THE BIOMASS WARS

1. September 2011 - 11:49 — admin

Jukka Kilpeläinen, Stora-Enso Oyj wrote:

The forest sector is facing many major challenges. Most forest industry companies are not fulfilling profitability expectations, and this has already led to many reorganizing actions from mergers to bankruptcies. No question, the Battle on Wood Biomass has also started. This will be a tough and unfair war, where subsidies, duties and taxes will belong to most strategic weapons. It seems to be less obvious that the Knowledge Wars have also started. The Knowledge Wars have several frontiers. The most important ones are called “Ability to attract Talents” and “Long Term R&D Investment Frontier”. There is our opportunity! Media is having more and more users or consumers, as global literacy percentage is increasing almost everywhere outside the USA. This will offer major new opportunities for print media, particularly when upgraded to include hybrid media features. New magazines with hybrid features will belong to media winners. There is our opportunity!

At least 40% of food is globally lost for lacking or improper packaging. This means that it would be quite simple to eliminate all starvation on Planet Earth, if fibre-based aseptic packaging solutions were more widely available. Simultaneously, major developing countries from Brazil to India look for opportunities to specialize as corner stones of the Global economy. This will mean further increasing needs of transportation packaging, combined with an escalating pressure to minimize the ecological footprint of the whole value chain. That is equal to new major opportunities for fibre based packaging solutions. This is an opportunity!

Wood is a fantastic building and furnishing material. A wooden one-family house binds greenhouse gasses more than a family with two cars, two children and two adult business professionals is emitting in five years. This is an opportunity!

Finland as a small country far north has some major advantages, when targeting double value from its forest cluster with 50% added R&D investments until the year 2030. Among others, those advantages are as follows:

- Finland has a strong entity called the Forest Cluster, having actually all elements of the sector excluding printing machine manufacturing

- Knowledge level in general and particularly related to forestry, forest science, and related technologies is high

- Even if image of the sector has been downgraded by thousands of bad news, the sector is still able to attract talents. The way to improve the situation is to invest in research in order to assure the quality of teaching in order to attract talents. This “Triangle of Destiny” is our opportunity!

- Finland, Sweden and Israel are the only countries reaching 4% level of GNP investments in R&D. This combined with the EU frame programs and their opportunities make funding of important research possible even concerning basic research. Remembering that the industry does not really know what is needed after 10…15 years: This is our opportunity!

1. September 2011 - 14:43 — admin

All comments are welcome!

All comments are welcome!

1. September 2011 - 14:44 — Fin -54 (not verified)

Jukka, good points but do you

Jukka, good points but do you yourself really believe on these. The first check point will be at the end of May – let’s see how many young talents will apply to “our ” universities to be a professional of this glorious forest cluster! The other check points will follow. We are late with new innovations there should already be some radical new products entering the market in very near future – 5-10 years to wait is too long!!!

1. September 2011 - 14:44 — Jukka Kilpeläinen (not verified)

Yes, I do myself believe in

Yes, I do myself believe in specialization through R&D investments as the only way to keep Nordic forest sector as the leading one. And I do believe in the “Triangle of Destiny”, i.e. in direct connection highest quality research => highest quality university education => ability to attract top talents. But I do not believe in wonders. It will be impossible to make our sector more attractive in May-June 2008 technical university applying process, as an example.

There will be a long list of really new products in the market place sooner than we realize —- let me mention two examples: Intelligent packaging solutions, as well as new biorefinery based bio-based chemicals.

1. September 2011 - 14:44 — admin

Pentti Sietilä Says: Tänän

Pentti Sietilä Says:

Tänän hetken murroksesta ja teollisuutemme mahdollisuuksista

Kilpeläisen Jukka kirjoitti 6.5. todella mielenkiintoisesti ja optimismia luoden. Kovasti toivoisin, että tämän teeman ympäriltä mahdollisimman moni näkemyksineen voisi liittyä joukkoon.

Minua on kovasti askarruttanut, mitä tämä nykyään mantran lailla toistettu “murros” ja “globalisaatio” todella analyyttisesti ja riittävän yksityiskohtaisella tasolla pitää sisällään. Kuulostaa siltä, että juuri nyt elämme jotain aivan poikkeuksellista aikaa. Onkohan asia aivan näin? Niin kauan kun olen asioita seurannut, 1960-luvulta lähtien, ovat esim. yritysten vuosikertomukset alkaneet toteamuksella, että “kulunut vuosi oli suurten muutosten aikaa”! Olihan meillä vaikea sota-aika, sotien jälkeiset suuria ponnistuksia vaatineet jälleenrakennuksen ajat, jne. Ettei vain ole niin, että meissä on syvästi inhimillinen piirre ajatella, että juuri nyt on tämä suuren murroksen aika. Oli niin tai näin, tietenkin on niin, että joka hetki teollisuuden toimintaympäristössä tapahtuu muutoksia ja niihin on vastattava ja käytettävä hyväksi. Löydettävä mahdollisuutemme aivan kuten Jukka aosiokkaasti esitti “there is our opportunity !”

Myös “globalisaatio” askarruttaa. Paperiteollisuutemmehan on ikiajoista ollut globalisoitunut. Jo nelisenkymmentä vuotta sitten vientimme ulottui pyörein luvuin 170 maahan ja jo 1930-luvulla tuotantoa siirrettiin ulkomaille (Star Englannissa) ja jatkoa seurasi 1950-luvulta lähtien (Pineville, Eucocan, Nordland, Stracel, ym. ym.) Siis mitä uutta nyt ollaan tekemässä.

Jukka totesi, että yritysten kannattavuus ei ole täyttänyt odotuksia. Näin nyt kovasti hoetaan. Missä määrin tähän on vaikuttamassa pörssi ja erittäin korkealle asetetut ROI-tavoitteet?

Klusteriin ja R&D: hin asetetaan nyt kovasti odotuksia. Juuri näin oli kyllä myös esim. 1980-luvulla, kirjoitettiin tavoiteohjelmia, joissa edellytettiin tutkimuspanoksen oleellista, silloinkin 2-kertaista lisäystä. Ja on myös korostettava, että paljon saatiin myös aikaan, sen me teollisuudessa mukanaolleet tiedämme. Tietenkin aina voi toivoa vielä kovempaa vauhtia. Täytyy vain hartaasti toivoa, että Metsäklusteri Oy ja muut pyrkimykset tuottavat hedelmää.

1. September 2011 - 14:45 — Lauri Lehtonen (not verified)

Thank you for the very

Thank you for the very refreshing blog on the subject of future opportunities within our industry. I have few little comments that I hope may stimulate some discussion.

As a fairly recent graduate and after few years in the industry, I’m very concerned about the talent disappearing to other industries. Having closely followed the development within the US on this subject, I may have to conclude that the demise maybe unstoppable. By this, I specifically mean the ability of our traditional forest related educational programs to attract quality talent in the future. However, what I have delightedly followed over the past few years is a subtle shift in the strategic intent of the forest based companies where innovation activity beyond the traditional focus is not only encouraged but desperately seeked. I believe that there are two opportunities that this will yield. First it is an opportunity for existing programs to modify their education to include fields of sciences that attract more candidates. Second is an opportunity that opens the gates for companies involved in this type of innovation activity to look for talent in places where they haven’t looked before, and I believe this includes talent not only from fields of new sciences and capabilities but also geographical regions that understand the needs of the future populations. In addition, if we do our reqruiting well we may attract people that have thinking styles significanlty different from what prevails now in our companies. However, we need to remember to focus their energy on other things than cost cutting initiatives on our papermachines, or they will be miserable and leave.
 
The finnish forest cluster concept is intriguing. It certainly has had its benefits in creating significant value for the existing business models. By business models I mean the things such as: what value we provide, who do we sell it to, how do we get it to consumption and how do we capture part of that created value. I tend to think that clusters develop around industries where the business model hasn’t changed for sometime. Hence, I’m wondering if the existing cluster can provide the support needed for creating these new business models so desperately needed in our industry. Maybe it’s time to start forming new clusters, because it is possible that a solution that enables a new growth business model might not be made on a papermachine but will be running on our PCs or in our cars.
 
I appreciate Pentti’s comments around the past efforts in revitilizing the industry through increases in R&D expenditures, and how it did provide benefits in the past. What I sense is a little sceptisism in his writing around the current efforts, maybe borne from the fact that despite the significant efforts in the 80′s we are struggling today. What I think is essential is to think about the direction of the energy consumed in this activity. I can’t say for sure, but looking at the past unbelieveble increases in machine speeds during this time as well as the fact that nothing is cheaper than pulp, many times not even dirt, I would guess that the R&D spent during the past 20 some years was predominantly focused on the cost efficiency in the value chain from the forest to the customer. Customer value has two sides, we can either provide it through the benefits that the product/service entails or offer the same benefits at lower price. Since we have worked mostly on the cost side the only way we have provided customer value is through cheaper paper. And we have been very successful at it, almost to the point where it’s not profitable to make paper any longer. On the other hand, one might argue that we make a commodity product and there are no benefits, certainly benefits that we would get paid for. However, I have hard time believing that there are any commodities at all in the world. One should argue that water is the ultimate commodity since it’s free, but yet evian sells at few euros a bottle. I don’t believe our products are commodities either, currently there is no single paper nor pulp grade in the market space that doesn’t entertain atleast one segment that carries premiums. Hence, I think it is time to think the other side of the customer value equation and start working on the benefits side again. However, again, these benefits may not be created on the papermachine and may not be in a form what we understand our offerings are today, but I believe they exist and will be found.
 
I am certain that investment in innovation will create organic growth over time, and if we manage to create growth we will develop opportunities for young people to have meaningful careers, which will then attract talent to our industry. However, what we need is a bit more flexibility in how we envision this growth to be created. This I believe is the greatest challenge we face.
1. September 2011 - 14:46 — Tuomo Kälkäjä (not verified)

Thank you Jukka for the

Thank you Jukka for the intresting blog entrance. You had a couple of really interesting points, but I really need to comment on the R&D investments made by Finnish paper companies. You mentioned that “Finland, Sweden and Israel are the only countries reaching 4% level of GNP investments in R&D”. Yes, that may be true, but major Finnish companies, UPM-Kymmene and Stora-Enso are only investing 0,5 % and 0,7% of their turnover to the R&D, respecrively.

I really would like to hear your views about how and when the future investments to R&D in pulp and paper industry are going to be increased.

1. September 2011 - 14:46 — Jukka Kilpeläinen (not verified)

Dear Tuomo, my underdstanding

Dear Tuomo, my underdstanding is that the two companies you mention have already increased quite a lot their R&D investments. Concerning Stora Enso, my employer, we have gone from 80 M EUR/a level to 90 M EUR/a level (see our annual report) in 2006 =>2007, and I expect this trend to continue. Above this, we have increased our New Business / venturing / incubation investments in a very remarkable way. So there is a change happening concerning at least some major companies!