Forces of competition: smallholding teak producers in Indonesia

Smallholders managing their own teak plantations typically lack established marketing strategies and are unaware of the underlying competition.
They also have limited experience in using research methods to observe the competitiveness and attractiveness of smallholders’ teak in the
market. To investigate the lesser-explored smallholders’ teak market and identify opportunities to develop marketing strategies, we applied
Porter’s Five Forces Model, which focuses on the five forces that shape business competition. The study showed that smallholding teak producers
compete with a well established, state-owned forest enterprise. Meanwhile, access to markets, market knowledge, financial resources,
and tree production and management, all of which bore on product quality, were identified as barriers to entry by smallholders into the teak
market. With bargaining power at the supply level, farmers must deal with the overwhelming profit-eroding power of buyers, the intermediaries.
Mahogany (Swietenia macrophylla) and acacia (Acacia auriculiformis) may well be suitable high-quality substitutes for teak, but sengon (Paraserianthes falcataria), which is a fast-growing, high-yielding tree that reaches harvest size in only eight years, may also suffice. Improving
market information for smallholders, simplifying timber trade regulations to minimize transaction costs, and developing links between teak
producers and teak industries are among the recommendations to initiate effective marketing strategies for smallholders growing teak.