Comment Column
Where will the first truly global company come from?
There is currently no global company in the pulp and paper industry. Despite all the column inches devoted to the subject, and despite the countless conference papers on the topic, the stark fact is that pulp and paper companies today are either national or regional.
There are, to be sure, plenty of aspirants to the title of global producer, but only a handful have articulated a strategy for getting there. Few have even sorted out in their minds what the phrase “ company” actually means.
“” DEFINITION. What exactly does the phrase “ company” mean? It’ easier to say what it doesn’ mean. It doesn’ just mean that a company has sales offices on different continents. It doesn’ just mean that the company owns a mill or a part of a mill producing paper in a different part of the world.
It means that the company concerned has a deliberately planned network of production operations and sales which enables it to produce its products wherever the costs are lowest and the circumstances are most appropriate and to sell them wherever in the world it is most appropriate to sell them. Such international companies are able to swing production all over the world to take advantage of economies of scale, favorable fiber costs, and low labor rates.
Such companies have been noticeably absent at present from the paper industry. We are all more familiar with them through other industries, such as automobile manufacturing or steel making.
But even in the staid old pulp and paper business, the global company of the future is starting to emerge. And there are some interesting trends accompanying its transformation from national or regional player to global force.
Concentration beats diversification.It seems that companies on the leading edge of globalization are specialists, not generalists. They are seeking to be the world’ preferred supplier of a grade of paper and board and the opportunity to make that grade as cost-effectively as possible and supply it through a superior distribution network.
Strategic partnerships are taking a bow. They are new to the pulp and paper business, but strategic partnerships such as that between APRIL of Indonesia and UPM-Kymmene of Finland are likely to become a trend. The reasons are not hard to see. Such alliances give both partners a distribution network in the other’ “” market, but they also give one partner access to low(est)-cost production, and the other access to well-established papermaking expertise.
Low-cost fiber is the base. In all the talk of globalization, the emphasis is still on low-cost production of commodity products. And “ cost” in the final analysis means the cheapest fiber and lowest wage rates.
WHO ARE THEY? Which players will be tomorrow’ global companies? Place your bets, ladies and gentlemen, on which companies will become “” fastest, according to the above definition. Here are two hot favorites:
UPM-Kymmene. The focus is on communication papers, and the deals are starting to happen in rapid succession. On the mechanical papers front, the company can operate cost effectively out of its Scottish and Finnish bases, and is also taking over Blandin Paper in the U.S. In fine papers, the recent tie-up with APRIL has given the company access to low-cost production as well as Asian markets.
Sappi. The bets are on Sappi as the world’ first global player in coated woodfree grades. It boasts production in the U.S. (through S.D. Warren), Europe (through KNP Leykam as well as its Hannover Papier, Germany, and Blackburn, U.K., mills), and South Africa. There is also the intriguing prospect that KNP Leykam’ 50-50 joint venture with APRIL to produce coated fine paper in China will now be completed by Sappi as KNP Leykam’ new owner, giving Sappi a low-cost Asian base. Already Sappi is the world’ biggest coated woodfree producer and owns 22% of the market in Europe and 26% in the U.S. The company has announced its intention of being a global player and has a reputation for keeping its promises.
One very interesting point to note is that no U.S. companies are mentioned here. The sheer size of the U.S. market and the booming U.S. economy seem to be distracting all but a few U.S. companies from the pursuit of global status— else they are staying silent about their plans.
There are plenty of projects based on cheap fiber from the Americas, but there is less visionary talk about global strategies than you would find in Europe. The one big exception is the two giant tissue producers, who clearly are taking a global stand. Otherwise, it may be that U.S. producers will miss out on the opportunity to achieve the lowest costs for their products and to broaden their horizons beyond the domestic market. The next year or so will tell of their intentions.
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