The U.S. and Global Forest Products Industries With $200 billion in annual shipments and 1.1 million direct employees, the paper and forest products industry is an important business sector. Revenues flow predominantly from domestic sales, with a smaller portion coming from exports. The make-up of the industry is diverse, ranging from leaders such as International Paper (US$23.4 billion in sales) to very small firms. The forest products market continues to experience steady growth. One explanation for this ongoing strength is a robust housing market and its reliance on lumber and other wood products. An example of this trend is seen in the U.S. plywood markets where, between 1999 and 2003, plywood imports rose at a compound average rate of 9.3%, from 2.6 million to 3.8 million cubic meters, with the trend continuing into 2004 along with lumber imports, which rose 10.4%. Selected macroeconomic and industrial data for the U.S. economy are provided in Table 1. Table 1: Selected U.S. Macroeconomic and Industrial Data Gross Domestic Product $14.66 trillion (2010 est.) $14.25 trillion (2009) Interest Rates (U.S. Prime Rate) 3.25% (December 2009) 5.09% (December 2008) Housing Starts February 2009 U.S. housing starts increased by 22.2 percent, the biggest percentage rise since January 1990 Greater sophistication (structural elements, architectural features, etc.) of consumer demand recently seen in U.S. housing market Labor Force by Occupation Farming, forestry, and fishing 0.7% Manufacturing, extraction, transportation, and crafts 20.3% Managerial, professional, and technical 37.3% Sales and office 24.2% Other services 17.6% Infrastructure Extensive roadways, railways, waterways, and other transportation infrastructure Natural Resources On a per acre basis, net annual tree growth in the U.S. is 52 cubic feet compared with 27 in Canada and 24 in Russia Having entered the market by setting up extensive, product-specific manufacturing facilities, exit costs for U.S. forest products firms are likely to be high. However, some companies in this market have diversified, making them less reliant on revenues from paper and paperboard. Amcor Limited, for example, offers products such as aluminum cans and flexible plastic packaging. This differentiation serves to decrease rivalry within individual sectors of the market. Market players also attempt to ease competition by owning patents, copyrights, and trade secrets relating to their products as well as by selling their products under well-known trademarks (where applicable). The existence of contracts between market players and some buyers also weakens rivalry in this market. Rivalry is assessed as strong overall, however. The strategic approaches undertaken by two of the largest incumbent firms Kimberly-Clark and Weyerhaeuser Company are particularly noteworthy for the purposes of analyzing the American (and global) forest products sector. Kimberly-Clark Corporation Kimberly-Clark is a manufacturer and marketer of health and hygiene products. The company operates in over 150 countries across the world, although three geographies (North America, Europe and Asia, and Latin America ) are paramount. Products for household use are sold both directly and through wholesalers to supermarkets, mass merchandisers, drugstores, warehouse clubs, variety and department stores and other retail outlets. Products for away-from-home use are sold through distributors and directly to office building management firms, health care establishments, and other high volume public facilities. Consumer preferences for household paper products vary among geographies, making the task of marketing to a worldwide consumer base particularly challenging for the firm. The companys operations fall into three general business segments: personal care, consumer tissue, and Kimberly-Clark professional. The Personal Care segment manufactures and markets disposable hygiene products for domestic use. Products include disposable diapers; training and youth pants; baby wipes; feminine hygiene and incontinence products; and other related products. Major brands include Depend, GoodNites, Huggies, Kotex, Little Swimmers, and Pull-Ups. The companys innovation of Huggies Little Walkers diaper pants helped in strengthening its European diaper business especially. The Consumer Tissue segment produces hygiene paper products for household use. The products offered are facial and bathroom tissue; paper towels; napkins; and other related products. Brand names such as Andrex, Cottonelle, Kleenex, Scott, and Viva are found in this business line. Scott Extra Soft bathroom tissue, Scott and Cottonelle flushable moist wipes, and Cottonelle for Kids led to continued volume and market share gains for the bathroom tissue and wipes brands in North America. The Kimberly-Clark Professional segment manufactures and markets facial and bathroom tissue, paper towels, napkins, and a range of safety products for the away-from-home marketplace. Products in this segment are sold under the Kimberly-Clark, Kleenex, Scott, Kleenguard and Kimcare brand names. Weyerhaeuser Company Weyerhaeuser is one of the worlds largest integrated forest products companies. The company is engaged in the growing and harvesting of timber; the manufacture, distribution and sale of forest products; and real estate construction, development and related activities. The company operates in the U.S., Canada, Asia, and Europe. Weyerhaeuser business is divided into three segments: wood products, cellulose fibers, and corporate and other. Given the nature of these offerings, a combination of low price and quality is crucial to success, making the achievement of economies of scale in manufacture a prime consideration. The Wood Products segment produces and sells softwood lumber, plywood, hardwood lumber and engineered lumber products. Building materials are sold to wholesalers and industrial users. Weyerhaeuser is one of the worlds largest softwood pulp producers, with a global direct sales network supported by manufacturing facilities in North America. The Cellulose Fibers segment is engaged in producing paper grade, absorbent, and specialty grades of pulp that are marketed worldwide. The companys focus is on providing cellulose fibers (pulp) for specifically targeted markets, including premium tissue, publication and technical specialty papers, and construction materials. The Corporate and Other segment comprises the companys international operations, which include distribution and converting facilities located outside North America; governance-related support activities and company-wide initiatives, such as major system and infrastructure deployments; and transportation operations.

The Porters Diamond framework suggests that characteristics of the home country environment can have important implications for the ultimate success of firms in a global industry. Identify and describe the determinants of national competitive advantage in the U.S. forest products industry. (Be sure to make reference to all information from both the case above and our classroom discussions you consider to be relevant).