Thursday, June 05, 2008

Rosewood Case Study: Product Sourcing Considerations

Rosewood Case Study: Product Sourcing Considerations

a) The most important considerations that could affect Rosewood’s strategy to source wood from Brazil:

Economy and Political Environment

EDC has updated their Brazil overview on April 1, 2008. Positive notes for the economy are encouraging particularly that Brazil has recently become a net creditor in international trade for the first time in history with the expectation that investment grade designation will be granted by Moody’s or Standard & Poor’s later this year. On the downside however inflation at 4.7% is slightly higher than current annual growth rate at 4.6% which a future increasing rate of FDI may assist in resolving. Politically Lula’s parliamentary minority government looks a lot shakier than Canada’s Harper’s with an eleven party coalition. However the OECD approves of Brazil’s current macroeconomic policies as of 2006, noting improvements in business innovation and labour skills development.,00.html

Building Supplier Relationship

In terms of building a partnering relationship between Rosewood and a supplier in Brazil the cultural dimensions model provided by Geert Hofstede indicates that personal relationships between Canadians and Brazilians will have challenging elements in terms of building trust, sharing information, and making decisions. Canadians score higher on terms of individual initiative, while Brazilians may be generally considered less likely to challenge managerial decisions, more likely to avoid risk or uncertainty, and more likely to seek a long-term strategic partnership than Canadians. This could implicate difficulties in building a relationship or partnership beneficial to successful negotiation and creating or claiming value and equitable distribution of profits.

b) The main challenges in negotiating long-term supply agreements with Brazilian suppliers:

Supplier Criteria

Compatibility issues concerning regulatory import and export environments in both countries will implicate successful agreements in Brazil. For example, veneers and finishing woods are perhaps under-advertised on the internet at alibaba.

While several of these exporters may have experience in the delivery of rosewood, teak, ebony, and mahogany, their methods of production may not meet or satisfy Rosewood’s current requirements. It would be ideal to source all required veneers from a single supplier to minimize costs, paperwork and consolidate orders and/or export/import documentation requirements.

However some solid companies listed online such as Trade Link which may produce teak in some quantities or Robinson Lumber with a service history since 1893 (locations in Breves, Belem and Curitiba) may provide quick company references to competent and reputable exotic veneers suppliers in Brazil.

Quality Standards

The global exports of Dalbergia stevensonii, Family: Leguminosae, Honduras Rosewood represents a controlled species and is currently registered under The Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) regulations.

Dalbergia stevensonii is considered a threatened species globally.

Origin and certification information is often thus difficult to procure and possibly falsified under trans-border shipments inter-Mexico, Guatemala and Belize. Thus any shipments originating from Brazil would need to meet extensive and stringent documentation and permits processes throughout the production, export, shipment and import process either to Canada, The USA or Mexico under NAFTA regulations.

This would require a supplier committed to ethics and moral observance of due diligence. Brazil is ranked just above Algeria in the Global Index of Economic Freedom 2008 making such a disciplined broker perhaps difficult to find.

While considered of larger commercial value, Swietenia macrophylla, Family: Meliaceae, Honduras Mahogany has seen heightened export regulations implemented under a voluntary export restrictions process since October 22, 2001 when Brazil curtailed exports to the US by 27% in one year which, “suspended logging, transport, and trade of S. macrophylla.”

However CITES has listed this wood in Appendix II with problems in enforcement of control of this species existing due to “World Customs Organization Harmonized System (HS) commodity codes for Parties to apply in describing the commodity.” Exports in the forms of lumber and veneers were restricted while other classifications saw unhindered controls in 2003. Current policies permit exports with proper permits which smells like a loophole.

It is questionable whether Brazil or even Honduras can provide a legally transparent source of supply for Diospyros spp. , Family: Ebenaceae , African Ebony whereas a partnership with any of various ebony sustainability projects in Africa such as The African Blackwood Conservation Project in Tanzania http://www.ventureco-worldwide...blackwood_project1.htm might prove prudent. A supplier in the UK lists various ebony products sourced from Malaysia, the Celebes, India, West Africa (including Cameroon, Gabon and Nigeria). Brazil as a source of ebony is noticeably absent perhaps due to consumer knowledge.

A 2004 article from Knight Ridder describes the case of Tectona grandis, Family: Verbenaceae, Teak exports from Brazil which makes its supply appear not unlike the extraction of African blood diamonds.

One might again recommend switching to Canadian sourced veneers on the grounds of the Gettysburg Address, “that government of the people, by the people, for the people, shall not perish from the earth.” Knowledge of possible human rights abuses in the source of its veneer products in Brazil might eat into Rosewood's corporate profits. Assessment of current global broker of these products may be prudent.

No comments: