Both in my dissertation articles and on this blog I have discussed the merits of product- versus process innovation. Finland is in such a location, that its industry can’t be just as good as Germany’s or Japan’s, no, it actually has to be better, because between Finland and most of its markets there is a barrier which increases price: the Baltic Sea. Now, Finnish export industries, including their trade unions, have complained a lot about the Sulphur Directive, as it would add an unfair extra cost on Finnish exports (from 2015). As I’d like to say: yes, that is true, but the time used to complain about this issue also could have been used to gear up for changes. And beyond that, the Finnish state also has instated a compensation program. On top of that, Wärtsilä is doing great business with retrofitting sulphur-washers to older ships. And, let’s not forget that Finland has the great potential of developing sulphur-free biofuels based on processes in the pulp- and paper industry. Admittedly, this is still in baby shoes, but right now, with nearly free money from banks due to zero interest rates (nearly) the industry should throw a lot of money on this issue, as this is a sure source of demand in the years to come, in contrast to paperboard markets, which may at some point in the near future (especially regarding China’s slowdown) reach a saturation point and then the whole overcapacity drama will play out all over again.
The biofuel issue is one of product innovation, and Finland can and should be a leader in that field – all Finnish forest industries have pilot plants and bigger refinery plans in various stages of completion. Product innovation in the sense of intelligent paper etc. is probably going on as well, but I do not know how scaleable these products would be and how popular they would be. Things like packaging that announces when food goes bad sound great, but for the end-seller (i.e. shops) they might be a cost which is too high relative to benefits. But we have to see about that.
The issue of process innovation has been very important in the Finnish paper industry. Due to process innovation, labour productivity has greatly increased over the years.
As a besides, which is a well-known phenomena, labour productivity growth has both benefits and drawbacks, both for employees and employers. It is obvious that greater labour productivity enables the final product to be cheaper, but depending on market demand, rising labour productivity might endanger jobs at the site (after all, less personnel would be needed to produce the same amount of product). Furthermore, especially in the Finnish context with its high local unionization rate, labour productivity increases have also led to wage increases. These have been justified for many years, as long as markets grew. Currently, however, high labour productivity and low demand make for a problematic combination. In the Finnish legal (and labour market relations) context, the only way to combine these facts is to shed labour – it is near impossible to be flexible on wages. This kind of rationalization has its own risks – firms are very vulnerable to sickness absence and chronic understaffing also increases the risk of sickness absence. Thus, in terms of labour, labour productivity increases are not quite always positive, especially because at the moment employers would not increase wages along with productivity, because the market situation is so weak.
Enter university-led innovation. A recent report on Tekniikka ja talous discusses an innovation by the research team of Tapani Vuorinen of the Aalto University. Short and simple, the innovation is a much faster way to bleach pulp. The article mentions that the process would be 100.000 times faster than the traditional process. This means that also labour productivity would greatly increase, and thus the labour costs of making paper could drop. The article mentions that this new method would be commercially available in about three years and it would need only small investments. Again, with the availability and price of credit as it is, a no-brainer I’d think. Professor Vuorinen also states that this method would have positive impact on the environment, because it would not be necessary to cook pulp as long as currently needed.
It is clear that the current economic crisis in Europe and (possibly soon emerging in) China and other emerging markets have a strong negative impact on industries through lack of demand. However, it is not possible to revive the economy by cutting costs. Firms should be bold and take the cheap loans that are now available and take the risk. It is only through investments that new jobs can be created, and only investment can lead to growth. Why be risk-averse when it’s almost money for nothing? Shareholders do not only watch corporate debts and labour costs, but also investments, because they may tell about future