1. 1 The transformation of the forestry-related industries – A Knowledge Economy perspective Christopher Palmberg Etlatieto

2. 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. 3 1.Position of forestry- related industries in Finland and globally

4. 4 Contribution to the volume of manufacturing production (Source: ETLA database)

5. 5 Economic significance of pulp & paper industries Share of Total Value Added Share of Total Employment (Source: OECD 2003)

6. 6 Forestry-related industries in Finland 198019851990199520002002 Manufacturing output 23.4%18.8%19.0%25.0%24.0%19.8% Employment4.5%3.8%3.4% 3.1%2.9% GDP6.6%3.3%4.5%6.5%5.9%4.8% Exports42.4%36.2%37.6%33.7%26.1%25.4% (Source: Lindström et al. 2004)

7. 7 The relative technological advantage of Finland (Source: Balaguer & Tsai 2004) (RTA=relative share of US patents in class X in Finland/relative share US patents in class X for the world)

8. 8 printing and writing paper exports 0510152025303540 pulp machinery exports paper machinery exports paper and paperboard exports forest industry exports forest industry output harvesting of industrial wood timber removal softwood growing stock forest resources % (Source: Finnish Forest Industries Federation 2003) Finland’s share of the World’s...

9. 9 2. Co-evolution of the forestry-related industries and the Knowledge Economy

10. 10 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. 11 Value of exports of forestry-related industries

12. 12 The forestry cluster in Finland Special Inputs Machinery Associated Services Primary goods Related Industries Customers Paper Cardboard Pulp Sawn Timber Plywood Particle Board Harvesters Pulp machines Paper machines Process automation Power generation Chemicals Forest management Harvesting Publishers Merchants Packers Builders Consultin g Education Research

13. 13 Basis for competitiveness – ICT versus forestry-related industries ICT(mobile phones) Forestry-related industries Cost-efficiency Product characteristics (Source: Lammi 1994) 1960 1980 2000 1980 2000

14. 14 A phasewise account 1.An import-phase 1860-1917 2.An import-substituting phase 1920s-1950s 3.A phase of technological and productivity gains 1960s-1970s 4.An ongoing phase of internationalisation, consolidation and globalisation

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

16. 16 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

17. 17 2. Import-substitution phase 1920s-1950s World War I stalled engineering imports, while export markets were lost Finland’s independence in 1917 fuelled strives towards national self-reliance –Extensive state-involvement: nationalistaion, state- owned companies, high tariffs, export cartels –R&D-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. 18 World War II stalled imports and exports again…loss 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

19. 19 Integrated production

20. 20 3. Technological and productivity gains 1960s-1970s Developments (again) spurred by external developments –Liberalisation of trade - Finland participates in EFTA –Post-war boom…followed 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,

21. 21 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,Kajaani Electronics, Roibox, Acatec,Beamix,Valmet-Metso, Suomen Kaapelitehdas (Nokia),Tietotehdas-Carelcomp-Tietoenator, IBM etc. Export-orientation replaces import-substitution The ’great leap’ of the forestry-related industries

22. 22 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 4. Ongoing phase of consolidation, internationalisation and globalisation

23. 23 Consolidation: ”the Million Tonner’s Club in pulp & paper” 1. International Paper14 423 000USA 2. Stora Enso12 971 000Finland 3. Georgia-Pacific11 555 000USA 4. UPM-Kymmene8 285 000Finland 5. Nippon Unipac Holding7 957 000Japan 6. Smurfit-Stone Container Corp.7 445 000USA 7. Oji Paper7 111 000Japan 8. Abitibi-Consolidated6 406 000Canada 9. Mondi International5 967 000South Africa 10. Weyerhaeuser5 442 000USA 13. M-Real4 219 000Finland 31. Myllykoski1 859 000Finland (Source: Finnish Forestry Industries Federation 2003)

24. 24 Specialisation - changing division of labour within cluster The changing division of labour Services Forest industry Engineering and Machinery Outsourcing to suppliers: engineering management of investment projects maintenance R&D Outsourcing to suppliers: ICT R&D Project management Marketing Consultancy Logistics Maintenance Outsourcing to suppliers: Maintenance R&D - (Source: Lindström et al. 2004)

25. 25 Globalisation and ICT usage: major Finnish pulp & paper firms *Procurement of external ICT services (Source: Lindström et al. 2004)

26. 26 3. Preliminary conclusions and next steps

27. 27 Conclusions…to 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 –R&D, 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

28. 28 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. 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