Paper companies are feeling the strain with the need to be environmentally friendly and the growth of the internet. Marc Smith talks to a fourth-generation member of family-owned Myllykoski to see how they are coping
Forests and business families have a lot in common. They both have strong roots, regularly renew themselves and provide a protective canopy. But they can also be incredibly fragile, and everyone knows the old adage about not being able to see the wood for the trees.
Family-owned Myllykoski Corporation, one of the largest publication paper producers in the world with a turnover of €1.6 billion, has had a very close relationship with forests since 1892. The firm manufactures wood-containing uncoated and coated publication papers, including newsprint, for publishers, printers and retailers worldwide.
As such, it relies on the natural, renewable resources provided by forests in Germany and its native Finland, where there is a whole industry of small forest owners who pass on their livelihood from generation to generation. The firm sources its entire paper stock from Europe and the firm estimates that the average distance the raw materials travel to the company's mills is just 120 km.
Sustainability is consequently an incredibly important issue. "It would take only a few months to deplete all the fibre in Europe unless there were fresh fibres coming in from the forest," explains Henrik Bjornberg, an executive vice president and fourth-generation member of Myllykoski. "Business growth is meaningless if it is not sustainable."
Recycled fibre is an essential part of sustainability and the company is one of Europe's leaders in its use and development – it has developed recycled fibre usage at its Lang paper mill since the 1960s. Today, all Myllykoski sourced wood is certified by either the PEFC or FSC schemes and the company can produce different paper grades with up to 100% recycled content.
However, although there are few products that are recycled as efficiently as paper today, Bjornberg says it is frustrating that the paper industry as a whole does not seem to be getting this message across. He cites the example of the different certification schemes: "There is barely any difference between them and many of us wish they would join forces," he says.
Contrary to what you might think, there is not a lot of price difference between recycled and natural fibre. "It used to be that recycled fibre was cheaper but this is no longer the case." In terms of quality the gap has also narrowed. "It is hard to tell if a paper includes recycled content or not, recycled papers used to be a bit dirty looking with remaining ink dots but today if they do it is mostly for marketing purposes." he says.
But sustainability is not just about trees. It's also about people. And there is a strong analogy between the
sustainability of a forest and a family. Bjornberg estimates that his extended family numbers around 60, all of whom are linked together through a family council.
"We have had a family council for the last 15 years where every branch of the family is represented and it is a chance for everyone to hear about the company and about the family," says Bjornberg. There are 10 family members involved in running the council, which he describes as "a very good structure to have". The whole family then gets together for a shareholders meeting in the spring and for a more informal information meeting ending with a Finnish speciality – a crayfish dinner party – in the autumn.
On the operational side, there are three family members working fulltime, including Bjornberg's uncle, who is the chairman, and his sister, who is head of communications. There are a further four family members sitting on the board of directors.
Bjornberg admits to sometimes finding it tough to work with family members. "I think the difficulty is not so much in the work but in deciding what's business and what's family," he says. "I think it very much applies to the relationship that I have with my younger sister, Charlotta. It doesn't really matter where you are or what you are doing – you end up talking about company matters." Defining such boundaries can be tricky, and he says he finds it easier with non-family members.
Nevertheless, the family members all feel a close association with the business's vision – to become the premier publication paper brand – and the family's values, which are very much tied to the business. "They centre around flexibility and reliability and that we are customer centered – customer intimacy, we call it. We find our ownership structure useful to differentiate ourselves from the majority of paper producers today."
An evergreen business?
The paper industry is in serious trouble. As the internet gains in reach across the world – from the news desks of New York to the cafes of Calcutta – the world's paper manufacturers are staring at balance sheets that show profits in freefall and costs going through the roof. Myllykoski is no exception.
"We are currently in a very difficult situation where we are squeezed between high energy prices, rising raw material prices and an inability to translate those costs into price increases for our products, even though the demand is strong," says Bjornberg. Today you pay roughly the same price for publication paper as you did 10 years ago, but large capacity reductions in the industry have led to great gains in the operating rates of the paper machines and the first price corrections were seen in January. "This year we will still see a couple of price increases as the busiest time of the year is yet to come," he adds.
In spite of these foreboding figures and the threat of the web, Bjornberg remains optimistic. "You always read about paper versus the internet, but the reality is somewhat different," he explains. "Roughly 50% of all advertising expenditure goes to newspapers and magazines and the rest is split between TV, radio and the internet."
Of the remaining half he estimates that TV accounts for about 35% and the internet 7%. "Some of the forecasts show the internet growing to 10% in the next three or four years, so it's still a rather small part of advertising expenditure and I believe that if you want to have a serious marketing campaign, you cannot avoid print," he says. Indeed he goes further, claiming the internet will not overtake print but will be competing much more with TV as both mediums offer the same success rates. "When you print a product you bring it to a targeted customer group, but when you are on the internet you expect the customer to find you." The question is, of course, for how much longer this view will be current.
It would seem natural for the company to look to the emerging markets where demand for the printed word is increasing and raw materials would usually be cheaper. But while Myllykoski, a family business for over 115 years, is active in Eastern Europe, it is not about to take a great leap forward into Asia.
"We see ourselves as a fairly European business," says Bjornberg. "We do sell paper globally but we have no
production facilities outside of Europe and North America. I think for us, as a family company, it's a much bigger stretch the further you go from your home base. Potential investments in Asia are complicated by the fibre situation and the massive investments already going on in the sector. A lot of the fibre used in Asia is actually shipped from Europe or the US."
The company has, in terms of tonnage of paper produced, 85% of its business in Europe and 15% in the US. While Bjornberg says they are continuously increasing volumes stateside, they have not invested in new production facilities for many years. With the dollar currently at such a low, this position is unlikely to change overnight.
Nevertheless, the firm is reacting to these challenging times. Eastern Europe is providing Myllykoski with double-digit growth and this has been a factor in the reorganisation of the company's European operations. The company used to be split into four business units – a mish mash of geographical and department-oriented splits – but has now been streamlined into just two: coated and uncoated paper.
"The new organisation defines our roles and responsibilities more clearly and thus helps avoid overlapping," says Sverre Norrgård, president and CEO of Myllykoski. "Our communication lines will be short and efficient and our decision making as quick as possible."
Norrgård is the firm's first non-family head, which was another major decision for the family who made the appointment in 2006. Bjornberg's father, Fredrik, was chairman of the board and actively working before he retired in 2005. His uncle, Carl, who was president at the time, then stepped into his brother's shoes creating the vacancy for Norrgård. "There was not much of a discussion about it, it was just the right time," Bjornberg recalls of the succession. "Great family leaders never hold on until they die. Most of them would also add 'if' they die … "
A history of quality
Myllykoski, which means "the mill on the rapids", began over 115 years ago when two Bjornberg brothers, Claes and Fredrik, started a groundwood mill. They continued to grow by purchasing the family's first paper machine – the Myllykoski paper mill, which is still working today, was also a ground wood mill that expanded into paper in the early 1900s.
The decision to move into paper production at such an early stage was critical to the future success of the family business. In the 1950s, the second generation led by Carl Gustaf Bjornberg, decided to focus on SC, or supercalendered grade paper, which is used for magazines, catalogues and direct advertising products that require increased information-carrying capacity compared to newsprint.
The 1970s and 80s, with the third generation at the helm, saw the company look to strengthen its position as an international player with expansion into the German and Swiss markets, where it purchased four additional mills.
In 1977 the family moved into the US market with the purchase of Madison Paper Industries in Maine and later the Alsip mill in Illinois, which has the most modern de-inking plant in the USA and produces a high quality coated paper from recycled fibre.
MPI was jointly owned by the Sulzberger family, proprietors of The New York Times. "We work rather closely with several family-owned companies," says Bjornberg. "I think it's always interesting to deal with other family businesses because on a certain level you always have similar issues. At the end of the day it's not just a business relationship it's also a personal relationship."
Recently, Myllykoski unveiled a brand new paper mill, Plattling Paper, which started operations in December 2007. Located in Lower-Bavaria, on the border with the Czech Republic, it is ideally placed to extend the company's reach into the markets of Eastern Europe. Plattling Paper is one of the most modern paper mills in the world and produces uncoated publication papers used for magazines, mail order catalogues and advertising supplements. "It's a massively beautiful machine," says Bjornberg proudly, "and the quality of the paper is just fantastic."
Given the challenges that the business is currently facing, the family is hoping this machine will play its part in renewing the success its predecessor achieved.