International survey of the natural stone industry -- 2004

February 1, 2005
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This survey constitutes the first international survey of the natural stone industry. It was designed, compiled and analyzed after much consultation and support from the Marble Institute of America (MIA) and was intended to provide a basis of understanding for where the industry was positioned globally.

There are many factors, some good and some worrisome, facing the industry today. These factors include the instability of the U.S. Dollar, trade practices, technology advances, market maturity and general growth questions; as they relate to the industry and to the global economy.

It is appropriate to comment, in summary fashion, the topics mentioned in the above paragraph:

Global impact of changing currencies

The accelerating decline of the U.S. Dollar against most of the other global currencies is a double-edged sword. On one hand, it is destabilizing to a world that uses the U.S. Dollar as an international standard. On the other hand, there are other currencies that may displace the U.S. Dollar as an international standard.

Consider the rise of the dollar against the British Pound Sterling at the close of the 19th century and the opening of the 20th century. The very concept of purity was that things were considered “sterling” at that time. The BPS (British Pound Sterling) was in fact the ultimate guarantor of payment in world trade.

It would be arrogant to assume that any one currency would be retained as a global standard indefinitely. The world and its constituent relationships are in a constant state of change. Global production has shifted to Asia, and to argue the point is foolhardy. However, the world's dominant market is now, arguably, the European Union (EU). The only thing that keeps it from being a runaway market is the fact that the EU is saddled with old social debts. The EU will resolve those problems in short order (we believe). When the EU comes to resolution on those social issues, they may very well be the market force that drives the global economic engine.

The U.S. is facing a financial and political conundrum. Politically motivated tax cuts (declining revenues) -- coupled with a renovation of Social Security (the primary social safety net), the War on Terror, Homeland Security and budgetary deficits -- is taking the U.S. Dollar to record lows when compared to other world currencies.

Asian central banks have thus far supported the U.S. Dollar by continuing to supply the hard cash the U.S. needs to conduct business. In other words, Asia is our principal banker.

The cost of those hard dollars from Asia, has been modest so far. However, as the U.S. continues to pile up debt, it is quite reasonable to assume that the cost for those hard dollars will increase significantly. In fact, we may find them reluctant in their willingness to lend at any price.

In other words, there could well be a collapse of the U.S. Dollar with far-reaching effects. The mitigating factors on the potentially disastrous event could come from three singularly effective and jointly remedial policy corrections:

1. China comes off the dollar standard for the RMB and allows the RMB to float against a variety of other currencies. (Likely)

2. The EU supports the dollar at an exchange rate of about $1.40 or less against the Euro. Actually, this could be in the EU's best long-term interest, but would be questionable given the political realities faced by the EU constituents. (Unlikely, but possible)

3. The U.S. seriously gets its debt under control. As politically unpalatable as raising taxes would be, the U.S. cannot expect to keep borrowing from the world to finance what may amount to a doubling of the current account deficit; taking the debt to the $6, 7 or 8 trillion level. (Possible, but probably only after an intervention by the International Monetary Fund)

Impact on the natural stone industry

The continual ebb and flow of global economics should not necessarily be a mystery. As the world changes, markets, production and politics change. Some players win and some players lose. The winners are typically those organizations that anticipate change and make adaptations to that change a strategic part of their business plans.

The stone industry is a natural resource commodity industry. There is an abundance of primary material to be quarried (no shortage), and

this places the primary focus on productivity (price).

The price influences in the industry are:

1. Labor

2. Technology

3. Transportation

4. Market

5. Economic

Any one of the above has the ability to influence the equilibrium of the industry. Successful organizations in the industry have found a way to formulate a successful mix of all five influences. Integrating a successful plan often requires a truly global and integrated operation. Moreover, the future looks bright for those in the industry who think in global terms.

Trade policies

Many things happened in the last two and a half decades that truly changed the world. The first was a shift in political divisions that had segregated the West from the East. The second was the fall of the Berlin Wall. These two events changed the face of the world forever.

Asia has in many ways become the economic engine of the world. The EU is consolidating Europe and its neighbors into a market force the likes of which the world has not seen -- hegemony at its most promising.

The U.S., while openly supporting the theory of free trade, has had trouble with transitioning itself from theory to practice. Consider the cases of lumber from Canada, steel from anywhere and now textiles from China. All of these issues were taken to the WTO (World Trade Organization). If there is to be any credence to free trade, the members of the WTO are going to have to abide by the organization's framework, or lose Most Favored Nation (MFN) status and WTO protection. Asia in general, and China in particular, are at risk for dumping. China could withstand removal of MFN status and WTO protection without suffering serious political and economic disruptions.

If the industry is destined to thrive, it is reasonable to feel it needs a global voice that protects its widely dispersed interests. This could include a global and industry-specific trade organization that could, among other things, provide for cross-border arbitration on global disputes. Such an organization could provide an easier solution to disputes than the lengthy and expensive International Court for Trade.

Industry trade policies and agreements could be crafted, debated and resolved by an industry constituency. Such agreements and policies would not preclude any specific entitlements afforded to any individual or organization by its own government. It would only be able to offer an open and easily accessible forum.

Further, it is always better to create industry-specific agreements, crafted by industry members and agreed to by a majority of industry constituents than to rely on generally vague and often irrelevant and non-industry specific governmental interventions.

Technology advances

Obviously, technology is impacting the stone industry. There have been many changes in how the industry quarries, processes, fabricates, installs, maintains and restores the end products. Technology is likewise affecting the ultimate end-user price favorably.

While it currently is still possible to process stone -- from quarry to end use -- without much in the way of technology, those enterprises not employing the latest in technological productivity will find their days numbered.

As in any commodity type product, end-user pricing is what drives the marketplace, and not investing in technology is a short-lived practice.

Who responded to the survey?

The survey this year had a broad range of responses from around the world. Included in those responses were the following areas:

  • North America - 81%
  • Europe - 6%
  • Asia - 5%
  • South America - 4%
  • Africa - 1%
  • Caribbean - 1%
  • Oceania - 1%

Although North America dominated the responses, a relatively high percentage of non-North Americans responded to the survey. Forecasting the worldwide stone market, 83% of respondents expected business to increase, with only 13% expecting to remain the same. Only 1% predicted a decrease in worldwide stone trade, and 3% did not offer a prediction.

Perhaps bolstered by this confidence, it would seem that companies in the industry are in somewhat of an acquisition mode, as 14% of firms are considering acquisitions in the next year, and 7% more are undecided -- relatively high totals.

Additionally, over half of the survey respondents (51%) are considering a joint venture this year. Of those who listed specific countries where they were looking to partner, Italy was a top target, with 15% of respondents looking to enter a joint venture there. Brazil and China were also joint venture targets, with around 12% of respondents naming those countries. Of course, many of the foreign survey participants are also looking to partner in the U.S.

In a different tack, we asked respondents where they thought the best opportunities for international trade were located. Predictably, the top three nations listed (other than the U.S.) were China, Brazil and Italy.

Summary and analysis

These results demonstrate that there is going to be a significant amount of industry activity on an international basis. Companies are still committed to growing, as evidenced by their appetites for acquisitions/mergers/joint ventures. Additionally, we have seen that many companies are looking to expand their horizons beyond their own shores.

The stakes in the international marketplace are potentially quite high. Until such time as there is a truly international industry organization, there will be risk. An international industry organization should provide support assistance for transactions, marketing assistance, market intelligence and provide a forum for industry specific dispute resolution.

This survey touched on the concept of an international association. The results from the survey stated that 60% of industry members would be active in an international trade association. Among those who said they would not be active, many agreed that there was still a need for an association to provide services such as marketing support, industry standards, technical and trade assistance and economic research.

Looking at specific countries where the association would be active, the top nations were obvious -- with China as the leader. Other countries outside the U.S. that were commonly mentioned were Brazil, Italy, Turkey and India.

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