The transformation of the forestry-related industries

1
The transformation of the forestry-related
industries A Knowledge Economy perspective

• Christopher Palmberg
• Etlatieto

2
Structure of presentation

1. Position of the forestry-related industries in
   Finland and globally
2. Co-evolution of the forestry-related industries
   and the Knowledge Economy
3. Preliminary conclusions and next steps

3
Position of forestry-related industries in
Finland and globally
4
Contribution to the volume of manufacturing
production
(Source ETLA database)
5
Economic significance of pulp paper industries
Share of Total Value Added
Share of Total Employment
(Source OECD 2003)
6
Forestry-related industries in Finland
1980 1985 1990 1995 2000 2002
Manufacturing output 23.4 18.8 19.0 25.0 24.0 19.8
Employment 4.5 3.8 3.4 3.4 3.1 2.9
GDP 6.6 3.3 4.5 6.5 5.9 4.8
Exports 42.4 36.2 37.6 33.7 26.1 25.4
(Source Lindström et al. 2004)
7
The relative technological advantage of Finland
(Source Balaguer Tsai 2004)
(RTArelative share of US patents in class X in
Finland/relative share US patents in class X for
the world)
8
Finlands share of the Worlds...
forest resources

softwood growing stock
timber removal
harvesting of industrial wood
forest industry output
forest industry exports
paper and paperboard exports
printing and writing paper exports
paper machinery exports
pulp machinery exports
0
5
10
15
20
25
30
35
40
(Source Finnish Forest Industries Federation
2003)
9
2. Co-evolution of the forestry-related
industries and the Knowledge Economy
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Key issues to be addressed

• How have the forestry-related industries
  contributed to the development of the Finnish
  knowledge economy?
• How can the knowledge economy contribute to the
  further development of the Finnish
  forestry-related industries?
• What can be learnt from the viewpoint of other
  countries the development of knowledge
  economies based on traditional/resource-based
  industries?

11
Value of exports of forestry-related industries

12
The forestry cluster in Finland
13
Basis for competitiveness ICT versus
forestry-related industries
2000
2000
1980
1980
1960
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A phasewise account

• An import-phase 1860-1917
• An import-substituting phase 1920s-1950s
• A phase of technological and productivity gains
  1960s-1970s
• An ongoing phase of internationalisation,
  consolidation and globalisation

15
Forestry-related industries as early lead users
of electronics and IT in 1970s and 1980s
Knowledge economy developments emergence of
ICT at the core
Intensified ICT usage of future key importance
to forestry cluster?
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1. Import-phase until 1917

• First pulp mill started production in 1860
• Close cultural ties, especially with Germany,
  paved way for imports of machinery technology
  transfer
• Early integration between pulp paper and
  related engineering an atypical pattern!!
• Restictions on acquistition of land from
  peasentry
• Transportation routes frozen during winter
  in-house maintenece a necessity
• Numerous transportation equipment demanded
  indigenous engineering skills

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2. Import-substitution phase 1920s-1950s

• World War I stalled engineering imports, while
  export markets were lost
• Finlands independence in 1917 fuelled strives
  towards national self-reliance
• Extensive state-involvement nationalistaion,
  state-owned companies, high tariffs, export
  cartels
• RD-base strenghtened, KCL founded 1916, METLA
  founded 1917 etc.
• Inventories, legislation on forest depletion etc.
• Licensing combined with emerging user-producer
  ties an intelligent followers strategy

18

• World War II stalled imports and exports
  againloss of forestry resources
• War repatriations contributed to futher
  development of indigenous capability
• Consolidation and shift towards integrated
  production
• User-producer ties emerge, related industries and
  services (e.g Jaako Pöyry, VTT in 1942)
  embryotic cluster identifiable
• Diversification from sawn wood towards paper
  brands, paper board and machinery
• Exports reach pre-war levels by end of 1950s

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Integrated production
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3. Technological and productivity gains
1960s-1970s

• Developments (again) spurred by external
  developments
• Liberalisation of trade - Finland participates in
  EFTA
• Post-war boomfollowed by energy crises and price
  hikes
• High and fluctuating stumpage prices for wood
• Microprocessors, accelerating computerization of
  production
• Massive capital investments to increase
  productivity, competitiveness and value-added
  average plant size grows
• Development and adoption of process control and
  automation systems to optimize value chains
• User-producer ties between paper and machinery
  makers strenghten further, first computer in 1963
• From foreign licenses towards in-house adaptation
  
• In-house ? spinn-offs ? outsourcing,

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• The knowledge economy context
• governmental initiatives
• State Computer Center (VTKK) founded in 1964
• ADP Advisory Board established in 1975
• Technology Council founded in 1979
• forestry-related industries provide early market
  for pioneering electronics/ICT firms
• Strömberg, Ahlström-Altim Control-Honeywell,Kajaan
  i Electronics, Roibox, Acatec,Beamix,Valmet-Metso,
  Suomen Kaapelitehdas (Nokia),Tietotehdas-Carelcom
  p-Tietoenator, IBM etc.
• Export-orientation replaces import-substitution
• The great leap of the forestry-related
  industries

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4. Ongoing phase of consolidation,
internationalisation and globalisation

• Consolidation, internationalisation and further
  capital investments prompted by
• intensfied competition, EU membership - EMU
• Southeast Asian countries enter global
  competition
• continued rise in value-added of end-products
  customization
• global shift in investment and consumption from
  US and Europe towards Asia (especially China)
• Consolidation ? specialisation ? changing
  division of labour within forestry cluster
• Internationalisation and globalisation ?
  intensified usage of ICT services to mange global
  value chains

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Consolidation the Million Tonners Club in
pulp paper
1. International Paper 14 423 000 USA
2. Stora Enso 12 971 000 Finland
3. Georgia-Pacific 11 555 000 USA
4. UPM-Kymmene 8 285 000 Finland
5. Nippon Unipac Holding 7 957 000 Japan
6. Smurfit-Stone Container Corp. 7 445 000 USA
7. Oji Paper 7 111 000 Japan
8. Abitibi-Consolidated 6 406 000 Canada
9. Mondi International 5 967 000 South Africa
10. Weyerhaeuser 5 442 000 USA
13. M-Real 4 219 000 Finland
31. Myllykoski 1 859 000 Finland
(Source Finnish Forestry Industries Federation
2003)
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Specialisation - changing division of labour
within cluster
Forest industry

• Outsourcing to suppliers
• engineering
• management of investment projects
• maintenance
• RD

• Outsourcing to suppliers
• ICT
• RD
• Project management
• Marketing
• Consultancy
• Logistics
• Maintenance

The changing division of labour
Services
Engineering and Machinery

• Outsourcing to suppliers
• Maintenance
• RD

-
(Source Lindström et al. 2004)
25
Globalisation and ICT usage major Finnish pulp
paper firms
Procurement of external ICT services
(Source Lindström et al. 2004)
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3. Preliminary conclusions and next steps
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Conclusionsto be specified

• Forestry-related industries constitute the first,
  but still significant, pillar of the Finnish
  economy
• An atypical pattern of evolution of
  forestry-related industries from sawn wood to
  quality paper brands and high-tech
• Geography
• Governmental initiatives and policies
• External constraints and possibilities
• RD, managerial issues
• The contribution of forestry-related industries
  to knowlede economy developments
• Backward linkages from forestry to
  engineering/machinery
• Forward linkages from engineering/machinery to
  electronics/ICT
• Consolidation, internationalisation and
  globalistion knowledge economy developments of
  key importance?
• Tailor-made ICT content, intensified ICT usage
• Internationalisation of ICT service providers

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Next steps

• Greater focus on knowledge-economy viewpoints
• Early phase of the building of the knowledge
  economy in Finland
• Present challenges?
• Highlight developments since 1970s, less emphasis
  on pre-war history
• Illustrative firm-level examples

29
Some important references

• Lovio, R (1989) Suomalainen menestystarina -
  Tietoteollisen verkostotalouden läpimurto
• Raumolin, J (1992) The diffusion of technology
  in the forest and mining ssector in Finland
• Kässi, T (1994) Engineering ala Suomessa
  toimialasta klusteriksi?
• Lammi, M (1994) Paperin, koneiden ja osaamisen
  menestystarina
• Palmberg, C (2001) Sectoral patterns of
  innovation and competence requirements A closer
  look at low-tech industries
• Jääskeläinen, J Lovio,R (2003) Globalisaatio
  saapui Varkauteen
• Lindström, M, Martikainen, O Hernesniemi, H
  (2004) Tietointensiivisten palvelujen rooli
  metsäklusterissa