CHALLENGES TO THE FOREST MACHINE BUSINESS AS A RESULT OF GLOBAL ECONOMIC CHANGE

Transcription

1 CHALLENGES TO THE FOREST MACHINE BUSINESS AS A RESULT OF GLOBAL ECONOMIC CHANGE Forestry, Wildlife and Wood Sciences for Society Development Conference on commemorating the 90th anniversary of university teaching in the Independent Forestry Study department of Czech Technical University Praha, Arto RUMMUKAINEN* Bo DAHLIN** Markku PENTTINEN* Ashley SELBY* Jarmo MIKKOLA* * Finnish Forest Research Institute ** University of Helsinki Metsäntutkimuslaitos Skogsforskningsinstitutet Finnish Forest Research Institute

2 Volume of harvesting (Metinfo 2008, Skogsstyrelsen 2008) Finland Sweden Removals, Mill. m ,5 77,6 Value of harvesting, Mill Number of harvesting enterprises ~ ~1 600

3 The whole business under hard change pressures anyway: Operations models of contracting in future Traditional model (STAR) Subcontractors Wood harvesting / transport enterprise End customer Today: Area/key contracting (SUBCONTRACTING) Machine enterpr./transp. Machine enterpr./transp. End customer Industry, etc. Enterprise / enterprise NETWORK End cust., industry 1 End cust., ind. 2 Future: Multibranch / Multicustomer contracting Source: Metsäteho Ltd Enterprise / enterprise network / joint enterprises End cust,. Forest man ass. End cust., heat plant End customer, forest owner(s)

4 Stucture of full time harvesting business in Finland 2007 Turnover class, Enterprises, % Turnover, % Machines, % Machines, median Employees, % Employees, median < , , , ,3 > ,4 Total, % 100 % 100 % 100 % 100 % Total 1 060* 498 Mill * Consist all enterprises, which supplied the closing of the books material to Statistics Finland

5 Costs increase faster than compensation

6 Wage corrected net profits in Finland and Sweden SF corr. = Statistics Finland material wage correction FFRI corr. = Wage correction for person enterprises and limited partnerships, for partnerhsips and nil for limited companies

7 Many harvesting companies make losses (Statistics Finland, SMF Sweden)

8 Debts divided by turnover in Finland % Over Enterprise turnover class,, lower quartile, median & upper quartile

9 Repayment period of debts in Finland Years Over Enterprise turnover class,, lower quartile, median & upper quartile

10 Reserves by turnover class in Finland 2007 Reserve = financing result - debt payment - investments EUR Over Enterprise turnover class,, lower quartile, median & upper quartile

11 Forest industry promoted domestic harvesting 2008 (Vehicle Administration Finland 2009)

12 Large delayed winter work site reserves show normal removals for February in Finland, but after that... Mäki-Simola, E. Metinfo, Metsätilastotiedote 10/2009 Commercial removals, Mill. m 3 Maximum Average Minimum

13 Wood purchases dropped in Finland Mustonen, M. Metinfo, Metsätilastotiedote 11/2009 Wood purchases of industry, Mill. m 3 Maximum Average Minimum

14 Industry reactions Industry has cut production in factories Only obligatory" winter site cuttings will be carried out No wood will be cut for storage; inventories full with imports Lay-offs of wood procurement personnel Operations moved to Sweden, imports from there Wood markets preserved "alive" Harvesting enterprises at stand still at least 4-5 months

15 How do customers react on recession? Sharing poverty Weakest firms fail in every size/enterprise class Which firms continue? Criteria of choice: price, size, "best-loved" etc. Less transactions, larger enterprises => more negotiation power Let area/key entrepreneurs make decision Mixed strategies Others? Own machines or subcontractors

16 Wage and depreciation cost dominate (Statistics Finland 2009)

17 Theoretical recession endurance of Finnish harvesting enterprises based on the situation at the end of 2007 Cash burn rate = how long an enterprise can pay obligatory expenditures Here only interests, amortization-free period negotiated Small person enterprise: Turnover < , 1 machine, 0,3 employees Large limited company: Turnover > , 6 machines, 9 employees Enterprise size and type Wage payment Cash burn rate = endurance in months Lower quartile Median Upper quartile Small person enterprise Wages paid Large limited company Wages paid 0 2,5 6,5 Small person enterprise Wages not paid Large limited company Wages not paid In reality times are much shorter Enterprise is usually only source of income for the owner There are other obligatory periodical expenditures Employees can not bear long lay-off

18 Did the record year 2007 reduce bankcrupties in harvesting business? -There was wood harvesting enterprises in 2007 Statistics Finland material -During share of bankrupties varied in harvesting business 0,4-1,0 % and in all businesses 0,7-1,0 % data not yet complete

19 Entrepreneurs have to response to changing environment (after Gibb 2000) Global Pressures State repositioning Greater uncertainty and complexity - The need for an entrepreneurial response Organisational repositioning Individual repositioning

20 ow can entrepreneurs react? inimising cost Negotiations with customers No investments, negotiate amortization -free period Laying-off personnel eveloping business Resizing and reshaping for future New compensation structure Part time operations New customers, services or change of business Training and developing him-/herself and personnel ositive attitude to enterprising Seeking new business opportunities Learning processes

21 Model of small business information seeking as a response to environmental threat and opportunities (after Lang, Calantone & Gudmundson 1997) Intension to expand firm Market extension in future Intension to expand product/service Relative competitivenes Perceived opportunities Perceived threats Information seeking Association memberships Use of consultative and other services Media usage Competitors as threats

22 Questions What is the volume of work after the depression? Who operates the business, who are operators? Machines exist, who owns them? What could be done for future? Proactivity Planning of investments and financing Risk analysis Only profitable agreements => solidity Cost factors affect on compensation New businesses: forest bioenergy? Ability to operate abroad????

23 Thank you! Contacts welcome! Arto Rummukainen Bo Dahlin Markku Penttinen Ashley Selby Jarmo Mikkola 23