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The New Northwest Passage

Hit hard by imports, aggressive Oregon businesses have discovered how to make the doors of Japanese trade swing both ways.
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ON A COLD, MISTY NOVEMBER DAY IN 1805, explorers Meriwether Lewis and William Clark traveled up the Columbia River until its blue waters reached those of the great ocean. It was the beginning of America's great movement to the Pacific.

Lewis and Clark's mission, in the words of President Thomas Jefferson, was to discover a direct route "for the purposes of commerce" with the nations of Asia. But as it turned out, the people who later settled the Columbia River Basin never fulfilled Jefferson's mandate. Perhaps it was that their roots were elsewhere. Or perhaps it was that the land was so fertile and so beautiful that they saw little cause to journey on. But whatever the reason, they rarely thought of themselves as Pacific traders.

"We've been cutting a fat hog in the ass," says Denny Pease, president of the Columbia/Snake River Marketing Group, an association of 34 ports along the 465-mile-long river system. "This was a land of permanent boom. The timber people had endless domestic markets, the wheat growers huge harvests. Then everything began to change."

What changed, says Pease, is that other regions and other countries began to usurp many of the Northwest's markets for such products as lumber, fruit, and grains. An economy that had consistently outperformed the nation during the 1960s and 1970s in per capita income growth and job creation began, in the 1980s, to fall way behind. Between 1979 and 1984, the Pacific Northwest region enjoyed no increase in total employment.

No industry better epitomizes this economic decline than timber, long the mainstay of the region's economy. Between 1979 and 1982, Oregon watched its share of U.S. softwood-lumber production drop from 23% to 19, while both Canada and the southern states increased their shares. In many places, double-digit unemployment rates became a way of life, as up to a quarter of the lumber-related jobs disappeared. And the permanence of the decline was suggested by Georgia Pacific Corp., the nation's largest manufacturer and distributor of building products, when it decided in 1982 to move its corporate headquarters out of the region in order to be closer to its holdings in the southeastern pine forests.

But not everyone along the Columbia is prepared to surrender to the trend. Reviving President Jefferson's dream of a Pacific trade link, some local entrepreneurs have found ways to offset losses in domestic markets with new and growing markets in Asia. And in some cases, they have found that, as exporters, they have become bigger and more profitable than at any other time in their histories.

Take Vanport Manufacturing Inc., for instance, a small lumber concern 30 miles outside of Portland. When forester Adolf Hertrich and three other investors bought the abandoned mill in the tiny Oregon hamlet of Boring back in 1967, the town's name aptly described the prevailing business conditions. The future was anything but promising.

But Hertrich, an immigrant from the forestlands of Germany, saw a future for Vanport in a new Japanese market. Although Japanese lumbermen and construction firms had long been customers for whole logs shipped from the Pacific Northwest, they had rarely bought finished lumber from the region's mills. Quality had been a big part of it: as with so many other products from consumer appliances to food, the Japanese tended to be finicky customers. And in the case of lumber, they liked it cut to exacting traditional Japanese specifications. How the wood looked -- not merely how strong it was or how much it weighed -- was a primary concern.

"The Japanese didn't think our sawmills could do the right job. They didn't think a gai-jin could understand their system," recalls Hertrich, who had started out by selling the Japanese whole logs cut from national forests until federal regulations were changed to prohibit it. "But I saw no alternative but to adjust. We could go out of business, or we could remodel our sawmill to meet their needs."

In remodeling, Hertrich followed the path traveled so many times by the Japanese themselves during the 1960s as they began their industrial conquest of the United States. He traveled extensively throughout Japan, meeting with potential customers and inspecting the facilities of their Japanese lumber suppliers, taking careful notes wherever he went. "I took my camera and did a little spying," Hertrich admits readily. "They didn't take me very seriously since we were such a small company."

By the mid-1970s, he had begun to redesign his mill from head saw to edger to trim saw. The log carriage was computerized to accommodate metric measurements. And most important, foremen were instructed by Japanese specialists on the complex lumber-grading systems that are based on such aesthetic factors as color and graining -- categories that change depending on the region of Japan in which a customer is located.

It look Hertrich and his people two years before they were finally confident and able to impress prospective Japanese customers. And to press the point still further, they even built a traditional Japanese guest house from their own lumber and invited overseas guests to spend the night there. To the Japanese businessman, who has always suffered from some cultural discomfort when dealing with westerners, this willingness to accommodate was a powerful and persuasive marketing strategy.

And it has paid off handsomely. Today, while many local mills lay idle, Vanport's 170 nonunion workers labor at double shifts. Sales last year reached $27 million, 90% of which are destined to Japan. The company has been consistently profitable.

Adolf Hertrich is not the only lumberman adjusting his gaze toward the Pacific. At Gregory Forest Products Inc., for instance, exports have become a growing part of sales. When Bill Gregory bought his two southern Oregon mills in 1981, virtually all his customers were Americans. Today, nearly $4 million of the company's $70-million sales are for export -- mostly to the Far East.

Unlike Hertrich, who has adjusted his Oregon operation to conform to traditional Japanese standards, Gregory pins his hopes on the growth of the Japanese market for traditional American houses -- and traditional American lumber.

"For a long time, we couldn't afford to live in quality housing," explains the Washington State branch manager for a Japanese company. "Now we can afford it, and we want it." Apparently, other Japanese agree: in 1985, 26,000 new Japanese houses were built in the American style.

An Asian consumer market that is fast becoming Americanized is one reason Gregory looks to Asia as the growth area for the northwestern lumbermen. Improvement in transportation is another. The economics of containerized transoceanic transport today actually makes it cheaper to ship lumber down the Columbia and through the port of Portland to Japan than loading it on trucks or rail and sending it to Texas. And since February 1985, the falling dollar has effectively reduced the price of American lumber by nearly 40% to Japanese customers.

"These are absolutely the markets of our future, if we are going to have a future," says Gregory, who expects the export share of his business to double or even triple by 1990. "And as places like China and Korea get more dollars, you're going to see the same thing taking place that you now see in Japan."

This optimistic view of Asia's market potential is not limited to hard-pressed lumbermen. Some of Oregon's cherry growers have also boosted sales by increasing their Pacific shipments and conforming to the exacting standards of Asian customers. For some growers, this has meant adopting new irrigation methods and other horticultural improvements. But for nearly all the exporters, it has meant a change in schedules -- away from the early harvests that had became a popular way to reduce the exposure to early fall rainstorms, in favor of late harvests that allow cherries to become darker, sweeter, and plumper by ripening on the trees.

"We've made a commitment to quality that we know will be rewarded," explains Bob Thompson, president of Oregon Cherry Growers Inc. "There will be years when we might lose a crop because of rain, but in the long run, the quality will win out," he says, noting that the Japanese are willing to pay as much as a third more for the better-tasting fruit. The Japanese, Thompson says, "are now a critical part of our whole program."

How critical? Only five years ago, exports took only 10% of Oregon's cherry output. Today, it's anywhere from 20% to 50% -- for many small growers, the difference between survival and disaster.

Oregon wheat farmers have not fared as well. While the Columbia remains the nation's number-one export route, taking some 85% of the Oregon crop, foreign competition has cut the size of that crop dramatically. Last year, for example, total grain exports from Oregon were down by more than a third -- or about half the peak levels of 1980. One reason: lots of cheaper wheat being exported by Australia and Canada.

But like the lumbermen and the cherry growers, Oregon's wheat farmers are determined to find reliable markets across the Pacific. Various trade associations have looked into new markets in such places as Indonesia and Russia's eastern provinces, and to expand existing markets in Japan and Korea.

One major thrust involves promotion, through advertising and baking classes, of such foods as biscuits, doughnuts, and cakes. These items are foreign to Asian diets. And not coincidentally, they just happen to call for the particular strain of soft white wheat grown throughout the Pacific Northwest. "We're turning them into junkfood junkies," jokes Jack Hay, president of the Oregon Wheat Growers League, himself a farmer. "Diets are changing there. They are already selling all the McDonald's pies they can produce in Korea. And those little pies use our wheat."

What the wheat farmers are doing, of course, is what anyone might do when existing markets are threatened: scout new customers, adjust operations to suit them, and invest modestly in new marketing efforts. And what works in farming and lumbering can work just as well in manufacturing. Just ask Ronald Brudi.

Until about five years ago, Brudi Equipment Inc., in Kelso, Wash., a manufacturer of forklift attachments, depended almost entirely on sales to approximately 600 American forklift dealers. But as the American forklift industry, hit by cheaper imports, began to lose its dominance in both domestic and international markets, Brudi realized that he, too, was in trouble. The point was driven home in 1983 when Hyster Co., one of the nation's largest manufacturers, closed its facility just down the river in Portland.

These days, however, Brudi no longer worries about Asian manufacturers. That's because a number of them are his customers. Japanese and Korean manufacturers, in fact, now represent more than half his sales and account for a doubling in company sales during the past five years. And in the future, Brudi looks for stronger Asian connections, as some of his Japanese customers open plants in the United States, and as the Korean giant, Daewoo Corp., begins to distribute Brudi products to forklift distributors and users throughout Korea.

"You've got to get to the point where it doesn't matter if the manufacturers back East get in trouble," notes Tom Jacka, a former government trade official whom Brudi hired to sell his products overseas. "Our view is that the Asian market is our future."

Denny Pease, of the Columbia/Snake River Marketing Group, agrees. "There has to be a cultural reorientation of what this region is and wants to be," he says. "And that is part of the Pacific Rim. That's hard to sell to people who have spent their lives seeing themselves as the resource providers and breadbasket for the rest of the United States. But we've got to realize that our future lies more in Tokyo than it does in Atlanta or New York."

President Jefferson could not have said it better.

Last updated: Feb 1, 1987




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