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Management Side

We Need a More Positive Vision Within the Industry

 When I started working in the industry in the mid-1960s, it was to help start up a second fiberline in an older mill. As my career progressed, it was similar to that of many other engineers, with most of the work on mill upgrades or new mills. Until the mid-1990s, there was constant expansion in North America, and more young people in the industry than old people. There was a “can-do” attitude in Canada and the United States that was dramatically different from the Britain that I had grown up in and worked in previously.

Since the mid-1990s, investment in North America has dropped dramatically, as has involvement in industry conferences and professional training. In short, the industry has lost a lot of the dynamic attitude that made it grow, and that attracted young staff for many years.

It is well known that the industry has been hit with declining demand for communications grades papers, particularly newsprint. North American mills have also faced strong competition from larger, better engineered pulp mills overseas, many of which have relatively low cost, high quality plantation wood. Canadian mills are also facing a substantial rise in the value of the Canadian dollar, which drives their costs up relative to export prices.

These clearly visible economic factors partially explain the dramatic drop in investment in mill expansions and upgrades, yet we have seen major expansions in Europe in recent years, despite their having higher personnel costs and tighter environmental regulations than North America. European mills generally face much higher wood costs than North American ones, also.

One example of European drive to grow is that despite the pessimistic outlook for newsprint in the face of iPads and other electronic ways of delivering the news, there have been major investments in newsprint capacity by Papierfabrik Palm. They invested GBP 400 million (about USD 640 million) in a new newsprint machine in England. It started up in 2010 and was visited by the Queen this year. Such high profile events must help attract top staff. Paperfabrik Palm also has invested heavily in expansion and energy economy projects in the past three years. They clearly have a vision for the future.

We are seeing some investment into North America from much less wealthy countries, such as the Birla group from India, and Asia Pacific Paper. If these countries can have faith in the future in North American, why do the local companies not?

I am writing this in Germany, and have noted much more drive to upgrade their country and industry than in North America these days. German faith in the future is not new. Yesterday we visited a couple of medieval churches in Lubeck. Both were badly damaged by Allied bombing in the Second World War, but are now fully restored. Restoration started in 1947, while Germany was virtually starving, with an economy in ruins. (Google “Marienkirche Lubeck“ for photographs.) The drive behind this restoration, with no discernable return on investment, is an indication of the pride in their country, and a willingness to work for the long term, that has built German industry to the point that it was only two years ago that exports from China exceeded those from Germany. North America had this kind of drive in the latter part of the 20th century, but at least in the paper industry, it is no longer visible.

When working in feasibility studies for new mills and major upgrades in Canada, I have observed that the go/no-go decision is based as much on top management’s judgement and vision of the future as on the calculated capital costs and profits. This is not unreasonable, given that some numbers used in even the best economic analyses are quite speculative, particularly the predicted selling price of the products.

One of the key skills of top management is to make the right calls on such decisions, recognizing that the calculations of economic feasibility are never as precise as one would wish.

Likewise, the decisions to allocate budgets to staff training and conference participation were based on a management judgement that it was good business to develop staff for the long term. It was never possible to justify such activities on the basis of return-on-investment as an accountant would calculate it.

One opportunity to improve the industry’s prospects that too few North American companies are using is to support TwoSides (www.twosides.info), an organization to promote sustainable use of printing and paper, and counter the “stop using paper to save trees” message of some (misguided) eco-groups. European paper producers are active supporters, but few North American companies have chipped in.

Before about 1990, there was enough optimism and/or enthusiasm to develop the industry for many investments to be made. Since then, extreme caution in North America has led to virtually no investment, resulting in the mills being less and less competitive with the best in the world, whether in South America or Europe. All of us who have worked in studies of means to reduce mill operating costs have seen designs for many potentially profitable projects rot on the shelf because of top management’s reluctance to invest. In northern Europe, such projects are generally implemented.

Particularly in tough times, the most competitive and productive mills will survive and prosper, while the least competitive will be closed down. We have to find a way to recreate the level of enthusiasm to upgrade the industry if the current spate of mill closures is to be abated. Otherwise, we will be buying all our paper from China or other emerging economies.

There has been much hand wringing in some paper industry journals about the fact that most of the most experienced managers were approaching retirement age, and would soon be lost to the industry. I suggest that the sooner our old guard is replaced by young blood, the sooner we will see investment and development. At 68, I am not a rebellious youngster wanting the old guys out of the way.



 


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