Rising to the challenge

No one would be green with envyabout the problems facing the global forestry sector. Over-capacity, high levels of fixed costs, falling demand and pricing pressures ­— these perennial issues that have confronted this notoriously cyclical industry through the years ­— have been magnified by the severity of the current global economic downturn.

And for Finland, home to several of the sector’s largest companies, there is no escaping the issue, for forestry is truly a global business. Despite the exceptional expansion of other sectors in Finland in recent decades — such as mobile telephony, to mention the most obvious — forestry is still at the heart of Finnish industry and business.

Basic raw materials

At one end of the scale, forests not only supply the basic raw materials for pulp, paper and packaging, where the largest players are Stora Enso, UPM Kymmene and M-Real, they have also spawned forestry-related engineering concerns, such as Metso, and industry consultancy and service firms such as the Poyry Group. All these enterprises have established global positions. At the other end of the scale there are small rural communities
in Finland whose very existence depends on a single sawmill, and have done for centuries.

With three-quarters of the country covered by this natural resource, Finland is the most extensively forested country in Europe. There are about four and a half hectares to every Finn. More than half the forested areas are in the hands of small private holdings, with the state accounting for about a third, companies just under ten per cent, and the remaining portion in the hands of municipalities and the church.

Well researched

Finland’s forests are the most studied in Europe. Since the 1920s they have been monitored and inventoried in every conceivable way, such that research institutes can state that the total volume of timber in Finnish forests is 2,189 million cubic metres, the total annual growth of the trees is 98.5 million cubic metres and the growing season in Finland is about 80 days, which means that the average daily increment is more than one million cubic metres. It seems that no aspect of forest life is too small to be scrutinised.

The sector, though declining, remains important to the economic life of the nation. In 2008 it accounted for three per cent of GDP, albeit down from 5.6 per cent in 2006. The number of Finns earning their living from it has fallen from four to 2.3 per cent, and its share of the country’s exports amounts to 17 per cent versus 24 per cent two years ago. These numbers reflect what is, hopefully, the lowest point in the volatile cycle.

Global exports

Meanwhile, the role of Finnish forestry globally has actually increased. Twenty-five years ago the largest Finnish forestry company was 38th on the global list, whereas today Finland’s largest are among the world’s top ten.

Store Enso, UPM Kymmene and M-Real and others have played an active role in the globalisation of the sector. Not only do Finnish companies account for seven per cent of the global export trade of $228 billion (Dh837 billion), but they have also established production facilities across the globe in their aim to serve their existing markets more efficiently as well as developing growth markets.

European Union countries remain Finland’s most important customers, accounting for about 50 per cent of sawn wood exports and more than 60 per cent of paperboard, with Germany and the UK being the foremost importers, at 30 per cent of the total.

However, long-term growth is seen as coming from further afield. Store Enso, for example, with 865 production facilities spread across 35 countries, is focusing on reaching to China, South America and Russia.

Product diversity

A broad geographical spread of operations has served Finnish companies well, but other factors, including product diversity, have been equally important. Take Stora Enso for instance again, its output covers the whole gamut of forestry products, from newsprint to packaging products to wood-based building products, with the more stable area of packaging providing balance to the more cyclical elements.
Management of raw material and energy costs can make the difference between surviving in the industry or going under. Finnish companies have always benefited from a high level of integration.

UPM-Kymmene, for one, is totally self-sufficient in its pulp requirements and 85 per cent in electrical power, through its own power generation facilities and co-ownership of two energy companies.

Innovation is also at the heart of Finnish companies’ competitive strengths, whether it’s finding new, more efficient solutions for food packaging or developing a broader range of bio-degradable products. Expenditure on research and development has always been an essential part of the cost base.

In an increasingly environmentally conscious world, the whole Nordic forestry scene has led the way both in minimising the impact of the manufacturing process on the environment and in developing products manufactured from renewable and recyclable materials.

If not necessarily satisfying the most ardent environmentalists, the measures indicate that Finland, along with its Nordic neighbours, takes environmental responsibilities very seriously.

Indeed, the environment generally is a tough taskmaster right now for forestry companies throughout the world, as they struggle for their very existence, but in Finland they have a long history of rising to the challenge.