direct contacts between Indonesian plywood
producers and importers overseas. The system thus forced plywood
companies to abandon their marketing effort because all export
activities are now handled by the association's trading arms.
We should magnanimously acknowledge that the export
coordination through joint marketing boards enforced by Bob Hasan
in the second half of the 1980s succeeded in gaining market
dominance for Indonesia in major importing countries. The market
discipline also prevented a price war among exporters. But the
association aroused the anger of many importers when he replaced
the joint marketing boards with the monopoly system through sole
export windows and sole importing agencies for each of the major
importing countries or regions.
No wonder, importers began to turn their eyes to other
potential suppliers, such as Malaysia, Papua New Guinea and
Brazil, and began to substitute materials, such as medium-density
board. Malaysia, for example, has expanded its plywood
manufacturing capacity within less than three years from less
than one million cubic meters to almost five million cubic meters
last year. Importing from Malaysia is obviously cheaper and more
expedient as buyers can deal directly with producers, thereby
enabling them to better communicate technical specifications and
settle any claims speedily. In so far as Indonesia is concerned,
importers are always kept in the dark as to which producers will
fulfill their orders. As claims have to go through several
chains, their settlement also is much more arduous.
We think, therefore, that the government, notably the trade
ministry, should look deeper into the causes of the export
decline last year and thoroughly analyze the pluses and minuses
of the association's monopoly system. We are afraid that if the
present monopoly system is maintained, we will continue to lose
our market share as other suppliers steadily increase their
capacity. Moreover, the present system has completely killed the
marketing initiative of our industrial companies at a time when
marketing skills are becoming increasingly crucial in the
international market.