Competitiveness of Finnish forest sector: influence of globalization and international policies on operating environment and competition

Competitiveness of Finnish forest sector: influence of globalization and international policies on operating environment and competition Suomen metsäsektorin kilpailukyky: analyysi globalisaation ja kansainvälisen politiikan vaikutuksista toimintaympäristöön ja kilpailuun (KILPO) 26.3.2013 1

Outline 1. Basic information on KILPOresearch project 2. Motivation for our research + 1 slide on the first results! 26.3.2013 2

Targeted research call of Metsämiesten Säätiö 31.1.2012: Metsämiesten Säätiö haluaa edistää Suomen metsäsektorin kansainvälisen kilpailukyvyn kehittämistä ja sitä tukevaa kansainvälistä politiikkaa, mihin liittyen Säätiö asettaa haettavaksi 1-2 tohtorikoulutusapurahaa. Tutkimushankkeessa painotetaan kansainvälisen politiikan tai talouden vaikutusten analyysia Suomen metsäsektorin kilpailukykyyn ja metsäsektorin tulevaisuuteen. 2 PhD student projects with emphasis on transmission of international policy impacts on the competitiveness and future of Finnish forest sector 26.3.2013 3

Professor Anne Toppinen (HY, principal investigator) Professor Heimo Karppinen (Metla/ HY) Researcher, Dr. Pia Katila (Metla) Docent Heikki Pajuoja (Metsäteho) M.Sc., MMM Jaana Korhonen MMK Teemu Harrinkari Advisory board (next slide) Financing: 3 year grant from Metsämiesten Säätiö starting1.9.2012- to cover costs for two PhD student salary costs and associated costs of data collection and travel 26.3.2013 4

Advisory group Chairman of the board Ilpo Tikkanen/Metsämiesten Säätiö Research director, Dr.Econ. Petri Rouvinen/ETLA Professor Lauri Valsta/HY Professor Jussi Uusivuori/Metla Associate professor Silja Korhonen-Sande (UMB, Norja) Docent Markku Simula/ARDOT Oy SVP Business Planning Heikki Rissanen/Stora Enso Group Forest Operations Communication mananger Kai Lintunen/Suomen Metsäyhdistys 26.3.2013 5

Main questions of PhD student research at U of Helsinki Jaana Korhonen (HY): What are the critical areas towards forest sector competitiveness? How do different factors in relative terms contribute to this in Finland with an international comparison? Teemu Harrinkari (Metla): How does international forest and environmental policy affect to Finnish forest legislation, forest policy programmes, as well as operating environment and competitiveness? 26.3.2013 6

Some of the key societal megatrends/drivers: CSR 26.3.2013 Europe 7

Global consumption of coniferous sawnwood * 2001 2011 (Source: Metla Annual Outlook 2012) *Laskennallinen kulutus 8

Trends in sawmilling industry in Finland and the main competitor countries (Indufor, TEM 2012) Volume of production 2000=100 Cost development in euros (blue) and domestic currencies (red) v. 2006-10 9 26.3.2013

Capacity changes in global pulp and paper 2000-2012 (Source: RISI Mill Project Database) 26.3.2013 10

Finnish pulp and paper industry in 2000s capacity closures and lower level of investment than in previous decades 26.3.2013 11

Consumption of imported and domestic roundwood in Finland 1990-2011 (Source: Finnish Statistical Yearbook of Forestry 2012) 90 80 Mill. m3 70 60 50 40 30 20 10 2011 TOTAL 70,6 mill.m3: 2011 TOTAL 70,6 Domestic mill.m3: roundwood 61,8 mill.m3 (+4 %, 2011-2001) Domestic roundwood Imported61,8 roundwood mill.m3 8,9 (+4 mill.m3 %, 2011-2001) (-35 %, 2011-2001) Imported roundwood 8,9 mill.m3 (-35 %, 2011-2001) Use of domestic roundwood as energy 9 mill.m3 in 2011 (+63%, 2011-2011) 0 1990 1995 2000 2005 2010 Domestic Imported 26.3.2013 12

Many ways to measure competitiveness / competitive advantage Multidimensional by nature, no single measure exists for competitive advantage/competitiveness, dependent on the focus of interest: cost based real competitiveness? short-term long-term? firm industry national level? Michael Porter s (1990) model 1) Factors of production 2) Demand conditions 3) Related industries (cluster effects) 4) Firms strategies 5) Technology 6) Innovation system 7) Policy and regulation Firm level: resources, capabilities and strategic choices F 26.3.2013 13

Insights from some previous studies on forestry and forest industry competitiveness National level: Forest sector renewal a focus in previous large-scle futures projects (MMS/Hetemäki, Seppälä ja Uusivuori, UEF Metsäalan tulevaisuusfoorumi with its background papers): new products in bioenergy, services Regional level: Recent international study by University of Toronto (Mehotra ja Kant 2010) based on managerial survey indicated that Europe is in a weaker position in comparison to NA, SA and Asia in terms of factor markets Analysis of firm level competitiveness in Finnish sawmilling industry emphasized more networks, marketing and management (intangible resources) as better financial performance in firm level (Lähtinen et al. 2009, Toppinen et al. 2011) 26.3.2013 14

World Economic Forum: Finland ranks 3rd globally in competitiveness (Sept. 2012) 26.3.2013 15

EVA2013: Citizen s perceptions on the source of decreasing competitiveness of Finnish corporate sector (N=2023, Jan. 2013 Taloustutkimus) 26.3.2013 16

Paul Krugman: Competitiveness is a dangerous obsession (1994, Foreign Affairs) obsession with competitiveness is not only wrong but dangerous, skewing domestic policies and threatening the international economic system trying to define the competitiveness of a nation is much more problematic than defining that of a corporation 26.3.2013 17

Factors driving investment in planted forests: a comparison between OECD and non-oecd countries (Korhonen, J., Cubbage, F., Toppinen, A. & Kuuluvainen, J. 2013, submitted Journal of Forest Economics) Panel data regression analysis: comparision of three models: pooled OLS, fixed/random effects + long term averages Data for 1990, 2000, 2005, and 2010; 19 OECD countries and 21 non-oecd countries Dependent variable: Area of planted forest (FAO) Two main findings: 1) The more developed the country and its forestry sector, the more emphasis falls on the macroeconomic and institutional environment to maintain a globally competitive position, 2) in non-oecd countries the institutional and macroeconomic challenges seem less important in driving planted forest area development Macroeconomic factors Institutional challenges Forest sectorial factors GDP (market size) Banking credit (credit availability) Foreign direct investments (path depency) Tariffs (barriers to trade) Corruption Unemployment Productivity (forest growth) Roundwood harvests (industrial capacity)

Investments and innovations enhancing forest sector competitiveness Chairman, Metsämiesten säätiö Ilpo Tikkanen: Welcoming address Prof. Anne Toppinen, HY: Introduction to KILPO-research project Dr. Petri Rouvinen, ETLA: Value creation in global value chains: role of Finland Prof. Fred Cubbage, NCSU, USA: South America as an investment destination in forest industry Coffee break Associate prof. Silja Korhonen-Sande, University of Life Sciences, Norway: Innovations in creating competitive advantage in mature industries Commentaries Senior Technology Advisor Mikko Kiiskinen Tekes, forest and chemical industries Managing Director Kai Merivuori, Finnish Sawmills Association Discussion 26.3.2013 19

Some references EVA. 2013. Kadonneen kasvun metsästäjät. http://www.eva.fi/wpcontent/uploads/2013/03/kadonneen-kasvun-metsastajat.pdf. 91 p. Global Competitiveness Report 2012-2013. 2012. http://www.weforum.org/reportshttp://www3.weforum.org/docs/wef_globalcompetitivenessrepor t_2012-13.pdf Hetemäki, L. et al. 2011. Murroksen jälkeen metsien käytön tulevaisuus Suomessa Krugman, P. 1994.Competitiveness a dangerous obsession. Foreign Affairs, 73(2): 28-44. Lähtinen, K., Toppinen, A., Leskinen, P. & Haara, A. 2009. Exploring the connection between resource usage decisions and business success in case of Finnish large and medium sized sawmills. Journal of Forest Products Business Research 6(1). Methotra, S. & Kant, S. 2010. Global competitiveness index for forest products industries. University of Toronto, Sustainable Forest Management Network Project, Final report. 28 s. Porter, M. 1990. The competitive advantage of nations. Free Press, New York. Toppinen, A., Lähtinen, K., Leskinen, L. & Österman, N. 2011. Business networks as a source for competitiveness of the medium-sized Finnish sawmills. Silva Fennica 45(4): 743-759. 26.3.2013 20