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.