Business Strategies of North American Sawmills: Flexibility, Exports and Performance

Abstract

Lumber production in North America has declined sharply after the housing crisis in the U.S. The weak demand for lumber in the U.S. has been offset by strong international demand, however, some sawmills hesitate to export their products internationally, while others actively pursue opportunities overseas. This dissertation explores two research questions by analyzing the survey responses from 89 sawmills: 1) What are the factors that drive North American softwood lumber firms to enter international markets and commit to international customers? 2) What characteristics determine the flexibility of sawmill firms, and how do these characteristics influence firms' performance after the housing crisis? The first question implemented a sequential hurdle ordered probit model to explain the degree of internationalization based on firm characteristics. Results showed that medium-sized firms are more likely to target international markets than smaller firms. Firms that have a strong differentiation orientation are more likely to participate in international markets. Most Canadian lumber firms have been exporters to the U.S., but after controlling for this fact, the data suggests that Canadian and U.S. firms have similar degrees of international commitment. Within the U.S., firms in the North are more likely to commit to exporting than firms in Southeast, but if a Southeast firm has adopted a product differentiation strategy, then they are more likely to commit to exporting. For the second question, results showed that medium-sized firms are more flexible than smaller firms based on the number of operational changes a firm made after the housing crisis. Flexible firms are more export oriented and pursue a higher degree of differentiation than inflexible firms. The flexibility characteristics of firms are time invariant. Firms that are flexible perceive their performance is relatively better than firms that are not flexible; however, current performance could not give insight into past performance. These results suggest that flexibility was the key factor in the prosperity of softwood sawmills after the housing crisis, but the factors contributing to success in the sawmill industry are inconsistent over time.