On 2nd April 2008 during DREMA 2008 fair the 2nd Economic Forum of the Polish Wood and Furniture Industry POLWOOD 2008 was held on the premises of Poznan International Fair.
The event was organized by: "Inwestor" publishing house - publisher of Gazeta Przemysłu Drzewnego, Meblarstwo and Market in Poland and consulting company PricewaterhouseCoopers.
The Wood Technology Institute
was one of the patrons of the Forum
What does the furniture industry rely upon? What worries the timber industry? How can we cope with a strong Polish zloty? Why is China a threat? Attempts were made to answer these and other questions during this year's Forum.
The Forum started with presentation of the results of research carried out by "Inwestor" publishing house and PricewaterhouseCoopers company. The most important macro- and microeconomic data allowing decision as to lines of development of wood and furniture companies in Poland was the starting point for discussion of experts, scientists and entrepreneurs. The analysis included the results of research conducted among entrepreneurs who use wood or woo-based materials in production, trade and service, as well as consumers of these products.
Invitations to the Forum addressed persons being presidents or vice-presidents and owners of most companies of wood and furniture industries.
The Forum participants included:
- authorities and members of the industry organizations,
- representatives of scientific institutions, lecturers and students,
- managerial staff, owners of wood and furniture companies,
- directors of the State Forests, foresters,
- ministers, employees in departments related to wood and furniture industries.
I. Is Poland a wood El Dorado? The Forum consisted of three panels which concerned:
"In this year, the wood sawmill industry has not done well, but it is just the beginning of the year so we do not know how the rest of the year will be, although the forecasts are not too good," said Mr. Bogdan Czemko, the director of the Polish Economic Chamber of the Wood Industry. It all began in the U.S. where the construction industry has come to a standstill and, due to that, European supplies of sawn wood have frozen. This has resulted in a glut on the German and Scandinavian timber markets and, as a result, their wood began to be sold in our market, driving the prices down to levels which our producers could not match without going bankrupt due to higher production costs. The result is obvious - a production slump in the Polish sawmills and price levels which are difficult to accept.
To the question of whether this is an unfortunate coincidence or rather an economic downturn, Mr. Bogdan Czemko answered that so far we should not talk about unfortunate coincidence. The economy is not in the best shape. One has to remember that the German producers that have begun selling to the Polish market are here to stay. Therefore, Polish companies will from now have to face stronger and more aggressive competition.
The issue of raw materials was commented upon by Professor Witold Orłowski - a chief consultant at PricewaterhouseCoopers. "Industry is an idea," he said. "The wood industry is primarily an idea, besides the labour it is also a human idea. Man can adjust to anything if he has the right ideas. We do not talk about short-term problems but rather about a general trend that wood as a raw material will not be sufficient to our needs and it will be becoming more expensive instead of cheaper. This issue should be addressed with the right idea, that is, value added created not by the raw material but by the human mind. Today, we have a problem of falling prices but it is important that people with ideas find answers to various problems."
During the Forum, the results of a survey of wood and furniture industry entrepreneurs were presented. It showed that the strong Polish zloty made the life of exporting companies difficult but it was not as severe as it was commonly thought. Besides the currency exchange rate, the entrepreneurs saw a problem with taxes, especially with Value Added Tax (VAT) because it is complicated and burdensome. The second most difficult problem for business was with real estate tax. Bureaucracy causes difficulties and is a source of problems for companies in almost all industries. Despite the common opinion, the difficulties were not associated with corruption. On the positive side, EU subsidies were going to developing companies rather than to large, ailing businesses. The results proved a growing interest of companies in forming links with technical schools and higher educational institutions, which is due to the lack of qualified, skilled labour. Companies are offering training and internships to the students.
Even though Poland is a key player in the world's furniture industry when it comes to the production of furniture, Mr. Maciej Formanowicz, the president and of Forte SA and the president of the Polish National Chamber of Furniture Producers (PNCFP), warns against underestimating the Asian competitors, not only those from China but also from Vietnam, Cambodia and Malaysia where production costs are lower and the raw materials cost less. In fact, all of Asia has to be closely watched due to their abundance of labour and wood. Having been asked if we could compete with Asian companies, the president of PNCFP repeated Professor Witold Orlowski's opinion that we should not compete based on price but on such issues as service, availability, logistics, design or a faster response to clients' needs. It has to be the value added rather than the price. The wood industry exports most of its production; therefore, it greatly depends on the currency exchange rate. A solution to this problem may be Polish accession to the euro currency system or a fixed peg for PLN to EUR. Because wood is a raw material destined for exports, one of the solutions could be selling wood based on prices denominated in euro.
"We are a country that is in a rather fortunate position when it comes to various raw materials," added professor Orlowski. "Potentially, we have sufficient amounts of raw materials for our own needs. It has to be remembered that in general, raw materials will get more expensive around the world. In economics, nothing is given once and for all. Profits obtained at one moment have to be used at another moment. At present, in Poland, work efficiency is rapidly growing; therefore, our currency gets stronger and so we have to aim at increasing the value added."
"In the 2nd Polwood Forum, the issue of the lack of a qualified labour force was raised. In order to keep workers from looking for positions abroad, the work efficiency should be increased, which means mechanization," said Mr. Bogdan Czemko. According to him, the country needs fewer but more qualified workers who will be paid more, and as such they will stay in Poland. Unfortunately, in Poland, there is a lack of professional training in all fields, even in foreign languages.
"There are many companies where a third shift cannot be initiated because of a lack of people," said Mr. Maciej Formanowicz. "In western Poland this problem will become even greater once Polish workers are allowed to legally work in Germany. We need to prepare for this." As it happens, entrance into the Schengen zone is a problem because people from the East who will get Schengen zone visas will most likely leave Poland and go West - to the countries where wages are higher.
"At present, in Poland, we have an undersized labour supply as compared to the needs," said Professor Orłowski. "We also face emigration despite the growing wages. We are a crazy country: we do not have workers and at the same time, we (the government) pay people who withdraw from the labour market - we pay for early retirement benefits, we do not combat the black labour market. In Poland, we have the lowest employment level among people of production age: every second person of that age does not work. There are millions of people who are not active in the labour market. The most important question is what to do in order to make more people want to work so that the wages will not grow that rapidly."
II. According to law or profit account?
One of the major and the most controversial subjects during this year's Polwood Forum was the issue of industry players undertaking activities on the edge of the law.
All the speakers stressed the existing problem of the "black market labour" in Poland. This was confirmed in the results of a survey conducted by the "Inwestor" publishing house and the PricewaterhouseCoopers consulting company, where 39.33 percent of the questioned entrepreneurs in the wood industry consider the existence of the black labour market to be a problem for their companies.
Responding to signals from their readers, a journalist from "Gazeta Przemysłu Drzewnego" (The Wood Industry Gazette) used a hidden camera at one of the sawmills in the Pomeranian Province while buying wood for a roof structure, without paying VAT. Such a transaction has proven to be possible and it was documented in a video shown during the Polwood Forum - as a result of the journalist's investigation.
The participants were wondering if the "key" to that question was the quota of 5 million cubic meters available to "Lasy Państwowe" (Polish State Forests Holding) for retail sales for the needs of individual households. 39.84 percent of the respondents out of the 2,062 questioned entrepreneurs admitted that they used to purchase wood from the said retail quota in order to secure the raw material needs. Mr. Marian Pigan the CEO of the State Forests Holdings explained that the wood quota and its assignments had been determined by the Forests-Wood Commission comprising of the wood industry and forest service (foresters) representatives.
One method for combating the "black market" may be certification. According to Mr. Piotr Grodek, the vice-president of NEPCon Sp. z o.o., such a trend will continue to grow. Wood industry companies would like to be certain that the wood which they use in production comes from a legitimate source. If the companies that process wood do not have such certificates they will, most likely, be pushed out of the market or else be somewhere in the middle or at the bottom of the rankings.
In 2007, the Act on ‘Industrial Property Law' came into force. It provides for a penal responsibility for production, introducing into economic circulation, and for the use of branded, copyright reserved goods. This legal regulation has caused a tremendous turnaround in the entire ‘black market' segment in Poland. "We have gained a tool and basis for suing those producers who illegally produce pallets or to notify the state prosecution about such legal offences," added Mr. Kazimierz Czapiewski of the EPAL National Committee.
According to Mr. Marek Kubiak, the president of Poltareks, the state and in this case, internal revenue offices and the Ministry of Finance, do not know how to effectively solve the "black market" problem and as such are helpless.
III. Liberal economy or protectionism?
At the end of the Polwood Forum discussion panel, the participants analyzed the problem of globalisation and the problems related to it such as competition and market protection in the world and in Poland. The participants viewed the process of globalization as natural and therefore a process that cannot be stopped or prevented; hence it should rather be wisely used. Globalization concerns all the divisions of the wood industry, therefore, the calls for creating greater, more modern companies are justified, such as to fulfil the market needs. "We would have to import MDF or OSB boards if foreign investors had not invested in the production of these," said Mr. Waldemar Czarnocki, the president of Paged SA. "For sure, the quality of Chinese products is lower than ours, thus, it is to our advantage despite their lower prices. Chinese, Canadian or American boards are of much poorer quality. It is a plus that should be used to secure our market position."
"In many other countries," admits Mr. Robert Motała, general manager at Stora Enso Timber Polska, "it is easier to purchase raw materials, and corruption and bureaucracy is less of a problem. The Polish market remains attractive but it is not an Eldorado. Polish companies face similar problems as their foreign counterparts. It is because the market is now open; there are no borders for intra-EU trading. It makes the market more coherent and unified. There is a flow of people but also of products. For example, Russia creates a lot of opportunities. Introducing tariffs is a signal that they want to attract capital because they have vast wood resources. We should consider what sorts of countermeasures should be implemented by the EU to defend against Russian aspirations."
"Are foreign investors a threat to us? - maybe yes," suggested Mr. Adam Żołnowski, a foreign investments expert at PricewaterhouseCoopers. "It is easier for a newly established company to prosper in a free economic zone rather than for a 20-year old, well known company. However, foreign investors are the driving force in an economy which also pulls along domestic companies. From a long-term economic perspective, it is beneficial to attract large businesses because they bring new technologies, their more demanding needs make their suppliers adjust to them by modernizing, and their local competitors change in order to match the quality of the foreign plants. Those are the benefits! On the other hand, today, we are at a stage where not only large companies use the incentives but also small and medium-sized enterprises have access to them, and they apply for EU sponsored financial support."
At this kind of a forum, it was not possible to avoid the subject of threats and also opportunities related to the growing economic importance of China.
"The situation in China," commented Mr. Adam Żołnowski, "will have an impact on the production of wood and wood-like products. For example, the Chinese market grows at a rate of 40-50 percent per annum for imports of wood balks. This is a number that does have an impact on the other national markets, including Poland, because 70 percent of wood balks are imported from Russia. The effect is that when the Chinese economy picks up, and it is expected to after the Olympic Games, the consumption in China will start to grow rapidly, not only with regards to raw wood but also to sawn wood. The present situation in Poland will stabilize because for the German producers the more attractive market will be the Chinese market. This means that if we have problems with selling wooden products due to prices in Europe, we should start to get ready for entering the Chinese market, now," said Mr. Adam Żołnowski. "It is a vast market which we have not yet fully recognized. We should now establish our first trade offices, sales networks and build our own brands. If we do not exhaust this opportunity today with the EU resources at hand, then later on it will be more difficult to achieve. Because of that, our chance is not to compete with the Far East producers on our own turf but rather to venture into their markets."
How can this be done? "We have to go global and invest! We have to progress, because raw material prices during the economic growth will also grow, therefore, we need to use such technologies that preserve materials and increase efficiency."
The Polwood Prize means a prestige distinction for the leader of the wood and furniture industry. It is also closely connected with promotion of the winner company - not only during Polwood Forum but also during the whole next year. "Inwestor" publishing house ensures free promotion in three editions of Market in Poland - a specialist journal for foreign investors.The conference ended with presenting Ludwik Olczyk, the owner of Olczyk Sawmill, with Polwood 2008 Prize for the investment of the year in the wood industry. The prize justification says that it is an award for courage demonstrated by Ludwik Olczyk when he decided to make such a big and expensive investment in a country characterized by instability, especially on the raw material market. It is also an award for determination and personal attitude to the project being implemented.