Finnish Paper Makers Shift Focus to Asia and Latin America

on Jun 20, 2012

The Financial Times recently reported that decreasing demand for paper in Europe has posed challenges for countries such as Finland, whose economies are heavily reliant on forestry. As a result, the publication noted, leading pulp and paper firms have been forced to cut production and to lay off some of their workers.

And while European countries are feeling the crunch, other markets in Latin America and Asia have been booming. According to the FT, demand in those areas has been growing, encouraging investors to channel capital to new business opportunities that are close to “fresh customers.”
One example is the UPM-Kymmene Corporation(UPM1V), a Helsinki-based timber, paper and pulp manufacturer, which has built one of its most advanced paper mills near Shanghai in China. There, the company produces an estimated 900,000 tonnes of paper each year.

UPM’s Chief Executive Jussi Pesonen told the FT: “All forest industry is important to Finland, so we need to take care of competitiveness. It means that we need to change. And one of those changes is that we need to close production in Europe or Finland. We have plenty of growth opportunities whether it is in [other] geographies or new products.”

!m[](/uploads/story/175/thumbs/pic1_inline.png)Jouko Karvinen, chief executive of UPM’s primary Finnish competitor Stora Enso(STERV), echoes Pesonen’s opinion. He emphasised that pulp and paper corporations have to follow their customers into new markets.
“Our products do not travel too well. They are not really global products,” he told the Financial Times.

“Building something in Asia doesn’t mean taking something away. We move where the customer growth is,” Karvinen explained.
Latin America has also provided fertile soil for business expansion for pulp and paper companies. Stora Enso last year teamed up with a Chilean company to invest in a $1.9 billion pulp mill in Uruguay. At the time, the FT reported that the joint venture marked the country’s biggest foreign investment to date.

“The project is the latest in a series of investments in South America by Nordic pulp and papermakers attracted by the region’s low costs and highly productive forests,” claimed the FT.
UPM also has a large paper mill in Uruguay. The company was attracted by the country’s fast-growing eucalyptus plantations, which produce much cheaper wood than the slow-growing forests of northern Europe.
In addition to moving operations to emerging markets, companies are also trying to reinvent their domestic operations in an effort to gain competitive advantage.

Karvinen said that Stora Enso is trying to change consumer perceptions of what the company actually does these days.
“We want to be the renewable materials company, not the forestry company,” he said.
To do that, the corporation is making investments in research a top priority. Latest efforts explore the possibility of replacing carbon fibre with wood and building second-generation biofuel plants. Nonetheless, paper still remains an important component of the company’s bottom line, making up about 40 percent of Stora Enso’s business. Karvinen refers to it as “the cash engine,” while emerging markets and renewable packaging he calls “growth engines.”
“My goal is to keep the cash engine going and fuel the growth engines,” Karvinen asserted. According to the executive, this is the best way to protect jobs.
Karvinen doesn’t deny that transforming the paper and pulp industry in Finland has posed certain challenged.
“For an industry that used to be the foundation of many things in Finland, it’s a painful transformation,” he admitted.


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