Capital Access

Demand-side (Power of Buyers)

• The desire to purchase mass timber products is driven by myriad buyer typologies. (Residents, firm CEOs or politicians opt for wood environs for many reasons.)
• The “power” of customers informs industry dynamics, including where value is captured (vs. created).
• Power of Buyers: Initial characterization: HIGH
  • The demand-side is collectively much larger than the suppliers serving them.
  • Products are comparatively undifferentiated, but of material cost consideration to buyers.
  • Switching costs across suppliers relatively low.
  • Substitutes easily accepted.
  • Product’s value proposition not understood & confused.

Supply-side (Power of Suppliers)

• Mass timber product supplier power—their ability to leverage better prices or terms—vary by distinct sub-groups.
• Key factors include: concentrations, dependencies, alternatives and time-based considerations.
• Supply dynamics suggest value capture is not evenly shared, absent non-market forces like collaboration, regulation, etc.
• Power of Suppliers: Initial characterization: MEDIUM
  • General inputs = strong power ( energy, adhesives, labor, real estate...)
  • Wood inputs = medium power (fiber, mills, lumber...)
  • Product-specific = low power (factories, fabs, on-site...)

Threat of Substitute Products or Services

Power of concrete and steel structures /designs

• Initial characterization: HIGH
  • Attractive pricing.
  • Risks are known / accepted.
  • Buyers easily switch / use.

Threat of New Entrants

Power of novel building means like low carbon concrete & steel, plastics & polymers

• Initial characterization: LOW
  • Unattractive costs.
  • Unknown risks.
  • Buyers not easily able to switch and use.

Power of Shared, Central Forces

• Rivalries vs. Collaboration Influences: LOW
  Due to the new and growing nature of the mass timber industry, supply-side rivalries that may drive down pricing or terms are believed to be comparatively absent – just as collaborations are too (which may drive up pricing or terms in favor of suppliers.) There is no influence from the demand side as buyers are so numerous and uncoordinated in their consumption behaviors.
• Market Concentration Power amongst Suppliers, Buyers, Substitutes: LOW
  Mass Timber’s demand-side is not at all concentrated; millions of buyers operate independently. Its supply-side is of low to moderate concentration (but evolving quickly) and of low concentration compared to its Substitutes whereby most markets are oligopolistic via Holcim, Ash Grove, Cemex, Heidelberg, etc.
• Regulatory Power: MODERATE
  Some regulatory powers, like building codes, have the potential for high power (via hold-up / approval practices) which can hasten or stall industry activity. But this is offset by the disparate application of building code; some local jurisdictions will say no while others will be happy to say yes. Moreover, government market interventions (industrial subsidies, trade policy, product price controls, etc. ) are moderate compared to many industries (like airlines, housing, energy, agriculture.)
• Economic Trends Power: HIGH
  Business cycles, capital market cycles and real estate cycles strongly influence volume, pricing / profits and terms across all aspects of industry.

Across these six frames, key considerations are noted below. All capital sources have trade-offs; planning for and balancing these can assist mass timber firm’s decision-making.

• Governance: the level of decision-making influence
• Scale: the amount typically invested
• Risk / Reward: how these are shared, or not
• Duration: the typical length of capital deployment
• Goals: the objectives, which vary and can be multiple
• Reporting: the frequency, detail and related burden
• Collateral: the need for, and nature of security
• Use: how flexible or fungible the funding is
• Liquidity: the availability and nature of commitment

The cost of the capital used by a firm is informed by how the firm opts to balance these factors. These considerations and constraints are navigated by all industries, and products as they grow.