Business Environment and Strategies of Wood Industry Companies in Leningrad and Vologda Regions – Results from a Pilot Study
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Working Papers of the Finnish Forest Research Institute 41 http://www.metla.fi/julkaisut/workingpapers/2007/mwp041.htm ISBN 978-951-40-2027-8 (PDF) ISSN 1795-150X Business environment and strategies of wood industry companies in Leningrad and Vologda regions – results from a pilot study Anne Toppinen, Ritva Toivonen, Erno Järvinen, Vadim Goltsev, Natalia Tatti & Antti Mutanen Pellervo Economic Research Institute PTT www.metla.fi Working Papers of the Finnish Forest Research Institute 41 http://www.metla.fi/julkaisut/workingpapers/2007/mwp041.htm Working Papers of the Finnish Forest Research Institute publishes preliminary research results and conference proceedings. The papers published in the series are not peer-reviewed. The papers are published in pdf format on the Internet only. http://www.metla.fi/julkaisut/workingpapers/ ISSN 1795-150X Office Unioninkatu 40 A FI-00170 Helsinki tel. +358 10 2111 fax +358 10 211 2101 e-mail [email protected] Publisher Finnish Forest Research Institute Unioninkatu 40 A FI-00170 Helsinki tel. +358 10 2111 fax +358 10 211 2101 e-mail [email protected] http://www.metla.fi/ This publication is also included in Working Papers of Pellervo Economic Research Institute as shown below: Working Papers of Pellervo Economic Research Institute PTT 87 ISBN 978-952-5594-33-5 ISSN 1796-4784 Pellervo Economic Research Institute Eerikinkatu 28 A FI-00180 Helsinki tel. +358 9 3488 844 fax +358 9 3488 8500 e-mail [email protected] http://www.ptt.fi 2 Working Papers of the Finnish Forest Research Institute 41 http://www.metla.fi/julkaisut/workingpapers/2007/mwp041.htm Authors Toppinen, A., Toivonen, R., Järvinen, E., Goltsev, V., Tatti, N. & Mutanen, A. Title Business environment and strategies of wood industry companies in Leningrad and Vologda regions – results from a pilot study Year Pages ISBN ISSN 2007 47 978-951-40-2027-8 (PDF) 1795-150X Unit / Research programme / Projects Joensuu / Development of Forest Sector in Northwest Russia and its impact in Finland/3384 Accepted by Timo Karjalainen, Professor, 18.12.2006 Abstract This pilot study examines resources and capabilities and their utilisation to support business and marketing strategies in the case of small/medium-sized wood industry companies in the Leningrad and Vologda regions. An increasing body of literature emphasises the strategic choices of core competencies/capabilities based on resources and the combination of these with marketing strategies. Both competencies and capabilities need to be aligned to the business environment where the company operates. The realisation of the potential that resources and capabilities provide as actual competitive advantages was studied based on managers’ perceptions on their companies’ market position. Furthermore, the competitive advantages at the market place were analysed against the competitive environment where the companies operate, and their decisions of the current and future geographical location. The data consists of personal interviews of managers in 12 wood industry case companies operating in Leningrad region and 6 companies in Vologda region. The interviews were conducted between May 2005 and January 2006. The interviewed managers of Russian woodworking companies emphasised closeness to the markets, good logistic connections and large market size as the main sources of their competitive advantage. Forest resources and availability of wood raw material or price of wood raw material were not considered as particularly significant sources of competitive advantage. The overall reliability, good image and reputation of the company and its qualified and skilled personnel were the most important factors in which the interviewed managers of case companies estimated to be in the best competitive position against their rivals. In profit margins, in market share, and in networking with other companies producing similar products, the respondents perceived to be in the weakest competitive position in comparison to their competitors. High taxation, corruption and lack of capital strongly characterised the problems present in their business environment. In the future, these case companies wanted to change from commodity products towards more specialised products, and focus more on export markets in Europe than the domestic markets. If the results are more generalisable, competition in the European markets for wood products will intensify, extending also to the markets for higher value added wood products. Keywords wood products industry, Northwest Russia, resources, competitive advantage, competitive positioning, environmental quality Available at http://www.metla.fi/julkaisut/workingpapers/2007/mwp041.htm Replaces Is replaced by Contact information Anne Toppinen, Finnish Forest Research Institute, Yliopistokatu 6, 80100 Joensuu. E-mail [email protected] Other information Published jointly with Pellervo Economic Research Institute. See page 2. 3 Working Papers of the Finnish Forest Research Institute 41 http://www.metla.fi/julkaisut/workingpapers/2007/mwp041.htm Contents 1 Background .............................................................................................................5 1.1 Forest sector development in Northwest Russia ................................................................. 5 1.2 Objectives .............................................................................................................................. 8 2 Theoretical background..........................................................................................9 2.1 Achieving sustainable competitive advantage through company resources and capabilities............................................................................................................................. 9 2.2 Marketing and competitive strategy frameworks applied in the study............................11 2.3 Competitive position and operating environment of companies......................................11 2.4 Operationalisation of the theoretical framework...............................................................12 3 Data collection .....................................................................................................14 3.1 Leningrad region and St. Petersburg..................................................................................14 3.2 Vologda region....................................................................................................................15 3.3 Methods of analysis and validity of results .......................................................................15 4 Results ..................................................................................................................17 4.1 Descriptive statistics of interviewed woodworking companies .......................................17 4.2 Marketing and product strategies.......................................................................................18 4.3 Competitive advantages and competitive position............................................................20 4.3.1 Sources of competitive advantage...........................................................................20 4.3.2 Importance of sources of competitive advantage for choosing company’s current location.........................................................................................................25 4.3.3 Companies’ competitive position............................................................................29 4.4 Development of business environment and future challenges of companies..................33 References................................................................................................................39 Appendix A. List of interviewed companies .........................................................41 Appendix B. Research questionnaire ....................................................................42 4 Working Papers of the Finnish Forest Research Institute 41 http://www.metla.fi/julkaisut/workingpapers/2007/mwp041.htm 1 Background 1.1 Forest sector development in Northwest Russia In Europe (including the Russian Federation), the production of sawn softwood increased in 2000–2005 from 95 mill. m3 to 106 mill. m3, an increase of 11.5% (Faostat). During the same period, the consumption of sawn softwood in the markets of the European Union (EU) increased by 3.6% and the net exports increased from 3 to 7 mill. m3. Thus, competition between the producers of sawnwood has increased markedly in Western Europe, and Europe has turned from a net importer to a net exporter of sawnwood (European Forest Sector Outlook… 2005). Major phenomena in the background of changing European markets for wood products are the political and economic changes from central planning to open market economy in Russia and the Eastern and Central European countries. Production in the Baltic and Nordic countries has increased rapidly from the early 1990s onwards. Also in Central Europe (Germany, Austria and the Czech Republic), the production of sawnwood increased rapidly in the late 1990s and the early 2000s, and a new wave of investments was ongoing in 2004–2006. By year 2005, the situation in the European markets has turned to clear excess supply and stagnating prices especially in the case of pine sawnwood (e.g. Finnish Forest Sector Economic Outlook 2004). The dissolution of the Soviet Union in 1991 reduced sawnwood production and consumption dramatically in the region. Production and particularly consumption of sawnwood and other wood