EDITORIAL: UPM tries to improve profitability in one fell swoop
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The decisions announced on Wednesday by the forest concern UPM did not come as a surprise to those who are familiar with the forest industry. However, the scale of the moves towards greater efficiency were unexpected: few would have thought that the company would set a Finnish record in cutting personnel. The telecommunications company Elisa, which has resorted to sharp job cuts, was left behind by a considerable margin.
Finland's forest industry has been in the midst of a profitability crisis for close to five years. It has both itself and changes in the world to blame for this.
Paper production in Europe has long exceeded consumption. The limit is approaching in North America as well. Excess production used to be exported to growing markets, especially in Asia. Now that route is stopped, because paper mills have been built - and are being built - in China that satisfy the Asian market.
Excess capacity has sparked sharp competition. Considering that the sector has been plagued by an inability to sufficiently cut costs, the real prices of paper and other forest products have gone down faster than the real production costs. Therefore, business profit margins in the forest sector have remained small.
Development in the forest sector has differed sharply from the basic trend in Finnish business. Last year large Finnish companies grew, hired more people, and improved both their profitability and their self-sufficiency - all except companies in the forest industry.
The UPM management would surely like to blame Wednesday's decision on the changes in the business environment. The claim can be sustained, but some of the responsibility must be shouldered by the company itself. After losing the competition for the US paper company Champion, it acquired - as a consolation prize of sorts - the Miramichi mill in Canada, which for UPM has proved to be a waste of money and time.
It will also probably be seen as UPM's fault that improving efficiency and cutting costs should have begun earlier - for instance back when the common practice was to restore competitiveness at one go with the help of a devaluation of the currency. Adaptation at UPM was left unfinished during the time of CEO Juha Niemelä. Now the new management under Jussi Pesonen is cleaning Niemelä's desk in one fell swoop.
Last year's labour dispute in the paper sector also proved expensive, although the costs were of a one-off nature, and although UPM was not the only one responsible. The losses that the lockout inflicted on UPM happen to be about the same amount that the company estimates that it will save in a year through the job cuts.
In all its toughness, Pesonen's policy line shows how strongly he is promoting his company's owner values. In addition to rapidly boosting profitability, the company is remembering its owners by buying its own shares. UPM has applied for authorisation to buy EUR 885 million of its own shares this year. This will certainly not improve relations between the paper workers and their employers, especially as even more jobs are set to go from the sector: UPM will be followed by other forest giants, and nobody knows for how long the job cuts will suffice for UPM.
As recently as about ten years ago, Finns kept repeating the mantra that Finland lives from its forests. At much the same time, telecommunications operators were king of the hill.
At the beginning of the new millennium these old truths were eroded. In both sectors, the environment changed rapidly. Companies in both sectors made mistakes, the worst of which was to sit and wait. The consequences of the change and the mistakes are now causing suffering for thousands of employees who are losing their jobs, and for numerous municipalities and cities.
More on this subject:
 Paper manufacturer UPM cutting thousands of jobs in Finland
Helsingin Sanomat
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