TAPPI Presents Pöyry's Point of View Blog - Pulp, Paper & Packaging: From Local to Global

 

Is your regional market reach aligned to meet your growth expectations? Are you taking full advantage of export market opportunities? Should you stay domestically focused or be more internationally diversified? What is the best strategic path forward in terms of international presence and growth? In this Pöyry Point of View blog we explore the opportunities and investigate what it takes to go global.

Printing and Writing Paper, Packaging Board, and Tissue production firmly takes place close to home markets. Some 90% of the top 20 North American and top 20 European headquartered paper producers’ asset footprint is in their domestic region. There are only a few global companies with a significant share of their asset portfolio spread over multiple continents.

 

 

But what about paper shipments? Does the paper stay close to home or is it shipped around the world to meet the demand? There appears to be a difference in the intensity at which North American and European paper mills have embraced international business opportunities. North American mills exported 1.2 million metric tons of Printing & Writing papers (excluding newsprint) in 2013, which is only 6% of market production capacity. In comparison, European mills exported 8.0 million metric tons, or 25% of market production capacity.

 

Although North American paper exports have increased partly due to favourable exchange rate, partly due to declining domestic demand, why do North American producers participate in global trade significantly less than their European counterparts? The logistics costs from major European or North American ports should be fairly similar to ports in emerging markets. In some cases European paper assets can be larger and newer than those across the Atlantic, leading to potentially better competitiveness, but especially the U.S. South enjoys one of the world’s lowest cost fibre baskets and energy supply. The Europeans have a long history of extensive export business activity around the world. The fragmented country markets in Europe might have provided the cultural and psychological flexibility, business logic, and stepping stone for overseas business development.

 

 

Paper companies have taken strategic note of the growth and smaller investment risk offered by moving down the value chain into converting and further processing of their traditional outputs. First establishing converting and/or distribution presence in emerging markets is a low risk market entry step employed by many paper companies. Seventy per cent of international investments in 2012 involved investment in converting and/or distribution operations. 

 

 

Mondi can be considered one of the first movers in focused international expansion into the emerging markets of Eastern Europe. Mondi’s current paper mill platform includes 17 mills in 11 countries, including 9 mills in Eastern Europe (including one in Turkey). "We are principally an emerging market player" says David Hathorn, CEO of Mondi (Financial Times). "We’ve gone there for cost reasons and for growth reasons – we have structural growth in all of our products in emerging market...." The emerging market strategy has also proved to be value generating for Mondi, which trades at a premium to peers. 

 

 

There are only about a dozen pulp and paper companies that have global paper mill operating platforms according to the schoolbook definition of "presence on three or more continents". International Paper has the most impressive global pulp and paper mill base with 41 mills on 5 continents and 9 countries. Kimberly-Clark, UPM, and Stora Enso are other examples of wide global mill portfolios.

Globalization can truly open opportunities for shareholder value creation. But, global strategy is not the silver bullet to success. It takes time to enter the right markets, and find the right business partners and people to execute global growth well. Managing the soft dimensions of business culture compatibility and flexibility can take significant time and cause major headaches in global business management.

 

What will the future bring? Emerging market investments by mature market players will continue in terms of paper mills, converting operations, forward integration, and sales & distribution presence.

 

Many companies with existing international operations are likely to hunt for bolt-on acquisitions, such as converting operations or other incremental rather than radical growth in the selected emerging regions. Investments in countries such as India, Indonesia, Turkey and Brazil are likely to be in the headlines in the near future. Also, steps in "new" products, whether packaging, hygiene, specialty papers or even specialty chemicals or energy, are likely moves to expect in the future.

 

Pöyry has extensive experience in international business and market strategy development – our network of offices around the world gives us unique insights and enables our clients to take advantage of our understanding of both the business opportunities and challenges in global markets. 

 

Contact us for further details and to discuss which global strategy best fits your organisation’s requirements.