Antti Kiljunen and Risto E.J. Penttilä discuss business success factors under various scenarios.
                   

Possible scenarios

​In an uncertain world, it can be helpful to prepare for various emerging outcomes. We asked Antti Kiljunen from Metsä Fibre and Risto E.J. Penttilä from the Nordic West Office consultancy firm to discuss business success factors under various scenarios.

3/2019 TEXT: TIMO NYKÄNEN, PHOTOS: SAMPO KORHONEN AND TUOMAS HARJUMAASKOLA

​Antti Kiljunen was appointed CFO at Metsä Fibre on 14 January, 2019, having served for well over a decade in various capacities related to financial administration and strategy at the company. Kiljunen says his previous position as SVP, Strategy, formed part of a broader focus on strategy work at Metsä Fibre. The company seeks to implement a strategic objective extending to the year 2025, by becoming the world’s best and most profitable business converting Nordic wood raw material into valuable bioproducts.

One way to test the strategy of an enterprise is to evaluate it in relation to various scenarios, meaning credible future outcomes. Conceptualised operating environments help in preparing for surprises and in formulating a strategy for success in alternative worlds. As Managing Director of the international relations consulting firm Nordic West Office, Risto E. J. Penttilä was involved in implementing a scenarios project with 16 Nordic companies in 2017–2018. This project assessed alternative trends in the global operating environment over the years 2021–2026.

“We began by defining the study parameters in terms of globalisation, market strength and freedom of trade, status of institutions and degree of regulation. In the fourfold table formed by these factors we placed the basic scenarios arising from the project, which we designated the Belt and Road, Cyberworld, War-War and Downshift scenarios,” Penttilä begins.Antti Kiljunen and Risto E.J. Penttilä discuss business success factors under various scenarios.

AN ERA OF UNCERTAINTY

Penttilä explains that under the Belt and Road scenario China assumes the erstwhile role of the USA as a global mainstay, becoming the principal trading partner of the European Union. The Belt and Road initiative of the Chinese State seeking to build a common Eurasian infrastructure is advancing while economic progress and policy are guided and directed by international institutions and agreements. Globalisation and free trade also develop in the Cyberworld scenario, though this is a technology-driven course in which major corporations like Facebook, Google and Amazon dominate the market, putting an end to the era of nations as their role is usurped by businesses and cities.

The War-War scenario, by contrast, represents a retreat of globalisation, with trade and hybrid wars becoming commonplace. Russia and Europe take opposing sides in a conflict dominated by the three Ps: protectionism, populism and patriotism. Value drift may also lead to a Downshift scenario in which economic growth ceases to be a priority, with a crisis of confidence in politics and institutions, and a local circular economy supplanting international trade. A new tribalism replaces nation states, markets become fragmented and the European Union disintegrates.

“Taken to their extremes, each of these scenarios shift the world in a quite different direction. We nevertheless have to note that all of them are already present in some ways, and the question is more about whether any one of them will become strong enough to dictate the overall patterns of our future behaviour,” Penttilä observes.

FREE TRADE AND ACCOUNTABILITY AS CATALYSTS

Reflecting on these scenarios, Kiljunen suggests that the most promising outcome for Metsä Fibre would involve establishing good mutual relations between the European Union and China, where steady growth in demand for the products of this global operator has been particularly evident. Continued free trade is vital for the traditional export industry sector.

“I also think the change in value systems underpinning the Downshift scenario will continue to exert a powerful influence on our business. Current millenials are changing paradigms, both as employees and as consumers. Emphasising accountability values towards the Far East in particular gives us a clear competitive edge and the prospect of helping our customers pass on the message of accountability to their own clientele,” Kiljunen says.

Kiljunen sees threat scenarios for the pulp industry chiefly in questioning accountability in the use of wood and biased discussion of this topic. He stresses the importance of continuing to press the point that economic uses of the forest and environmental values are by no means mutually exclusive, but reciprocally supportive. Well-managed forests are the most efficient carbon sink.

“We also have no idea how sustainable economic growth in China will prove to be, although a potential downswing in GDP would have no immediate impact on demand for pulp-based consumer products. We have nevertheless taken steps of our own to minimise the risk by diversifying our customer base in China, and we have also worked to retain our current strong market position in Europe,” Kiljunen explains.Antti Kiljunen and Risto E.J. Penttilä discuss business success factors under various scenarios.

MANY OPENINGS FOR NEW TECHNOLOGY

Another way to reduce business risks is to enlarge the Metsä Fibre portfolio to include a growing range of bioproducts. The local innovation clusters emerging around the company’s mills are ideal for the technology-driven future described by the Cyberworld scenario. Kiljunen envisages a strong R&D presence for the Finnish pulp industry.

“We have also been pioneers in using digital technologies at various stages in our business process. A great deal of information emerges from these process stages, and we must maintain and improve our ability to apply this information to enhance efficiency and strengthen the customer experience.”

Penttilä nevertheless notes that the power of huge corporations in the Cyberworld scenario may be intimidating, as these major operators are in a position to swallow up entire industries. Kiljunen sees no such danger in the pulp industry:

“At least securing supplies of wood and building an effective sourcing organisation will be a problem for anyone seeking to enter the industry. On the contrary, we might even envision a global operator like Amazon called in to assist in the logistics of pulp and sawn goods, and in this sense we could present more of an opportunity for others,” he concludes.

​Northern location brings a competitive edgeAntti Kiljunen and Risto E.J. Penttilä discuss business success factors under various scenarios.

Most of the wood used as raw material by Metsä Fibre comes from about 103,000 members of the Group’s parent company, the Metsäliitto Co-operative, who own roughly half of the privately held forest land in Finland.

“This ownership pattern distinguishes us from our competitors, providing a clear edge in wood sourcing by reinforcing our commitment and staying power,” says Metsäliitto Cooperative COO Juha Mäntylä.

He explains that the company’s specialisation in long-fibre pulp results in a relatively limited geographical range for raw material sourcing that mainly covers Finland and its neighbouring regions, Russia and North America. Conditions in Finland and the Baltic region will remain competitive with respect to raw material, even in the long term.

“Although short-fibre wood obviously grows much more rapidly in tropical countries, current technology continues to require long-fibre pulp for supplying nearly all pulp-based products,” Mäntylä points out.

Reviewing global conditions, he feels that proximity to raw material sources will increasingly dictate the location of pulp manufacturing facilities.

“The likelihood of rising energy and transportation costs tends to reinforce this trend. Pulp is the component of the manufacturing chain that is most easily and cost-effectively transported, whereas it is more sensible to make end products at locations closer to the market.”

Besides a northern climate ideal for growing high-quality raw material, Finland and Metsä Fibre benefit from stable economic conditions and a long tradition of sustainable forest management.

“Issues of accountability are increasingly important, and we are able to show through certification and in other ways that our operations pass the test of ecological, economic and social sustainability with flying colours. Our ability to meet rising demand using the most sustainable pulp manufacturing methods here in northern Europe must also be the best option from the point of view of the global climate,” Mäntylä notes.

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