Paper industry. Stora Enso - Essay Example

Stora Enso has already become one of the most well known brands in paper industry. This company produces publication, fine paper as well as variety of wood products and is widely regarded as the undisputable leader in the paper market of the world. In spite of the fact that it is a leader in the industry, it nevertheless should stay abreast of the latest technological changes in the niche of the market it operates in, as the paper industry is highly competitive. In order to understand and access the challenges faced by the company one should draw Ansoff's matrix, where major possibilities for further business development of the company are clearly stated. Usually typical Ansoff's matrix looks like the following table: * Let us consider main products that Stora Enso produces: paper and paperboards, as well as graphic products, pulp and timber.1 * Ansoff's matrix, Market Penetration. Stora Enso has already become the leader in the market of paper and paperboards. It already has large pool of steadfast and existing customers; however it is important to maintain its position by conducting effective R& D process. Currently, Stora Enso is trying to improve its position by conducting the research in such areas as multi-color printing, new printing techniques as well as fiber-based packaging.2 Successful research in these areas might lead to the improvement in the quality of products and services that the company provides and assure that it will retain its leadership position in the market. Product development. As R&D is one of greatest priorities in Stora Enso, it is capable to market new products to existing customers. Recently, the company has developed new product- packages with radio frequency indicators, which the company sells to various pharmacies in Estonia and Finland.3 If the current trial of the sale process is completed successfully (as in today's technological highly sophisticated era, there is no guarantee that the electronic forms of protection of goods and services can not be fortified), it will reduce the number of fortified drugs sold in Northern European market, and even in the world as well. Market development. The demand on the paper and packaging products has been growing steadfastly during the last several years. High prices on the paper in the USA are ones of the indicators of the growth in the demand on the paper and packaging products, another is growing demand in China. Most of analytics almost universally agree that the demand will continue to grow in the next several years, and there are grounds to assume that manufactures in China will produce much less paper than current demand of the Chinese economy requires. According to the information of Datamonitor, China exhibited the growth of 9% in the demand on paper in 2005 compared with the same period in 2004.4 Stora Enso continues its aggressive expansion in the Chinese market. It recently has signed the contract with another paper company of China, in the southern province of Guangxi. According to the agreement mentioned the company will be able to acquire the rights on 600 ha of forests in the province, moreover the company is poised to establish 120000 ha of plantation to satisfy the demand on paper products in the province. 5 India is another potential market for the products of Stora Enso. Indian economy has been growing rapidly during the last several years as well; demand on the paper and the packaging products has been growing in this country and according to the predictions of several specialists this country will be another important player in the market of paper industry. Diversification. This is the part of Ansoff's matrix where new possibilities for the marketing of new products and services should be studied. As one knows from the theory of marketing there are two types of diversification: related and unrelated. Related diversification is when the company sustains its presence in the niche of the market it operates in. Unrelated diversification occurs when the company expands its presence in the new markets, unrelated to its industry. For instance new product of Stora Enso- aluminum-free packaging products will be undoubtedly marketed successfully in the market of food industry. This aluminum free packaging product-MultiFlex might become a useful alternative to the foils and films, which are currently widely used in food packaging industry. Apart from the fact that it is more environmentally friendly product, it is also more moisture and oxygen resistant and can preserve natural flavors of the food products. 6 Latin America is another potential, market for the products of Stora Enso. Recently the company has purchased offland in the southern regions of Brazil and Uruguay. This step was aimed at the establishment of huge plantations of eucalypts and pine. These lands were purchased from local landlords and the acquisitions of these lands are part of the program of global expansion in the market.7 Unrelated diversification. The company might expand its presence in the market of transport services, by providing more high-quality services to transport the products it produces. Apart from the expansion in Asian and Latin American markets the company might consider relatively new for the company expansion in Eastern European market, as the economies of the countries, located in this region are developing rapidly and the demand on the paper and packaging products in this area will grow. Implementation and control. In order to achieve the above mentioned objectives the company should identify strong points in the market of paper industry in developing countries; leadership must investigate whether the opportunities in emerging markets are real ones. In order to expand in the new market and develop new products and services of the company, the financial stability of the company must be restored. On the February 23, 2006, S&P lowered corporate ratings of the company due to the chronic financial underperformance in the last several years8. According to the data provided by Datamonitor in its SWOT analysis, poor revenue growth was evident in 2004, and cash operating activities decreased in 2004, comparing with the same period of 2003. Neither the company showed strong return on investment; it was even lower than industry average one. Whereas average return on the assets in industry was 4.6% during the period from 2000-2004, 3.2% was the average return on the assets exhibited by the company during the time period mentioned. 9 Certainly, without adequate financial resources it would be extremely difficult, if not impossible for the company to expand in the emerging markets. So, how these challenges faced by Stora Enso can be surmounted! Reorganization is regarded by the management of the company as one of the most effective solutions to persistent financial problems. Currently reorganization steps taken by the company are aimed to transform organization into the company that has three main areas: Paper, Forest products and Packaging boards. By achieving reorganization targets the company is trying to increase its business operations and eliminate low productive performance of several of its subdivisions. 10 * For instance the company decided to merge the sales teams of Label Papers and Technical papers, and in this way increase the efficiency of its internal subdivisions. Moreover this step will increase the sale potential of the company and entail some realignment among management staff of the company11. The synergizing of various divisions of the company is one of the most effective ways to reorganize it and improve its performance, not only organizational but financial as well. In Asian region new division Corporate Technology and Asia Pacific will be created. 12 It will conduct R&D in Asian region as well as in Russia. One might expect that this is the step in the right direction, as it will allow the company to gain more raw materials in this region as well as get high-qualified and relatively cheap (by Western standards) labor force, and the company will conduct its operations in cost-low areas. However, apart from these factors one should consider technological facilities in these countries; it is not yet clear whether the company has sufficient technological base in this region to conduct high-quality research and developments process. The company also implements internal reorganization process by merging such branches as Strategy, Business intelligence Investments and Corporate Affairs with Accounting and Legal and IR. In my opinion this step might eliminate some ineffective functions, if they were performed by the branches mentioned separately. One should also bear in mind that the company is a highly diversified organization: sometimes it is extremely difficult to manage a diversified company that is why it is imperative to review constantly most of the functions performed by various subdivisions of the company and access their productivity and financial results. With new organizational structure the company might resolve some of its huge financial problems as well as increase its concentration on major goals and improve its productivity in achieving them. Apart from this reorganization will also increase the speed with which information is exchanged between various subdivisions of the company as well as make practice of various parts of organization more available. With new organizational structure the company might resolve some of its huge financial problems as well as increase its concentration on major goals and improve its productivity in achieving them. Apart from this reorganization will also increase the speed with which information is exchanged between various subdivisions of the company as well as make practice of various parts of organization more available. Right now the company is trying to concentrate on the improvement in Paper and Forest product sectors and makes changes in this segment of organization. Acquisitions and mergers with other companies are effective methods to increase profitability of the company as well. In August Stora Esno purchased Schneidersohne Group (it is one of the largest European paper merchant). In views of many specialists this step might strengthen the presence of Stora Esno in European market, and improve its financial position as well. Sustainability growth. In my opinion Stora Enso continues to be one of the leaders in paper industry for many years to come. It has enough resources, suffice financial and technological capacities to maintain and enhance its powerful position in the market. Moreover, there are enough reasonable grounds to assume that the demand on paper and paper products will continue to grow in the nearest future (current high demand on paper products was caused by massive use of computers and other means of electronic communications). With substantial growth in Asia, Eastern Europe and some parts of American continent, demand on paper will undoubtedly grow. According to the opinions of many specialists Asian growth will account for the highest growth in the world (more than 80 percents), 13 yet apparently there will not be enough supply of paper and paper products in Asian region; so market prospects for the products of Stora Esno are good. In order to expand successfully in the market the company should restore its financial stability, through diversification and organizational reorganization. Apart from this however, innovation and R&D process should be implemented to enhance the position of the company in the market. Stora ersno has been trying to keep itself abreast of the latest changes in technology and devising new innovative products and services. Some of them, such as non-foil packages as well as such services as design of the products via internet14 have been marketing successfully. However, the company might experience some problems in providing other services (for instance such as transportation services)15. It is clear that the company should study market thoroughly before it launches new products and services. It must understand current demand on the paper products, what forces drive it. So far Stora Enso has been quite successful in pursuing this aim and has provided its customers with new innovative solutions that might resolve some of the problems faced by them. Few persons doubt that new authentication packaging of pharmaceutical products is the step in the right direction. Fortified drugs represent huge problem for many developed and developing nations, innovation of the company might help to augment it. But technological innovations and penetration in the market where there is high demand on paper products are not enough to sustain the development of the company. Current management of Stora Enso should pay closest attention to such factors as environmental issues as well as ethics in managing of its business. As Staora Esno expands in the market of developing countries, special attention must be given to environmental issues of the developing nations. Most of the products produced by the company are from raw renewable materials, according to the information provided by the company they are recyclable and they can be used safely16. By maintaining such high standards on all of its products the company reduces waste materials and improves the environment in the countries it operates in. Moreover it also tries to encourage all their partners of doing the same. Stoar Enso tries to resolve some environmental problems by adhering to high environmental standards. For instance Biron facility (paper mill of Stora Enso located in Wisconsin, reduced its energy consumption as well as the consumption of natural gas (for the period of 200-2005) 17 Apart from that the company also organizes the "challenge" event (one day sale event that induces the residents of Wisconsin to replace their used light bulbs with the bulbs of Energy Star; more than 4000 bulbs with Energy star were sold on the day of sale). According to specialists the impact on environment was the same as if 43 cars were removed from the roads. Stora Enso has been the recipient of numerous awards for its sustainability program by Time Inc as well as Dow Jones sustainability indexes. Stora Enso has been improving water quality at its plants in Anjalankosii and Maxau. According to the information provided by the company, reorganization of the plants will result in reducing of the level of chlorine and other pollutant in the water18 Stora Esno does not confine itself to the program aimed at the clearing of water from pollutants. It also tries to implement the program that might help to reduce the level of pollutants in the air at the regions where plants and mills of the company are located. . For instance, it recently has invested several millions Chinese RMB (approximately 400000 USD) to improve the quality of the air at the coal power plant in Suzhou Mill. If one takes into account the fact that this plant is situated in China (where environmental legislation is more lax than in developed countries), then this step of the company and obligations to reduce pollutants can be regarded as inveterate principle to maintain clean environment and preserve nature worldwide. In spite of the fact that voluntarily obligations of the company to reduce pollutants in the air in the nations where environmental legislation is less strict are commendable, the company might be forced to comply with major elements of Kyoto Protocol at the plants situated in Europe (new environmental tax that can be introduced in the countries of European Union might hamper the process of restoring of financial stability of the company). Stora Esno is a multinational company that operates in various countries of the world that is why it is vital and indispensable for the company to respect cultures as well customs of other nations. This commitment to respect cultures of other nations is reflected in the Environmental and Social Responsibility Policy of the company. 19 The company states that it indents to comply with all laws of the country it operates in and respect all regulations of the nation. Staora Enso is also a responsible social company, which maintains good relations with private and government shareholders. The principles of social responsibility apply to all aspects of the development of the company. Cooperation between the company and its shareholders is fair and is conducted on the principles of equality; neither there should be any practices of bribery or price fixing in the company. One certainly could discount these obligations as mere statements and platitudes; however the company is eager to enforce these principles in practice. For instance, Stora Enso introduced so called Intra system in order to avoid duplicate transactions, neither this company has been involved in any bribe scandals not only in developed, but also in developing countries where bribe practices are unfortunately widespread. The company also encourages open and fair dialogue between shareholders and the representatives of the company, and is dedicated to take active part in communities where it operates (it operates in many regions around the word). It also tries to maintain healthy environment at all paper plants mills, and forest plantations; the company does not support or condone discrimination based on gender, race or any other factor. In fact the company prohibits any discrimination at its workplace. In my opinion these social obligations are very important especially at those mills and plantations that are located in developing countries. For instance, it is a well-known fact that child labor is still permissible in several of developing nations of Asia, and the fact that the company maintains high social standards (such as total prohibition of child labor) is significant and helps to reduce the dimensions of this problem in the world. The company also tries to maintain good working conditions, as it is committed to preserve 48 hours day at its mills and plants, whereas it is possible to maintain it. In my opinion, the company should, try to maintain 48 hours day, as the healthy working environment will undoubtedly produce more motivated people, which in turn will lead to the increase in the level of productivity at the company. As the working environment in the forest industry is widely regarded as unsafe and even dangerous, it is significant that the company maintains its global leadership position not only in paper industry, but in the occupational health standards in the industry as well. 20 Moreover, new requirements will be implemented by the beginning of 2008. By this date all units of the company should have certified health and safety management system OHSAS 18001. According to the information provided by the company the implementation of the standards mentioned will reduce the number of accidents at the forest plantations and paper mills of the company. By the implementation of new standards the company tries to achieve zero accident rates in the long term future. However, realizing that it is not possible to achieve this goal in the short term, the company is resolved to reduce the number of accident to the best quartile in the regions it operates in. Stora Esno, global leader in paper industry faces many challenges. It will have to surmount many hurdles and resolve some serious problems if it wants to maintain its leadership position in the niche of the market it operates in. However, if the company takes effective and productive measures to resolve them, introduces more rational organizational structure and continues its innovative approach by developing new products and services, then it will be able to stay as a leader in the market for many decades to come. Works cited. 1. Products http://www.storaenso.com/CDAvgn/main/0,,1_-1101-13751-,00.html 2. New challenges for paper and board research, 3. Finland's Stora Enso and Orion test RFID authentication of drugs- 4. Stora Enso OYJ SWOT Analysis, Datamonitor, 2006 < www.datamonitor.com> 5. STORA ENSO: Stora Enso Strengthens Its Presence In Guangxi, Webbolt Newsroom, 6. Innovation, Converting Magazine, Sep2005, Vol. 23 Issue 9. 7. Stora Enso goes Latino, Printing World; 10/6/2005, Vol. 292 Issue 1 8. Stora Enso debt ratings cut on weakened financial prospects, S&P http://www.forbes.com/business/feeds/afx/2006/02/23/afx2547653.html 9. Modified Group Structure < http://search.storaenso.com/mini/ar2003/company/organisation/group_structure/index.html 10. Stora Enso Global Speciality Papers announces sales realignment, 11. Stora Enso reorganizes its functions, 12. World: Pulp & Paper Industry 13. Brands, Packaging Magazine; 5/5/2005, Vol. 8 Issue 9, p24-24. 14. Stora Enso's Transportation Move Appears to Go Against Trend, 1/15/2004, p1, 2p 15. Environment, 16. Stora Enso, Biron Facility: Energy Efficiency, 17. Environmental Investments, Stora Enso sustainability news, Stora Enso's newsletter to share holders, 2005. 18. Environmental and Social Responsibility Policy, 19. Improving safety performance at Stora Enso, . Read More