Like every dealer and distributor, Alan MacDougall has customers who demand just-in-time delivery. But instead of scheduling same-day delivery of a truckload to a dealer location in the next county, he ships materials 6,000 miles on a freighter to Japan. "It has to be loaded in job lots before it gets shipped [so materials can be delivered right to the jobsite]," says the international sales manager at BMD (Building Material Distributors), a $230 million two-stepper based in Gait, Calif. "We learned that and other lessons before we got it right."
Because of a complex (and high-margin) distribution channel for imported goods and lack of warehouse capacity in Japan, says MacDougall, "builders and developers [there] want to buy direct from the West" However, most U.S. manufacturers are unwilling to ship less than a full container across the Pacific; BMD's broad inventory offers overseas buyers a custom mix of building products from one source. "Manufacturers give [international buyers] our name, and vice-versa," he says.
Now nearly a dozen years in the export business, BMD uses offshore accounts to hedge domestic demand, sell high-margin and special-order products, and serve a growing international need and desire for U.S.-made building materials. Still, international trade represents less than 10 percent of the company's annual revenue.
But BMD and others with an established foothold overseas expect to grow that segment of the business as markets in Asia (especially China), Mexico, Central and South America, and nations of the former Soviet Union steadily improve their ability to trade with the United States and satisfy a global call for Western housing styles and products. "There's demand for building materials worldwide," says Wayne Gardella, vice president of domestic business development for Export-Import (Ex-Im) Bank of the United States in Washington, D.C., a federally funded financier of U.S.-based exporters. "American industry is beginning to understand that global is the way to go."
But will pro-oriented (or any retail-level) dealers be along for the ride when manufacturers, wholesale distributors, and third-party exporters and broken seize offshore opportunities? Probably not directly in most cases. "Dealers don't have much of a future as exporters," says Joe Honick, president of GMA/ International Ltd., in Tucson, Ariz., a consultancy to U.S. companies operating or selling abroad, specifically in Asia. "It's tough enough to build a market in your own territory, much less overseas."
It's also unlikely that increased international demand and exports will impact the ability to satisfy domestic needs for building materials, thus causing delays and price hikes along the domestic supply channel. In fact, recent cement and steel shortages have been the result of fewer available imports rather than a siphoning of U.S.-made products. "Other countries, especially China, are sucking up their own products that they might have sent here" says Honick, in large part because of recent commitments by several nations to increase their own housing production.
That doesn't mean, however, that pro dealers should ignore the export market or think they can't participate. Short of direct-exporting materials themselves, dealers may be asked to supplement a distributor's international shipment, create pre-engineered home packages for overseas or bordering buyers, and benefit from a broader inventory of products at the wholesale level.
"When we pull from our customer base [dealers] to fill out an order,
it's helping them turn inventory," says MacDougall, without intruding on a dealer's relationships with its pro customers at home. The distributor also carries more than 100 product lines exclusively for overseas customers, including plumbing and electrical fixtures and fittings, that it may eventually sell to domestic buyers as products become compatible with U.S. standards.
Opportunity Knocks
Several issues are driving an intensified interest in exporting building materials and housing across oceans and over borders, including a record-breaking national trade deficit of more than $617 billion in 2004, as reported by the U.S. Census Bureau in February, and the belief among economic policymakers that increased exports support domestic job growth.
No one is suggesting that building products are a panacea for either issue: they aren't even currently among the top 10 categories in terms of revenue generated from export sales, according to the Commerce Department. However, construction materials are viewed as a relatively untapped opportunity with plenty of potential. "Exports offer builders and suppliers a chance to expand their markets." says Rim Feinberg, executive director of NAHB International. "That's always a good thing."
The tips of that potential are everywhere. Builders in Mexico, for instance, plan to strut more than a million low- and middle-income homes annually through 2007 (and nearly double the country's overall housing stock to 41 million units by 2020) to balance a dearth of affordable housing--an effort helped by Mexican banks that are warming up to mortgage lending practices and ripe for support from U.S.-based materials suppliers.
There and in other markets south of the U.S. border, housing styles also are starting to lean away from traditional methods and materials. "In Costa Rica, we're seeing interior frame walls [instead of masonry] in new homes," says Gardella. "That's surprising to see, but some builders are starting to go that way," and thus need materials to match that style of construction.
In Romania and Croatia, public and private efforts to boost housing production, especially of Western-style homes, also hold promise for increased U.S. exports of building products, while political changes in the Ukraine (part of the former Soviet Union) have fostered new economic policies that encourage trade with the West. BMD, in fact, just signed a new sales broker for that region. "Things there have changed completely in just a few months," says MacDougall.
In China's Guangdong province, meanwhile, the government is supporting an increase in privately owned homes, and contractors there are on pace to build 250,000 upscale homes a year. Across Asia, albeit in only the most developed areas, builders increasingly use light-frame construction and adhere to more stringent building codes. "The earthquake in Kobe [Japan, in 19941 was the impetus for the demand for housing built to [seismic] codes you'd see in California and with Western products and design," says MacDougall. "It's opened things up for our building materials."
Those types of efforts and events dovetail with other trends and factors influencing opportunities to sell products abroad. Offshore furniture manufacturing, a function of streamlining domestic production costs, has created export opportunities for material distributors, including Dixie Plywood Co., a 10-location two-step operation based in Savannah, Ga. "Some suppliers have no choice but to export because that's where the end-users are," says Gardella.
Already, Dixie Plywood's Export Service, operating exclusively through the company's Miami location since 1990 and primarily serving the Caribbean Islands and Central America, accounts for a third of the branch's annual revenue. "Other branches either send [international] sales leads to us, or sell products to [third-party] exporters," says Luis Olivera, general manager of the company's Miami location.
Dixie Plywood's export division ships a variety of building materials, especially stock for cabinetry, furniture. and casework, from a $2.5 million inventory earmarked for export sales within the location's warehouse. "'We draw what we need from a central warehouse, but we also make special orders for export sales only(" he says, including wood-veneered MDF that doesn't meet standards for domestic furniture fabrication.
Increased competition from mills and distributors in Central and South America, however, has Dixie Plywood looking at new product categories to export. "There's a lot more competition for industrial plywood uses," says Olivera, such as concrete formwork and furniture. "'We see growth in specialty items like composite decking and PVC trim."
Not So Fast
Just because export opportunities exist and appear to be growing, says Honick, doesn't mean smooth sales to overseas customers. "You just can't see or find an opportunity and go after it," he says. "The opportunities are there, but they require tremendous preparation, a large investment, relationship building, and understanding the risks."
