BonVoyage _feature_DWM

Volume 13, Issue 5 - June 2012

feature

Bon Voyage
How Much Door, Window and Glass Business is Going Abroad?
by Michael Collins

It is important to continually monitor the inroads being made into the domestic market by companies located in other countries. In a relatively short span of time, the entire $50 billion U.S. furniture industry has moved to China and other Asian nations. Many of the companies in that industry segment seemed to be caught unprepared. Within the fenestration industry, the hardware segment has probably been the one most affected by overseas competition to date, but virtually every product segment faces some pressure. Thus, we undertake an annual analysis of the penetration of non-U.S. manufacturers of doors, windows and glass. The results of that analysis shed light on the varying degrees to which door and window companies are losing business to overseas competitors. Figure 1 illustrates the total dollar amount of doors and windows that were imported into the U.S. from 2003 to 2011. Imports peaked in 2007, along with the overall U.S. building products industry. Last year, just more than $1 billion in doors and windows were imported into this country.

Currently, Canada is the largest exporter of doors and windows into the United States, with $450 million in door and window sales. However, Chinese manufacturers are viewed as a much greater competitive threat in the fenestration industry. The growth rate of their imports into this country, which totaled $220 million in 2011, are much higher than Canada’s, primarily because of their advantages in labor and materials costs. Another daunting competitive aspect of Chinese companies is that, in the commercial segment, they are able to submit bids that include financing for the builder. By allowing the builder to borrow the cost of doors and windows until a later stage or the point of completion of the project, they help alleviate the builder’s critical need for financing the project. Few domestic companies would be able to match this benefit.

Figure 2 at left shows the dollar value of doors and windows imported from China between 2003 and 2011. In Figure 1, we saw that imports dropped by 40 percent from the end of 2008 to 2011. However, Chinese imports dropped by just over 30 percent. Thus, Chinese manufacturers gained share at the expense of all other door and window importing nations. Also, Chinese imports grew, albeit at a very modest rate, from 2009 to 2011. As may be seen in Figure 1, total world imports dropped slightly in each of those years.

Historically, doors have represented a much higher percentage than windows of fenestration imports from China. Doors slabs are easier to ship and they fill up a shipping container more efficiently. Offering a small handful of door sizes can allow a company to access a major portion of the door market. A similarly small selection of window sizes wouldn’t begin to scratch the surface of that market. There was one year in which this trend did not hold true, which drew attention to the split between doors and windows in Chinese imports. From 2003 to 2007, windows averaged roughly 17 percent of total door and window imports from China. In 2008, windows jumped to nearly 28 percent of Chinese imports. This raised the question of whether Chinese window manufacturers had discovered ways to overcome some of the previously discussed disadvantages. However, time has shown that the import level of windows from China that year must have been an anomaly or the result of a few large projects. From 2009 to 2011, window imports from China returned to a more normal average level of 12 percent.

As may be seen in Figure 4, the rate of growth of Chinese door and window imports far exceeds that of any other country. The level of Chinese imports in 2011 totaled just more than two times their 2003 levels. The other largest exporters of doors and windows to the U.S., Canada, Mexico and Brazil had seen their exports return to their 2003 levels last year.

Glass is a key component in doors and windows, so the growth rate of glass imports deserves attention. Figure 5 illustrates the fact that glass imports fell sharply in 2009, coinciding with the trough of the recession. Glass imports grew 21.5 percent from 2009 through the end of last year. Given the drop-off in the building products industry over that time period, it seems likely that foreign glass manufacturers gained share at the expense of U.S.-based manufacturers. Unfortunately, it is not possible to determine this relationship precisely. Import statistics include every piece of flat glass to come through customs, while there is no similarly precise tally of domestic glass sales. The same may be said of the door and window statistics presented earlier.

Figure 6 shows Chinese glass imports from 2003 to 2011. Like total world imports, Chinese glass imports dropped from 2008 to 2009. However, total world imports dropped 22.5 percent during that time, while imports from China dropped by only 13.7 percent. Thus, Chinese companies were able to grab market share in the worst year of the decline. As the market recovered from 2009 to 2011, Chinese companies have continued to grow share, with imports increasing 61.7 percent. Total world imports grew by only 21.5 percent over the same period.

The most effective ways to counter overseas competition are to maximize the advantage of being close to one’s customers by offering a wide product variety that can be customized in numerous ways and delivered with a short lead time. Offering nstallation and follow-up service also provide important advantages. Another key aspect of preparedness for participants in every industry, though, is to occasionally conduct an analysis such as this to determine the overall level of success that overseas competitors are having in penetrating the U.S. market.

Note: The source of all import statistics presented in this article is the Economic and Statistics Administration of the U.S. Department of Commerce.

Michael Collins is managing director, building products group, Jordan Knauff and Co. He specializes in mergers and acquisitions in the door and window industry.