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| Stora Enso CEO not interested in corporate purchases in developing markets |
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http://www.sbdailynews.com
2009-05-11 |
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Jouko Karvinen, CEO of the pulp and paper manufacturer Stora Enso, is not interested in proposals that pulp producers, paper manufacturers, and papermaking machinery producers should start buying forest companies in developing markets.
An international report by the auditing and consulting company Ernst & Young proposed such a strategy in a report issued on Wednesday.
Ernst & Young said that in spite of high risks, forest industry companies with strong balance sheets should expand their operations on developing markets through corporate acquisitions instead of by setting up eucalyptus plantations, or by acquiring felling rights in Russia.
The advice focusses on operations in the so-called BRIC countries - Brazil, Russia, India, and China.
Karvinen does not even like to talk about the BRIC countries as a group, because the countries differ so much. The first step in each location is to define what sustainable competitive advantage is to be found in each country, and then to decide what to do there.
He says, however, that Stora Enso will keep its eyes open in case suitable companies come on sale.
The world's leading forest companies, including International Paper, SCA, Stora Enso, and UPM, have sought to expand on developing markets. However, less than a fifth of the turnover of the world's ten leading pulp and paper companies comes from there.
Timo Uronen, director of the forest industry section of Ernst & Youg, says that the proportion should be 30-40 per cent, so that the position of the companies would be significant.
According to the study, forest companies feel that finding appropriate targets for corporate purchases in the BRIC countries is difficult, because the capacity in plants there is generally weaker than in Western countries.
“Rapid access to the markets would be more important in this situation than low costs and modern factories”, Uronen calculates.
The slowness of change is caused by the strategy chosen by most forest companies, which is based on building new mills and working with local players, Uronen points out.
he sees many advantages to this, but as a growth strategy, it is slow, and increases global overcapacity.
Karvinen says that the Stora Enso mill in Brazil is so cost-effective that such good results could never have been achieved by any corporate purchases.
Stora Enso owns half of the Veracel pulp mill in Brazil.
Ernst & Young says that the economic crisis has meant that many forest industry companies in the BRIC countries are in difficulties, and quite a few of them will be up for sale soon.
China has an estimated 7,000 paper machines in operation, about five of which are owned by Finnish companies.
Karvinen says that Stora Enso has gone to China because of the countries competitive advantages, not because of its growing market.
China imports raw material from abroad, but the goal of Stora Enso is to launch raw materials production in China. “That would be such a competitive advantage that it would be hard to copy.” |
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