1. Opportunities and Challenges in Emerging
Bioenergy Business: Case of the Finnish
Sawmilling Industry
Minli Wan1, Katja Lähtinen2 & Anne Toppinen1
1
Department of Forest Sciences, University of Helsinki, Helsinki, Finland
2
Finnish Environmental Institute (SYKE), Joensuu, Finland
FPS 65th International Convention
Portland, Oregon, USA / June 19-21, 2011
3. Introduction
Changes in the business environment challenge the sustainable
competitiveness in the traditional sawmilling industry.
Growing demand for energy and the limitations in using fossil fuels
=> bioenergy is a sustainable energy alternative.
Sawnwood production generates by-products that can be used to
produce bioenergy to generate firm-level value added.
Previous studies:
Pätäri et al. (2008), Pätäri (2009);
Lähtinen & Toppinen (2008), Lähtinen et al. (2009).
Purpose of the study: To evaluate the sources of sustainable
competitive advantage, the value-creation opportunities, and the
consequent managerial challenges between the Finnish sawmilling
and energy industries.
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4. Theoretical Background
Dynamic capability theory (DCT):
An extension of the RBV (Barney 1991) that emphasizes firms’ ability to integrate,
build and reconfigure internal and external competences in response to rapidly
changing environment (Teece et al. 1997).
Natural resource-based view (NRBV):
An extension of the RBV to include the opportunities and constraints provided by
the natural environment (Hart 1995);
Environmentally oriented resources and capabilities can yield sources of
sustainable competitive advantage;
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5. Figure 1. Theoretical Framework
N
A
B
U
T
S
Receiving a nd
a na lyzing S U
a
w
Selection of strategic informa tion
I R
Tangible and (VRIN) resources:
m - Timber manufacturing;
Business N A
intangible resources Processes
i - Primary by-product E
l Processing L
l S
S
E
Interface between
firm and business
B By-product
environment
i
o
Flow E N
e N V
n V
e
I
I
r Selection of strategic
g Tangible and (VRIN) resources:
Business R R
y intangible resources - Secondary by-product
processing Processes O O
F N
i
Conception
of business
N
r environment M M
m E
N E
T N
T
(Modified from Lähtinen 2007)
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6. Data and Methods
Data gathering focused on the Finnish non-integrated medium-sized
sawmills.
Two-stage qualitative interview method:
1st-stage data gathering – based on semi-structured interviews made for 18
sawmills’ managers in autumn 2010, focusing on exploring the opportunities and
challenges for developing the bioenergy production at sawmills;
2nd-stage data gathering – based on in-depth interviews in late 2011, focusing
on investigating bioenergy applications in sawmill operations and factors
affecting the sawnwood and energy production in the sawmilling industry.
The bioenergy share?
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7. Preliminary Results of the 1st-Stage Interviews
Sample size was 29, but only 18 sawmills participated in the interviews
=> Response rate: 62%.
Over 18 sawmills, 11 sawmills were involved in selling bioenergy products
(heat, CHP and briquettes) other than internal use.
Turnover: The share of bioenergy ranged from 0 to 10%.
Main production factors: raw material, personnel know-how, technological
know-how, collaboration with local energy firms, knowledge of sawmilling
end-customers.
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8. The First Small-Scale CHP Plant at a Sawmill in Finland:
Lieksa CHP Plant
District heat: 14 MW
Process heat: 8 MW Fuels: sawdust, bark, peat
Electricity: 8 MW
(Source: VAPO 2008)
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10. Figure 2. Value Chain of Bioenergy
Raw Inbound Bioenergy Outbound Marketing End-user
Material Logistics Production Logistics and Sales Services
B - Knowledge of - Experience - Technological
raw material; and expertise know-how in the
I S M
- Experience in in managing use of primary
a
O w
buying raw raw material by-products (bark, A
E m
material from logistics from chips and R
i
the roundwood forests to sawdust) in G
N markets; sawmills. bioenergy I
l
E l
- Information on production.
N
the roundwood
R suppliers.
G
Y
Relationships with Suppliers Relationships with Buyers
B
P i - Technological - Experience in - Thorough - Experience in on-time
R o know-how in the warehousing knowledge of delivery of after-sales service.
M
O e use of secondary and distributing customers;
n by-products bioenergy - Experience A
D e (wood pellets and products to and marketing R
U r wood briquettes) bioenergy skills in adver- G
C g in bioenergy customers. tising and I
y production. promoting N
T bioenergy
I F products to
i bioenergy
O r customers.
N m
(Adapted from Porter 1985)
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11. Opportunities and Challenges for Developing
Bioenergy Business at the Finnish Sawmills
Opportunities Challenges
Environmental concerns, increasing demand The sawmilling industry is highly
Market for energy and rising price of fossil fuels => cyclical and strongly affected by
demand Boom in renewable energy demand. economic slowdown.
1) Renewable energy policy and RES 1) In Finland, no environmental
Directive for Finland (38% by 2020); taxes in electricity;
2) Government policy support for bioenergy 2) Finland’s political decision like
Policy on taxes, investment support and subsidies; ‘Renewable energy package'
3) A new feed-in tariff scheme introduced in supports the use of energy wood in
Finland supports wood-based power biogas production;
generation. 3) Volatile bioenergy policy changes.
1) Sawmills have an internal supply of wood 1) Uncertainty in the sawnwood
fuels and they are able to collect wood fuels markets has increased because of
Availability of at a competitive price; Russia’s limited roundwood exports;
raw material 2) The structural change of forest industry 2) Uncertainty of pellet prices
reduces the demand for sawmill by-products prevents expansion of traditional
in traditional applications but promotes its sawmilling industry into the Finnish
use in bioenergy. pellet markets.
Technological Finland is one of the world leaders in using The same solution might be
know-how wood-based fuels in energy production, its replicated by competitors outside
technology know-how is globally well-known. Finland.
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12. Opportunities and Challenges for Developing Bioenergy
Business at the Finnish Sawmills (Cont’d)
Opportunities Challenges
Partnership with district heating plants of the Similar collaboration forms
Collabora- local community as a strategic resource to might be replicated by
tion forms create competitive advantage for sawmills’ competitors outside Finland.
bioenergy business.
Impacts on Although the share of bienergy in Finnish Small share of bioenergy might
profits sawmills’ value creation was small, it affected make some sawmills lose their
the financial performance of sawmills. interest in bioenergy business.
1) Finnish forest industry has invested heavily in 1) Investment in bioenergy is
bioenergy, and the share of bioenergy is risky and capital intensive;
projected to increase; 2) Relatively high investment
2) Finnish municipalities have a long tradition in costs are typically an obstacle
Investment investing in wood fuel plants and biomass for small-scale CHP and pellet
heating system; production.
3) Finnish sawmills, especially the ones with the
biggest share of bioenery, are interested in
investing in new bioenergy branches and
enlarging bioenergy business by using by-
products to increase efficiency and profitability.
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13. Preliminary Conclusions of the 1st-Stage Interviews
Producing bioenergy has been emphasized as a new business option
for sawmills, but it is not a new issue for the Finnish sawmills.
The sawmilling industry can increase value added and improve
profitability by efficiently utilizing by-products in bioenergy applications.
However, increasing the bioenergy production and managing the
internal resources and external investment risks also brings sawmills
new management challenges.
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