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A market assessment of wood use in Japanese residential flooring of windows Wahl, Antje 2000

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A MARKET ASSESSMENT OF WOOD USE IN JAPANESE RESIDENTIAL FLOORING AND WINDOWS by ANTJE WAHL Diplom-Holzwirtin, University of Hamburg, 1996 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE in THE FACULTY OF GRADUATE STUDIES (Faculty of Forestry) (Department of Wood Science) We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA July 2000 © Antje Wahl, 2000 In presenting t h i s thesis i n p a r t i a l f u l f i l m e n t of the requirements for an advanced degree at the U n i v e r s i t y of B r i t i s h Columbia, I agree that the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r reference and study. I further agree that permission f o r extensive copying of t h i s t h e s i s f o r s c h o l a r l y purposes may be granted by the head of my department or by h i s or her representatives. I t i s understood that copying or p u b l i c a t i o n of t h i s thesis f o r f i n a n c i a l gain s h a l l not be allowed without my written permission. Department o The U n i v e r s i t y of B r i t i s h Columbia Vancouver, Canada A B S T R A C T In the past, building products for residential construction in Japan were produced almost exclusively domestically. However, imports of building products such as wood flooring and wood windows have been increasing for economic reasons and because many imported western-style products are not available on the domestic market. The purpose of this study is to find out more about Japanese products, markets and industry in wood flooring and windows, since little information exists for potential suppliers outside of Japan. The study collected exploratory information through personal interviews with house builders in Japan and a fax survey among manufacturers of wood flooring and windows in Canada. The Japanese wood flooring market is very large and is supplied primarily by domestic production. The most common type is composite flooring made of plywood or fibreboard overlaid with veneer. Based on information gathered in this study, respondents preferred ready-to-install, light, colour-matched floors with polyurethane finish. The best opportunities for Canadian manufacturers exist for moderately priced solid softwood and hardwood flooring and for ready-to-install veneered softwood flooring. Japan's window market is dominated by aluminium, but the demand for wood windows is growing and most of this demand is covered by imports. Northern Japan and residential areas where fire regulations do not apply present the best potential markets for wood windows. Aluminium-clad wood windows have the best prospects. While the Japanese housing market is shrinking in the long-term, opportunities are identified in the growing markets for wood flooring and windows. ii TABLE OF CONTENTS Abstract " Table of Contents "i List of Tables vi List of Figures viii 1 Introduction 1 2 Literature Review 3 2.1 Overview of the Japanese Housing Market 3 2.1.1 Drivers of Demand for Building Products 3 2.1.2 Imported Building Products 7 2.1.2.1 Characteristics and End-use 7 2.1.2.2 Distribution 8 2.1.3 Home Financing 9 2.1.4 Certification of Building Products 10 2.1.4.1 Home Warranties 10 2.1.4.2 The Government Housing Loan Corporation List 11 2.2 Japanese Markets for Wood Flooring and Windows 12 2.2 A Wood Flooring 12 2.2.1.1 Classification of Wood Flooring 12 2.2.1.2 Overview of the Japanese Floor Covering Market 14 2.2.1.2.1 Carpet 14 2.2.1.2.2 PlasticFloors 14 2.2.1.2.3 Tatami 15 2.2.1.2.4 Wood Flooring 15 2.2.1.3 Standardsfor Wood Flooring in Japan 16 2.2.1.4 Composite Wood Flooring Products 17 2.2.1.4.1 Structure and Sizes 17 2.2.1.4.2 Prices 18 2.2.1.5 Solid Wood Flooring Products 18 2.2.1.6 Suppliers of Wood Flooring 19 2.2.1.6.1 Japan 19 2.2.1.6.2 North America 21 2.2.1.6.3 Asia 22 2.2.1.6.4 Europe 23 iii 2.2.2 Wood Windows 24 2.2.2.1 Overview of the Window Market 24 2.2.2.1.1 Aluminium Windows 25 2.2.2.1.2 Plastic Windows 25 2.2.2.1.3 Wood Windows 26 2.2.2.2 Window Types and Sash Materials in Detached Housing 27 2.2.2.3 Regulations and Standards for Wood Windows 28 2.2.2.4 Suppliersof Wood Windows 29 2.2.2.4.1 Japan 29 2.2.2.4.2 North America 31 2.2.2.4.3 Asia 32 2.2.2.4.4 Europe 32 2.3 Synopsis of Literature Review 33 3 Research Methods 35 3. 1 Methodology 35 3.2 Survey of House Builders in Japan 36 3.2.1 Survey Design 36 3.2.2 Profile of Survey Respondents 37 3.3 Survey of Exporters in Canada 38 3.3.1 Survey Design 38 3.3.2 Profde of Survey Respondents 38 4 Results 39 4.1 Survey of House Builders in Japan 39 4.1.1 Flooring 39 4.1.1.1 All Types of Floor Coverings 39 4.1.1.2 Wood Flooring 41 4.1.2 Windows 44 4.1.2.1 All Types of Windows 44 4.1.2.2 Wood Windows 46 4.1.3 Quality Certification 48 4.1.3.1 Interior Finish Products and Quality Certification 48 4.1.3.2 Quality in Flooring and Windows 50 4.2 Survey of Exporters in Canada 52 4.2.1 Flooring -52 4.2.2 Windows 53 5 Discussion 56 5.7 Flooring 56 5.1.1 The Japanese Market 56 5.1.2 Flooring Exports from Canada to Japan 58 5.1.3 Third-Country Competition 59 5.1.4 Key Opportunities for Flooring 60 iv 5.2 Windows 61 5.2.1 The Japanese Market 61 5.2.2 Window Exports from Canada to Japan 63 5.2.3 Third-Country Competition 63 5.2.4 Key Opportunitiesfor Windows 64 5.3 Limitations of Research 64 5.4 Need For Future Study 65 6 Conclusions 66 7 Literature Cited 68 8 Personal Communications Cited 73 Appendix I: Questionnaires 74 A Survey of Japanese House Builders 74 B Survey of Canadian Exporters 80 Appendix II: Associations in Japan 83 A Members of Composite Wood Flooring Association 83 B Japanese Members of Wood Window Association 84 v LIST OF TABLES Table 1: Post-and-beam, prefabricated and two-by-four construction: number of new houses and as proportion of total housing starts, 1991-1999; number of imported houses supplied, 1994-1998 5 Table 2: Floor area of new homes, 1994-1998 14 Table 3: Value of carpet and plastic floors markets, 1995-1998 15 Table 4: Global wood flooring production and sales by region, 1996 16 Table 5: Catalogue prices of composite flooring for detached houses .18 Table 6: Volume of Japan's domestic production of solid wood flooring, 1992-1998 19 Table 7: Volume of Japan's domestic production of composite wood flooring, 1992-1997 19 Table 8: Canadian and US exports of hardwood and softwood flooring to Japan, 1991-1998 21 Table 9: Value of Japan's imports of parquet panels from Canada and the US, 1997 and 1998 22 Table 10: Value of Japan's imports of parquet panels from Asia, 1997 and 1998 23 Table 11: Value of Japan's imports of parquet panels from Europe, 1997 and 1998 23 Table 12: Estimated size of Japanese residential window market by sash material, 1996 25 Table 13: Window types in detached housing, 1997 27 Table 14: Window sash material in detached houses by window type, 1997 28 Table 15: Value of estimated Japanese domestic production and imports of wood windows, 1991-1998 30 Table 16: Value of Japanese imports of wood windows from the US and Canada, 1994-1998 31 Table 17: Value of Japan's imports of wood windows from Asia, 1997 and 1998 32 Table 18: Value of Japan's imports of wood windows from Europe, 1997 and 1998 33 Table 19: Source of supply of floor coverings 40 Table 20: Material used for flooring 40 Table 21: Floor materials preferred in different areas of the house 40 Table 22: Preferred attributes for wood flooring 42 Table 23: Importance of attributes in wood flooring 43 Table 24: Concerns in quality of flooring 43 Table 25: Source of supply of windows 44 Table 26: Importance of attributes in windows 45 Table 27: Window types used by respondents 46 Table 28: Preferred attributes for wood windows 47 vi Table 29: Wood interior finish products that should be certified by a quality assurance program 49 Table 30: Japan's share of total sales of flooring manufacturers, by respondents 52 Table 31: Japan's share of total sales of window manufacturers, by respondents 54 Table 32: Distribution of products exported to Japan by window manufacturers, by respondents 54 Table 33: Frame materials of windows exported to Japan, by respondents 54 vii L I S T O F F I G U R E S Figure 1: Number of total housing starts, and number and percentage in wooden structure, 1986-1999 4 Figure 2: Size of remodelling market (both material and non-material costs), 1989-1998 6 Figure 3: G H L C financed housing as percentage of total housing starts, 1986-1999 10 Figure 4: Wood flooring classification 13 Figure 5: Number of housing units built per year by respondents in 1997 37 Figure 6: Scores for preferred type of wood floor 41 Figure 7: Material used for windows 44 Figure 8: Scores for preferred interior finish products made of wood 48 Figure 9: Relative importance of quality factors in flooring and windows 50 Figure 10: Level of agreement with statements on quality of windows and flooring 51 viii 1 INTRODUCTION Canada's forest industry has a close relationship with Japan in the housing market. It supplies the majority of Japan's total lumber imports and an even higher share of dimensional lumber used in two-by-four house construction. A major concern for Canada is the lack of secondary wood products, such as building products, supplied to Japan. Canada represents a small portion of this market and is trying to increase its market share in log homes, kitchen cabinets, doors, windows and flooring to name a few examples. An expansion of secondary manufacturing is seen by governments in Canada as a way to increase or maintain economic growth, increase economic activity per volume of wood cut and maintain employment in the forest sector. From the industry's perspective, secondary wood products offer more stable and profitable markets than primary products that often have to compete on commodity markets. There are two major developments in the Japanese building products sector. First, Japanese interior and furniture manufacturers have shifted production investment out of Japan to more cost-competitive countries. Secondly, imports of manufactured products from foreign manufacturers are growing, substituting commodity imports (USDA Foreign Agricultural Service 1999). A case in point is the growing interest in Japan for the use of finished wood products in flooring and window applications. Results from a Forintek Canada Corp. project on Japan's value-added market indicated strong growth for wood flooring in residential housing in Japan over the next three years (Cohen and Gaston 1998), while wood windows are already an important export product from Canada to Japan. With the growing popularity in Japan for wood materials in interior finish applications and an increase in imports of finished products, both product groups, flooring and windows, are expected to present strong opportunities for Canadian manufacturers. A successful expansion into these sectors of the Japanese economy requires market research. The overall goal of the thesis is to identify products and attributes demanded in Japan, in order to identify opportunities for the industry in Canada. The four main objectives of the study are: 1 1. To describe the market and industry structure for wood flooring and windows in Japan; 2. To assess the competitive nature of this market by identifying competing products and suppliers of wood flooring and windows to Japan; 3. To provide market data on important product attributes of wood flooring and wood windows. These attributes include size, wood texture, colour preferences, quality considerations and quality certification; and, 4. To gain a greater understanding about wood flooring and window products exported from Canada to Japan for both product groups. The thesis presents information on these two Japanese markets based on results of interviews with house builders in Japan conducted in September 1998, as well as secondary data sources. Cohen and Gaston's study indicated that product certification can be used as a marketing tool for consumers and builders in Japan. This perception of quality certification, specifically with respect to flooring and windows, was also investigated in the interviews with Japanese house builders. With North America being the predominant market for Canadian suppliers, it is not typical to have products developed specifically for overseas markets. Wood flooring represents a very large market in Japan, but the types of flooring differ from the products commonly sold in Canada. In order to judge the strategy and the commitment of manufacturers exporting to Japan, more information is needed about the flooring and window products that are currently sold in Japan. A survey among Canadian companies of wood flooring and wood windows exporting to Japan was developed for this purpose. The following chapter 2 provides a literature review of the Japanese housing market, as well as the flooring and windows markets and suppliers. Chapter 3 describes the research methodologies used in the two surveys. Chapter 4 presents the results of the interviews with Japanese house builders and the survey among Canadian manufacturers exporting to Japan. Discussion of results and conclusions from the study are presented in chapters 5 and 6, respectively. 2 2 L I T E R A T U R E R E V I E W 2.1 O V E R V I E W O F T H E J A P A N E S E HOUSING M A R K E T This section describes characteristics of the Japanese housing market as they pertain to building products such as flooring and windows. The overview outlines the Japanese housing market, imports of building products, their end-use and distribution, the main features of home financing and its influence on certification of building products in Japan. 2.1.1 Drivers of Demand for Building Products The basic driver of demand for wood flooring and windows, as for most building products, is the level of activity in the residential construction market. Lesser drivers of demand for building products are remodelling activities and non-residential construction. Since the focus of the study is on the larger residential housing market, an overview of new house construction and remodelling of existing homes will be given in this section. The Japanese housing market is one of the largest in the world, and the residential construction market has been similar in size to the US market in terms of number of annual housing starts over the past decade. However, annual housing starts in Japan have declined from over 1.6 million in 1996 to 1.2 million in 1999 (Japan Ministry of Construction 2000). The economic recession, the three percent sales tax hike in April 1997, deregulation programs affecting financial, business, and corporate institutions, and the government's restructuring programs all continue to contribute to home buying insecurity (Bean and Nagahama 1999). Figure 1 shows the total number of housing starts and the number of units constructed in wood. About 47% of all housing starts are wooden structures, mostly used for single-family detached homes. Detached houses have a relatively large share (58%> of the housing stock in 1998), but the share of apartment housing is rising (Statistics Bureau 1999). Detached houses are generally built using one of the following construction methods: post-and-beam, two-by-four platform frame construction, or prefabricated components. Table 1 shows the shares of these construction methods in the total number of newly built housing units. The share of traditional post-and-beam built housing 3 has been mostly eroded by non-wooden prefabricated homes and, more recently, by two-by-four construction, which is a modified form of the North American platform-frame construction method. The number of two-by-four houses built has increased due to their relative earthquake resistance, energy-saving insulation, good soundproofing and comparatively low cost (Takabatake 1997a). Because of the shortage of skilled carpenters for post-and-beam construction, houses built in the two-by-four method, and prefabricated houses will continue to increase market share (Takabatake 1995). However, the imported housing market is a small market (Table 1), and the number of imported houses supplied in 1998 was only 0.6% of the total number of newly built housing units in Japan. Figure 1: Number of total housing starts, and number and percentage in wooden structure, 1986-1999 1? B in en c 'in o n E z 1,800,000 1,600,000 1,400,000 1,200,000 + 1,000,000 800,000 600,000 400,000 200,000 + c o h - c o o > o * - c \ i c o ^ - m c D r ~ c o a > O O G O G O G O O ) 0 > C T G > 0 ) 0 ) 0 ) 0 ) 0 ) 0 ) 0 > 0 > 0 ) 0 > 0 > 0 } 0 > 0 } 0 > C T > 0 ) 0 < 7 > 0 ) -m—Total •- A—Wooden • - - Wooden as % of total Source: Japan Ministry of Construction As a means of increasing investment in housing in 1999 and 2000, the government reduced the Government Housing Loan Corporation (GHLC) mortgage interest rate, increased the tax deductible housing loan interest and expanded the lending limit (especially in highly populated areas) (Bean and Nagahama 1999). Without these additional incentives for house construction, investment in housing is expected to decline, especially with many borrowers starting to pay back high payments following a five-year period of very low payments under a special GHLC loan program started by the government in 1993 ("Japan's Economy" 1998). 4 Table 1: Post-and-beam, prefabricated and two-by-four construction: number of new houses and as proportion of total housing starts, 1991-1999; number of imported houses supplied, 1994-1998 Post-and-beam Prefabricated Two-by-four Imported houses (including non-wood) Number % Number % Number % Number 1991 545,366 39.8 219,774 16.0 45,437 3.3 1992 580,799 41.4 252,398 18.0 52,933 3.8 1993 603,666 40.6 246,108 16.6 56,299 3.8 1994 619,103 39.4 227,331 14.5 64,037 4.1 3,024 1995 554,690 37.7 224,758 15.3 73,989 5.0 5,520 1996 619,028 37.7 251,296 15.3 93,693 5.7 8,173 1997 497,843 35.9 206,532 14.9 79,458 5.7 7,848 1998 447,287 37.3 182,399 15.2 67,923 5.7 7,515 1999 458,186 38.2 185,724 15.3 75,864 6.2 9,638* * Forecast Source: Japan Ministry of Construction, Japan Wood Products Information and Research Center, and JETRO 2000 Japanese society is ageing quickly. The Ministry of Health and Welfare estimated that the proportion of the population over 65 years of age of the total population will be 22.3% in 2010 and 27.5%) in 2020 (Takabatake 1999). Because of this sharp increase and a stagnation in population, demand for new housing will probably decline over the long term despite the current market recovery over the short term. One important factor contributing to the housing market is the short life span of houses in Japan (26 years) compared to the USA (44 years) and the UK (75 years) (Building Center of Japan 1998). Low quality housing built after the Second World War contributed to a shorter life span of houses in Japan (Jahraus and Cohen 1997). Additionally, housing has traditionally been regarded as temporary, comparable to furniture in western civilisations. Because of frequent earthquakes and typhoons, houses were often destroyed and rebuilt. Housing built today is designed to last much longer and most house builders advertise the life span of their houses to be 50 years. These houses are of sufficient quality for remodelling. Results from a 1998 survey indicate, however, that the impetus for replacing existing houses for one-third of consumer respondents was to change style and not to remedy durability problems (Cohen and Gaston 1998). Housing products, such as flooring and windows, are often not repaired or replaced during their life since they are expected to last the entire life span of the house. Flooring for example, is expected to last 15 to 20 years according to survey results by Cohen and Gaston (1998). 5 Overall, however, remodelling of older homes has steadily increased until 1996, the year before the economy slowed down, as shown in Figure 2. Demolitions of housing has declined since 1996 to 215,000 per year in 1998 (Statistics Bureau 1999) and is expected to continue to decline (Takabatake 1999). According to estimates by the US & Foreign Commercial Service, the home remodelling materials market accounts for about 15.3% (or 1.04 trillion yen1) of the building materials market for new housing (including multi-residential housing) (Takabatake 1999). Much of the remodelling market comprises renovation of apartment buildings, because the government is promoting renovations of the public multi-residential housing stock that is below minimum standard (Lampert and Ikehata 2000). Figure 2: Size of remodelling market (both material and non-material costs), 1989-1998 7000 6000 5 5000 c 4000 5 3000 I 2000 1000 0 O O G ) O ) G ) G ) 0 ) G ) O ) O ) O ) CD o>o> o O ) o> cn cn o> CD Source: Takabatake 1999 New house construction and remodelling are the two major drivers of demand for wood flooring and windows in the Japanese housing market. Although post-and-beam houses are still the most common type of home among detached houses representing 37% of total housing starts in 1998, the share of houses in two-by-four construction has increased steadily (from 3.3% in 1991 to 6.2% in 1999). While the remodelling market was relatively small in the past due to the short life span of houses, demand for building products for remodelling is expected to grow with the increase in quality and durability of houses. 1 Values are reported in Japanese yen (JPY) throughout the report. The secondary sources that were used in the thesis all report Japanese market values in yen. Only when the original figures are given in US dollars, such as for flooring exports from North America, are US dollars used. Annual average US dollar/yen exchange rates of the last ten years are given below: Year/JPY 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1USD 145 134 127 111 102 94 109 121 131 114 Source: OANDA 6 2.1.2 Imported Building Products 2.1.2.1 Characteristics and End-use Building products2 that are commonly imported into Japan include windows, exterior and interior doors, flooring, mouldings, kitchen cabinets, tiles, interior panelling, staircases (Takabatake 2000). Canada and the US are the largest foreign suppliers of building products to Japan. European and other countries tend to supply niche markets with more expensive specialty products (Takabatake 1997a). Windows, doors and flooring are the most frequently imported products according to a survey by the Japan External Trade Organization (JETRO) Housing Materials Center in Osaka, among house builders, architects and other housing related business people (Takabatake 2000). End-users surveyed by JETRO in 1998 were most interested in purchasing the following imported products: kitchen fixtures, wallpaper, tiles and windows. While flooring ranked seventh among imported building products in terms of interest (JETRO 1999). The majority of imported building products are installed in western-style two-by-four houses and imported homes (Takabatake 1997a). There are no statistics, however, on the actual use of imported products in different building types, such as single-family and multi-residential housing, post-and-beam, prefabricated and two-by-four homes. Accurate estimates are therefore difficult to establish. Post-and-beam houses are less likely to use imported building products, while imported houses tend to incorporate a wide range of imported building products, such as windows, kitchen cabinets and flooring (Takabatake 1997a). According to the JETRO survey of builders and architects (Takabatake 2000), 56% of the companies used imported building materials in imported houses, 37% in Japanese traditional houses and 21% in remodelling. Given the large size of the post-and-beam housing market, even a small penetration into the post-and-beam market represents a large market for imported building products. Annual surveys among consumers by JETRO's Manufactured Imports Promotion Organization have identified a shift in consumers' interest from imported housing packages to components of a house such as windows and doors (JETRO 1999). One reason for this change is the 2 Building products are the more finished, non-structural products used in house construction. They exclude structural building materials such as lumber and panels. 7 economic recession and the downturn in housing starts. However, consumers also realised that they can use imported products in the remodelling of their existing homes. The volume of imported building products presently used in remodelling is estimated to be very small, but is expected to grow (Takabatake 1999). Two main reasons for the limited use of imports in remodelling are that (1) most foreign suppliers have not considered entering the remodelling market, and (2) about 50% of the remodelling is done by small local home builders who are not familiar with imported building products (Takabatake 1999). The potential for imported products in the remodelling market is high since the market is expected to grow and Japanese remodellers will probably become more interested in imports to distinguish their products and services from their competitors. Design and unavailability of the products in Japan were the most important reasons for the builders and architects surveyed by JETRO to import products instead of using domestic products (Takabatake 2000). JETRO's end-user survey (1999) also indicated that the most important reason for importing building products, by far, were design, unconventionality and unavailability among domestic products, although the reasons varied for different products. Quality and manufacturing inconsistencies, along with maintenance, were perceived by builders and architects as the main product disadvantages of imports (Takabatake 2000). Other important issues included whether it is possible to combine imported products with domestic materials, also reflecting the increased interest in using imports in remodelling (JETRO 1999). 2.1.2.2 Distribution The distribution system for building materials in Japan is multi-layered with several intermediaries. Conversely, the distribution channel of imported building materials and products is relatively simple (JETRO 1996). Large house builders in Japan often import building materials and products directly from overseas manufacturers or exporters. Alternatively, house builders purchase imported products from distributors or other overseas representatives in Japan. Wholesale dealers usually lie between importers and small and medium-sized builders. Small and medium-sized house builders in Japan often avoid inventory and financial risk by obtaining credit from their suppliers through promissory notes. Consequently, the builders purchase only materials that their suppliers carry, which can make market entry difficult for imported materials. According to JETRO (1996), imported products might be increasingly distributed through the multi-layered system if a growing number of house builders use imported products. This, however, may lead to increased prices for imports. On the other hand, there is a trend to streamline distribution 8 systems in Japan in order to cut costs as consumers are more cost-conscious since the downturn of the economy (JETRO 1993). Additionally, less expensive imported products have forced manufacturers and wholesalers in Japan to cut costs, while at the same time foreign companies have applied pressure to simplify distribution systems. New information management technologies have already eliminated the need for multi-layered wholesaling in many industries (JETRO 1993). A research project currently underway at the University of British Columbia (funded by Forest Renewal BC) examines the distribution system for building products in Japan in detail. 2.1.3 Home Financing Home buyers can finance their new homes either privately or with public financing. The single most important public source of financing is the Government Housing Loan Corporation (GHLC). The GHLC was set up to provide long-term, low-interest housing loans which banks and other financial agencies could not provide, with the goal of promoting house construction (Building Center of Japan 1998). The GHLC also operates on a regional level so that prefectures can carry out housing policies suitable for local communities. Figure 3 illustrates the share of GHLC financed homes built from 1986 to 1999. Thirty-seven percent of all newly built houses were financed by the GHLC in 1999. GHLC financing is especially important in houses built by owners (owner-occupied housing) and houses built for sale, both of which are mostly single-family detached homes. At least 55% of all single-family detached housing starts are financed by the GHLC (Building Center of Japan 1998). Housing for rent and company-supplied employee housing are mostly privately financed. For home buyers using GHLC financing, a GHLC loan covers about 60% of the total costs of the house. The GHLC also provides low-interest loan rates to homeowners who remodel their houses. The GHLC supports high quality building materials and products, and thus influences the selection of building products used in construction. It is interesting to note that increased durability requirements for traditional post-and-beam wood construction in Japan are not the result of dramatic changes to the Building Code, but rather due to significant changes to the GHLC qualifications for mortgage assistance. Since October 1998, house construction must meet specifications regarding the durability of the house structure in order to qualify for a GHLC loan ("durability type house") as well as one of the two following specifications: 1) "barrier-free type house" (for the elderly and wheelchair accessible, e.g. no differences in floor levels), or 2) "energy-saving type house". (COFI 1998). 9 Figure 3: GHLC financed housing as percentage of total housing starts, 1986-1999 15 10 5 0 -I , , , , , , , , , , , , , c o o o c o o o o ) O C 7 > o a > a > a > c 7 > c 7 > o 0 > 0 > 0 > O C 7 > ( 7 > 0 0 0 > 0 0 0 0 > 0 > Source: Japan Ministry of Construction 2.1.4 Certification of Building Products There is a complex system for certifying building materials and products in Japan. This section consists of information adapted from a report prepared for Forintek Canada Corp. (Wahl et al. 1999). 2.1.4.1 Home Warranties In Japan, the vast majority of the post-and-beam (traditional) wood houses are built by the Japanese carpenters and house builders who each construct less than 100 houses per year (termed komuten in Japan). It is typical for these builders to offer very comprehensive five-year warranties for their Japanese customers. In addition, these builders rely mostly on word of mouth and personal references to obtain contracts to build houses and many take some form of responsibility for up to ten years. This responsibility covers not only major items such as superstructure, roofs and walls, but also finish items such as flooring, windows and cabinets. Thus, carpenters are very concerned with both the durability and maintenance requirements of the products that they use in house construction. This factor, combined with the lack of a repair and remodelling culture, requires a careful selection of materials by these komuten when building houses. The recently revised Japanese Building Standard Law will shift from specification-based to performance-based standards for building construction ("Great Revision of Building Standard Law" 1999). Based on this revision, a new Housing Quality Assurance Program was enacted in 1999 that covers structural members of homes, which require a warranty of at least ten years. It also contains a 10 voluntary extension of the warranty period for up to 20 years covering the non-structural parts of the construction. Performances in the Housing Quality Assurance Program with respect to flooring and windows include fireproofing, heat insulation, soundproofing, formaldehyde emissions ("Housing Quality Assurance Law -3-" 2000). Performances will be evaluated by the private sector, by "designated evaluation bodies". While performance assurance is voluntary, the large house manufacturers will indicate performances, and certifications for non-structural building products will probably become more significant in the future. 2.1.4.2 The Government Housing Loan Corporation List For building products, small builders use the GHLC specification list as a de facto certification system. The GHLC specification list contains products that are approved to be used in house construction financed with GHLC mortgage assistance. Builders assume that if a product is on the GHLC list, then their customers will not hold them responsible for any problems or defects, but rather transfer that responsibility to the government and its agents, the GHLC. This means that producers of building products consider the placement of those products on the list as a necessary step in developing measurable market share among small builders of predominantly traditional wood houses. For imported products, usually not on the list, the GHLC list poses a major barrier to market entry. There are three organisations that are involved in approving building materials and products for use in Japanese wood house construction: The Building Center of Japan, the Japan Housing and Wood Technology Center (HOWTEC) and Better Living. HOWTEC and Better Living, which evaluate building products, are voluntary organisations funded by the Japanese industry and their associations. The GHLC almost always follows the recommendations of these two organisations regarding the addition of products to the GHLC list, as long as the recommendation is accompanied by sufficient test data. HOWTEC, which is supported by the Ministry of Agriculture, Fisheries and Forestry and the Ministry of Construction, tests building materials and some wood building products. This includes many of the new wood species and products as well as windows, doors and engineered wood products. Better Living tests building products including appliances, electronics, plumbing and also windows and doors. Their testing and recommendations also lead to products being added to the list. These organisations have substantial power for companies trying to introduce new products for use in the Japanese traditional wood housing market since being on the GHLC list is a de facto certification 11 for small builders to use these products. It remains to be seen how the changes in the Building Standard Law and the new housing quality assurance program will affect the GHLC listing and its importance for small builders. 2.2 JAPANESE MARKETS FOR WOOD FLOORING AND WINDOWS Wood is the preferred material for many building products in interior finish in Japan (Cohen and Gaston 1998). While consumers and builders generally prefer solid wood, they often choose wood composites and non-wood materials, especially in lower-end housing. Sections 2.2.1 Wood Flooring and 2.2.2 Wood Windows examine the Japanese markets for wood flooring and windows, their non-wood competition, products, and the main suppliers to Japan. 2.2.1 Wood Flooring The popularity of wood flooring, including solid wood, engineered wood and laminate flooring is increasing globally and Japan is one of the largest markets in the world for wood flooring. After defining and classifying wood flooring, an overview will be give on the Japanese floor covering market. Then wood flooring products common in Japan will be described in more detail and the last section will outline the main suppliers of wood flooring to Japan. 2.2.1.1 Classification of Wood Flooring Wood flooring can be broken into three main categories: solid wood flooring, engineered wood flooring and laminate flooring (Figure 4). Solid wood flooring consists of one layer of solid wood from top to bottom. Engineered wood flooring (often also called laminate wood flooring, a term that should not be confused with direct or high-pressure laminate flooring) is a tongue-and-groove multi-layer wood floor, produced by bonding layers of veneer and/or sawn wood with an adhesive. The face consists of sliced veneer or sawn strips, the core of veneer, plywood, or sawn wood, and the backing veneer. Both solid wood flooring and engineered wood flooring can be produced as strip flooring, plank flooring, or parquet. Planks are wider than strips (up to 7"), while parquet is a geometrical pattern composed of individual wood slats. Solid and engineered wood flooring are available in either pre-finished or unfinished forms. The two most common types of finish for pre-finished flooring are polyurethane and acrylic-urethane. 12 To increase abrasion resistance, ceramics or aluminium oxides can be added to the urethane finish. Acrylic impregnated wood gives increased hardness and is finished with one of the above mentioned finish types (FloorSearch n.d.a). Figure 4: Woodflooring classification W o o d Flooring I Solid Wood Flooring Strip I Engineered Wood Flooring Plank Parquet X Strip 1 Laminate Flooring Plank 1 Parquet Source: Beauregsirdpers.com., WoodFloorsOnline.Com 1999 Laminate flooring has a wood-based core of medium-density fibreboard, high-density fibreboard, or particleboard. The face is made of sheets of resin-impregnated (usually melamine) paper with a photo imprint of wood grain or stone as the top sheet, although wood veneer can also be used. The backing consists of another layer of laminate sheet for stability and strength. There are two types of laminate flooring with respect to the lamination technology used, direct-pressure laminates and high-pressure laminates. Lamination of direct pressure laminates is a one-step process, which means short pressing cycles. Conversely, while high-pressure laminates can have extremely durable surfaces, the lamination process requires more time. Both laminate flooring types offer very hard surfaces and require practically no maintenance (FloorSearch n.d.6). In the Japanese Agricultural Standards (JAS), wood flooring is classified into single-layer flooring and composite flooring (Wood Products and Politics Research Group 1997), which corresponds to solid wood flooring and engineered wood flooring/laminate flooring, respectively. Solid flooring is divided into three categories: planks, blocks, and mosaic parquet. Planks are the most common type of solid wood flooring. There are three classes of composite wood floors according to JAS: plywood base, laminated base, and particleboard/fibreboard base. Plywood is used in ninety percent of the composite flooring, laminated core is used in less than one percent, and particleboard or fibreboard in nine to ten percent of the cases (Yaguchi pers. com.). Veneer is used on the tops of the base material, with a paper face (laminate flooring) being uncommon. 13 2.2.1.2 Overview of the Japanese Floor Covering Market With the decline in housing starts in Japan since 1996, the total floor area of newly constructed homes has decreased by 29% to 111 million square metres in 1998. Table 2 shows that owner-occupied houses still represent the largest share (55% in 1998) of the total floor area. The main flooring materials used in Japan are wood, carpet, plastic and tatami (rice straw mats). Wood flooring and tatami are found more often in detached houses (owner-occupied), while the less expensive carpet is used more frequently in collective housing (Yaguchi pers. com.). Table 2: Floor area of new homes, 1994-1998 Fiscal year 1994 1995 1996 1997 1998 1,000 m" Lived in by owner 80,605 75,632 89,740 62,784 60,916 Rental 30,347 29,479 32,678 26,820 22,740 Employee housing 1,998 1,808 1,824 1,726 1,176 Condominium 33,667 31,221 32,772 32,421 26,145 Total 146,616 138,139 157,014 123,751 110,978 Source: Nippon Interior Fabrics Association 2.2.1.2.1 Carpet Carpet has the highest share among floor materials in Japan, although it amounts to less than half of that used in the US and Europe. The Nippon Interior Fabrics Association estimated the market size for carpets in the 1998 fiscal year at 257.4 billion yen (including rugs and non-residential uses of carpet) (Table 3). The decline in the carpet market was especially obvious in imported products while the overall market for carpets was weak. Inexpensive imports come from Asian countries, especially China, and the US (Nippon Interior Fabrics Association n.d.). 2.2.1.2.2 Plastic Floors Market size is given for three types of plastic flooring for which data is collected by the Nippon Interior Fabrics Association (Table 3). Of the plastic floor materials, only the cushioned floor is used predominantly in residential buildings. Cushioned floor is a flooring sheet with a foam under-layer. Each house or apartment uses only a small quantity of cushioned flooring, since they are mainly used in wet areas such as kitchens and bathrooms, around washstands and toilets. The market size for the 1998 fiscal year was estimated at 23.6 billion yen, falling with the decline in housing starts. 14 Table 3: Value of carpet and plastic floors markets, 1995-1998 1995 1996 1997 1998 Billion yen Carpet total 293.5 300.3 292.5 257.4 Domestic products 155.2 157.8 164.8 150.7 Imported products 138.3 142.5 127.7 106.7 Plastic total 44.6 44.1 42.9 40.1 Composition tiles 7.6 6.9 6.2 6.2 Regular vinyl sheets 11.5 11.5 11.0 10.3 Cushioned flooring 25.5 25.7 25.7 23.6 Note: Values are based on wholesale prices. Source: Nippon Interior Fabrics Association 2.2.1.2.3 Tatami Tatami mats are thick, woven mats traditionally used in Japanese houses as floor covering; they are conventionally made of a rice straw backing with a facing of woven rice straw rushes. The construction of modern housing also means that moisture that is absorbed by the backing cannot escape under the flooring. Consequently, new materials such as insulation board and polystyrene foam are now being used for tatami backing. In modern homes, tatami has been replaced by wood flooring, carpet and sometimes plastic floors, although most detached houses built today have one or two traditional Japanese rooms with tatami (Fuyuki pers. com.). The demand for tatami mats has decreased considerably over time, but since Japan has to import more than 30% of the rice straw for tatami facing, any increase in demand would have to be met by imports. In recent years, tatami mats have not only been used as a traditional form of flooring, but have also been laid on western-style flooring as a form of interior decoration; they are now available in a variety of colours and designs, as well as in carpet form (World Trade Center Osaka n.d.). 2.2.1.2.4 Wood Flooring Globally, there is a trend towards hard surface flooring, which is due in part to the popularity of laminate flooring, but also to a rising demand for solid wood and engineered wood flooring ("Domotex" 1999). The regions of Asia and Oceania are the biggest producers of wood flooring (43%) followed by Western Europe and North America (Table 4). 15 Table 4: Global woodflooring production and sales by region, 1996 Region Production Sales % % Asia and Oceania 43 30 Western Europe 26 38 North America 20 19 Other areas 11 13 Total 305 million m2 US$5.4 billion Source: Beauregard 1999a Japan is one of the largest consumers of wood flooring in the world with a consumption of about 80 million square metres per year ("Japanese Furniture Market" 1998). The share of wood flooring relative to the total floor covering market is approximately 25%, which is much higher than the share of wood flooring in Canada, Europe or the US, all of which are between five and ten percent ("Wood: State of the Industry" 1999). Due to health concerns, such as allergies and indoor air quality, the use of carpet is decreasing and wood flooring is becoming increasingly popular in Japan (Cohen and Gaston 1998). Typical wood flooring systems consist of tongue-and-groove plywood overlaid with hardwood veneer (engineered wood flooring) rather than the tongue-and-groove hardwood strip flooring systems that tend to be used in North America. At least 80% of the solid wood flooring is used in public facilities, such as schools and commercial buildings, while most of the engineered flooring is installed in residential housing (Yaguchi pers. com.). Due to concerns about formaldehyde emissions, an increase in use of solid wood flooring is expected. While the demand for flooring in general declined with lower housing starts, the demand for heated floor systems has increased. There is also an increase in demand for soundproof flooring for both apartment housing and detached housing ("Less Shipments of Laminated Wood Flooring" 2000). 2.2.1.3 Standards for Wood Flooring in Japan Specifications, applications and performance of wood flooring is described in the Japan Agricultural Standards (JAS). Although these standards are voluntary, most flooring manufacturers follow them. Of all of the flooring produced in Japan in 1994, 76% of the solid wood flooring was JAS-graded and 53% of the composite flooring was JAS-graded (Pesonen and Cohen 1996). 16 2.2.1.4 Composite Wood Flooring Products3 2.2.1.4.1 Structure and Sizes Most of the composite flooring is made of pre-assembled, pre-finished panels that are fast and easy to install. About 90% of the composite floors have a base material made of tongue-and-groove plywood. Thin veneers are laminated either directly on the plywood or on a middle layer of thin MDF. MDF is increasingly replacing plywood as base material because of its lower production prices. The finished flooring panel is relatively large (usually 303 x 1818 mm) or, if the pieces are small, they are pre-assembled into larger panels. The most common flooring pattern is strip-like, but a variety of other patterns are also produced. Most of the composite flooring is installed on floor joists. According to JAS, the size of a composite flooring panel for use on joists is about 30 cm wide, 180 cm long and 12 or 15 mm thick. Other sizes are also possible according to JAS, but the above sizes are most common. For use on concrete, other specifications apply. The most common size of rectangular flooring panels on the market is 303 x 1818 mm and 12 to 15 mm thick. Other sizes include half the width (151.5 mm) or double the length (3640 mm) of the most common size given above (Daiken Catalogue 1996-1998, Tostem 1998). Imported and domestic hardwood veneer is usually used for western-style or the traditional western-mixed style house interiors. More than 90% of the composite flooring uses veneer that is thinner than one millimetre, a lower-priced product than flooring with thicker veneer ("Less Shipments of Laminated Wood Flooring" 2000). Softwood veneers of native species, such as sugi (Cryptomeria japonicd), hinoki (Chamaecyparis obtusd) and native pine species, are preferred for Japanese-style houses that represent only a small share of the market. The edge-grain softwood flooring has a very regular and homogeneous texture. The veneer may be impregnated for greater hardness and water repellence for kitchen and bathroom floors. The panels are often treated with wood preservatives, specified by the Japan Agricultural Standards (JAS). The most common type of finish on composite wood flooring is polyurethane lacquer, which is applied to the panels prior to installation. Wax and oil finishes are rarely used. In connection with health-oriented housing, manufacturers of engineered flooring started using Fl plywood as a base material instead of F2 to distinguish their products from others. Fl 3 This section summarises product information from catalogues of Japanese composite flooring manufacturers and from interviews with house builders. 17 plywood has a lower level of formaldehyde emission than F2 (formaldehyde emission classes according to the JAS). Initiatives were taken by associations and the industry to increase the production of Fl plywood in Indonesia and Malaysia, who deliver most of the plywood used in engineered flooring ("JPMA and STA Hold Dialogue" 1998). 2.2.1.4.2 Prices The following table gives an overview of typical end-user catalogue prices for different qualities of hardwood and softwood composite flooring. Prices for softwood veneered flooring made of domestic species tend to be higher than for hardwood veneered flooring. Higher quality flooring and softwood veneered flooring have a hardened veneer surface. Table 5: Catalogue prices of composite flooring for detached houses Veneer quality Panel thickness Price yen/m'1 Western style natural (not hardened) 6 mm 3,600 (hardwood veneer) 12 mm 4,600-6,400 15 mm 5,700-9,900 hardened 12 mm 8,200 15 mm 9,600-18,300 hardened and water-resistant 15 mm 14,900-16,300 (for kitchen, bathroom) Japanese style hardened 12-15 mm 9,000-19,600 (softwood veneer) extra hard (for entrance area) 15 mm 13,900-30,100 * 1000 yen/nT1 = US$0.70/fr i (at average 1998 exchange rate of 131 yen/US$) Source: Daiken Catalogue 1996-1998 2.2.1.5 Solid Wood Flooring Products Solid wood floors produced in Japan are found more often in non-residential buildings than in residential construction. Most of the wood used for these purposes are domestic species like the deciduous nara (Quercus spp.) and buna (Fagus crenata). They are harvested in northern Japan, mostly in Hokkaido. Some wood is also imported from North America, Europe and Asia, but the imports are used as marginal supply and only make up for shortages in domestic supply (Yaguchi pers. com.). Solid wood floors in residential houses are typically imported. They are used in higher-grade houses that are often built in two-by-four construction or are imported western homes ("Japanese Furniture Market" 1998). The sizes of solid hardwood strip flooring sold in Japan by a US producer, 18 for example, are 5/16" to %" in thickness (0.8 to 1.9 cm) by 2 V4" to 3 V" wide (5.7 to 8.2 cm), random lengths. The typical retail price without installation of wax-finished oak flooring in Japan is about 10,000 to 15,000 yen per square metre (JETRO 2000). Prices of prefinished solid wood flooring are approximately twice the average price of prefinished veneered composite flooring. 2.2.1.6 Suppliers of Wood Flooring The major suppliers of wood flooring to the Japanese market are, in order of importance, the domestic industry, the US, Southeast Asia, Europe, and Canada. 2.2.1.6.1 Japan Domestic Production. Almost all residential wood flooring is produced domestically. The domestic production of solid and engineered wood flooring is shown in Table 6 and Table 7. The volume of engineered wood flooring is far higher than solid wood floors (accounting for about 95% of all wood flooring), while solid wood flooring, including the flooring for non-residential applications, captures only around five percent of the wood floor production. Table 6: Volume of Japan's domestic production of solid wood flooring, 1992-1998 1992 1993 1994 1995 1996 1997 1998 1,000 Kiln-dried: Planks and block flooring 2,964 2,716 2,788 3,190 4,048 3,272 Buna (Fagus crenata) 656 587 512 498 478 350 Nara (Quercus spp.) 867 889 905 1,178 1,446 1,540 Other hardwoods 1,234 1,030 1,141 1,328 1,896 1,195 Imported woods 207 210 230 185 206 187 Mosaic parquet 409 416 404 384 306 285 Total kiln-dried 3,373 3,132 3,191 3,538 4,353 3,557 3,272 Total air-dried 268 214 198 189 183 0 0 Grand total 3,641 3,346 3,386 3,729 4,515 3,557 3,272 Source: Wood Products and Politics Research Group 1997, Bean and Nagahama 1999 Table 7: Volume of Japan's domestic production of composite woe dflooring, 1992-1997 1992 1993 1994 1995 1996 1997 1,000 m z Veneered 59,635 66,620 75,421 74,869 77,592 77,140 Paper overlaid 843 723 700 619 661 828 Total 60,478 67,343 76,121 75,486 78,253 77,968 Source: Wood Products and Politics Research Group 1997 19 The solid wood flooring industry consists of small factories in northern Japan, mostly in Hokkaido, that use local wood species. Only small volumes of wood are imported from overseas. The number of solid wood flooring mills was 37 in 1998, the same as the previous year (Bean and Nagahama 1999). In contrast, the manufacturers of engineered wood flooring are very large flooring companies such as Daiken Kogyo and Matsushita whose background is generally not in solid wood products. Engineered wood flooring manufacturers import most of the raw material (plywood and veneer) from Southeast Asia. Demand and prices for engineered wood flooring fell in 1998, reflecting the decrease in housing starts. Prices for the plywood used for producing engineered wood products also fell, but less than for the finished product. Consolidations of engineered wood flooring manufacturers are expected due to strong competition and a weak housing market ("Supply/Demand of Laminated Wood Flooring" 1998). Japanese manufacturers are organised in the Solid Wood Flooring Industry Association and the Composite Wood Flooring Industry Association. These two associations can be considered as one with two member groups. The Solid Wood Flooring Association's member list of 1998 reports 87 members, with only 26 being producers and the remainder distributors. Nineteen large companies, which are listed in Appendix II A, were members of the Composite Wood Flooring Association in 1998. Imports. Imports consist mainly of solid wood flooring for use in high-end homes. Imports of hardwood with tongue-and-groove joints (flooring as well as ceiling plates, wall panels etc.) were worth a reported 15.3 billion yen in 1998 (Japan Tariff Association 1998). Oak and maple flooring is mainly imported from the US. Imports of hardwood with tongue-and-groove joints from the US, Canada, China and Taiwan increased, while imports from Southeast Asia dropped (Japan Tariff Association 1998). Japan's imports of parquet panels decreased to 808 million yen in 1998, which is a drop of more than 30% compared to 1997. Most of the imported parquet panels come from Taiwan and Thailand (Japan Tariff Association 1998). The most important reasons for installing imported flooring is the use of quality wood materials and durability, according to a consumer survey by JETRO (1999). Imported wood flooring is mainly made of solid wood, which is also appreciated for being "healthy" in contrast to formaldehyde emissions that occur in plywood and fibreboard in domestic composite flooring. 20 2.2.1.6.2 North America The production volume of solid and engineered wood flooring in the US has grown to 62.1 million square metres in 1998. The share of engineered flooring was 33% of the total wood flooring sales volume in 1998, and several major manufacturers of solid wood flooring have switched to engineered-only production in anticipation of a market swing towards engineered flooring (Wood: State of the Industry 1999). The US is the largest exporter of wood flooring to Japan. Wood flooring in Japan differs from the products commonly sold in Canada and the US (pre-assembled large engineered flooring panels in Japan versus solid strip flooring or engineered flooring boards in North America). The share of engineered wood flooring and laminate flooring, which are more similar to flooring made in Japan with respect to installation, is increasing dramatically on the North American market. Canadian exports of hardwood flooring to Japan dropped to US$710,000 in 1998 (Table 8), which represents 2.5%> of the total hardwood flooring exported from Canada. Data on softwood flooring exports from Canada were not available, but the value of exports should be very small in comparison to hardwoods, since Canadian production of softwood flooring is minor (Beauregard pers. com.). Japan is the single largest market for softwood flooring from the US (17.4%). US softwood flooring exports to Japan peaked in 1996 (US$5.5 million) and dropped sharply to US$1.7 million in 1998 (Table 8). (These figures may include softwood used for truckbeds.) Parquet panel exports to Japan from Canada and the US are small compared to hardwood and softwood flooring exports with US$177,000 and US$596,000, respectively, in 1998 (Table 9). Table 8: Canadian and US exports of hardwood and softwoodflooring to Japan, 1991-1998 1991 1992 1993 1994 1995 1996 1997 1998 Canadian exports Hardwood Value (US$) 152,766 123,991 63,680 649,950 853,208 721,785 658,052 711,318 flooring U S exports Hardwood Value (US$) 4,180,150 3,603,051 2,933,614 3,864,080 5,790,763 7,492,509 6,415,990 3,862,904 flooring Volume (m2) 193,387 173,282 144,215 190,325 280,563 353,323 282,169 161,986 Softwood Value (US$) 1,378,399 1,691,752 3,005,284 1,702,684 3,302,730 5,528,946 4,913,463 1,679,742 flooring Volume (m2) 91,689 108,055 197,921 111,384 217,487 363,694 326,220 111,423 Source: Statistics Canada, US Census Bureau 21 Table 9: Value of Japan's imports ofparquet panels from Canada and the US, 1997 and 1998 Country of origin 1997 1998 Change 1997-98 1,000 yen % Canada 28,133 21,274 -24.4 USA 157,481 71,571 -54.6 Total 186,614 93,845 -49.7 Source: Japan Tariff Association 2.2.1.6.3 Asia Southeast Asian lumber and plywood mill owners have invested heavily in secondary processing, diversifying production to include flooring, furniture and builder's joinery, but domestic raw material supply is limited. Since the early 1990s, tropical hardwood production in Indonesia, Malaysia, the Philippines and Thailand has fallen significantly (by about 35% between 1991 and 1999) and harvest volumes are predicted to fall even further. China is a new competitor for Southeast Asian countries with lower labour costs, but because of its limited natural resources it has to rely on wood imports that have come mostly from Indonesia and Malaysia in the past years. Therefore, Southeast Asian countries and China are reducing tariffs and other barriers to import logs and lumber (USDA Foreign Agricultural Service 1999). There are indications that temperate hardwoods (mostly from the US) are imported into Thailand, Taiwan, China and Indonesia and manufactured into finished or semi-finished products that are then imported by Japanese importers for final assembly and sales in Japan. It is probable that this type of product flow will increase with a more sophisticated global trading system and competitive advantages in Southeast Asian countries, such as exchange rate and labour costs (Bean and Nagahama 1999). Taiwan and Thailand are the most important exporters of wood flooring to Japan followed by Laos and China (Table 10). Thailand's exports of wood flooring have experienced growth since the devaluation of the baht. Many Thai furniture and interior manufacturers have switched to using the local rubberwood (also known as parawood). The parawood industry is at an advantage because it is supported by the Thai government and is less expensive than other hardwoods, although it is not suited for strong high-quality flooring (House et al. 1999). China has become a major competitor in wood flooring exports as they offer cheaper labour than most Southeast Asian countries. 22 Table 10: Value of Japan's imports ofparquet panels from Asia, 1997 and 1998 Country of origin 1997 1998 Change 1997-98 1,000 yen % Taiwan 245,292 192,066 -21.7 Thailand 168,635 190,787 13.1 Laos 147,731 50,806 -65.6 China 12,791 27,351 113.8 Malaysia 482 26,307 5357.9 Indonesia 58,617 20,791 -64.5 Singapore 24,527 9,111 -62.9 Myanmar 0 749 -Vietnam 4,231 0 -Total 663,306 518,968 -21.8 Source: Japan Tariff Association 2.2.1.6.4 Europe Consumption of solid and engineered wood flooring in Western Europe was about 64 million square metres in 1996 with more than 50 million square metres of it produced domestically. Engineered wood flooring (multi-ply parquet) produced mainly in Scandinavia has gained in utilisation at the expense of traditional solid wood flooring. Laminate flooring was first established on the European market, experienced strong growth and at present dozens of companies are competing for shares in laminate flooring. (Expanding Demand for Builders' Woodwork 1998). Table 11 shows the European suppliers of parquet panels to Japan, with Sweden being the largest exporter (91 million yen in 1998), followed by Denmark, France, Italy and Germany. Table 11: Value of Japan's imports ofparquet panels from Europe, 1997 and 1998 Country of origin 1997 1998 Change 1997-98 1,000 yen % Sweden 181,841 91,209 -49.8 Denmark 39,687 29,650 -25.3 France 8,337 25,789 209.3 Italy 11,130 22,533 102.5 Germany 47,545 12,100 -74.6 Finland 9,199 9,348 1.6 Belgium 9,296 3,308 -64.4 Norway 10,249 1,541 -85.0 Netherlands 0 879 -Austria 0 418 -UK 5,221 0 -Total 323,505 197,775 -38.9 Source: Japan Tariff Association 23 2.2.2 Wood Windows A unique feature in Japanese house construction when compared to other industrialised countries is the dominance of aluminium windows. Local production of wood windows has dwindled after the introduction of factory-made aluminium and steel windows. This section gives an outline of the Japanese window market; it describes wood, aluminium and plastic window products and their market shares. Since most wood windows are installed in detached, single-family homes, the characteristics of windows in detached houses are summarised. Fire regulations apply to many urban areas, and have a significant impact on the use of wood windows in those areas. The last part in this section gives an overview on suppliers of wood windows to the Japanese market. 2.2.2.1 Overview of the Window Market Physical stress on windows in Japan is higher than in most temperate countries. Summers are hot and humid while winters are cold and relatively dry. In autumn, strong winds combine with heavy rains. Therefore, water infdtration and dimensional stability are some of the more important issues in window construction in Japan. Before 1960, when locally produced wood windows were still common, wood windows were made using complex joinery systems. Many were factory-manufactured and had problems with shrinking, water tightness, and air tightness. Quality problems also came from the fact that in traditional post-and-beam houses, carpenters made the sash but not the window itself often resulting in a poor fit. When steel and aluminium windows were introduced in the 1960s, the market shifted from poor-quality wood windows to aluminium windows. The production of aluminium sash increased dramatically to dominate the market of today (NKS Information Network 1994). Originating from the shoji (wood and paper sliding doors) in traditional Japanese houses, double-sliding windows are the most common window type used today. The double-sliding window, in which both window panes can slide, is not commonly produced in North America or Europe. Almost all sliding windows in Japan are made of aluminium (Japan Sash Association 1998). The total market for windows in residential housing was estimated at 438.8 billion yen in 1996 (Takabatake 19976) or 23 to 24 million units in 1999 (JETRO, 2000). Table 12 shows market values and shares for aluminium, plastic and wood windows in residential housing in 1996 as estimated by the Commercial Service Japan based on domestic production, imports and exports (Takabatake 19976). The share of steel sash windows in residential construction is negligible. The share of wood windows (including aluminium, copper and plastic-clad wood windows) is 24 approximately two percent. According to volume estimates by JETRO (2000), the share of wood windows was between 100,000 and 110,000 units, representing less than one percent of the total residential window market in 1999. Aluminium dominates the market in Japan, with a market share of 90%. Table 12: Estimated size of Japanese residential window market by sash material, 1996 Sash material Value Market share Billion yen % Aluminium 393.1 90 Plastic 34.9 8 Wood (incl. aluminium-, copper- and 10.8 2 plastic-clad wood) Total residential window market 438.8 100 Source: Takabatake 19976 2.2.2.1.1 Aluminium Windows More than 95%> of the aluminium windows in residential housing are produced in Japan (Takabatake 19976), mostly by very large companies. Six companies hold 70%> of the total aluminium window production in Japan (Ichikawa pers. com.), including manufacturers such as Tostem and YKK. As opposed to North American manufacturers, the large aluminium window manufacturers in Japan cover the whole production process from the imported raw materials to the finished windows and other aluminium products (Ichikawa pers. com.). One advantage of aluminium windows is low maintenance because aluminium forms a protective oxide film so that there is no need to paint or apply any protection. As house builders and consumers are becoming more aware of the energy-efficiency and soundproof qualities of plastic and wood windows, Japanese aluminium window manufacturers have started to produce more energy-efficient windows with insulating vinyl separating inner and outer sashes and frames (Takabatake 19976). 2.2.2.1.2 Plastic Windows Plastic windows had an estimated share of eight percent of the total window market in 1996. Most of these (90%) are produced domestically and sold in Hokkaido, where cold winters make good insulation necessary and where the low population density does not require windows to comply with fire regulations. Ninety-five percent of residential windows in Hokkaido are plastic windows (Takabatake 19976). As opposed to aluminium window manufacturers, no company or group of companies dominates the plastic window market in Japan. Japanese manufacturers are expected to 25 expand their market from northern Japan to the south and domestic production will grow steadily over the long term (Takabatake 1991b). Competition between imported and domestic plastic windows is limited, because the share of imported windows is small and they are mostly installed in imported houses and in two-by-four houses throughout Japan as a low-cost alternative to wood windows. Compared to wood windows, plastic windows have equally good insulating properties, but are less expensive on average. Unlike wood windows, they do not require regular maintenance. More than 60% of the imported plastic windows come from the US (2.2 billion yen in 1998 including plastic doors) with Canada the next-largest supplier (Japan Tariff Association 1998). 2.2.2.1.3 Wood Windows The market for wood windows was estimated at 10.8 billion yen (US$90 million) in 1996 (Takabatake 19976). The current market for wood windows is a niche market, partly because of fire regulations that generally preclude the use of wood windows in fire and quasi-fire zones. Reliable statistical information exists only for imported windows, not domestic production, because it was only until recently that Japanese companies started to manufacture a significant volume of wood windows. Unlike plastic windows, most wood windows are imported and installed primarily in western-style houses (both Japanese-built and imported) and in recreational homes in mountain resort areas (Takabatake 19976). They are more expensive than the more typical aluminium windows, but have higher insulation values and more individualised designs. As a result, there is a strong correlation between the number of western-style houses built and the market for wood windows. Since the share of western-style houses (imported and produced in Japan) is increasing, the wood window market is also expected to grow (Takabatake 19976). A report published by the Foreign Agricultural Service attributes the surge in wood window exports partly to new opportunities for multi-storey wood-frame construction resulting from the 1990 US-Japan Wood Products agreement (Theisen and Dirks 1996). Aluminium windows, however, dominate in traditional post-and-beam housing, which still has the highest share of the residential detached housing market. Part of the reason is the strict fire regulations in urban areas that favour the use of aluminium windows. As with plastic windows, a large market for wood windows exists in Hokkaido and in northeast Japan, where winters are very cold and fire regulations do not prohibit the use of wood windows. Increased construction of energy-saving houses could increase the market for wood 26 windows. The government is encouraging house buyers to build houses that have a lower energy consumption through the GHLC which offers preferential financing for houses using energy-saving building materials such as energy-saving windows (COFI 1998). Furthermore, wood windows are more in line with the present trend in Japan towards environmentally safe and healthy housing than aluminium windows (NKS Information Network 1994). 2.2.2.2 Window Types and Sash Materials in Detached Housing Table 13 shows the types of windows used in detached housing. The data is based on a sample of 4010 newly built detached houses surveyed by the Japan Sash Association throughout Japan in 1997 (Japan Sash Association 1998). About 50% of all windows are sliding windows. Other windows (western-type windows) increased slightly to 32% compared to the previous year. Casement and awning windows are the most often installed western-type windows. These windows are used predominantly in western-style houses including two-by-four and imported housing. The relatively expensive bay and bow windows4 also remain popular (Japan Sash Association 1998). Table 13: Window types in detached housing, 1997 Window type Share % Sliding window 51.2 Bay and bow window 9.8 Double window 7.0 Other windows 32.0 In "Other windows": Casement window 30.4 Awning window 28.4 Picture window 18.6 Double-hung window 14.3 Roof window 2.9 Corner window 1.1 Other 4.2 Note: Percentages are based on a sample of 4010 newly built detached houses throughout Japan. Source: Japan Sash Association 1998 Table 14 gives a breakdown of the material used for sashes and frames by window type. Aluminium is the dominant material for all window types, with the exception of casement windows and the inner sliding frame of double windows. About half of the casement windows in the survey are made of plastic or wood combined with aluminium or plastic. The popular standard sliding window is 27 not shown in this table, but the proportion of aluminium for this window type is almost 100% (Japan Sash Association 1998). Window colours were mainly dark. Japanese-style houses mostly have bronze sashes, while western-style house owners prefer black. Aluminium windows in bronze are closer to the colour of the traditional unfinished wood windows and doors. White windows are more common in western-style houses than in Japanese traditional housing. Table 14: Window sash material in detached houses by window type, 1997 Window type Aluminium Plastic Wood Wood combination % Exterior double window 87.5 2.7 0.2 9.6 Interior double window 20.6 19.7 58.8 0.9 Bay and bow window 92.0 2.3 0.1 5.6 Casement window 50.1 35.5 - 14.3 Awning window 99.7 0.2 - -Picture window 79.3 12.2 0.2 8.3 Double-hung window 94.6 1.7 0.1 3.6 Roof window 79.8 1.3 4.3 14.5 Corner window 93.4 4 - 2.6 Other 75.3 14.2 0.2 10.3 Note: Percentages are based on a sample of 4010 newly built detached houses throughout Japan. Source: Japan Sash Association 1998 2.2.2.3 Regulations and Standards for Wood Windows There are no voluntary JIS (Japan Industrial Standards) or JAS (Japan Agricultural Standards) for wood windows. In order to improve the quality of wood windows produced by Japanese manufacturers, HOWTEC has developed new performance standards that were under review in 1999. The standards focus on water tightness, air tightness, and strength against wind pressure (Soya pers. com.). The only important mandatory regulations for windows are the fire regulations in the Building Standard Law of the Ministry of Construction (Takabatake 19976). Japan has strict fire regulations because of the dense urban population and frequent earthquakes and typhoons. The fire regulations have promoted the use of non-wood materials for windows, especially aluminium. Fire regulations apply to house construction in fire zones and quasi-fire zones. In these zones, the aim of 4 Bay and bow windows project out from the front or side of a house. Bay windows are angled while bow windows are rounded projections, often formed of the window glass itself. 28 the fire regulations is to keep the fire from spreading from one building to another. Nineteen percent of Japan is zoned as fire or quasi-fire zones and most urban areas are in fire or quasi-fire zones. Windows need not comply with the fire regulations in these zones if they meet one of the following criteria: 1) they are installed in the first floor more than three metres away from the adjacent lot line or centre line of the road, or 2) if they are installed in the second floor or higher more than five metres away from the adjacent lot line or centre line of the road. However, most houses in fire or quasi-fire zones have their second-floor windows within five metres of the lot line or centre of the road, so most windows in urban areas must comply with fire regulations (Takabatake 19976). The term "fire door" in the regulations refers to all openings including windows. Articles 64, 109 and 110 of the Building Standard Law specify exactly when fire doors have to be used, as well as their characteristics (Takabatake 19976). There are two classes of fire doors: class A fire doors have a 60 minute fire rating and are required only in larger multi-family buildings in fire zones; class B fire doors have a 20 minute rating and are required for detached houses in fire zones/quasi-fire zones and multi-residential buildings in quasi-fire zones. Without approval as a fire doors, wood windows are mostly restricted to houses outside of fire zones and quasi-fire zones; that is in rural areas where there has been little population growth or new house construction until recently. In 1993, however, the trend in population shifting from rural to urban areas reversed for the first time since the Second World War (Fuji Research Institute Corporation 1997). Consequently, the proportion of house construction in fire and quasi-fire zones (in urban areas) is declining while more new houses are being built in rural areas where fire regulations do not apply. The market for not fire-rated windows is therefore growing. 2.2.2.4 Suppliers of Wood Windows This section describes the most important suppliers of wood windows to Japan, which are the US, Canada, Japanese manufacturers and Europe. Imports from other Asian countries are also included although they are small in comparison to volumes imported from the above suppliers. 2.2.2.4.1 Japan Domestic Production. Only an estimated 19% of the wood window market or 2.0 billion yen (US$17 million) was produced domestically in 1996, which is equivalent to less than one percent of 29 the total residential window market (Takabatake 19976). Since significant domestic production began only recently, there is no reliable statistical data on production in Japan. However, it is known that in response to the large volume of imported windows, Japanese manufacturers have started producing western-style windows. Most manufacturers of wood windows in Japan are medium or small-sized regional companies in contrast to the very large national aluminium sash manufacturers. Due to their limited production capacity, none of the companies producing wood-only windows are present throughout Japan (Theisen and Dirks 1996). Much of the production is done on a customised basis and many of the windows manufactured in Japan are made of imported timber and use expensive European tilt-and-turn hardware. Because of these high costs, the producers concentrate on the upper-end market. If wood windows develop from a niche market of imported windows to a widely accepted product, manufacturers in Japan may improve technology and price competitiveness, and increase domestic production (NKS Information Network 1994). HOWTEC has recently formed a wood window association. The Wood Window Association has 15 members (listed in Appendix II B) that are major manufacturers of wood windows in Japan. The remainder of the 30 association members are suppliers and importers. Imports. Imported windows continue to dominate the Japanese wood window market. The imported wood window market grew more than 50% per year until 1996 and dropped back to 5.94 billion yen in 1998, which is still higher than the pre-1996 levels (Table 15). Growth rates until 1996 were much higher for imports than for the estimated domestic production. In addition to the import figures in Table 15, wood windows are imported as part of housing packages. The key suppliers of wood windows to Japan are the US, Canada, Denmark and Sweden (Japan Tariff Association 1998). Table 15: Value of estimated Japanese domestic production and imports of wood windows, 1991-1998 1991 1992 1993 1994 1995 1996 1997 1998 Billion yen Est. domestic production 1.85 1.9 2.0 Imports 3.33 2.96 2.75 3.56 5.43 8.80 7.99 5.94 Note: Domestic production figures are estimates and were only available for 1994-1996. Source: Takabatake 19976 for domestic production, Japan Tariff Association for imports Japanese homeowners are generally not familiar with imported wood windows, while house builders and architects seem to be more knowledgeable. According to a survey on imported building products conducted by JETRO (1999), consumers like imported windows for their design and colour, 30 their performance and functionality and thirdly, for the use of wood materials. The superior performance of imported windows perceived by Japanese consumers lies in their multi-pane glass construction and high levels of air tightness and insulation. On the other hand, after the revision of the energy conservation standards and the GHLC standards on energy efficiency, some Japanese companies have started manufacturing multi-pane windows with insulating and airtightness structures comparable to imported windows, except for using aluminium sashes instead of wood (JETRO 1999). The most common concern about imported windows expressed by consumers in JETRO's survey was repair, replacement and other forms of after-sales service. Consequently, consumers might prefer high-performance windows from Japanese manufacturers who are able to provide fast and reliable after-sales service, unless overseas suppliers can convince Japanese consumers of the high quality of their after-sales service programs (JETRO 1999). 2.2.2.4.2 North America The US is the largest supplier of wood windows to Japan, supplying 58% of all imported wood windows in 1998, while Canada is the second-largest with 14%> of the import market representing 3.4 billion yen and 820 million yen, respectively (Table 16). Japan is the largest export market for wood windows outside of North America for both Canada and the US. The most common types of windows being exported to Japan are casement, awning, double-hung, bow and bay windows (Japanese Furniture Market 1998). Windows generally use double pane glass. Canadian wood and clad wood windows are regarded as similar to US-made windows. Major US suppliers include Andersen, Hurd Millwork, Marvin, Milgard, Pella, Pozzi, Weather Shield and Weathervane (Takabatake 19976). Two major suppliers of wood windows to Japan in Canada are Loewen Windows and Willmar/JELD-WEN. Table 16: Value of Japanese imports of wood windows from the US and Canada, 1994-1998 Country of origin 1994 1995 1996 1997 1998 Change 1994-98 Million yen % USA 2,072 3,093 5,083 4,735 3,443 +66.2 Canada 219 765 1,405 1,159 820 +274.4 Total 2,291 3,858 6,488 5,894 4,263 +86.1 Source: Japan Tariff Association 31 2.2.2.4.3 Asia Japan's imports from other Asian countries were 204.6 million yen in 1998, which is small compared to imports from North America and Europe. Table 17 shows that Indonesia is the most important supplier of wood windows among the Asian countries. Table 17: Value of Japan's imports of wood windows from Asia, 1997 and 1998 Country of origin 1997 1998 Change 1997-98 Million yen % Indonesia 216.3 141.1 -34.8 Philippines 97.9 22.8 -76.7 R. Korea 51.0 19.5 -61.8 Thailand 11.2 12.6 +12.5 Malaysia 31.2 4.8 -84.6 China 25.4 1.5 -94.1 Rest of Asia 6.5 2.5 -61.5 Total Asia 439.4 204.6 -53.4 Source: Japan Tariff Association 2.2.2.4.4 Europe Much of the wood window manufacturing industry is located in Germany, which mainly supplies its own domestic market. Scandinavian manufacturers are more export-oriented, with their domestic markets being among the smallest window markets in Europe (EuroWindoor n.d.). The third and fourth-largest suppliers of wood windows to Japan are Denmark (thirteen percent of total imports in 1998) and Sweden (six percent). Table 18 shows the value of imports from Europe in 1997 and 1998. Imports from Denmark and Sweden were 798 million yen and 379 million yen in 1998, respectively. European window imports are high quality, high-end and/or niche products such as Velux skylight windows from Denmark. Windows are generally triple-pane models with very good heat insulation and soundproofing properties. Major suppliers in Europe are Velux, PA Vinduer & Dore, Rationel (all from Denmark), Elit Fonster, Hajomfonster and VestTech from Sweden, and Skaala from Finland (Takabatake 19976). 32 Table 18: Value of Japan's imports of wood windows from Europe, 1997 and 1998 Country of origin 1997 1998 Change 1997-98 Million yen % Denmark 938.8 798.1 -15.0 Sweden 405.1 379.2 -6.4 Finland 160.5 135.1 -15.8 Belgium 48.4 68.2 +40.9 Germany 14.6 23.4 +60.3 Italy 21.5 18.6 -13.5 United Kingdom 30.0 14.3 -52.3 Austria 8.6 10.5 22.1 Rest of Europe 20.6 28.6 38.8 Total 1,648.2 1,475.9 -10.5 Source: Japan Tariff Association 2.3 SYNOPSIS OF LITERATURE REVIEW While the number of new housing starts in Japan is expected to decrease in the long term, the share of western-style, two-by-four and imported houses is increasing as well as the activity on the remodelling market. The use of wood windows and solid wood flooring is closely connected to the construction of western-style and two-by-four houses, while traditional Japanese and post-and-beam homes tend more often to use aluminium windows and composite wood flooring or other flooring materials. The US and Canada are the main suppliers of solid hardwood flooring and wood windows to Japan, and the outlook for future growth in exports to Japan is positive. Wood flooring has a higher share in the floor coverings market compared to other industrialised countries, and its popularity is expected to rise, mainly because of concerns about emissions from other materials ("healthy house" trend). The wood windows market is very small (between one and two percent of the total window market), but its share is expected to increase with the increasing westernization of Japanese homes, the promotion of energy-saving housing, and the growth in house construction in areas where fire regulations do not apply. Fire regulations have promoted the use of metal window frames and sashes in the past. To assess opportunities in the flooring and windows markets, more information is required on exactly what products and services Japanese customers want. What attributes are desired in flooring and windows? Are wood products demanded and if yes, what should be the attributes of the wood flooring and windows? Sizes, colour preferences, wood texture, finish are some of these attributes. 33 On the other hand, what type of products are being exported from Canada to Japan? More information is also needed on quality and product certification. To reach the large number of small house builders, it is helpful to have building products listed on the GHLC List. What are the Japanese customers' perceptions of the quality certification, specifically a non-Japanese certification and with respect to flooring and windows? Can it be used as a marketing tool for consumers and builders? The following two chapters present two surveys that will try to answer these questions. 34 3 RESEARCH METHODS This chapter consists of four sections: 3.1 Methodology, 3.2 Survey of House Builders in Japan, 3.3 Survey of Exporters in Canada, and 3.4 Limitations of Research. Section 3.1 discusses the exploratory research techniques used in both surveys. Sections 3.2 and 3.3 describe sample frame, questionnaire design, data collection and the respondents of the two surveys. The limitations of the study based on sample size and sample selection method are discussed in the last section of this chapter. 3.1 METHODOLOGY Primary data collection on the Japanese wood flooring and window markets was conducted in an exploratory manner5. Exploratory research has three interrelated purposes: (1) diagnosing a situation, (2) screening alternatives, and (3) discovering new ideas (Zikmund 1997). Since not much information was available on preferences and views of Japanese buyers of interior building products such as flooring and windows, exploratory research was an appropriate method to gain a better understanding of the situation. Before determining the most important attributes of the products, one must identify those attributes. Two further reasons for selecting an exploratory approach were budget and time restrictions, as well as the broad scope of the research covering two very different product types (flooring and windows) and quality certification issues. Connected with the choice of an exploratory research design is the type of data collected, the sample frames, the survey methods and questionnaire design. The sample frame, survey methods and questionnaire design will be discussed in more detail for each of the two surveys. Most exploratory research studies, this one included, provide qualitative data. For this reason, interpretation of the results is judgmental and it does not have the reliability and objectivity of quantitative research. The surveys also collected quantitative data and the limitations in interpreting these quantitative findings are discussed in section 3.4 Limitations of Research. 5 While this study does incorporate traditional exploratory research methods used in marketing, it is exploratory in that samples are small, non-random and cannot be used to infer onto a population. 35 3.2 SURVEY OF HOUSE BUILDERS IN JAPAN 3.2.1 Survey Design This study was based on a sample of residential house builders and construction firms in Japan. The survey respondents were designers within the residential building companies. The survey population was defined as residential house builders in Japan. Japanese house builders can be categorised into large housing manufacturers, medium-sized builders who build about 50 houses a year, and small local house builders. Since a previous survey on interior finish had been conducted among small and medium-sized builders by Cohen and Gaston (1998), large builders were the main targets in this study in order to enhance the results of the previous survey. Moreover, large builders are purported to lead the way in house design. The sampling procedure was a combination of convenience and purposive sampling. Fourteen companies were selected through a distributor of Canadian building materials in Japan (Interex Japan) based on the distributor's contacts in the house building industry. The survey focused on two topics: (1) attributes demanded of wood flooring and windows, and (2), the perception of quality and the importance of quality certification of interior finish products. The questionnaire was developed based on two previous surveys, one on interior finish in Japan by Cohen and Gaston (1998) and another survey by Kozak (1998 and 1999) on quality and quality certification among secondary wood processing companies in British Columbia. The questionnaire was pre-tested by individuals at the University of British Columbia, Department of Wood Science, and in the industry. The survey was conducted by means of personal interviews through translators with company respondents in Japan. The three main reasons for selecting personal interviews as the survey method in this study were: (1) the type of data collected was mostly qualitative, (2) the response rate of the Japanese companies would have been low with any other method, and (3), the questionnaire was lengthy. Since personal interviews are relatively costly and time consuming, the number of companies interviewed had to be small. The questionnaire was translated into Japanese and faxed to the respondents prior to the interviews to give them a better idea of the survey's content. Thirteen builders were interviewed in the Tokyo area during two weeks in September 19986. A fourteenth company in the sample could not be interviewed. 6 The Tokyo area is, followed by Osaka, the most populated area in Japan and therefore the largest housing market. 36 3.2.2 Profile of Survey Respondents The total number of units built by the house builders in 1997 was 30,570 or about 2.2% of the total housing starts in Japan for that year (1.39 million)7. The size of the companies interviewed is shown in Figure 5 in terms of number of units built per year. Three of the respondents were large builders and the rest were either medium-sized or small builders. Three of the companies were construction companies building multi-residential housing, while nine were detached house builders. One respondent was not a builder but did interior finish and design for house builders. Although the respondent was not a builder, he was thought to be able to provide valuable information on flooring and windows and was therefore included in the sample. Approximately 65% of the 30,570 units built were detached houses and 35% were multi-residential housing units. In total housing starts in Japan in 1997, shares of multi-residential housing and detached houses were 52% and 48%, respectively. All of the detached houses built by the respondents used wood as the main construction material, while the majority (94%) was built using two-by-four platform frame construction. The respondents' construction volume represents 5.0% of all wooden houses built in 1997 and 16.5% of all two-by-four houses. Figure 5: Number of housing units built per year by respondents in 1997 12,000 -i 1 2 3 4 5 6 7 8 9 10 11 12 13 Respondents • Detached houses •Multi-residential housing units 7 There are 568,500 building construction companies in Japan, with more than 70% of the construction volume being built by small and medium-sized companies (Lampert and Ikehata 2000). Of the total housing starts in 1997, shares of multi-residential housing and detached houses were 52% and 48%, respectively. 37 3.3 S U R V E Y O F E X P O R T E R S IN C A N A D A 3.3.1 Survey Design The survey population was defined as manufacturers of wood flooring and windows in Canada that export to Japan. The population was obtained from the BC Wood Specialties Group Member and Products Directory, the Directory to Secondary Manufacturing of Wood Products in British Columbia (Wilson and Sexton, 1999), the online listing in the Directory of Canadian Business in Japan and personal contacts. Five wood flooring manufacturers and eight wood window manufacturers were identified as companies that export to Japan. The following issues were addressed in the questionnaire: attributes supplied of products exported to Japan; distribution in Japan; the importance of the Japanese market for companies in Canada; and problems and expected future changes pertaining to the Japanese market. The questionnaires sent to flooring manufacturers and window manufacturers were the same except for one question that asked about the type of products sold to Japan. Since the companies were concerned about confidentiality, especially with respect to the small population size in this study, questions on exact sales volumes or company strategies were not included in order to ensure a higher response rate. The two-page questionnaire was faxed to the respondents. While fax surveys usually have a lower response rate than personal or telephone interviews, this problem can be reduced by initial and follow-up phone calls. The companies were contacted by phone and the person knowledgeable about sales to Japan was identified and asked to participate in the survey. Companies that do not or no longer sell to Japan were eliminated from the population. After the initial phone contact, the questionnaire was faxed to each of the companies. If the questionnaire was not faxed back, a follow-up phone call was made after two weeks and again one week after that if there was still no reply. 3.3.2 Profile of Survey Respondents Three out of five flooring manufacturers and six out of eight window manufacturers replied to the fax survey. The flooring companies who responded are located in British Columbia and Quebec, while the window manufacturers are in British Columbia and Manitoba. One of the three flooring manufacturers that responded is large, while the other two are small to medium-sized companies. Two of the six window manufacturers are large companies and they produce factory-made windows. The other four respondents are small custom window manufacturers. 38 4 RESULTS The results are presented in two sections: (1) results from the survey of house builders in Japan, and (2), results from the survey of exporters in Canada. Both sections describe findings on flooring and window products, and the survey of house builders in Japan also includes house builders' perceptions of quality certification of interior building products. The results from the survey of exporters of flooring and windows to Japan in Canada add to the information on imports into Japan described in the literature review. The statistical analysis of the survey results was entirely descriptive because the sampling procedure (non-probability sampling) and the small sample size did not allow for the use of inferential statistical methods. Not all respondents answered all questions, and for this reason, the number of respondents was included with the results where appropriate. 4.1 SURVEY OF HOUSE BUILDERS IN JAPAN 4.1.1 Flooring 4.1.1.1 All Types of Floor Coverings Over three-quarters of the respondents purchased floor coverings from five or less suppliers, as Table 19 shows. Multiple responses were possible (make in house and outside suppliers). A low number of suppliers indicates that market entry can be difficult for new suppliers. Respondents were asked what type of flooring they install in houses (Table 20). The most widely used material was composite flooring (thin solid wood or veneer on plywood base), followed by solid hardwood and carpet. Traditional tatami mats were usually found in one or two rooms of a modern house, with a share of five to six percent. 39 Table 19: Source of supply of floor coverings Source of supply Number of responses Make in house 1 1 to 2 suppliers 2 3 to 5 suppliers 7 6 to 10 suppliers 0 More than 10 suppliers 3 (Number of respondents: 13) Table 20: Material usedfor flooring Material Proportion of all installed flooring % Plywood base with thin solid wood/veneer 54.1 Solid hardwood 16.5 Carpet 9.6 Fibreboard core with non-wood laminate 7.7 Tatami 5.7 Plastic 2.9 Solid softwood 1.9 Ceramic tiles 1.2 Fibreboard core with veneer laminate 0.4 Total 100 (Number of respondents: 13) Table 21 shows the type of floor materials respondents installed by room. Non-wood flooring was preferred in the entrance (genkan), where shoes are taken off before stepping up into the living area of the house. Halls, living rooms and dining areas can be grouped together with respect to the type of flooring. In a Japanese house, the living and dining areas are often one room that is open to the kitchen. In these areas, as well as on stairways, wood flooring was highly preferred. The preferred location for solid wood flooring was mainly the hall, living rooms and dining rooms. Table 21: Floor materials preferred in different areas of the house Material Number of responses Entrance Hall Living Dining Kitchen Bathroom Stairways Bedroom Solid wood 1 4 5 5 3 2 6 2 Plywood base with thin 1 8 8 8 7 5 6 9 solid wood/veneer Fibreboard core with 0 0 0 0 0 0 0 0 veneer laminate Fibreboard core with 1 1 1 1 1 1 1 1 non-wood laminate Carpet 0 3 3 2 0 0 1 6 Tatami 0 0 0 0 0 0 0 0 Plastic 2 0 0 0 4 7 0 0 Ceramic tiles 8 0 0 0 2 3 0 0 Other 1 0 0 0 0 2 0 0 (Number of respondents: 13) 40 Fifty-four percent of the respondents who selected solid wood, preferred hardwood. The other half preferred neither hardwood nor softwood. In bedrooms, wood flooring was still preferred, but in the form of less expensive composite flooring. Non-wood flooring was generally selected for the bathroom, but many respondents also preferred wood flooring. The desired length of after-sales service for flooring ranged from one year to five years (average of two years). 4.1.1.2 Wood Flooring In order to establish which type of wood floor is preferred, respondents were asked to rank the five types of wood floors listed in Figure 6. The scores were obtained by weighting the first choice with 5, the second choice with 4, and the last choice with 1. A higher score indicates higher preference. The most preferred wood floors were solid hardwood and thin solid wood/veneer on plywood base. This corresponds well with the results on installation (Table 21). However, solid hardwood ranked higher in preference than actual use since prices were higher than those for composite flooring. Solid softwood was ranked lower than wood on a plywood base. The reason for this might be the properties of the material (softness), but it might also be related to the fact that solid softwood was rarely used (Table 20), and therefore not well known. Figure 6: Scores for preferred type of wood floor Solid hardwood Plywood base with thin solid wood/veneer Solid softwood Fibreboard core with veneer laminate Fibreboard core with non-wood laminate 0 5 10 15 20 25 30 35 Score (Number of respondents: 7) These results are consistent with findings by Cohen and Gaston (1998) with respect to material preference for interior finish products in general. 225 Japanese consumers, 60 designers and 125 small builders were surveyed for the aforementioned study. Solid wood was clearly preferred 41 over composite wood materials and non-wood materials. However, in a trade-off analysis where preference is not one-dimensional, but an interaction between product attributes (here material and location), the designers surveyed preferred in flooring fibreboard core with veneer followed by solid softwood (plywood base with veneer was not included in Cohen and Gaston's questionnaire). Fibreboard core with non-wood laminate was the least preferred as in this study. Table 22 shows the attributes preferred in wood flooring. There was no clear preference for either flat grain or edge grain. Most respondents said that it depended on the customer and on the design of the house. Light colours were preferred by 75% of the respondents. Sixty percent did not accept knots and the remainder indicated that the presence of knots or character marks depends on the customers' taste and the design of the house. Table 22: Preferred attributes for woodflooring Attribute Number of responses Wood texture Flat grain 3 Edge grain 3 Depends 6 Colour Very light 1 Light 8 Medium 5 Dark 3 Very dark 0 Depends 2 Presence of knots Yes 0 No 7 Depends 5 (Number of respondents: 12) The common dimensions of wood flooring planks used by the respondents were the same as the dimensions of engineered wood flooring and laminate flooring. Most respondents used plywood flooring bases and the dimensions of the ready-to-install panels were approximately 300mm x 1800mm x 12mm (the same for laminate flooring). Three such panels roughly correspond to the size of one tatami mat. All respondents who used solid wood flooring imported it from North America or Europe. Plank width varied with random lengths. All respondents preferred a polyurethane finish. Finish on wood flooring should be clear, durable, easy to maintain, and not slippery. A non-slippery finish is important in Japanese houses because socks or slippers without rubber soles are worn in the house. The appearance of naturals finished such as wax finish was appreciated, but maintenance was seen as a problem. 42 Table 23 contains statements on attributes of wood flooring and their respective importance ratings. All three statements were considered to be very important to extremely important. In fact, these three attributes seem to be the most important attributes of wood floors apart from wood quality, which was the only attribute that the respondents added to the list. Respondents were also asked which characteristics of wood flooring they would pay a premium for, and which ones they would expect to get a discount for. The respondents were most likely to pay a premium for a finish without toxic components. Table 23: Importance of attributes in woodflooring Attribute Importance Prepared to Expect to get (5=extremely important, pay premium discount for 4=very important, 3=important, for if not 2=not very important, l=not at all important) Number of responses The finishing contains no toxic components. 4.5 4 5 The wood is colour matched. 4.5 3 7 The flooring is ready to install. 4.2 3 4 The flooring has no defects, knots. n/a n/a 2 Number of responses: 12 (importance), 10 (premium), 13 (discount) Note: n/a - Attribute was not selected by respondents. Respondents mentioned the following aspects when asked to state their greatest concerns regarding the quality of flooring. The concerns expressed are manifold, indicating that quality problems vary depending on floor type and supplier. Table 24: Concerns in quality of flooring Appearance, colour matching Containing toxic components Durability Ease of installation Instructions for installation and maintenance Maintenance Price Quality of drying (warping, shrinking, cracks) Soundproofing, squeaking Surface smoothness Width and thickness tolerance Wood quality (straight grain) 43 4.1.2 Windows 4.1.2.1 A l l Types of Windows The number of suppliers (shown in Table 25) from which the companies purchase windows indicates how difficult it is for a new supplier to enter the market. Most companies (over 80%) purchased from only three to five suppliers. Multiple responses were possible (make in house and outside suppliers). Table 25: Source of supply of windows Source of supply Number of responses Make in house 1 1 to 2 suppliers 2 3 to 5 suppliers 7 6 to 10 suppliers 1 More than 10 suppliers 1 (Number of respondents: 12) Figure 7 shows the primary materials used in windows by respondents. At more than 80%, aluminium was the most important material. The proportion of wood windows was very small, but if aluminium-clad and plastic-clad wood windows are included then the total share for wood windows was 13.3%o. Plastic windows had only a small share. Figure 7: Material usedfor windows Plastic-clad wood 80% (Number of respondents: 11) 4 4 The desired length of after-sales service for windows ranged from two years to the entire life span of a house, which is normally twenty to thirty years in Japan. Leaving out the two respondents who answered thirty years, the average desired length was three to four years. All companies interviewed used at least some fire-rated windows. For most companies, the Tokyo area (Kanto) was the most important market. All of this region in is a fire protection or quasi-fire protection zone, which means that all houses within certain distances from neighbouring houses must have fire-rated doors and windows. Tokyo City is densely populated and lot sizes are small which means that virtually all houses require fire-rated doors and windows. In the adjacent prefectures, the density is less and not all houses require fire-rated doors and windows. In total, the proportion of houses built by the respondents that required fire-rated doors and windows was 51%. The strictest fire rating, type A, was required for 16% of the houses. Type A fire rating is only required in apartment buildings, not in detached single homes. The respondents also rated the importance of several product attributes related to windows (Table 26). All attributes were considered as important to extremely important. The only attribute with a lower rating was "the availability of many different sizes". "Containing no toxic components" had the highest rating among all attributes. This shows the importance of health issues in Japanese housing. "A high insulation value" was also rated relatively highly, which may have to do with Japan's expected reduction in carbon dioxide emissions and the decrease in the use of heating fuel. Fire rating was not among the most important attributes. Table 26: Importance of attributes in windows Attribute Importance 5=extremely important, 4=very important, 3=important, 2=not very important, l=not at all important The finishing contains no toxic components. 4.5 They have a high insulation value. 4.4 They are soundproof. 4.3 Material and design match the interior design of the house. 4.1 Delivery is speedy and dependable. 4.1 They are approved for use in fire and quasi-fire protection districts. 4.1 There are a wide variety of designs available. 3.9 There are many different sizes available. 3.2 (Number of respondents: 11) The types of windows installed by the companies interviewed are listed in Table 27. Respondents were asked if they expect their current use of specific window types to increase, decrease, or remain the same. Nearly half of the windows installed were traditional double-sliding 45 windows. These were followed by casement, double-hung, and picture windows, all with similar percentages. These three window types were expected to remain the same or increase in use, whereas the proportion of double-sliding windows was expected to remain the same or decrease in use. In other words, the double-sliding window is likely to decrease slightly in favour of casement and double-hung windows in the near future. Table 27: Window types used by respondents Window type Proportion of all windows Expected to Expected to Expected to remain used increase decrease the same % Number of responses Double-sliding window 44 1 4 7 Casement window 17 3 0 5 Double-hung window 16 2 0 6 Picture window 12 3 0 6 Bay window 10 3 1 6 Awning window 1 2 0 0 (Number of respondents: 11) Regarding the quality of windows in general, respondents had the following concerns: water infiltration, air-tightness, insulation, durability, functioning of moving parts, and soundproofing. Water infiltration was mentioned most often. Since both typhoons and high winds carrying water vapour occur commonly in all parts of Japan, windows must fulfil higher requirements for water infiltration in Japan than in most of North America. 4.1.2.2 Wood Windows Since all respondents mainly used aluminium windows, they were first asked whether they would consider using or currently use wood windows. Sixty-seven percent of the respondents would consider using wood windows, which is about equal to the percentage of companies currently installing wood windows. Only twenty-five percent would not consider using wood for windows and the remaining eight percent did not know. The reasons for not using wood windows included higher prices, maintenance requirements, shorter durability, and fire ratings of windows. Table 28 summarises the attribute preferences of the respondents pertaining to wood windows. A clear result is that the finish should leave the wood texture visible on the inside of the house. Windows were generally preferred to be a light colour on the inside of the house. There was no clear preference for colour on the exterior of windows, although dark colours were selected more often than other colours. Respondents preferred to have windows pre-finished and without knots. This 46 was especially important on the inside of the house where the wood texture is visible. As long as knots are not visible (e.g. under paint, aluminium cladding) the products were acceptable. There was no clear preference for either softwood or hardwood in windows. Softwoods mentioned included Douglas-fir, fir, hemlock, pine, spruce, and yellow cedar; while hardwoods mentioned included ash, cherry, elm, maple, and oak. Some of the wood species mentioned for windows suggest that the respondents had limited experience with wood windows and selected the species based only on design aspects and not because of their technical wood properties. Table 28: Preferred attributes for wood windows Attribute Number of responses Wood texture visible on the inside of house Yes 9 No 0 Depends 0 Colour on the inside Very light 1 Light 6 Medium 1 Dark 2 Very dark 0 Depends 1 Colour on the outside Very light 2 Light 2 Medium 2 Dark 5 Very dark 0 Depends 2 Pre-finished or unfinished Pre-finished 6 Unfinished 3 Presence of knots Yes 0 No 8 Depends 1 Hardwood or softwood Hardwood 3 Softwood 4 Doesn't matter 2 Finger-jointed components Yes 0 No 5 Depends 4 Laminated components Yes 4 No 3 Depends 2 Wood-only or combination material Wood-only 2 Aluminium-clad wood 6 Plastic-clad wood 1 (Number of respondents: 9) 47 The respondents were further asked whether or not they would use windows with finger-jointed or laminated components. Their main concern was the visibility of glue lines and the toxicity of the glue. More than half of the respondents did definitely not want finger-jointed components, while one third would never use laminated components. If the toxicity concern could be eliminated, the acceptance of laminated components in windows would be higher. Lastly, the respondents clearly preferred aluminium-clad wood windows to wood-only and plastic-clad wood windows. 4.1.3 Quality Certification 4.1.3.1 Interior Finish Products and Quality Certification To determine the most important areas in a house in which finished wood products could be used, respondents were asked to rank the three interior finish items that they would prefer to be made out of wood. Figure 8 shows the scores for the items selected. Scores were calculated by assigning weights of 3 to rank 1, 2 to rank 2, and 1 to rank 3. Flooring was the highest-ranked item, followed closely by moulding and interior doors. Windows and exterior doors were also ranked relatively highly. Figure 8: Scores for preferred interior finish products made of wood Flooring Moulding Interior doors Exterior doors Windows Kitchen cabinets Stairways Cabinet doors Wainscoting 0 5 10 15 20 Score (Number of respondents: 12) 48 Cohen and Gaston (1998) had similar results in their survey of consumers, designers and small house builders who all said that flooring is the most important location for wood. Builders in Cohen and Gaston's study also ranked windows fifth as the builders in this survey did. The main difference between the results of the two studies is the ranking of moulding (higher in this survey) and stairways (higher in Cohen and Gaston's survey). Of the 13 respondents, 69% would prefer to purchase wood interior finish products that are certified by a quality assurance program while 31% were not interested in quality-certified products. The interest in an independent quality assurance label was higher in the survey by Cohen and Gaston; eighty-six percent of the designers interviewed and eighty percent of the consumers indicated an increase in confidence when purchasing interior finish products with a quality assurance label. The respondents who would like to see a quality assurance program were asked to list the wood products that they would prefer to have certified (Table 29). Exterior doors, interior doors and windows were the most frequently selected items. Other products are of much less interest with respect to quality certification. Table 29: Wood interior finish products that should be certified by a quality assurance program Wood interior finish product Number of responses Exterior doors 5 Interior doors 5 Windows 5 All products 2 Flooring 2 Moulding 2 Ceiling 1 Wainscoting 1 (Number of respondents: 12) When asked whether they would prefer a process quality certification program, a product quality certification program, or a program certifying both, no one chose process quality certification. A process quality certification certifies the production process, while product quality certification involves testing the finished product for its intended use. Of the respondents who preferred a program certifying both process and product, 80% found quality in the product more important than quality in the process. Combining these two results, product quality was more important than process quality in a certification program for 90% of the respondents. The preference for product quality assurance is clearly higher than in the survey by Cohen and Gaston (1998) where only slightly more than half of the designers preferred a product quality assurance program and less then half of the consumers interviewed. 49 When respondents were asked what they expect from products certified by a quality assurance program, less than half (44%) expected that the products would fulfil certain quality standards and continuous quality. The other half (56%) expected good after-sales service and a quick response to claims. 4.1.3.2 Quality in Flooring and Windows Respondents were asked to identify the relative importance of several factors in determining the quality of flooring and windows. The eight dimensions of quality described by Garvin were used given their theoretical and empirical veracity (Garvin 1984). Results are shown in Figure 9. Figure 9: Relative importance of quality factors in flooring and windows Relative importance 1=not at all important; 10=extremely important 1 2 3 4 5 6 7 8 9 10 Performance • • • ^ — I I l l Reliability ^ — , Durability ^ ^ ^ B ^ ^ ^ H L B B J B M ^ M ^ ^ ^ ^ M I I I I I I I I Conformance ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ M B M M H H M B I I I I I 1 1 Aesthetics ^ — • I Serviceability r Features ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ Perceived quality — • Flooring DWindows (Number of respondents: 8 (flooring), 12 (windows)) Reliability, performance, and durability are the most important quality factors for all three products. Performance and reliability are more important in windows than in flooring, while durability is more important in flooring. Product features and serviceability (maintenance requirements) are rated relatively low, but not as low as perceived quality7. It is surprising that for flooring, aesthetics are rated lower than all other factors except perceived quality, while the 7 Perceived quality of a product is the image that the buyer has of the product, originating from brand identification, advertising, previous experiences with the products etc. 50 importance of colour-matching floors is regarded as very important to extremely important (Table 23, page 43). The 1998 study conducted by Cohen and Gaston asked Japanese consumers and designers the same question, but with respect to wood products in interior finish in general. The ratings by designers and the ratings in this survey are consistent except for the aesthetics dimension, which was rated much higher by designers (highest rating overall) than by the respondents in this study. Looking at how producers perceive quality in wood products, secondary wood product manufacturers in British Columbia were asked to rate the same eight quality factors in a mail survey conducted in 1998 (Kozak 1999). The producers rated product durability and serviceability lower than Japanese consumers and designers, as well as the builders in this study, while they placed more importance on perceived quality, a concept not well understood among the respondents interviewed. Figure 10 illustrates the level of agreement for five statements on the quality of purchased products. The respondents' answers are neutral with respect to recent improvements in product and service quality provided as well as for value of money spent, while the importance of product quality and formal quality control is emphasised. There are no large differences in the responses for flooring and windows. Figure 10: Level of agreement with statements on quality of windows and flooring The quality of the product is an important aspect of the decision to buy one product over another. My company gets good value for the money it spends on the products. The products my company purchases should be subject to a formal quality control program. The quality of the products my company purchases has improved over the last 3 years. The quality of the service my suppliers provide has improved over the last 3 years. (•Flooring DWindows (Number of respondents: 10) Level of agreement 1=strongly disagree; 5=strongly agree 1 2 3 4 5 51 4.2 S U R V E Y O F E X P O R T E R S IN C A N A D A This section presents the results of a case study of Canadian manufacturers that export wood flooring or windows to Japan. Three flooring manufacturers and six window manufacturers were contacted to gather qualitative information on products that are supplied to Japan. While the number of respondents is too small to provide conclusive information, as a case study, the survey presents insight into the situation and outlook for wood flooring and window exports to Japan. Additionally, two of the window manufacturers surveyed are the largest Canadian suppliers of wood windows to Japan. 4.2.1 Flooring Respondents all entered the Japanese market in the 1990s, between 1991 and 1998. While two of them only sell flooring to Japan, the third one also exports panelling and traditional housing components. Reasons for selling to Japan are market diversification, the large size of the Japanese market, and the interest of Japanese customers in the products manufactured. All three manufacturers expect an increase in volumes sold to Japan, especially in the long term (Table 30). Table 30: Japan's share of total sales offlooring manufacturers, by respondents Respondent Now In 3 years In 10 years % A 1 5 10 B 40 40 50 C 7 10 20 The companies do not have their own distributors in Japan, but primarily make use of importers/exporters and wholesalers, and also sell directly to house builders. All respondents export solid wood flooring to Japan, and no engineered wood flooring or laminate flooring. Both hardwood and softwood flooring are sold (both have an average share of 50% of the respondents' sales to Japan), and 70%> of the solid wood flooring supplied by the three firms is unfinished. Species for hardwood flooring are birch, maple, red alder and red oak. Douglas-fir, hemlock and lodgepole pine from British Columbia are utilised for the softwood flooring. The flooring products sold to Japan are basically the same as the ones sold in North American markets. One respondent grades harder for knots and texture, while another respondent adjusts the minimum lengths of the flooring strips according to the expectations of the customers in Japan. Service and product warranties are not an issue for the companies selling to Japan. One manufacturer 52 indicated that they trained carpenters in Japan to ensure correct installation and use of the right nailers. The following challenges were encountered in the Japanese market: • Language barrier, especially with small builders; • Unfamiliarity with solid wood strip flooring and with Canadian wood species; • Specifications requested are often a higher grade than required; • Very quality-conscious customers. For the intermediate future, the manufacturers expect a greater acceptance of North American-style flooring and wood species presently not common in Japan. More demand for natural products such as solid wood flooring is expected as is a trend towards the DIY market that requires prefinished flooring. 4.2.2 Windows The majority of companies surveyed entered the Japanese market in the mid 1990's. Only one manufacturer exported to Japan prior to 1990. The products that the companies sell in Japan include wood windows, aluminium-clad wood windows, copper-clad wood windows, and PVC windows as well as exterior and interior doors, garden doors and mouldings. Wood and aluminium-clad wood windows dominate sales to Japan. Japan's share of the companies' total sales ranges from under one percent to forty percent (Table 31). All respondents expect their shares to grow, by one to five percentage points within the next three years and by four to seven percentage points in the long term (ten years). Reasons for exporting to Japan are market size, upper-end/high-quality windows market, and product and regional diversification. 53 Table 31: Japan's share of total sales of window manufacturers, by respondents Respondent Now In 3 years In 10 years % A 10 15 n/a B 40 n/a n/a C n/a n/a n/a D 0.5 1.5 7.5 E 2 4 6 F 10 13 15 The means of distribution vary greatly among the companies surveyed, as shown in Table 32. Small manufacturers tend to sell their products through only one distribution channel, while the large companies use more than one avenue. Four of the six respondents sell wood windows exclusively to Japan, while the other two manufacturers mainly export aluminium-clad wood windows (Table 33). Table 32: Distribution of products exported to Japan by window manufacturers, by respondents Respondent Importer, Trading house, Small Direct to house Own Through exporter large wholesaler wholesaler builders distribution house builder channels in Canada % A - - - - - 100 B 100 - - - - -D - - - 100 - -E 50 50 - - - -F - " 10 20 50 20 -Table 33: Frame materials of windows exported to Japan, by respondents Respondent Wood Aluminium-clad wood Plastic-clad wood Aluminium Plastic % A 100 - - - -B 100 - - - -C 100 - - - -D 100 - - - -E 10 70 - - 20 F 5 95 - - -Generally, the companies did not develop window products specifically for the Japanese market. One respondent modified their existing products to be more suitable to conditions in Japan (for example typhoon-tested), but sells the same products in North America. The custom manufacturers do custom sizing for Japan. The services on products sold in Japan basically do not differ from that of North America. Since the distributor or house builder in Japan installs the windows, they are responsible for the workmanship of the installers. 54 The main problems encountered by the firms in the Japanese market are the language barrier and cultural differences. Other challenges include the price sensitivity of the market, the higher expense of sales and marketing initiatives, and the cost of sending items to Japan such as marketing tools, product literature and warranty items. The respondents expect sales volumes to increase with the recovery of the Japanese economy. The outlook for wood windows is positive because there will probably be more demand from areas outside of major cities where fire code regulations do not apply. The companies do not expect much change in prices and competitive environment. 55 5 DISCUSSION This chapter is presented in three parts: (1) a discussion of results for flooring in Japan; (2) a discussion of results for windows in Japan; and (3) the need for future studies. The survey results are discussed for each product group with respect to the literature review of the Japanese market, production and exports from Canada, and third-country competition. 5.1 FLOORING 5.1.1 The Japanese Market The Japanese wood flooring market is very large, with wood flooring having a market share of about 25% in residential housing. The main flooring product is composite flooring, which is mostly plywood imported from Southeast Asia overlaid with hardwood veneer. Softwood veneered flooring and paper laminate flooring have only a small share. The survey showed that while house builders prefer solid wood flooring, they generally purchase composite flooring because of its lower price. Additionally, composite flooring panels are easier to install than solid strip flooring, reducing installation time and cost. Nevertheless, the share of solid wood flooring has grown in the last few years to about four to five percent. This increase reflects a growth in western-style houses, two-by-four houses and imported houses, as well as health concerns over formaldehyde emissions and the revival of wood in interior finish. Carpet provides the largest competitive threat to wood flooring. However, the carpet market decreased in 1998 with the decline in housing starts, and both this study and the previous survey by Cohen and Gaston (1998) indicated that the share of wood flooring is expected to increase at the expense of carpet. The only important type of plastic floor in residential housing is cushioned flooring, which is a plastic flooring sheet with a foam layer. Since cushioned flooring is used only in wet areas of the house, it is not a major competitor for wood. Both carpet and wood flooring have replaced tatami in most rooms of modern houses and there are no signs that this trend will reverse. Large Japanese manufacturers dominate the market for composite wood flooring and competition among them for price driven market share is severe. Composite flooring manufacturers 56 are adapting to decreased housing starts by dropping prices to maintain sales volumes. Solid flooring is produced by small local manufacturers. Entering the solid wood flooring market is therefore easier than entry into the composite flooring market. On the other hand, most builders interviewed have five or less flooring suppliers and only three out of twelve builders had more than ten suppliers. Few suppliers make market entry for new suppliers more difficult. In the survey of house builders, flooring is ranked highest for using wood in interior finish, which concurs with the result of Cohen and Gaston (1998) among consumers, designers and small builders. The common perception is that the Japanese prefer homogeneous wood texture and colours. This survey showed that there is a wide range in preferred textures and colours, and that the customers' preferences are becoming more diversified. Light, colour-matched floors with a polyurethane finish are preferred by most respondents. Slightly more respondents select very light/light colours than medium/dark colours (9:8). Results by Cohen and Gaston for designers' preferences are similar, except for a higher preference of very light colours. Knots or character marks are not explicitly desired by customers, but almost half of the respondents selects flooring with knots if it matches the design of the house. Although appearance and perceived non-toxicity of natural finishes such as wax and oil are appreciated, all respondents choose conventional polyurethane finish because of easier maintenance. Wood floors with natural finish appear to be a niche market according to Cohen and Gaston who found that natural finish is preferred, but that there is a general acceptance of chemical finish (such as polyurethane) for interior finish among designers. While there is a clear preference for ready-to-install flooring that is prefinished with polyurethane and pre-assembled to panels like the domestic composite flooring, preferences in other product attributes are more diversified and depend on house design and individual taste of the house buyer. It must be kept in mind that the sample of house builders surveyed included a high share of two-by-four construction builders, which is not representative for the total population of house builders. As two-by-four construction is generally used in western-style homes, their owners are more likely to accept or to prefer western-style, imported building products. 57 5.1.2 Flooring Exports from Canada to Japan Canadian exports of hardwood (solid) flooring to Japan have increased sharply since the early 1990s to reach about US$710,000 in 1998, which equals 2.5% of total hardwood flooring exports, while exports of parquet panels were US$165,000 (at 130 yen/US$). Japan is the third-largest export market for Canadian producers. Most of the wood flooring exports go to the US, followed by the UK and other European countries. In the past, flooring has not been a major product in British Columbia since some of the properties of eastern hardwood species (for example hardness) are better suited for solid strip flooring than BC softwoods and hardwoods. With technologies for hardening wood becoming available, it is now possible to produce both solid and veneered flooring from under-utilised hardwood species in British Columbia, such as white birch (Betula papyrifera) or bigleaf maple {Acer macrophyllum), and softwood species such as hemlock (Tsuga heterophylla, Tsuga mertensiana) that is available in relatively large volumes and has good processing properties. The Canadian manufacturers surveyed export the following hardwood and softwood species from British Columbia to Japan for solid wood flooring: birch, red alder (Alnus rubra) Douglas-fir (Pseudotsuga menziesii), hemlock and lodgepole pine (Pinus contortd). Birch, maple (Acer spp.) and red oak (Quercus rubra) solid strip flooring are sold from eastern Canada to Japan. Japan is an important market for the Canadian flooring manufacturers, following only the domestic and the US markets. All respondents in the case study expect Japan's market share to rise both in the short term (three years) and in the long term (ten years). Reasons for an increase in sales to Japan include a greater acceptance of North American-style flooring with the rise in two-by-four and imported houses and higher demand for natural products. Concerns about indoor air quality apply to composite flooring and laminate flooring, while solid wood flooring is regarded as "healthy". Japan's hot and humid climate in summer should pose no problem for solid wood flooring installation since most new houses have air-conditioning. The case study of Canadian exporters of wood flooring to Japan suggests that the products sold on the Japanese market are practically the same as the flooring products sold in Canada and the US. Grading for wood texture and knots, as well as sizes, are sometimes adjusted according to customer requirements. While the majority of the flooring that the respondents sell to Japan is unfinished, a substantial portion (especially the hardwood flooring) is pre-finished. 58 The problems encountered in the Japanese market are reflected in the responses by the house builders interviewed in Japan. House builders are generally unfamiliar with Canadian wood species and they are very quality-conscious and ask for high grades. While exporters in Canada found that customers in Japan are unfamiliar with North American strip flooring, all respondents in Japan seemed to know the product well, probably because many of them were two-by-four home builders who generally use more imported building products than post-and-beam builders. The house builders interviewed are, for the most part, satisfied with the product quality of wood flooring imported from North America (while satisfaction for windows was lower) and consequently, their interest in quality certification for flooring products was relatively low. Quality certification in this application would probably not be as effective as for windows, but it would serve to increase consumer confidence in new products. An independent quality label could especially be valuable with the recent changes to the Building Standard Law establishing a Housing Quality Assurance Program that introduces a voluntary warranty of up to 20 years on non-structural parts of the house. For full market access, however, products should be placed on the G H L C specification list which means co-operation with current Japanese suppliers and their respective associations. The building product listing through the G H L C , which provides low interest financing for houses using materials and products approved by HOWTEC or Better Living, makes it difficult to have an additional quality certification accepted in the market place. Since the G H L C finances a very large portion (about 35%) of the residential market, with a much higher share for home-owned detached houses, small house builders indicate that they mostly buy products from the G H L C list. Large builders, however, follow their own standards, and with increasing imports of finished building products into Japan, more builders will purchase products that are not on the G H L C list. This offers an opportunity for Canadian manufacturers to increase exports and to sell to builders who do not customarily use imported products, such as post-and-beam builders. 5.1.3 Third-Country Competition Flooring imports consist mainly of solid wood flooring, as most of the composite flooring panels are produced domestically. The largest supplier of solid wood flooring to Japan is the US. Its exports to Japan were 511 million yen for hardwood flooring in 1998 and 223 million yen for softwood flooring. China, Indonesia and Malaysia are increasing exports of solid hardwood flooring to Japan. Although imports from the US are high and US exporters took full advantage of the housing 59 boom in Japan in the mid-nineties, imports have dropped to about the level of the early nineties, while imports from Canada decreased only slightly in the years after the housing boom. Additionally, the current strength of the US dollar favours Canadian suppliers. US and Canadian solid wood flooring products are very similar, both countries exporting strip flooring that are mostly of the same species (mainly birch, maple, red and white oak). Taiwan, Thailand, Sweden and the US are the largest exporters of parquet panels to Japan. The values of imports from these countries in 1998 were: 192 million yen from Taiwan, 191 million yen from Thailand, 91 million yen from Sweden, and 72 million yen from the US. 5.1.4 Key Opportunities for Flooring • In the growing solid wood flooring market, softwood flooring may have good possibilities. Because softwood is generally not regarded as being hard enough, it should be hardened or have a very hard finish. • For both solid and composite flooring the best opportunities exist for light, colour-matched floors with a polyurethane finish. Composite flooring faces high competition from Japanese suppliers, but Canada could supply light-coloured veneer for composite floor production in Japan. • It is essential that the flooring is ready-to-install; i.e. prefinished and pre-assembled to panels. This poses no problem for composite flooring, but pre-assembled or easy to assemble solid wood flooring products must be developed. • The medium to low-priced flooring market is a good target for paper laminate flooring since laminate flooring has not entered the market on a large scale. Greater hardness, good appearance and low prices could overcome consumers' preferences for veneered surfaces. On the other hand, interest from builders and consumers in non-wood overlays is very low. 60 5.2 WINDOWS 5.2.1 The Japanese Market The wood window market has only a very small share (less than two percent) of the total residential window market, but its share has increased steadily over the last ten years. The value of the wood window market was estimated at 10.8 billion yen (US$90 million) in 1996. Most of the wood windows are imported and of western design. Several current trends are favourable for the growing wood window market in Japan: • The wood window market is expected to increase with the growth in western-style houses and imported houses in Japan; • Japanese consumers have come to prefer wood as interior finish material for appearance and designs following a period of preference for non-wood materials; • The GHLC is promoting energy-saving houses that specify wood, plastic and insulated aluminium windows in the cooler regions of Japan (central and north-east Japan, Hokkaido) instead of the now-dominant standard aluminium windows; • The population flow into urban areas that are generally zoned as fire or quasi-fire districts has stopped. Windows installed in houses in fire or quasi-fire zones are normally fire-rated, and most fire-rated windows available on the market are aluminium windows. • Deregulation is expected in the procedures of having windows and doors fire-rated, simplifying and reducing the cost of fire-rating certification for wood windows. If wood windows are to be accepted on a larger scale in the market place, they must overcome the image of poor quality products, which was created mainly by low-quality Japanese production in the past. In order for wood windows to gain acceptance, producers must be careful to deliver good quality products consistently and to consider quality issues specific to Japan such as water infiltration. Aluminium windows dominate the residential window market with a market share of 90%. More than 95% of these aluminium windows are produced domestically by very large companies. Some aluminium sash manufacturers have started producing insulating aluminium windows with soft 61 vinyl separating the inner and outer frame of the window. Plastic windows are seen as low-cost alternatives to wood windows with equally good insulating properties, but requiring less regular maintenance. Most plastic windows are produced domestically and their market is in northern Japan where the colder climate makes good heat insulation necessary. Maintenance is always regarded as a disadvantage for wood windows compared to aluminium and plastic windows. Most companies interviewed, therefore, prefer wood windows to be clad in aluminium. Competition from Japanese wood window producers is low since they have just started to produce these products. Prices of the domestic production are generally high relative to the product quality of the windows. When wood windows gain popularity in Japan, local producers will probably improve quality and cost competitiveness. A more serious source of competition comes from some of the large aluminium window manufacturers who have started producing aluminium-clad wood windows. Wood window and aluminium-clad wood window manufacturers exporting from Canada do not expect significant changes in the competitive environment in the coming years. Obstacles for selling wood windows on the Japanese market revolve around the current procedures for getting wood windows approved as fire-rated for use in urban fire zones and quasi-fire zones. Most windows in fire and quasi-fire zones are made of aluminium. However, there are also opportunities for non-fire rated wood windows since 50% of the windows installed by the companies surveyed are non-fire rated windows (even though respondent companies operate primarily in the densely populated Tokyo region). In terms of attribute preference among respondents, fire-rating was ranked lower than non-toxic components, heat insulation, sound insulation. These attributes had the highest ratings which indicates a competitive advantage for wood windows compared to aluminium. Canadian wood window manufacturers exporting to Japan also expect higher demand for wood windows from areas outside of major city centres where fire regulations do not apply. Deregulation is expected to make it easier and less costly for foreign manufacturers to obtain fire-rating certification. The companies surveyed in Japan indicated the following preferences for attributes in wood windows: pre-finished, dark colour on the exterior, and light colour with visible wood texture on the inside. From a design perspective, the superiority of wood windows lies in its wood texture; all respondents stress that it should be visible on the inside frame. This means that windows made of high-quality solid wood components without knots or other visible marks have the greatest market possibilities. Respondents generally still prefer aluminium cladding on the exterior. 62 Based on the survey results, the number of suppliers to house builders is large enough to allow new suppliers to enter the market. Wood window producers should target specific markets since the product is not generally accepted and long-term market share is only possible with clear goals and knowledge of the customer. 5.2.2 Window Exports from Canada to Japan Canada is the second-largest exporter of wood windows to Japan following the US. Exports were 820 million yen in 1998, which is equivalent to 14% of the total wood window imports. Canada has excellent wood resources for manufacturing solid window components, which house builders in Japan prefer over laminated and finger-jointed components. The manufacturers in Canada that were surveyed expect sales to Japan to grow, by one to five percentage points in the short term and by four to seven percentage points in the long term. Japan is already a fairly important market for the majority of the respondents with market shares of up to 40%. The two large manufacturers surveyed predominantly sell aluminium-clad wood windows to Japan, while the three smaller companies export only wood windows. Generally, products are not developed specifically for the Japanese market, although one manufacturer changed its window construction to address the standards for water infiltration required in Japan. Like the exporters of flooring, the challenges encountered in Japan's market are largely language and cultural differences. Imported windows from North America are criticised by the respondents in Japan with respect to problems with hardware and water infiltration. The house builders that were interviewed desire quality certification more for windows and doors than for flooring. Both a minimum and continuous product quality, as well as good after-sales service, is expected from quality-certified products. A Canadian quality certification for product quality as it is being developed for the wood products industry could be an effective marketing tool for windows. 5.2.3 Third-Country Competition The US is the largest supplier of wood windows to Japan, supplying 58% of all imported wood windows (3.4 billion yen) in 1998. Two other significant suppliers are Denmark and Sweden with 1998 exports of 798 million yen and 379 million yen, respectively. European window imports are high quality, high-end and/or niche products. Canadian and US products are regarded as similar by Japanese customers and they target the same markets in Japan with casement, awning, double-63 hung, bow and bay windows. Canadian suppliers presently have the advantage of a strong US dollar. There is no major supplier in Asia (outside of Japan) and combined Asian imports of wood windows were only 205 million yen in 1998. Indonesia is the largest supplier in Asia, but with the drop in harvest volumes, Indonesia will probably not be able to significantly expand its exports to Japan. 5.2.4 Key Opportunities for Windows • Taking advantage of the present promotion of energy-saving housing, wood windows at affordable prices with heat insulation (according to the GHLC specifications) have better chances of success than in the past, especially with the increasing westernisation of Japanese homes. • There are opportunities for aluminium-clad windows in the higher-end market for design-, health-and environmentally conscious house buyers. • The typical Japanese double-sliding window is still the single most widely installed window today and is available on the market in aluminium. Although some respondents expect a decrease in double-sliding windows and an increase in western-type windows (casement, double-hung windows), most companies do not expect significant changes. To obtain a significant share of the window market, wood window producers should develop double-sliding windows in wood combined with aluminium. 5.3 LIMITATIONS OF RESEARCH Exploratory research was used in this study to gain an insight into the preferences of Japanese buyers and into Canadian exports of flooring and windows, but it cannot substitute conclusive research. Interpretation of the exploratory research results of both surveys is judgmental. In the survey among house builders in Japan, the sample size was small (representing 2.2% of the total residential housing market or 16.5%) of the two-by-four housing market in 1997) in order to allow for personal interviews. The small, non-representative sample precludes drawing any conclusions about all house builders or all two-by-four home builders in Japan. In addition, the sample of house builders was selected based on non-probability sampling. There are no statistical analysis techniques for non-probability sampling and it is therefore impossible to infer the findings of the survey onto the entire population. 64 5.4 NEED FOR FUTURE STUDY The primary data collection done in this research was exploratory and qualitative due to budget and time constraints. Furthermore, limited secondary information was available on flooring and windows on the Japanese market. A quantitative investigation would involve a much larger sample size, selected with a probability sampling method. Quantitative data, in addition to the qualitative data collected in this study, would provide the building products industry with more conclusive information for assessing opportunities on Japan's market. Key points that would be worth assessing in a more detailed study include: • The expected size of the Japanese market for imported wood flooring and windows; and • Remodellers' perceptions of wood flooring and windows, as the remodelling market is growing rapidly and the role of imported building products in this market has hardly been studied. 65 6 CONCLUSIONS This study examined the wood flooring and wood window markets in Japan with a focus on the Japanese industry, imports from Canada and other significant overseas suppliers of wood flooring and windows, and product and quality attributes of both product groups. Results are based on interviews with 13 house builders in Japan, exploratory interviews with Japanese association representatives, a fax survey among manufacturers in Canada, and secondary sources. The sample of builders interviewed in Japan represented about 2.2% of the total residential housing market and 16.5%) of the total two-by-four construction market. The majority of imported building products are installed in western-style two-by-four houses and imported homes, whose share is expected to increase at the expense of traditional Japanese post-and-beam houses mostly because of structural stability, insulation, soundproofing, and cost reasons. Utilisation of imported building products in remodelling of existing homes is also growing. Although housing starts in Japan will decline in the long-term, these trends in two-by-four house construction and remodelling are favourable for exports of wood building products from Canada. The share of wood flooring in Japan is the highest among industrialised countries and its popularity is rising. The best opportunities for imported wood flooring appear to exist for solid wood flooring since this is the type of flooring preferred by consumers, it is not available in Japan, and consequently has almost no competition from Japanese manufacturers. The US is the main competitor as the largest supplier of solid wood flooring (mainly hardwood) to Japan. This study revealed two key findings related to opportunities in the Japanese flooring. In the growing solid wood flooring market, moderately priced softwood flooring may have good possibilities. Because softwood is generally not regarded as being hard enough, it should be hardened or have a very hard finish. It is essential that the flooring is ready-to-install; i.e. prefinished and pre-assembled to panels. This poses no problem for composite flooring, but pre-assembled or easy to assemble solid wood flooring products must be developed. Engineered flooring, such as veneered softwood flooring that is hardened and ready-to-install similar to Japanese composite products, may also find a market among consumers who prefer a western design and finishing that distinguishes the product from the Japanese and Southeast Asian 66 competition. Light colour-matched floors are preferred at present and light softwood and hardwood species may stand the best chance. Japan's window market is dominated by aluminium. Wood windows capture less than two percent of the total window market. Although wood windows have only a small share, it would be worthwhile examining this market further because the wood window market is growing and because competition from the Japanese industry is relatively low. Penetrating a small part of the now dominant aluminium window market represents a large market opportunity for wood window manufacturers. Increasing westernisation of Japanese homes and the present promotion of energy-saving housing represent opportunities for increasing sales of wood windows. To that end, this analysis has uncovered two recommendations. First, there are opportunities for aluminium-clad wood windows in the higher-end market for design-, health- and environmentally conscious house buyers. Secondly, to obtain a significant share of the window market, wood window producers should develop double-sliding windows in wood combined with aluminium. The typical Japanese double-sliding window is still the single most widely installed window today and is available on the market in aluminium. Although some respondents expect a decrease in double-sliding windows and an increase in western-type windows (casement, double-hung windows), most companies do not expect significant changes. The Japanese market for imported finished building products is growing and especially wood products are gaining in popularity. The reality is, however, that markets for wood building products are highly competitive and that companies have to be prepared for the high costs of market identification and development. Increasing globalisation in trade and faster information transfer offer better prospects for foreign suppliers, but they also require more flexibility and faster innovation. Given the expansion of secondary manufacturing of wood products in Canada, Japan offers a large and increasingly open market in addition to the primary domestic and US markets. Competition from Japanese and foreign companies is severe and Canadian producers of secondary manufactured wood products need to deal with challenges in wood supply and prices, labour cost, cost control in manufacturing and access to capital. Canada has a number of strengths to compete successfully in the Japanese building products market: high quality wood supply, experience in the Japanese market, research and development programs, and increasing volumes and experience in secondary manufacturing. 67 7 LITERATURE CITED BC Wood Specialties Group, n.d. Member and Products Directory. Bean, Casey E., and Masaoki Nagahama. 1999. Japan 1999 Forest Products Annual Report. GAIN Report JA9108. USDA Foreign Agricultural Service. 10 Oct. 1999 <fas.usda.gov/gainfiles/199909/25525738.pdf>. Beauregard, Robert. 1999a. Secondary Wood Products for the US Market. In Exploring New Paths: Industry in Transition 1999 (Edmonton, AB) Proceedings. Building Center of Japan. 1998. A Quick Look at Housing in Japan. 4th ed. Building Center of Japan, Tokyo. Cohen, David H., and Chris Gaston. 1998. Japan's Value Added Market: Wood Products Attributes and Competition. Attribute Analysis Report "C": Attribute Analysis of Interior Finish. Forintek Canada, prepared for Forest Renewal BC, Vancouver, BC. Daiken Catalogue 1996-1998. [In Japanese.] Directory of Canadian Business in Japan. 19 Nov. 1999 <dcbj.com/>. "Domotex: Global Economies Showing Slight Improvement." 1999. Floor Covering Weekly (20 Jan.). 7 Dec. 1999 <floorcoveringweekly.com/story/storyO 19902a.asp>. "Expanding Demand for Builders' Woodwork." 1998. Asian Timber 17(12): 36-37. EuroWindoor. n.d. Fenstermarkt Europa. 21 Sep. 1999 <window.de/eurowind.htm>. FloorSearch. n.d.a. Hardwood Flooring. 7 Dec. 1999 <floorsearch.com/hardwood/hardwood.html>. FloorSearch. n.d.Z>. Laminate Flooring. 7 Dec. 1999 <floorsearch.com/laminate/laminate.html>. Fuji Research Institute Corporation. 1997. Housing Starts from a Mid to Long-term Point of View. 68 Garvin, David A. 1984. "Product Quality: An Important Strategic Weapon." Bus. Horizons 27(May/June): 40-43. "Great Revision of Building Standard Law. Housing Big Bang: What and How Will Change?" 1999. Japan Lumber J. 40(23): 11. House, Maurice, Srisuman Ngamprasertkit, and Jerry Steele. 1999. Thailand Forest Products: Forest Products Annual Report 1999. GAIN Report 9083. USDA Foreign Agricultural Service. 17 Jan. 2000 <fas.usda.gov/gainfiles/199909/25505700.pdf>. "Housing Quality Assurance Law -3- Housing Big Bang: What and How Will Change?" 2000. Japan Lumber J. 41(2): 11-12. Jahraus, Michael T., and David H. Cohen. 1997. An Examination of Japanese Distribution Systems for Imported Wood Products. Working Paper 97.01. Canadian Forest Service, Pacific Forestry Centre, Victoria, BC. "Japanese Furniture Market." 1998. Asian Timber 17(11): 33-36. COFI. 1998. Japanese Government Housing Loan Corporation Building Manuals. Council of Forest Industries, Vancouver, BC. [English translation.] Japan Ministry of Construction. 2000. Statistics Tables. 25 Feb. 2000 <moc.go.jp/chojou/stat-e.htm>. "Japan's Economy: Another Fine Mess." 1998. Economist (24 Oct.). 14 Mar. 1999 <economist.com/archive/>. Japan Sash Association. 1998. J takuyo kenzai shiyo joko chosa. No. 22. Tokyo. [In Japanese.] Japan Tariff Association. 1997. Japan Exports & Imports: Country by Commodity 97.12. Customs Bureau, Ministry of Finance, Japan (Editor). 1998. Japan Exports & Imports: Country by Commodity 98.12. Customs Bureau, Ministry of Finance, Japan (Editor). JETRO. 1993. Distribution in Japan. 15 Mar. 2000 <jetro.go.jp/it/e/pub/distributionl993/>. 1996. Housing. In series: The Survey on Actual Conditions Regarding Access to Japan. 15 Mar. 2000 <jetro.go.jp/ip/e/access/housing.html>. 69 JETRO. 1999. Japanese Consumers and Imported Housing and Building Materials. Import Promotion Department, Japan External Trade Organization, Tokyo. 2000. Wooden Building Materials: Wooden Windows, Doors, and Flooring. Japanese Market Report: Regulations & Practices No. 34. Japan External Trade Organization, Tokyo. 9 May 2000<jetro.go.jp/ec/e/jmr/034.pdf>. "JPMA and STA Hold Dialogue in Sarawak in 15 Years for Reconstruction of Plywood Market." 1998. Japan Lumber J. 39(21): 1-2. Kozak, Robert A. 1998. Secondary Wood Products Industry Needs Survey. Unpublished. 1999. Quality Assurance for Canadian Wood Producers: A Preliminary Analysis. In International Value-added Wood Processing Conference (1998: Toronto, Ont.) Proceedings. University of British Columbia, Faculty of Forestry, Vancouver, BC. Lampert, Greg, and Shin Ikehata. 2000. Trends in the Japanese Housing Market. NHA 2514. Canada Mortgage and Housing Corp. In Press. "Less Shipments of Laminated Wood Flooring for 1999." 2000. Japan Lumber J. 41(6): 5. Nippon Interior Fabrics Association, n.d. General State of Interior Fabrics Business for Fiscal 1998. 9 Mar. 2000 <nif.or.jp/eng/generalstate98.html>. NKS Information Network. 1994. Mokusei door zenka. [In Japanese.] OANDA. FXConverter. 9 May 2000 <oanda.com/convert/classic>. Pesonen, Miikka, and David H. Cohen. 1996. The Japanese Market for Softwood Lumber: Uses and Supply. CAWP Working Paper 96.01. Centre for Advanced Wood Processing, Vancouver, BC. Statistics Bureau. Japan Statistical Yearbook 1999. 1999. Management and Coordingation Agency, Government of Japan, Tokyo. "Supply/Demand of Laminated Wood Flooring for IH Down." 1998. Japan Lumber J. 39(16): 11-12. Takabatake, Kazuhisa. 1995. Imported Houses. Industry Sector Analysis. Commercial Service Japan. 24 Aug. 1999 <econ.state.or.us/OregonTrade/research/jpnhouse.htm>. 70 Takabatake. 1997a. Building Products for Single-family. Industry Sector Analysis. Commercial Service Japan. 24 Aug. 1999 <csjapan.doc.gov/isa97/homes.txt>. 19976. Wood Windows and Vinyl Windows. Industry Sector Analysis. Commercial Service Japan. 24 Jul. 1998 <csjapan.doc.gov/isa97/window.txt>. 1999. Home Remodeling Market. Industry Sector Analysis. Commercial Service Japan. 24 Aug. 1999 <csjapan.doc.gov/isa99/remodeling.html>. 2000. Imported Building Material Users Survey. International Market Insight Series. Commercial Service Japan. 15 Mar. 2000 <csjapan.doc.gov/imi0002/building.html>. Theisen, Anne, and John Dirks. 1996. A Japanese Market Profile and Sourcebook for Pacific Northwest Value-Added Wood Products Exporters. CINTRAFOR Special Paper 23. Center for International Trade in Forest Products, Seattle, WA. Tostem. 1998. Living Kenzai. [In Japanese.] USDA Foreign Agricultural Service. 1999. Wood Products: International Trade and Foreign Markets. WP 5-99. 17 Jan. 2000 <fas.usda.gov/ffpd/wood°/o2Dcirculars/dec99/contents.html>. Wahl, Antje, David H. Cohen, Robert A. Kozak, and Chris Gaston. 1999. The Japanese Market for Wood Flooring and Wood Windows. Forintek Canada, prepared for Forest Renewal BC, Vancouver, BC. Wilson, Bill, and Valerie Sexton. 1999. Directory of Secondary Manufacturing of Wood Products in British Columbia. Working Paper 99.01. Pacific Forestry Centre, Canadian Forest Service, Victoria, BC. 19 Nov. 1999 <leaf.pfc.cfs.nrcan.gc.ca/publications/pdf_cat_num/5229.pdf> WoodFloorsOnline.Com. 1999. Choosing a Hardwood Floor. 7 Dec. 1999 <woodfloorsonline.eom/stylestrends/choices.html#2/>. Wood Products and Politics Research Group. 1997. Mokuzai jukyu to mokuzai kogyo no genkyo. [In Japanese.] "Wood: State of the Industry." 1999. Floor Covering Weekly (15 Apr.). 7 Dec. 1999 <floorcoveringweekly.com/story/story049901 d.asp>. 71 World Trade Center Osaka, n.d. Tatami Mats. 7 Dec. 1999 <wtco.osakawtc.or.jp/e/market/item/tatami.html>. Zikmund, William G. 1997. Exploring Marketing Research 6th ed. Dryden Press, Orlando, FL. 72 8 PERSONAL COMMUNICATIONS CITED Fuyuki, Toshio. Manager Development and Planning, Daiken Corp., Osaka. Ichikawa, Jun. Secretary General, Japan Sash Manufacturers Association, Tokyo. Beauregard, Robert. Manager Development of Value Added Products, Forintek Canada Corp., Sainte-Foy, PQ. Soya, Takashi. Director, Japan Wood Window Association, Tokyo. Yaguchi. Director, Japan Solid Wood Flooring Industry Association, Japan Composite Flooring Industry Association, Tokyo. 73 A APPENDIX I: QUESTIONNAIRES SURVEY OF J A P A N E S E HOUSE BUILDERS QUALITY AND ATTRIBUTES OF FLOORING AND WINDOWS (JAPAN) QUALITY AND INTERIOR FINISH IN GENERAL 1. Which interior finish items do you prefer to be made of wood? Please rank the 3 most preferred items. Item Ranking Moulding Flooring Wainscoting Ceiling Windows Exterior doors Interior doors Stairways Stair railings Cabinet doors Kitchen cabinets Bathroom cabinets 2. Would you like to see the wood interior finish products that your company purchases certified by a quality assurance program? Which wood products would you prefer to have certified? 3. Given the choice, would you prefer to see a quality assurance program certify quality in the process of manufacturing (how well the product is manufactured), quality in the product (how well the product fulfils its intended function), or would you prefer a quality assurance program certifying both? • quality in the process • quality in the product • both (if BOTH) Which is more important to you, quality in the process or quality in the product? • quality in the process • quality in the product 4. If a product you are purchasing were to be certified by a quality assurance program, what differences would you expect over a non-certified product? 74 WINDOWS 5. What percentage of windows does your company manufacture? From how many suppliers do you purchase windows? Source Proportion make in house purchased from 1-2 suppliers purchased from 3-5 suppliers purchased from 6-10 suppliers purchased from >10 suppliers 6. Which materials does your company use for windows? Please indicate the proportions. Material Proportion Aluminium Wood Aluminium-clad wood Vinyl-clad wood Vinyl plastic 7. What are the 3 most important properties when selecting a material for windows? 8. How important are these factors in defining quality for the windows that you purchase? Please rate each factor from 1 to 10 with 1 being not at all important and 10 being extremely important. Factor Rating 1. Product performance 2. Product features 3. Product reliability 4. Product conformance 5. Product durability 6. Product serviceability 7. Product aesthetics 8. Perceived quality 9. Are there any other quality characteristics you expect in windows that are not on the list? 10. How long should after-sales service be for windows? What is the minimum time acceptable and what is the desired time? 11. Do you agree with the following statements made for windows? Please say if you strongly agree, agree, disagree, or strongly disagree with the statements. Statement Level of agreement The quality of the product is an important aspect of the decision to buy one product over another. My company receives good value given the price of the products. The products my company purchases should be subject to a formal quality control program. The quality of the products my company purchases has improved over the last 3 years. The quality of the service my suppliers provide has improved over the last 3 years. 12. Which proportion of the houses your company builds requires fire safety-approved doors and windows? Of those, which proportion requires type A fire doors (koshu)? 13. When purchasingwindows, how important are the following characteristics to you? Are these characteristics extremely important, very important, important, not very important, or not at all important? Characteristics Rating They are approved for use in fire and quasi-fire protection districts. There are many different sizes available. There is a wide variety of designs available. Material and design match the interior design of the house. They are soundproof. The finishing contains no toxic components. They have a high insulation value. 75 14. Which window designs does your company install? What are the proportions of these window designs? Are these proportions expected to increase, decrease, or remain the same? Design Proportion Change Traditional double sliding window Casement window Double-hung window Bay window Awning window Picture window 15. Would you consider using wood windows? • yes (go on to question 18) • no • don't know 16. Why would you not use wood windows? (go on to question 25) 17. Would you like windows with the wood texture visible on the inside of the house? • yes • no 18. Which colour do you prefer on the inside of the house for a window, very light, light, medium, dark or very dark? • very light • light • medium • dark • very dark 19. Which colour do you prefer on the outside of the house for windows, very light, light, medium, dark or very dark? • very light • light • medium • dark • very dark 20. Do you prefer pre-finished or unfinished wood windows? • pre-finished • unfinished 21. Would you allow some knots on windows? • yes • no • depends (if YES or DEPENDS) Please describe what kind of knots you would accept. 22. For windows, would you prefer hardwoods or softwoods? • hardwoods • softwoods • doesn't matter • don't know 23. Which species of hardwoods/softwoods do you prefer for windows? 76 24. Would you use finger-jointed window components? • yes • no • depends • don't know (if DEPENDS) On what does it depend whether you would use finger-jointed wood? 25. Would you use laminated window components? • yes • no • depends • don't know (if DEPENDS) On what does it depend whether you would use laminated wood? 26. Which material would you prefer for wood windows: wood-only windows, aluminium-clad wood windows, or vinyl-clad wood windows? • wood-only windows • aluminium-clad wood windows • vinyl-clad wood windows 27. The next question on doors and windows does not pertain to any specific material. What are your greatest concerns regarding the quality of windows? FLOORING 28. Which proportion of flooring does your company manufacture and which proportion do you purchase from suppliers? From how many suppliers do you purchase? Source Proportion make in house purchased from 1-2 suppliers purchased from 3-5 suppliers purchased from 6-10 suppliers purchased from >10 suppliers 29. Which materials does your company use for flooring? Please indicate the proportion for each material you use. Material Proportion Fibreboard core with veneer laminate Fibreboard core with non-wood laminate Solid hardwood Solid softwood Thin solid wood on plywood base Carpet Ceramic tiles Linoleum Tatami 30. Which floor materials do you prefer in the following areas of a house? Areas Material Entrance Hall Living area Dining area Kitchen Bathroom Stairway Bedroom 77 31. How important are these factors in defining quality for the flooring that you purchase? Please rate each factor from 1 to 10 with 1 being not at all important and 10 being extremely important. Factor Rating 1. Product performance 2. Product features 3. Product reliability 4. Product conformance 5. Product durability 6. Product serviceability 7. Product aesthetics 8. Perceived quality 32. Are there any other quality characteristics you expect in flooring that are not on the list? 33. How long should after-sales service be for flooring? What is the minimum time acceptable and what is the desired time? 34. Do you agree with the following statements made for flooring? Please say if you strongly agree, agree, disagree, or strongly disagree with the statements. Statement Level of agreement The quality of the product is an important aspect of the decision to buy one product over another. My company receives good value given the price of the products. The products my company purchases should be subject to a formal quality control program. The quality of the products my company purchases has improved over the last 3 years. The quality of the service my suppliers provide has improved over the last 3 years. The following questions pertain to wood flooring only. 35. Which type of wood floor do you prefer, solid hardwood, solid softwood, fibreboard core with veneer laminate, fibreboard core with wood-imitating laminate, or thin solid wood on plywood base? Please rank these materials with number 1 being the most preferred. Material Ranking Solid hardwood Solid softwood Fibreboard core with veneer laminate Fibreboard core with wood imitating laminate Thin solid wood on plywood base 36. Which wood texture do you prefer, flat grain or edge grain? • flat grain • edge grain 37. Which colour of installed floor do you prefer, very light, light, medium, dark or very dark? • very light • light • medium • dark • very dark 38. Do you allow some knots? • yes • no • depends (if YES or DEPENDS) Please describe what kind of knots you do accept. 39. What type of finish would you like on wood flooring? 78 40. What are the most common dimensions of flooring planks you use? 41. When purchasing wood flooring, how important are the following characteristics to you? Are these characteristics extremely important, very important, important, not very important, or not at all important? Importance rating The wood flooring is ready to install. The wood is colour-matched. The finishing contains no toxic components. 42. Which 3 characteristics of wood flooring would you pay a premium for? 43. Which 3 characteristics of wood flooring would you expect to get a discount for? 44. This last question is on flooring in general. What are your greatest concerns regarding the quality of flooring? 79 B SURVEY OF CANADIAN EXPORTERS WOOD FLOORING EXPORTS FROM CANADA TO JAPAN General 1. When did you enter the Japanese market? 2. What products do you sell to Japan? (for example: flooring, mouldings) 3. What share does Japan have of your total sales volume? ' NOW % IN 3 YEARS (estimate) % IN 10 YEARS (estimate) % 4. Why do you sell to Japan? 5. How are your products distributed in Japan? (please indicate the percentages of your total sales in Japan; they should total to 100%) IMPORTER/EXPORTER % TRADING HOUSE, LARGE WHOLESALER % DIRECT TO SMALL WHOLESALER % DIRECT TO HOUSE BUILDERS % OWN DISTRIBUTION CHANNELS % OTHER (please specify) % Wood Flooring 6. What flooring products do you sell to Japan? (please indicate the percentages; they should total to 100%) SOLID HARDWOOD FLOORING UNFINISHED % SPECIES: PRE-FINISHED % SOLID SOFTWOOD FLOORING UNFINISHED % SPECIES: PRE-FINISHED % ENGINEERED WOOD FLOORING UNFINISHED % SPECIES: ( M U L T I - L A Y E R PARQUET) PRE-FINISHED % HIGH PRESSURE LAMINATES (HPL) % OTHER (please specify) % % 7. Did you develop flooring products specifically for the Japanese market? If yes, in which way are the products for the Japanese market different from products sold on the North American market? 80 Service 8. Is the service on flooring products different for the Japanese market than for the North American market? (for example installation guidelines, product warranty, product replacement) If yes, what are the differences? Issues and Outlook 9. What challenges did you encounter when you entered the Japanese market? 10. What changes do you expect in the coming years in terms of sales volume, customer expectations, competitive environment, prices etc. for flooring? 81 WINDOW EXPORTS FROM CANADA TO JAPAN General 1. When did you enter the Japanese market? 2. What products do you sell to Japan? (for example: wood windows, exterior/interior doors) 3. What share does Japan have of your total sales volume? NOW % IN 3 YEARS (estimate) % IN 10 YEARS (estimate) % 4. Why do you sell to Japan? 5. How are your products distributed in Japan? (please indicate the percentages of your total sales in Japan; they should total to 100%) IMPORTER/EXPORTER % TRADING HOUSE, LARGE WHOLESALER % DIRECT TO SMALL WHOLESALER % DIRECT TO HOUSE BUILDERS % OWN DISTRIBUTION CHANNELS % OTHER (please specify) % % Windows 6. What window products do you sell to Japan? (please indicate the percentages; they should total to 100%) WOOD WINDOWS % ALUMINIUM-CLAD WOOD WINDOWS % VINYL-CLAD WOOD WINDOWS % ALUMINIUM WINDOWS % VINYL WINDOWS % OTHER (please specify) % % 7. Did you develop window products specifically for the Japanese market? If yes, in which way are the products for the Japanese market different from products sold on the North American market? Service 8. Is the service on windows different for the Japanese market than for the North American market? (for example installation guidelines, product warranty, product replacement) If yes, what are the differences? Issues and Outlook 9. What challenges did you encounter when you entered the Japanese market? 10. What changes do you expect in the coming years in terms of volume, customer expectations, competitive environment, prices etc. for windows? 82 APPENDIX II: ASSOCIATIONS IN J A P A N A M E M B E R S O F C O M P O S I T E W O O D F L O O R I N G ASSOCIATION East Japan AP FLOOR PAL NODA Sh in-N ikko-kagaku Central Japan IKUTA Toyo PLYWOOD YUASA Kenzai-kogyo Kansai (Osaka and Kyoto) Asahi WOODTECH Eidai Sangyo TOSTEM WOODWORK Matsushita denko (Matsushita Electronics) Uematu Shoji Daiken Kogyo Marudama Sangyo (Maizuru factory) 1-1-5 Mukohama, Akita-shi, Akita 010-16 Tel: 0188-24-0801 HK-Shinjyuku Building, 4-3-17 Shinjuku, Shinjuku-ku, Tokyo 160-0022 Tel: 03-3226-8001 5-13-6 Asakusabashi, Taito-ku, Tokyo 111-0053 Tel: 03-5687-6511 The 2nd Shin-nittetu Building, Higashi-kan, 2-31-1 Shinkawa, Ch oku , Tokyo 104-0033 Tel: 03-5541-3611 117 Bougane-machi, Seto-shi, Aichi 489 Tel: 0561-85-2461 1-2-30 Sannou, Nakagawa-ku, Nagoya-shi, Aichi 454-0011 Tel: 052-323-1711 1- 94 Kiba, Tobishima-mura, Kaifu-gun, Aichi 490-1444 (Nagoya Factory) Tel: 05675-5-1521 4-5-10 Minami-hon-mchi, Cho - ku, Osaka-shi, Osaka 541-0054 Tel: 06-245-8525 2- 10-60 Hirabayashi-minami, Suminoe-ku, Osaka-shi, Osaka 559-0025 Tel: 06-675-2341 2-12-16 Hirabayashi-minami, Suminoe-ku, Osaka-shi, Osaka 559-0025 Tel: 06-683-8221 1048 Oaza-Monma, Monma-shi, Osaka 571-0050 Tel: 06-909-6088 13-2 Zaimoku-cho, Kishiwada-shi, Osaka Tel: 0724-37-5111 Shin-asahi Building, 2-3-18 Nakanoshima, Kita-ku, Osaka-shi, Osaka 530-0005 Tel: 06-228-3396 1157 Aza Taira, Maizuru-shi, Kyoto-fu 625-0133 Tel: 0773-68-0201 83 West Japan SETOUCHI Kako Jyuken Sangyo Okura Kogyo Danya Sangyo Tonan Sangyo 3012 kori, Okayama-shi, Okamaya-ken 702-8011 Tel: 0862-67-2101 1- 1 Mokuzai-kou Minami, Futukaichi-shi, Hiroshima-ken Tel: 0829-32-3330 1515 Namatu-machi, Marukame-shi, Kagawa-ken 763-0054 Tel: 0877-23-1111 2- 5-12 Higashi Minato-machi, Ogurakita-ku, Kitakyushyu-shi, Fukuoka-ken 803-0802 Tel: 093-561-6699 Tonan Building, 815 Hachioji-machi, Kumamoto-shi, Kumamoto-ken 860-0831 Tel: 096-379-8888 B J A P A N E S E M E M B E R S O F W O O D WINDOW ASSOCIATION ISLAND PROFILE Co., Ltd. 2-13-15 Ikegami, Ota-ku, Tokyo 146 Tel: 03-3754-7043 Asahi Glass Tel: 03-3218-5372 Oide Sangyo Co., Ltd. 4-12-18 Toyo, Koto-ku, Tokyo 135 Tel: 03-3645-9178 Oharasanwa KK 6-4-13 Umeda, Adachi-ku, Tokyo Tel: 03-3889-6601 Kamo Tategu Kyodo Kumiai 16-6 Kotobuki-machi, Kamo-shi, Niigata 959-13 Tel: 0256-52-0893 Kawakami Seisakusho Co., Ltd. 339-22 Kogyo-danchi, Murakami-shi, Niigata 958 Tel: 0254-53-3030 KIMADO Co., Ltd. 1-1 Kami Akae-cho, Toyama-shi, Toyama 930 0764-41-1423 Kyowa Mokko Co., Ltd. 22-2 Owada Minami, Suwa-shi, Nagano 392 Tel: 0266-79-5531 KO SHI YAM A Co., Ltd. 100 Osuga, Kawatogawa, Noshiro-shi, Akita 016 Tel: 0185-54-3214 SEREN Co., Ltd. 17-7-1 Futukaichi-cho, Fukui-shi, Fukui 910 Tel: 0776-55-1675 Taisei Tategu Co., Ltd. Kakezukuri-cho 9, Wakayama, 640 Tel: 0734-22-2634 Tanaka Tategu 14 Aza-Usui, Futatsui-cho, Yamamoto-gun, Akita, 018-31 Tel: 0185-73-4916 Tanaka Mokuzai Kogyo Co., Ltd. 288-1 Akaike, Nakagawa-cho, Naka-gun, Tokushima, 779-12 Tel: 0884-42-1130 Tokushu Mokuka Kogyo Co., Ltd. 177 Shimomumata-cho, Mumata, Gunma, 378 Tel: 0278-23-2622 TRY WOOD Co., Ltd. 2716 Oaza Kamibaru, Kamitsue-mura, Hita-gun, Oita, 977-03 84 

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