1
XIV International Economic History Congress, Helsinki 2006
Session 40
Competitive Behaviour and Business Innovation in the Forest Industry:
Family Firms, Listed Companies and Cooperatives Compared
Jari Ojala
University of Jyväskylä
([email protected])
Anders Melander
Jönköping International Business School
[email protected]
Juha-Antti Lamberg
Helsinki University of Technology
[email protected]
Abstract
The growing interest in family-business-related research is founded on the assumption that family
businesses behave differently from listed companies, while in the literature on cooperatives the
disadvantage/advantage of the ownership structure is a highly debated topic: the pro-cooperatives
argue that the ownership structure is advantageous as it provides stability and room for innovation
in strategic behaviour; the opponents argue that the cooperative ownership structure only works as a
lock-in mechanism, slowing down necessary changes.
This paper analyses the competitive behaviour in companies representing three ownership structures
(listed, family and cooperative) in order to reach a greater understanding of the relationship between
a specific ownership structure and the competitive behaviour in that group. Furthermore, our aim is
to achieve a better understanding of how business innovations happen
i.e. how innovative
competitive behaviour in one company or group leads the way to behavioural changes in other
companies or groups. In this paper, we speculate on these links only at the group level (listed,
family and cooperative).
The sample consists of nineteen companies in the pulp and paper sector. The companies are from
Sweden (10), Norway (1) and Finland (8). Six of the companies are classified as family firms, four
as cooperatives and nine are listed firms. In order to identify competitive behaviour we use event
data analysis. We have systematically compiled the “strategic actions” of the companies since the
Second World War up to the turn of the millennium. In all 1694 company-specific strategic actions
in the period of 1946–2000 were coded according to the scheme presented in Lamberg and Ojala
2006.
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Competitive Behaviour and Business Innovation in the Forest Industry:
Family Firms, Listed Companies and Cooperatives Compared
Introduction: Business Innovations and Ownership Structure
In the literature within the tradition of the Carnegie school (e.g. Cyert and March 1963), such
actions by firms have been defined as “innovative if they differ significantly from current or recent
activities” (Greve and Taylor 2000, p. 55). Similarly, if a local search (March and Simon 1963) or
the inert properties of an organisation (Hannan and Freeman 1989) spur firms to change
incrementally, this creates “… non-imitative actions as the organization embarks on a wider search
because the innovation changes cognitions about the appropriateness or exigency of taking action.”
(Greve and Taylor 2000, p. 54).
An evolutionary perspective on company behaviour assumes that the usual way firms evolve is via
incremental changes in the routines and procedures, eventually resulting in systemic changes over
relatively lengthy periods of time (Nelson and Winter 1982). Recently, both evolutionary (Augier
and Teece 2006) and behavioural (Becker, Knudsen and March 2006) researchers have suggested
that the entrepreneurial acts of individual actors may be a source of novelty. Indeed, as Winter
(1968/2006: 140) suggests, an historical explanation of a firm's activities means that “…the
existence of a multiplicity of unobservable factors that shape firm behaviour would be explicitly
recognised.”
Another related question is the influence of a firm’s ownership structure (Williamson 1985). For
example, in strategic management (Mintzberg and Waters 1982), it has been assumed that some
firms are per se more “novelty-driven” than large machine-organisations which rely heavily on
formal planning and other types of bureaucracy. According to Mintzberg, family firms or other
types of organisation in which the power is centralised and which have a lean organisational
structure may adopt more novel strategies than larger systems. Moreover, according to the standard
Schumpeterian (Schumpeter 1947) assumption, there ought to be more managerial innovation in
entrepreneurially oriented firms. Therefore, this should be the case at least to a certain extent with
family firms, which are often (but not always) regarded as “entrepreneurial” compared with
publicly owned companies (Kreiser, Ojala, Lamberg and Melander 2006).
Despite the increasingly common claims that firms differ in terms of their level of innovation, the
literature is silent about the actual impact of the ownership structure. In particular, we have only
scattered knowledge about business innovations that are not necessarily technical in nature. In
business history too, Chandler’s (1990) view that only large corporations are able to adopt the
complicated marketing and organisational structures required by the modern economy can be
criticised. Thus there is an urgent need to study firms in their natural context in order to find
similarities and differences vis-à-vis their ownership structures. The purpose of this paper is to
investigate whether the management in family firms is more innovative than in other ownership
structures, and how the level of innovation may be studied?
As strategic management researchers have suggested, the actions of firms eventually build a
competitive position and thus lead to a certain level of business performance. Mintzberg, for
example, defines strategy as a pattern of actions: strategies emerge through activity over time rather
than reside in the structural properties of a firm. Following Miller and Chen (Miller and Chen
1994), by we use the term “action” to refer to “…a specific and observable competitive move, such
as new product introduction, an advertising campaign, or price cut, initiated by a firm to improve or
3
defend its relative competitive position”. Thus the nature and content of actions can be seen as a
fundamental building block in a firm’s history. With regard to the level of innovation (Baden-Fuller
1995), we suggest that an operational distinction be made between strategic actions that aim to
follow rivals in the industry (catch-up actions) and business innovations. Catch-up actions, even
though they are strategic for the individual company, are often of a second-best nature as the
industry leaders are already moving on. On the other hand, business innovations are strategic
actions that force rivals to make costly responses. Business innovations thus break boundaries and
introduce new ideas in the industry. If successful, a business innovation will pave the way for future
success, i.e. industry leadership, but a failure is also equally important as an indicator of the
innovative character of the organisation.
In this paper, our focus is on the identification of strategic actions at the level of the individual
company and the comparison of patterns at the group level. This analysis is to be seen as the input
for an analysis at the next level, in which we aim to identify those actions that could be classified as
business innovations. The object of our empirical research is the forest industry. As Chandler (1990,
p. 113) states of the forest industry: “… the technology of production was not complex enough to
provide an incentive for a substantial investment in research and development”. Therefore, right
after the Second World War, the paper industry had one of the lowest research intensities among
those lines of business in which there were large corporations in the USA; that was also the case
with the firms in the Nordic forest industry (Chandler 1990, Kettunen 2002). This characteristic of
the forest industry makes it potentially interesting for studying business innovation.
Our aim is to find out whether there were any differences in the strategic behaviour of firms with
different types of ownership. Our sample includes publicly owned companies, family firms, and
cooperatives. We argue that in fact there were only limited differences in the strategic actions made
by these firms despite the differences in ownership structure. It has also been possible for us to
compare companies with different national backgrounds, though the similarity in the institutional
structure in the Nordic countries does not offer a good basis for such an analysis.
We suggest that the exogenous environment, both competitive/technical and institutional, has a
more pronounced role in strategic behaviour than the ownership structure of the firm – at least in
the case of a mature line of business like the forestry industry. In other words, possible managerial
innovations did not depend on the ownership structure as such, or at least not only on it. However,
certain differences can be noted, such as certain quick (and innovative) turnarounds made by
family-owned companies.
The conceptual background
In the literature on strategic management, the governance structure has been seen as an important an
important background factor behind antecedent to firms’ stimulus-response processes in the context
of business activities and thus potentially, to innovations. In the research tradition originating from
Mintzberg’s work (Mintzberg 1980 (1973), Mintzberg 1987, Mintzberg 1994), different governance
structures are seen to have a tendency to emphasise different aspects of decision-making. It is
important to note that this perspective can help researchers make sense of the complexity of modern
business settings. As Miller (1986) has emphasised :“[configurations]… are not intended to be
exhaustive but merely illustrative of important relationships … one can begin to identify some
central themes that orchestrate the alignment among a great many variables of strategy and
structure.”
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Thus in this study firms are seen as comprehensive sets of structures and systems that include a
particular way of scanning the organisational environment and making decisions. Hence the
underlying assumption is that different governance structures may include certain mental models
and action modes that are fairly comparable in similarly structured organisations. Using
Mintzberg’s typology, the two most relevant types of firm are the entrepreneurial and the
diversified organisation.
In an entrepreneurial organisation, decision-making is built around a chief executive who is
frequently also the owner. This type of firm’s strongest feature is its flexibility in adapting to
environmental changes. Hence the strategy process in an entrepreneurial organisation is “broadly
deliberate but emergent and flexible in details”. A diversified organisation is structured according to
divisions under a central administrative headquarters. The divisions have more or less autonomy in
their operations and occasionally in their strategy-making. Especially in the 1970—1980s, strategy
processes in diversified firms were divided into business and corporate levels. In this model, the
company headquarters controlled corporate strategy, and the divisions had responsibility for
business strategy.
As this study concentrates on the link between ownership structure and business innovations, the
basic assumption is that business innovations are more or less likely to occur as a result of the
ownership structure. This implies that there is a link between ownership and strategic actions. As a
result, our definition of family firms focuses on control and the opportunity to exercise this control.
Those who exercise this control can do so merely as owners (for instance as board members) or by
being involved in the daily management of the company. Consequently we define a family firm as
one in which the family is in control and wishes to maintain this control (Chua, Chrisman and
Sharma 1999).
The definition of family business has been the object of considerable interest in the relevant
literature (Handler 1989, Sharma, Chrisman and Chua 1997). Numerous definitions still exist, and it
is therefore more important than ever to state explicitly which definition applies (Hall 2003). The
definitions used range from those stating that a company is a family firm when the family has a
voting control of the company to those in which it is stated that the company must be executively
controlled by the family, several generations of which are involved in the day-to-day operations of
the company (Sharma, Chrisman and Chua 1997).
It has been argued that inherited business creates complacency and conservatism and delays the
adoption of efficient administration and organisational structures (Chandler 1977, Chandler 1990,
Nicholas 1999). Family firms are attributed with several disadvantages compared to listed
companies. For example, the limited ownership structure constricts growth capabilities. Although
family firms can be dynamic in the beginning, financial factors prevent them from growing as fast
as listed companies. The willingness of the family members to invest more capital in the company
may diminish as their family grows in size and the owners are no longer able to involve themselves
in the daily affairs of the company. A change of leadership is always problematic in industrial
enterprises, but it is especially difficult in family firms as the number of possible managerial
candidates is relatively low if the choice is limited to the immediate family or kin. Nepotism and,
concomitantly, conflicts within the family are among the major disadvantages in family firms
(Casson 1993, Rose 1993). The importance of family ownership declines as the companies grow.
Thus many authors have emphasised managerial failure in family firms on the one hand, and
entrepreneurial decline on the other, as a result of the changing role of family firms (Coleman 1973,
Koiranen 1998). Chandler (1977, 1990) even sees family ownership as a cause for stagnation in the
economic growth of certain countries. This condemnatory attitude to family firms has led to an
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underestimation of their importance in business history (Jones 1999–see also Ojala and Pajunen
2006).
On the other hand, family firms are also often seen as having a number of advantages. The
entrepreneurial attitude towards business activities is a breeding ground for dynamic, innovative
behaviour, to use in Schumpeter’s terms (Casson 1982). However, while entrepreneurial
management decreases bureaucratic structures, it may also cause difficulties by disorganising the
modes of operation. In family firms the needs of the family and firm are partly overlapping: what is
good for the family is good for the business and vice versa. Thus the owners’ commitment to the
company is typically much tighter than in other forms of enterprise. This is crucial in terms of their
willingness to overcome crisis situations (Ojala and Pajunen 2006). The definition of family firms
as entrepreneurial organisations, however, is rather simplistic and misleading. Though family firms
may have characteristics typical of entrepreneurial organisations (such as innovativeness, risk
taking and pro-activeness), they are also quite often associated with rather non-entrepreneurial
values, such as financial conservatism, security and family control over the firm (Kreiser, Ojala,
Lamberg and Melander 2006).
On the basis of the above discussion, our research questions can be stated as follows:
1. To what extent are family firms different in their competitive behaviour and the level of
innovation in their actions vis-à-vis other types of firm?
2. To what extent do family firms become more similar or different along the industry life-cycle;
i.e. what is the effect of time in the potential convergence or divergence processes?
3. To what extent does the level of innovation result in differences in business performance (for
example growth and survival)?
Research setting: the evolution of the forestry industry
The forest industry represents a group of relatively mature, large-scale lines of business that have
gradually become “more global” during the last couple of decades. Over the long term, the forest
industries have been one of the fastest growing lines of business. While below ten million tons of
paper was produced at the beginning of the 20th century, in 1950 the figure was already 43 million
tons, and in 1995 around 260 million tons. Since 1950, the average annual growth of the paper
industry has been around four per cent. For example, the growth exceeded GDP growth in Europe
during the last decades of the 20th century and grew three times faster than the average for the
manufacturing industries (Diesen 1998, Huolman 1992, Lamberg and Ojala 2006, Rytkönen 2000).
The main period of growth occurred in the 1990s and during the first years of the third millennium.
In a sample of Nordic forest-industry companies studied previously, over 61 per cent of the postwar
sales was produced during the period of 1990-2003 (Ojala, Lamberg, Ahola and Melander 2006).
During the postwar era, the Nordic forest-industry companies have caught up with the traditional
market leaders, the North American companies (Lamberg and Ojala 2006). Our previous analysis of
a sample of Nordic and US-based forest-industry firms suggests that while the Nordic companies
produced only around one fifth of the combined sales of the analysed companies, this share rose to
around one third by the 1990s. Large-scale investments in new production and technology,
consolidation process, and the overall importance of the forest cluster in national economies have
boosted this growth in the Nordic countries. Demand factors have also affected this development:
the demand for forest-industry products grew more slowly in the U.S. than in Europe during the
1980s and 1990s. The whole forest industry sector experienced a period of diminishing returns
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throughout the postwar era, and this in turn led to a need to improve productivity. According to a
study by analysts at Merrill Lynch, the paper and pulp industry underperformed with regard to the
overall European market by 914 per cent between 1974 and the end of 2000. (Ojala, Lamberg,
Ahola and Melander 2006)
Sample and Method
Most of the forestry industry firms analysed in this paper originated as family-owned enterprises;
some of them evolved into limited liability companies, and a few into multinational corporations
with an international – sometimes even institutional – ownership structure. At the beginning of the
21st century, the era of family-owned firms seems to be over as far as the larger companies are
concerned. However, small and medium-sized firms, which are mostly family-run, are still
important to the forest industries, especially in small-niche markets that require constant
innovations and operational consistency. The evolution of the ownership structure has developed in
line with the overall economic development. The paper and pulp firms were mostly founded during
the age of industrial capitalism, they emerged and developed domestically through organic growth,
mergers, and acquisitions during the era of financial capitalism, and finally, they experienced an
internationalisation of their operations during the age of global capitalism in the postwar era
(Cantwell 1989, Chandler 1977, Chandler 1990, Ojala, Lamberg, Ahola and Melander 2006).
Family firms have played an important role in the paper and pulp industries as a whole. For
example, the British paper industry was dominated by family-owned enterprises up to the 1970s
(Chandler 1990). However, family-owned companies had lost their relative competitiveness among
the large producers by the 1980s. The international ownership of the Nordic forest-industry
companies did not occur until the 1990s, when the majority of Finnish paper industry companies,
for example, gained stock owners from outside the country’s borders. Of the companies mentioned
in this paper, the foreign ownership of Stora-Enso in 1999 was 70 per cent, of Metsäliitto around 35
per cent, and of United Paper Mills approx. 60 per cent (Lammi 2000, Ojala, Lamberg, Ahola and
Melander 2006).
Shareholder value, typical of the North American companies, was emphasised in the Nordic
companies only from the early 1990s on. Thus in the 1970s, high profitability was not a key issue
for the Nordic companies as it was for the U.S. based firms – though the U.S. paper companies have
also had problems in delivering shareholder value in terms of high profits (Ojala, Lamberg, Ahola
and Melander 2006). The fact that more emphasis was put on profitability within the Nordic
companies during the 1990s was related, among other things, to changes in the ownership structure.
State-owned companies like Enso were restructured to become publicly owned, as was partly the
case with certain co-operative companies
Our sample consists of nineteen forest-industry firms (Table 1), all engaged in various branches of
the sector, though during the last decades of the study most notably the paper industry. Of these
companies, six are family firms, including the Swedish-based MoDo and Korsnäs and the Finnishbased Ahlström, Schauman, Serlachius, and Myllykoski. Public and state-owned firms, altogether
nine of them, include United Paper Mills, Kymmene and Enso from Finland, and SCA, Holmen,
Iggesund, Munksjö, Stora, and Assi from Sweden. Cooperatives include four companies: Norske
Skog in Norway, Södra and NCB in Sweden, and Metsäliitto in Finland.
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Table 1. The Company Sample
Nationality
Founding
year
Ahlström
Schauman
Finland
Finland
1851
1883
1999 turnover
(billion US
dollars)
2.7
..
MoDo
Korsnäs
Serlachius
Sweden
Sweden
Finland
1872
1855
1868
Myllykoski
Enso-Gutzeit (StoraEnso)
Kymmene
Finland
Finland
Original
focus
Ownership structure
9.1
0.71
..
Timber
Timber,
Plywood
Timber
Timber
Paper
1892
1918
1.1
11
Paper
Timber
Family firm
Family firm
(acquired by Kymmene 1988)
Family firm
Family firm
Family firm
(acquired by Metsäliitto
1987)
Family firm
Public
Finland
1904
..
Paper
UPM
SCA
Holmen
Iggesund
Finland
Sweden
Sweden
Sweden
1920
1920s
1854
1876
8.8
2.1
..
..
Paper
Pulp
Paper
Iron/Timber
Munksjö
Stora
Assi
Sweden
Sweden
Sweden
1862
1888
1942
0.674
..
..
Paper
Iron
Lumber
Metsäliitto
Norske Skog
Södra
NCB
Finland
Norway
Sweden
Sweden
1934
1962
1938
1959
4.5
37
1.18
..
Lumber
Lumber
Lumber
Lumber
Public
(acquired by UPM 1995)
Public
Public
Public (1988-1999 MoDo)2
Public (Modo- IggesundHolmen 1988)3
Public
Public (Stora-Enso 1998)5
Public
(Assi-Domän-NCB 1994)6
Cooperative
Cooperative
Cooperative
Cooperative
(Assi-Domän-Ncb 1994)9
As Table 2 below suggests, public firms were over the whole period larger than family firms or
cooperatives in terms of personnel. The family firms’ share of the combined labour force was
around one third during the 1950s but declined steadily thereafter, so that by the 1990s it was
around one fifth. At the same time the share of the limited companies’ personnel rose from 50 to 57
per cent. This implies scale advantages that public firms might have had in comparison with other
types of ownership. As Figure 1 shows, in terms of turnover the development was even more
striking as the productivity growth was substantial within the forest industries. The figure for a
sample of only eight companies suggests that public companies and cooperatives outperformed
family firms in the paper industry during the 1990s and the first years of the third millennium.
However, as the number of cases is relatively low, these figures are only tentative. With a larger
sample of companies, including US-based ones, however, the pattern is similar, albeit not as
dramatic as that presented in Figure 1.
The growth rate of family firms was lower than that of listed firms and cooperatives. Indeed the
number of personnel in family firms has less than doubled while in public firms and cooperatives it
has almost tripled. Cooperatives are interesting in this respect: they arrived in the wood-processing
sector rather late, but they succeeded in growing not only to be among the major players in all three
1
The turnover for Korsnäs is from 2000 and is 5209 million SEK
Holmen was a part of MoDo during the years 1988-1999
3
Iggesund became a part of Modo in 1988 as a result of a merger.
4
The turnover for Munksjö is 4854 million SEK.
5
Stora became Stora Enso in 1998
6
Assi became AssiDomän after a series of mergers that started in 1994.
2
7
The turnover for Norske Skog is 18 500 million NOK.
8
The turnover for Södra is 8106 million SEK
NCB was acquired and became a part of AssiDomän in 1994.
9
8
Nordic countries by the turn of the third millennium but also to be among the important global
actors in the forest industries.
Table 2. Average number of personnel in the sample companies, divided according to ownership
structure
Family firms
4593
5777
6481
6920
7153
6040
1946-1960
1961-1970
1971-1980
1981-1990
1991-2000
1946-2000
Public firms
7036
8678
8856
12739
19299
10932
Cooperatives
2844
4394
6922
6602
7561
6049
All
5744
7226
7742
9886
13845
8603
Source: Database compiled by the authors.
Figure 1. Average annual sales by Nordic family forest-industry firms in comparison with public
and cooperative companies, 1945–2003 (def. 2003 mil. dollars, log.)
14000
12000
10000
8000
6000
4000
2000
0
1945-1959
1960-1969
1970-1979
Family firms
1980-1989
1990-1999
2000-2003
Public and cooperative
Sources: annual reports
Note: the sample includes only 8 companies: MoDo, Ahlström and Schauman as family firms, and Enso, Kymmene,
Upm, and Metsäliitto as public and cooperative companies.
Our methodology in the paper is based on an event data analysis that was developed in our previous
research (Lamberg and Ojala 2006). The sources for this quantification-based analysis are historical
events that are arranged according their sequences. This chronological set of events can be coded by
using a set of dichotomous variables. The idea of coded event data is that they can be analysed by
using different quantitative methods, and that these systematic event series can be used in
comparative studies (Van de Ven 1990, Van de Ven and Poole 1995). Our action database consisted
of 1694 company-specific strategic actions in the period of 1946–2000. These actions were divided
into different decades, so that we have altogether 210 actions for the period 1946–1960, 233 for
1961–1970, 377 for 1971–1980, 516 for 1981–1990, and 358 actions for 1991–2000.
All the strategic actions were coded according to a four dimensional coding framework (Lamberg,
Laurila and Nokelainen 2006, Lamberg and Ojala 2006). The first dimension is industry-invariant,
showing the general nature of each action (e.g. acquisitions, investments, divestments). The second
dimension is industry-specific focusing on specific actions in the product and resource market (e.g.
actions related to raw materials, semi-finished products or marketing). The third dimension defines
9
whether the actions were conducted independently or with other organisations, and the fourth
dimension deals with the geographical focus of the actions (domestic or international).
Analysis
The number and repertoire of actions
The overall picture in the forest industry is that all companies had a similar pattern of growth
strategies. During the late 19th and early 20th century, the growth resulted from green-field
investments, followed by vertical integration from the 1940s to the 1960s, diversification in the
1960s and 1970s, and finally the phase of mergers and acquisitions and geographical expansion
during the 1980s and 1990s. The existence of these dominant logics does not exclude the existence
of other logics, although these dominant logics occurred in a sequential order in all companies and
did not manifest any notable national differences (Ojala, Lamberg, Ahola and Melander 2006).
Why then did the companies act with such apparent similarity? We can offer at least two
explanations. The first derives from the path dependence principle: all the most important technical
and business innovations originated before the 1960s. After the 1950s, competitive advantage was
no longer created through technical innovations but rather from solutions related to scale and scope
(Chandler 1990, Melander 1997, Toivanen 2004). At this stage, the similarity resulted from the
cognitive constraints of the organisational actors, which in turn were a direct result of the historical
experiences. Moreover, after the industry assumed its typical characteristics the imprinting
moments in the early 20th century, the sunk-costs tied to the machinery and plants alone made it
practically impossible to change the direction of the entire industry or even of particular companies.
The diversification wave of the 1970s was clearly an attempt to change the basic determinants of
the industry. Secondly, all the major alterations were caused by radical changes in the surrounding
socio-economic environment. Thus it is no wonder that the sequence of strategy logic more or less
follows the Chandlerian sequence of growth strategies (Cantwell 1989, Chandler 1990; Ojala,
Lamberg, Ahola and Melander 2006).
We may state that the strategy logic was strongly dependent on history and the market environment,
resulting in few “strategic innovations” and consequent similarity in the repertoire of growth
strategies. It is clear that the industry has not yet faced the kind of changes that inevitably create a
radical rupture in the evolution of industries, namely changes in the basic technology (such as the
substitution of wood as the principal raw material) or in the market channel (for example, a radical
marginalisation of print media).
The overall number of actions per year rose until the 1990s and then declined (Table 3). This
decline is mostly due to mergers and acquisitions: there were simply fewer companies executing
actions, although larger companies do execute more actions than smaller ones, which can be seen
by comparing U.S. based large forestry-industry firms with Nordic ones (Ojala, Lamberg, Ahola
and Melander 2006). There were also notable differences between the companies from the different
Nordic countries: the Finnish companies were especially active during the 1970s and 1980s, while
the Swedes outperformed the Finns in terms of activity during the earlier decades and again
especially during the 1990s. As has been noted in previous literature, investments in new production
capacity were especially high in Finland throughout the 1970s and 1980s, and large mergers also
occurred during the 1980s (Näsi and Sajasalo 2006, Peterson 2001).
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In terms of ownership structures, public and state-owned firms were far more active than family
firms and cooperatives (Table 3). This was mostly due to the larger size of these firms (for example,
they were active and capable of acquiring relatively small-scale companies, paper merchants, and
production facilities, as well as converting units). However, certain family firms in the sample were
large, at least by Scandinavian standards; for example, Ahlström was among the largest industrial
enterprises in Finland during the period in question.
Cooperatives were seemingly less active than family firms or publicly owned companies. This was
especially the case during the 1950s and 1960s, when the cooperatives were still relatively smallscale companies. However, during more recent decades cooperatives were active, especially in
terms of the number of actions compared to the size of the companies (Table 4).10 In fact, relative to
the size of the firms, the cooperatives seem to have been the most active type over the whole
research period.
Table 3. The average annual number of actions by family firms, public and state-owned firms and
cooperatives 1946-2000
1946-1960
1961-1970
1971-1980
1981-1990
1991-2000
1946-2000
Family firms
4.6
7.4
10.8
14.3
8.9
8.7
Public & state
9.0
12.6
18.5
27.5
18.9
16.4
Cooperatives
1.4
3.3
8.4
9.8
8.0
5.7
All
15.0
23.3
37.7
51.6
35.8
30.8
Table 4. Actions per year/average personnel in different ownership groups (1946-1960 = 100)
1946-1960
1961-1970
1971-1980
1981-1990
1991-2000
1946-2000
Family firms
100
129
167
208
125
145
Public & state
100
114
163
169
77
117
Cooperatives
100
149
242
295
211
188
All
100
123
186
200
99
137
The direction and timing of actions in the production chain
Vertical integration and related diversification was a typical feature in the paper and pulp industries
up to the mid-20th century (Ohanian 1994), and unrelated diversification up to the 1980s. During the
past few decades, the companies have sought cost savings, better profitability and higher growth
rates especially through horizontal integration rather than diversification strategies by concentrating
on core business activities (Siitonen 2003) Up to the 1980s vertical integration was more
pronounced, as a number of sawmilling companies moved forwards in the production chain and
started to produce pulp, and later also paper.
10
Here only the number of personnel is being used as the measurement of size as turnover figures were not available
from certain companies. However, there seems to be clear correlation with the figures obtained in an earlier study using
another sample of companies in which turnover was used,.
11
Table 5. Strategic actions in the value chain for all sample companies. The percentages of strategic
actions per decade, 1946–2000
Upstream Midstream Downstream
Related and unrelated
Multiple
(1-3)
(4-5)
(6-8)
diversification (9 and 11) categories (10) Total N
1946-1960
33
19
12
27
9
100 210
1961-1970
28
30
19
17
7
100 232
1971-1980
34
18
21
18
7
100 374
1981-1990
23
18
19
26
14
100 483
1991-2000
17
28
22
18
16
100 352
1946-2000
26
23
19
21
11
100 1678
N
433
388
316
354
187
1678 ..
Source: Database compiled by the authors.
Note: upstream strategies include the actions related to raw material acquisition and semi-finished products (sawn
timber & pulp), midstream strategies include actions related to finished products (paper and paperboard), downstream
strategies include converted products and marketing, whilst diversification strategies include all related and unrelated
diversification.
Table 6. Strategic actions in the value chain, family firms. The percentages of strategic actions per
decade, 1946–2000
1946-1960
1961-1970
1971-1980
1981-1990
1991-2000
1946-2000
N
Upstream
(1-3)
42
23
24
16
10
21
102
Midstream Downstream
Related and unrelated
(4-5)
(6-8)
diversification (9 and 11)
14
16
20
26
28
20
19
30
23
13
24
33
19
30
29
18
26
26
84
125
126
Multiple
categories (10)
8
3
5
13
11
9
41
Total
100
100
100
100
100
100
478
N
64
74
108
143
89
478
..
Source: Database compiled by the authors.
Table 7. Strategic actions in the value chain, public and state-owned companies. The percentages of
strategic actions per decade, 1946–2000
1946-1960
1961-1970
1971-1980
1981-1990
1991-2000
1946-2000
N
Upstream
(1-3)
24
29
31
20
18
24
209
Midstream
(4-5)
24
31
21
28
34
28
247
Downstream
Related and unrelated
(6-8)
diversification (9 and 11)
10
33
12
17
19
21
16
25
22
12
17
21
147
191
Multiple
categories (10)
10
11
7
10
15
11
95
Total
100
100
100
100
100
100
889
N
126
125
182
270
186
889
..
Source: Database compiled by the authors.
Table 8. Strategic actions in the value chain, cooperatives. The percentages of strategic actions per
decade, 1946–2000
1946-1960
1961-1970
1971-1980
1981-1990
1991-2000
1946-2000
N
Upstream
(1-3)
60
33
56
35
23
39
122
Midstream Downstream
Related and unrelated
(4-5)
(6-8)
diversification ( 9 and 11)
0
15
15
33
21
9
12
14
6
20
13
11
22
12
19
18
14
12
57
44
37
Source: Database compiled by the authors.
Multiple
categories (10)
10
3
12
21
23
16
51
Total N
100 20
100 33
100 84
100 97
100 77
100 311
311
..
12
Upstream strategy actions are here classified as those related to raw material acquisition and those
related to semi-finished products (pulp and sawn timber). Midstream strategy actions are classified
as those related to the production of paper and board, and downstream strategy actions those related
to conversion and sales. Diversification strategies (both related and unrelated) are classified here as
separate units. Multiple strategies refer to actions that concern several of the business areas
simultaneously, as in the establishment of a production unit which produces several different end
products. Typically, large-scale mergers and acquisitions are events that concern a variety of
business areas.
The centre of gravity in the Nordic forest-industry companies has moved from raw materials and
semi-finished production (sawmills and pulp) towards finished products such as paper; thus from
upstream to downstream strategies (Galbraith 1988). Interestingly, upstream strategies played only
a minor role when analysed in terms of the number of actions. While from the 1940s up to the
1970s around one third of the actions concerned upstream strategies, this share diminished to
seventeen per cent by the 1990s (Table 5). However, here the analyses most probably underestimate
the strong role played by the raw material base. Both in Sweden and Finland, the fear of
diminishing timber in the 1960s led to a number of reforms throughout the industry (Kuusela 1999,
Melander 1997). It is also important to remember that in Finland cartels, in particular, made it
possible to concentrate on mid-stream strategies as it was these centralised associations that bore the
marketing responsibilities until the 1980s and 1990s. (Ojala, Lamberg, Ahola and Melander 2006)
At the same time, midstream strategies, i.e. paper and board production, gained more importance in
strategic actions. This can also be seen from the export figures: in the case of Finland, sawn
products were the most important export items from the early 19th up to the mid-20th century, when
they were replaced by pulp. However, exports of pulp more or less disappeared in the 1970s, when
it was more often refined into paper in domestic production units (Ojala and Lamberg 2006).
Furthermore, a number of companies were also engaged in producing end products, like United
Paper Mills with laminates, and Stora-Enso and SCA with packaging (Eloranta and Ojala 2005).
As cooperatives started to operate later than the other types of organisation, their movement in the
production chain also occurred later. This can be clearly seen from the actions related to raw
materials, saw milling and pulping: during the 1940s and 1950s, around sixty per cent of the
strategic actions of the cooperatives emphasised upstream strategies, while the share in the 1990s
was 23 per cent (Table 8). Midstream strategies in cooperatives were pronounced during the 1960s.
The clearest trend from upstream to downstream strategies can be found in the case of family firms:
altogether 42 per cent of the actions concerned upstream strategies during the 1940s and 1950s,
after which this share declined steadily and was only ten per cent in the 1990s (Table 6). The trend
is not as clear in the case of public and state-owned companies, as the share of upstream strategies
rose somewhat from the 1950s to the 1970s, but declined thereafter (Table 7).
Midstream strategies, i.e. actions related to paper and board production, grew throughout the
postwar period (Table 5). The largest share of midstream strategies can be found in the public and
state-owned firms that integrated forwards in the production chain at a quite early point in time.
Investments in paper production have always been expensive and thus difficult for family firms
with limited possibilities for outside financing to carry out (Ojala and Pajunen 2005). Family firms,
for their part, were the most active in downstream strategies, for example in the production of
consumer products such as special papers and also in marketing (Table 6). The share of both downand midstream strategies in family firms rose at the expense of upstream strategies.
13
Vertical integration was a part of the related diversification that occurred within the forest industries
generally throughout the period. Though the share of related actions was reasonably low, their
importance especially for the Nordic companies was crucial. Related diversification gave birth to
the forest clusters in both Sweden and in Finland. Companies like Ahlström, Tampella, RaumaRepola, SCA, and United Paper Mills started to produce machinery for their own use, and later on,
this machine industry developed its own branches and sub-industries (Hazley 2000, Jääskeläinen
2001, Lammi 2000). In the 1970s, diversification was still the dominant strategy, but from the
1980s onwards. the forest-industry companies began to concentrate on their core businesses. While,
during the 1960s and 1970s forest-industry firms diversified into several unrelated sectors, by the
turn of the 1990s the Nordic forest-industry firms had become considerably less diversified – the
same phenomena occurred in U.S. based firms some what earlier (Davis, Diekmann and Tinsley
1994, Ojala, Lamberg, Ahola and Melander 2006).
The number of strategic actions related to diversification was, however, still high even in the 1990s,
comprising around eighteen per cent of all actions taken by the sample companies (Table 5). This is
related to the divesting of unrelated businesses. Thus the share is composed mainly of actions that
ended diversified businesses. The concentration on traditional core business activities not only
meant the divestment of (unrelated) diversified businesses, but in some cases even the closure of
some branches of paper production. For example, MoDo relinquished the production of newsprint
and magazine papers to a new company (Holmen) in 1999, Metsäliitto divested itself of tissue
papers (1997) and Ahlström of all other but special papers (Melander 2006, Ojala and Lamberg
2006, Ojala, Lamberg, Ahola and Melander 2006, Ojala and Pajunen 2005, Siitonen 2003).
Cooperatives had the smallest share of diversification (Table 8), which is understandable as they
were latecomers in comparison with the other two groups. On the other hand, family firms
diversified actively throughout the period. Even in the 1980s and 1990s, almost one third of the
strategic actions by the family firms were related to diversification. Again, especially in the 1990s,
the number of these actions can be explained by the high share of divesting diversified structures.
Growth strategies
The development of forest-industry firms was achieved either through organic growth, i.e. by
building new production capacity, or through mergers and acquisitions. Mergers and acquisitions
have led to growing consolidation within the industry, though there are significant differences
between geographical areas and also in the lines of production. The top ten paper companies
produced around one fourth of the top 1000 companies’ production at the beginning of the 21 st
century (Ojala, Lamberg, Ahola and Melander 2006, Siitonen 2003). For example, in 1999 the top
five companies made up 35 per cent of total production of newsprint, 35 per cent of uncoated
papers, 50 per cent of coated mechanical papers, and around 40 to 45 per cent of market pulp
(Rowland 1999). Despite several bouts of consolidation, there were still almost 2000 paper
companies in the world in 2000, while the number at the beginning of the 20th century was over
4000 (Lamberg and Ojala 2006). Overall, the forest industry is not as concentrated as many other
manufacturing industries. In Japan, for example, there were altogether 275 pulp and paper
manufacturing companies in 1995, and at the beginning of the 21 st century Italy alone had around
200 privately owned paper-makers (Economist 2001, Noda 2003, Ojala, Lamberg, Ahola and
Melander 2006).
Whilst organic growth clearly played a more significant role in the strategies of the Nordic
companies from the 1940s up to the 1970s, the focus in strategic actions from the turn of the 1980s
was on mergers and acquisitions (Tables 9 and 10). Mergers and acquisitions were carried out
14
mainly to create operational synergies, to open new market areas, to save raw material resources, to
rationalise transport costs, to lower general administrative and R&D expenses, to gain a better
bargaining position in dealing with the suppliers or, as Siitonen (2003) states, for defensive reasons.
The fact that Finnish firms were far more active in pursuing organic growth is in line with the
findings of previous research, which suggests that a willingness to invest was a typical strategy of
Finnish firms when compared to those of other nationalities (Artto 2001, Peterson 1996).
Family firms were especially eager to built new production facilities in the 1950s – a fact that seems
quite at odds with the problems usually associated with family-owned companies with only limited
possibilities for organic growth. However, the share of actions related to organic growth declined
rapidly in the case of family firms, as it did with the listed companies, and the share of mergers and
acquisitions grew correspondingly. Again cooperatives do not follow the pattern. Cooperatives
seem to have built more production facilities even in the 1990s by comparison with other types of
ownership, and correspondingly they were quite eager to undergo merging operations already
during the 1950s, 1960s and 1970s.
Table 9. Organic growth, per cent shares of strategic actions
1946-1960
1961-1970
1971-1980
1981-1990
1991-2000
1946-2000
Family firms
70.5
56.8
54.2
35.2
22.1
45.1
Public & state
66.4
47.2
41.1
23.1
24.4
36.4
Cooperatives
40.0
48.5
22.6
18.6
28.2
26.6
All
65.0
42.5
40.7
25.6
24.7
37.0
Table 10. Growth through mergers and acquisitions, per cent shares of strategic actions
1946-1960
1961-1970
1971-1980
1981-1990
1991-2000
1946-2000
Family firms
6.6
29.7
29.0
39.4
48.8
33.0
Public & state
21.0
25.2
29.7
33.0
33.3
29.7
Cooperatives
55.0
36.4
41.7
34.0
24.4
35.3
All
20.0
23.8
32.2
35.0
35.2
31.6
Closing actions, either through selling out or ending production (Tables 11 and 12), have only taken
on more importance during the last few decades. In the 1940s and 1950s, only around fifteen per
cent of strategic actions were related to the selling or divesting of units, while this figure was
around forty per cent during the 1980s and 1990s. This is related to the dismantling of the
diversified structures of the companies, when a number of units were either sold or closed down as
companies concentrated on their core competences. Old and unproductive mills were also closed
down at the same time (Barnett and Grier 1996, Gagne 1995). For example, Kymmene divested
itself of its diversified lines of businesses in just a couple of years in the late 1980s, as United Paper
Mills had already done in the 1970s (Ojala and Lamberg 2006). Selling and divesting production
units was far more typical of the Swedish firms than of their Finnish counterparts: during the whole
period over forty per cent of the strategic actions of Swedish firms were closing ones, whilst the
share for the Finnish firms was around 22 per cent.
Family firms were generally not as eager to sell or divest units as listed firms and cooperatives. This
implies a certain amount of conservatism in their actions, or perhaps a family-related “involvement”
with the production. Throughout the period, only around one fifth of the actions of the family firms
15
were related to selling and divesting, while this figure was well over one third for both listed
companies and cooperatives. Only in the 1990s did family firms apparently become active in selling
off units. Ahlström, for example, sold off a number of its diversified units in this period and
concentrated on producing special paper grades.
Table 11. Selling of units, per cent shares of strategic actions
1946-1960
1961-1970
1971-1980
1981-1990
1991-2000
1946-2000
Family firms
6.6
5.4
5.6
12.7
22.1
10.9
Public & state
1.7
11.4
17.8
33.3
33.9
22.8
Cooperatives
5.0
12.1
14.3
30.9
38.5
24.7
All
3.5
23.8
13.6
27.1
32.0
19.8
Table 12. Divesting units, per cent shares of strategic actions
1946-1960
1961-1970
1971-1980
1981-1990
1991-2000
1946-2000
Family firms
16.4
8.1
11.2
12.7
7.0
11.1
Public & state
10.9
16.3
11.4
10.6
8.3
11.1
Cooperatives
0.0
3.0
21.4
16.5
9.0
13.5
All
11.5
9.9
13.6
12.3
8.1
11.6
Cooperation: network activities
Cooperative capitalism was a typical feature of the Nordic industries throughout the 20th century.
Therefore, the fact that Nordic companies carried out joint ventures in their strategic actions is not
surprising (Table 13). The cooperation can be clearly seen in the case of sales associations in
particular, although other kinds of cooperation also existed, for example in raw materials
acquisition and in industrial policies (Heikkinen 2000, Skippari, Ojala and Lamberg 2005). The
share of joint ventures seems to have declined over the decades. Family firms and publicly owned
companies were more eager to engage in cooperation than cooperatives. This, in fact, was perhaps
not due to the unwillingness of cooperatives to cooperate with other companies but rather to the fact
that other companies were not willing to cooperate with them; they were regarded as disruptive
elements on the market, and their ownership structure also aroused suspicion.
Table 13. The per cent shares of joint ventures in strategic actions
Family firms
Public & state
Cooperatives
All
1946-1960
9.4
10.3
5.0
9.5
1961-1970
9.5
12.7
3.0
10.3
1971-1980
8.3
6.5
6.0
6.9
1981-1990
10.5
7.3
4.1
7.6
1991-2000
3.4
6.9
5.0
5.6
1946-2000
8.4
8.2
4.8
7.6
An interesting feature is that the Finnish firms were more eager to cooperate than their Swedish
counterparts. In the case of the Finnish firms, around ten per cent of the strategic actions over the
whole period were cooperative, while in the case of Sweden the share was below 6 per cent
16
respectively. Thus cooperative capitalism was more pronounced in Finland (Ojala and Karonen
2006).
The internationalisation of production
Globally, the forest-industry companies have remained by and large within certain geographical
domains (Sajasalo 2003). In the 1990s, the paper and pulp industry still had one of the lowest levels
of globalisation within the manufacturing industries; for example, in 1998 the top five companies
accounted for less than 15 per cent of the world capacity, while within the automobile or airline
industries the level was around 55 to 65 per cent. The primary reasons for the low level of
globalisation are the local raw material base, high capital costs, the constant growth of regional
businesses, and also the institutional environment in which it originated (Lamberg and Ojala 2006,
Laurila and Ropponen 2003, Siitonen 2003). Nevertheless, globalisation has accelerated within the
forest industries, too, as a result of reasonably low transport costs and diminishing trade barriers
(Rytkönen 2000).
Internationalisation also came quite late to Nordic forest-industry firms. Though the markets for the
product have always been mainly abroad, the production facilities have remained basically in
domestic areas. In the case of Finland, the first steps in internationalisation were taken in the 1930s,
and continued during the 1950s and 1960s. Owing to a number of failures in the internationalisation
process, however, it was not until the 1980s that it clearly took on more importance in the strategic
actions of the companies (Table 14). By the turn of the millennium almost half of the actions were
being taken outside the companies’ domestic borders. Furthermore, Finnish companies were more
eager to undertake internationalising actions than Swedish ones: over the whole period one third of
the actions of the Finnish companies were international in scope, while the share in the Swedish
case was around one fourth.
Family firms tend to have been the most active in terms of internationalisation. For example,
Myllykoski is among the Finnish success stories in internationalisation, as the company has
succeeded well on the US markets from the 1970s on. The cooperatives clearly lagged behind the
family firms and listed companies in internationalisation, though there are differences even within
this group. Norske Skog, for example, has stated that it is “the most global forest-industry company
in the world”.
Table 14. The per cent shares of internationalisation in strategic actions
1946-1960
1961-1970
1971-1980
1981-1990
1991-2000
1946-2000
Family firms
6.3
18.9
29.6
35.7
55.1
31.4
Public & state
7.9
24.0
27.0
27.8
45.5
28.0
Cooperatives
0.0
18.2
13.1
21.6
24.4
18.3
All
6.7
21.6
24.7
28.8
43.2
27.2
17
Conclusions
Earlier literature has been divided into two opposite views on the effect of ownership structure on
firm behaviour. On the one hand, many scholars have seen family firms as innovative, risk taking
and pro-active per se. The underlying assumption, thus, is that family firms carry certain properties
which allow them seek novel solutions during their evolution. On the other hand, family firms can
be equally associated with rather non-entrepreneurial values, such as financial conservatism,
security and family control over the firm. It is highly likely that neither of these views correlates
perfectly with all existing family firms. We have examples such as Wallmart which carry many
properties of an innovative firm but as likely family firms that have stagnated and unable to take
innovative actions.
Our study contributed to the literature by empirically examining a sample of companies with
different ownership structure. By concentrating on strategic actions rather than structural elements
of the companies (cf. Chandler 1990) we were able to measure the behavioural attributes of
different types of firms.
Our first research result is empathetic with the critical view of Chandler (1977; 1990) and his
followers. The growth rate in family firms correlated strongly with other types of firms until the
1980s but after that their growth rate was dramatically slower than in public and cooperative firms.
In the 1980s and 1990s, paper industry was characterized by a wave of merger and acquisitions.
Simultaneously, the width, speed and price of the paper machines expanded tremendously. For the
companies this meant increasing need for financial and organizational resources and it seems highly
likely that family firms simply lacked both of these.
Also, public firms and cooperatives obtained a higher level of activity vis-à-vis family firms
through the entire period of analysis. What is interesting in these figures is that public firms also
made more divestments. Earlier study on North American paper industry firms (Ahola 2006)
demonstrated similar tendency; i.e. public firms ‘do more’. In terms of our theoretical starting point
this phenomenon could be interpreted as public firms obtaining a higher level of novelty in their
actions. However, an alternative explanation may be found in the neo-institutional literature
(DiMaggio and Powell, 1983). From that perspective, higher level of activity can signal a need to
look legitimate among the competitors and other stakeholders. On the contrary, the institutional
pressure may be lower in family firms allowing more stable pattern of activities. This question
definitely needs more research in the future.
Finally, family firms were relatively active in internationalization and, surprisingly, conducting
acquisitions. This may mean that slower absolute growth in the 1980 and 1990s may have been an
intentional decision allowing active strategizing in smaller niche markets. Thus, growth can be
more important in listed firms which are dependent on the opinion of the financial market whereas
other performance measures (profitability; longevity) may drive family firms to adopt specialized
niche strategies. Again, this question requires more qualitative work in terms of analyzing the
motivational aspects in firm decision-making.
18
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