New Ideas for the Finnish Forest Industry: Results of the “Provisions for Growth” Research Programme (2007-2010)

Submitted by Hannes Selhofer on 17 March, 2011 - 15:50
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Country: 
Finland

The forest industry has been the traditional backbone of the Finnish economy. To explore opportunities for innovation and growth in this industry, Finland launched in 2007 the “Provisions for Growth” research programme. It explored the conditions for growth and productivity in the forest-based industries, focusing on small and medium-sized companies. The programme was mainly financed my Metsämiesten Säätiö, a foundation focusing on the forest industry (http://www.mmsaatio.fi). It was completed in 2010. The final report summarises the activities, lessons learned and conclusions for industrial policy.

Background and programme objectives

The forest industry has been the traditional backbone of the Finnish economy. It accounts for about 20% per cent of all Finnish exported goods. Even Nokia has its roots in the forest industry. During recent decades the industry has been subject to many changes, both challenges and opportunities.

Finland’s traditional paper industry has been facing underinvestment for several decades. Old pulp factories and paper machines are being closed in Finland at the same time as the currently Pan-Nordic paper industry giants invest in new markets, mainly in Asia and South America. In Finland, the wood market is in a constant state of flux because of the big difference in the price of wood between Finland and Russia, from where a lot of wood is imported. The constantly changing regulations from the Russian side make the business instable. Finland is one of the few countries, especially in Europe, investing heavily in nuclear power. In order to get this decision through, politically, a package including ambitious plans to use wood as an energy source was introduced.

Against this background, Finland launched in 2007 a four-year research programme which addressed specifically the forest-based industries under the title “Provisions for Growth”. The programme focused on small and medium-sized enterprises. It was completed in 2010.

Approach and action lines

The Provisions for Growth programme consisted mainly of market studies (analysis of different business models for private entrepreneurs, especially looking for growth) and the organisation of workshops and seminars to disseminate the results. It did not involve a direct funding of projects conducted by enterprises and entrepreneurs.

A major achievement of these activities was the initiation of a new concept for providing distant heating services. Small companies deliver distant heating services to rather small heating networks which have mainly small detached houses as customers. This has become a specific business in Finland.

The studies carried out under the programme covered four main topics:

  • Exploring the growth path for forestry machinery and transportation companies, and the effects of growth on profitability
  • Growth in the business of forest service and sapling entrepreneurs
  • Cornerstones of forest energy entrepreneurs
  • Market potential for heating services at the one-family size of housing

Results and conclusions

The results of the programme show that subcontracting in the wood harvesting and wood transport sectors has increased. In the wood harvesting sector, growth reflects the existing financial situation. In the wood transport sector a turnover smaller or larger than EUR 1–1.5 million was found to weaken profitability. A clear trend in these sectors is expansion into new industries.

The share of forest service enterprises in various work categories is increasing. A significant share of the growth is born when forest owners’ associations outsource their own forestry service production. Moreover, forests owned by municipalities, parishes and collective forests are a potential target for forest service enterprises.

The forest energy business is built on the foundation of a new kind of competence and immaterial factors of production based on networking. Joint enterprises by machinery entrepreneurs have enabled a light organizational structure, effective and flexible management of production chains and raw material procurement as well as the sufficiency of machinery capacity. This also creates scale benefits and ensures delivery reliability.

Heating entrepreneurs were interested in expanding their business to the one-family house category provided there is sufficient heating capacity. Among one-family house dwellers interest in district heating provided by a heating entrepreneur was significant.

The small sawmill sector aimed to grow in moderation. The most important business objective for small sawmills was the improvement of profitability and a return on capital. Next in importance were satisfied customers and the reasonable livelihood of the owner.

There are very few enterprises with actual growth orientation in the forestry and wood-producing industries.

Development of entrepreneurship and business activities is important. In addition to entrepreneurs’ enthusiasm, this requires that the government introduces development measures promoting growth.

Policy recommendations

The experience gained through the programme led to some policy recommendations. They were grouped according to the industry they concern.

Recommendations concerning the forest service and sapling entrepreneurs:

  • The monopoly of forest associations to cater for these services should be ceased
  • Public registries and statistics on forest resources should be available for everyone
  • Public procurement of forest services should be used more often, even when not yet demanded by law

Recommendations concerning forest energy entrepreneurs and heat entrepreneurs

  • Subsidiaries by the state should be distributed in a considered manner
  • District heating systems covering areas of one-family houses could be a lucrative business

Recommendations concerning small saw entrepreneurs  

  • Education on general business management, marketing and on how to control personnel and other costs should be increased The programme’s activities are documented in 18 reports, including the final report by Rieppo (2010) on which this article is based.

 

References / further information:  

Correspondent: 
Prof. Dr. Reima Suomi, Turku School of Economics, University of Turku
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