Analyses of Jabwood International

Case Write-up: Analyses of Jabwood International[pic 1]

Current challenges and possible strategy options

1  Introduction

Jabwood International is a leading timber trading company based in Tripoli, Lebanon. Currently, the company mainly conducted business of wholesaling and retailing softwood, hardwood, wood based panel (WBP) and related services supplying the Middle East region. Jabwood’s mid-year report showed that the overall sales dropped by 20% and sales volume of an exclusive product TANITA was below the required level in the contract with its supplier. Jabwood was informed by the supplier of TANITA that it aimed to extend the exclusive right to sell TANITA in the Middle East from Jabwood only to adding in another company.

Jabwood’s chairman Fayez Jabado and his family had to make adjustments to the current business and faced the challenges ahead. Firstly, they needed to consider the timing of expansion, whether this was the right time to expand into new markets. Secondly, they needed to figure out the target expansion market, whether to expand into China or Saudi Arabia or both countries. Thirdly, they needed to decide the sequence of expansion if they made the choices of expansion in both countries, whether simultaneously or one at a time. Fourthly, they needed to consider the way for market entry, whether choosing simple exports or other modes. And lastly, they needed to consider the resource allocation and cooperation problem.

2.1  Analysis-External

Domestic market

Domestic market is the most advantageous market of Jabwood since the company owned over 50% of market share in Lebanon in 2009 (see Graph 1). But domestic market suffered from political instability both internally and externally, economy downturn, saturation of construction sectors and poor infrastructure. As for domestic timber industry,

As for domestic market background, Lebanon was subject to conflicts within the numerous political and religious parties due to historical reasons, leading to armed fights and loss of citizens. There existed huge division as between pro-Western and pro-Arab parties in the countries’ pursuit for sovereignty. The external environment was also turbulent since there were always political uprisings happening in the Middle East and especially the neighboring country Syria. The political instability, imperfect economic system, added with the global economy crisis in 2008 leads to economic downturn in Lebanon. The turbulent domestic environment added uncertainty to the business of Jabwood. With moderate unemployment rate of 9%, high migration rate of negative 12.1%, high poverty rate of 28%, small population of 4.23 million in 2011 with 0.45% growth rate, the domestic real-estate market suffered from unfavorable performance. Since the 87.2% of the population lived in cities, the construction sector was mainly saturated. Even though Jabwood owned over 50% of domestic market share, it wasn’t promising for Jabwood to focus on the relatively small domestic timber market. Though there existed the reconstruction projects as opportunities, the country wasn’t able to fulfill the reconstruction in current condition.

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Graph 1 Jabwood approximate market share of wholesales wood by country in 2009

As for domestic timber industry, the wood and furniture industry in Lebanon had a long history and contributed to domestic economy and employment. Though Lebanon didn’t produce timber, the domestic timber industry was built on imported timber and had a rather complete chain of wholesalers and retailers, construction and furniture production. But since most of the timber companies were family owned, the industry was fragmented and full of small players. Resulting from the financial crisis in 2007, the scale barrier and importing price dropped, reducing the entry barriers and increasing competition level. But the trade agreements signed by the government implied that the lowered trade barriers and tariff could bring opportunities for domestic timber companies to expand into the Middle East and especially the Saudi Arabia market. 

Saudi Arabic market

Saudi Arabia was famous for rich oil resources and its citizens were rich with 20,540 GDP per capita and 42% population being middle class. The country had a population of 28 million with 2.28% growth rate and 82% of the population lived in cities, meaning that there existed great demand for real-estate and construction. Saudi Arabia invested over 1000 billion in building infrastructure, but the country had no forest resources, meaning that this market offered promising opportunities for timber companies.

On supply side, this promising market attracted large number of competitors, especially wholesalers with larger scale and thus larger bargaining power. The largest competitors were mainly branches of larger corporate groups owned by wealthy and powerful families.

On demand side, buyers have larger bargaining power since there were many alternatives to choose from. So it was important for players to gain more knowledge about Arabic business world and establish long-term relationship in Saudi Arabia market.

On regulatory side, the trade agreements signed by the Lebanon and Saudi Arabia and recent local regulations served as great chance for Jabwood to reenter the Arabic market. Processed wood products could be exempted from import duties, allowing Jabwood to compete with more cost advantages.

Chinese market

As the second largest economy in the world, China served as a huge and promising market with 1.3 billion population and 9.10% GDP growth rate. Though there was only 23% of middle class and 47% of urban citizens, the growing economy and ongoing urbanization drived consumption. The booming real estate market offered great chance for construction with an estimated 10 million new housing units built in 2013. The problem for the Chinese market was that Chinese mainly used steel and concrete for construction and considered timber as unsafe materials, thus Chinese lacked skills in using timber for construction.