The Swedish Paper and Pulp industry
In this paper we will describe the Swedish Paper and Pulp industry and its future challenges. We base our assumption on three main competitors in the industry, SCA, Stora Enso and Holmen. Competition amongst firms The industry exists of three major actors. As today, these three competitors have similar features regarding size, production equipment and competitive advantage such as economies of scale. However, their product offer differs in some ways. For example Holmen and Stora Enso are large producers of printing paper while SCA focus more on personal hygiene products.
Capital is of main concern to compete in the paper and pulp industry. The capital is needed to increase capacity in plants and to invest in forest and land. The capacity of output has increased since 1980 with 300%. However, the number of mills has been reduced with about 30%. Capital is also regarded as a core feature when investing in energy generating equipment. (SFIF, 2010) Energy is one of the bi-products from paper production which in a later stage can finance the actual paper production when selling the electricity.
Since the industry is capital intense and dependent on high capacity plants, technological knowledge and investments in R&D is a force driving
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Because of the high dependency of these input factors, Swedish pulp and paper companies have put large investments in forest and energy supply. This has caused a high degree of Vertical Integration where Holmen has the highest degree of vertically integration. A backward vertical integration tactic, buying forest land for example or investing in energy supply, could then cut out the supplier of wood or energy. Regarding forest, the good is a standardized raw material which the companies buy in very large quantities. This gives the paper companies an advantage in bargaining power.
According to LRF Konsult, consultants specialized in Swedish farming industry, the price of forest is increasing with about 3% during 2012, an opportunity for companies who have invested in forest. Regarding energy, pulp and paper companies have also invested in electricity plants. At Holmen, 30% of their energy supply is from the company’s own sources where focus has been of wind-power. The feature of energy as an input is also regarded as a homogeneous good. Although, in accordance with energy efficiency goals and concerns of climate change investments in renewable energy are growing more than input in non-renewable energy.
Potential entrants The forest industry is highly capital intensive requiring major investments in the pulp lines and paper machines. Furthermore it is high technology and know-how filled with complicated processes and deep knowledge content. The R&D in the Swedish forest industry focuses on increasing manufacturing efficiency and forest growth as well as developing new products with high added value to the users. (Skogs Industrierna, 2010) High expectations are also facing the Swedish paper industry as it is expected to improve the energy efficiency by 15 % by the year 2020 and increase its own production of electricity by 2 TWh by 2020.
Additionally the yield of bioenergy from the forest should be increased by 20 TWh by the same year. (Skogs Industrierna, n. a. ) The existing competition in the industry, Stora Enso, SCA and Holmen has already established strong positions in the market, possessing significant political powers. Furthermore in order to be competitive, the companies are forced to diversify into different market segments. (Ottosson and Magnusson, 2012) These are all factors that create high barriers of entry to possible new companies.