Finnish Forest Research Institute  Metla

Press release 24.05.2006

Business cycles remain as a major challenge for internationalizing forest industry

Finnish forest industry has rapidly internationalized since the early 1990s. Recent study by Metla and University of Toronto indicates that deepening internationalization has boosted liquidity of companies and increased their solvency and profitability.

Researchers from Metla and University of Toronto investigated effects of the internationalization of forest industry companies on their financial performance. Degree of internationalization was measured with the share of employment abroad. Financial data from 23 pulp, paper and woodworking industry companies of Finnish origin was used over years 1986-2003. Turnover was used in the regression models to control for the effects of differences in company sizes. It was, however, not found to directly impact on growth, profitability, solvency or equity development of companies.

Results indicate that internationalized companies outperformed non-internationalized ones during 1996-2003 in terms of solvency. In contrast, the higher rate of return on capital in the group of non-internationalized firms could be related to the heavy costs of the rapid internationalization that has been occurring since the mid 1990s. Overall, our results elaborated how becoming a multinational provides a possibility for risk sharing via market differentiation, but at the same time brings additional costs caused by the additional requirements that exist in the global business environment.

Business cycles were found to have great influence on company performance, although strategic aim of the companies has been to avoid these through internationalization of production. The large multinational forest industry companies also face, for example, diverse risks associated with maintaining the acceptability of their operations with respect to environmental issues. In future, the study will be continued by comparing performance differences between forest industry companies in North-America and Scandinavia.

Publication: Journal of Forest Products Business Research, Vol 3

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