INNO-FOREST 24. May 2005 Iisalmi, Finland

1. INNO-FOREST 24. May 2005 Iisalmi, Finland Prefabricated Wood Frame Components – towards A Sustainable Competitive Advantage among SME’s in Woodworking Industries Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

2. INNO-FOREST 24. May 2005 Iisalmi, Finland Prefabricated Wood Frame Components – towards A Sustainable Competitive Advantage among SME’s in Woodworking Industries Contents Wood in European Construction Forest - Based Industries Timber Use in European House Construction Roadmap 2010 for the European Woodworking Industries Residential house construction in Finland Demand Structures in Residential House Construction in Finland Supply of Wood Components, Modules and Elements Competitive advantages of wood construction Vertical Profile & Subsidiary in Architecture – New Town Planning New Town Planning – wood pilot alternative Competitive factors of SMEs in Woodworking Industries Challenges to wood - forest product chain Success factors of Finnish woodworking industry SMEs in a changing competitive environment Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

3. INNO-FOREST 24. May 2005 Iisalmi, Finland Wood in European Construction Forest Based Industries Costs of input factors Cost of EU raw material resources: most important competitiveness factor among EU woodworking firms Labour costs and labour productivity: determine the relative competitiveness among countries inside EU Productivity, automation and modernisation: key priorities to compensate high labour costs Eastern European countries: labour cost advantages constitute a key driving force for capacity investments in woodworking industry Firm size and value creation integration SMEs: Adopted frequently the fully integrated production covering from basic raw materials (sawn-wood and panels) to end-products M&LEs: Apply flexible production model with a) pre-planned delivery schedules for components, b) assembling and finishing of end-products as their core business Business network: Allow efficientuse of competitive advantages among partners against low raw material and labour cost supply http://europa.eu.int/comm/enterprise/forest_based/forestry_en.html Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

4. INNO-FOREST 24. May 2005 Iisalmi, Finland Wood in European Construction Forest Based Industries Small and medium-sized enterprises engines of economic growth and employment throughout the European Union main policy topics: improvement of framework conditions for SMEs, financial instruments and programmes in support of SMEs enlargement, pre-accession and co-operation with non-member countries. support and encouragement on SMEs: Increased education and training for entrepreneurship, Cheap and fast enteprise start-up Eased 1) legislation and regulation 2) taxation and 3) other financial matters Availability of skills and strengthening the technological capacity Improving online access and use of e-business models Developing top-class small business support Strong, effective representation of SME’s interests at Union and national level http://europa.eu.int/comm/enterprise/forest_based/forestry_en.html Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

5. INNO-FOREST 24. May 2005 Iisalmi, Finland Wood in European Construction Competitive Advantages tangible input factors Forest wood: annual rate of EU wood resources used = 70% of growth remaining 30% includes forests that are not suitable or available for industrial use. complementing wood supplies from outside are needed intangible input factors R&D and innovation and skills Mergers, clustering and knowledge sharing with other linked industries have all helped to create a high level of R&D, innovation and skills within the Forest Based Industries in the EU increased technological know-how has increased production efficiency and quality. Increase by working closely with Forest cluster ie. related sectors, such as machine and equipment suppliersprocess designers, etc http://europa.eu.int/comm/enterprise/forest_based/forestry_en.html Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

6. INNO-FOREST 24. May 2005 Iisalmi, Finland Wood in European Construction European woodworking industries promote policies to get demand for wood products to grow integratoin of sustainable value chains into national and EU policies to create more favourable regulations. repair on the current EU renewable energy policy to properly acknowledge the industry’s interest in rationally utilizing the value-added potential of wood raw material before bio-energy use growth opportunities for trade in engineered wood products (EWPs) in the short term. new applications for EWPs in factory-built housing components if historical growth rates are to continue the Conformité Européen (CE) Marking in the BJC segment to be extended to several new building products in 2005-2006, following the entry into force of the CE marking on plywood in 2004 Mr. Jukka Tissari, Mr. Craig Adair, and Dr. Al Schuler http://www.unece.org/trade/timber/docs/fpama/2003/fpama2003a.htm Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

7. INNO-FOREST 24. May 2005 Iisalmi, Finland Roadmap 2010 Woodworking Industry Structure: Partially consolidated, with some large groups but very many small and medium sized companies Companies remain very small compared to steel and concrete industries Customers are consolidating more quickly than the suppliers Companies are smaller in Europe than in North America Markets: Increase the per capita consumption of wood products in a profitable and (as now) sustainable way Develop new markets outside Europe Wood Supply : Balance the usage of wood raw material between various interests in the society Barriers: Overcome weaknesses of wood at technical/educational level Perception: Make wood products the leading material and preferred Choice in structural and appearance applications, packaging and transport with the public at large Industry Structure: Maintain relative competitiveness of the European production capacity (SME enterprises) Promotion : Effectively promote the interests of the industry Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

8. INNO-FOREST 24. May 2005 Iisalmi, Finland Roadmap 2010 Building with wood: Goal 2010 - double wood based materials’ market share in construction Main Actions: Changes in the construction and wood supply chains European building system and inter-changeability / modularity of building components through standardization process Planning toolboxes, e.g. CADCAM, and web sites to share information Industrial and non-industrial codes & standards if not available Needs of non-housing applications (i.e. industrial, commercial, heavy structures, etc.) Harmonized standards for Engineer Wood Products to ensure the smooth introduction of innovative wood products into the construction chain Removal of institutional, technical, economical and perceptional barriers & regulatory limitations on the use of wood Use environmental credentials of wood. Roadmap 2010 for the European Woodworking Industries. Action Program. CEI-Bois in collaboration with TIMWOOD. Stockholm, March 2, 2004. Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

9. INNO-FOREST 24. May 2005 Iisalmi, Finland Demand Structures in Residential House Construction in Finland House construction (residential) mrd € new houses 9 ( 60 %) repair 6,6 ( 40 %) TYPES (new units) • residential 29 500 • free time & saunas 12 000 • TOTAL 41 500 Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

10. INNO-FOREST 24. May 2005 Iisalmi, Finland Demand Structures in Residential House Construction in Finland Wood frame - residential construction Wood frame • only reference construction in multi storey houses • competitive in row house construction • dominate in single house construction Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

11. INNO-FOREST 24. May 2005 Iisalmi, Finland Demand Structures in Residential House Construction in Finland Wood frame – single house construction Wood frame • dominant market share - growth only through growth in total market demand • half or more based on pre- fabricated components Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

12. INNO-FOREST 24. May 2005 Iisalmi, Finland Demand Structures in Residential House Construction in Finland Demand segments BtoC & BtoB (residential houses and free time houses) BtoC construction 86 % BtoB construction 14 % • Transfer from BtoC to BtoB do not change the share of wood frame but can increase the use of pre fabricated modules BtoC: private person direct entrepreneur contracts BtoB: construction entrepreneur & business network (upflow) Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

13. INNO-FOREST 24. May 2005 Iisalmi, Finland Demand Structures in Residential House Construction in Finland Markets & production & foreign trade • features of home market industries • competitive export production • competitive power of import low Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

14. INNO-FOREST 24. May 2005 Iisalmi, Finland Demand segments in wood frame house construction - BtoC & BtoB (Demand for pre fabricated wood modules) Multi storey house (BtoB markets) Demand: Missing, CA in construction based on concrete elements Supply: A few product innovations available, process innovations missing Row house (BtoB markets) Demand: Competitive, in situ construction preferred due to the customer oriented differentation options. Strong competition with concrete elements in pre- fabricated module markets Supply: Cost efficient process innovations missing in module production Single house (BtoC markets) Demand: Competitive, majority of production is in vertically integrated large firms Supply: SME’s following differentiation strategy (supply to BtoC and BtoB markets) Single house (BtoB markets) Demand: Competitive, CA in construction based on concrete elements Supply: SME’s following differentiation strategy Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

15. INNO-FOREST 24. May 2005 Iisalmi, Finland Supply of Wood Components, Modules and Elements Production of Wood Houses (TOL 20301)prefabricated wood house frames (assembling in factory or in situ) • High number of individual firms • Competition among major firms in product groups Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

16. INNO-FOREST 24. May 2005 Iisalmi, Finland Supply of Wood Components, Modules and Elements Classifying taxonomy Pre- cut wood components – precision in dimensions Standardized modular elements – learning by doing advantages Wall elements – access to mass tailoring Pre- fabricated wood frame modules - integrated assembling in factory Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

17. INNO-FOREST 24. May 2005 Iisalmi, Finland Supply of Wood Components, Modules and Elements On site construction • unprocessed use of timber • construction with pre- cut components Competitive advantages precision dimensions positive scale economics through concentrated orders flexible to architectural solutions Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

18. INNO-FOREST 24. May 2005 Iisalmi, Finland Supply of Wood Components, Modules and Elements Competitive disadvantages Construction on site • weather challenges • preservation of high quality workmanship • labour intensive Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

19. INNO-FOREST 24. May 2005 Iisalmi, Finland Supply of Wood Components, Modules and Elements Pre- fabricated wood frame modules Competitive advantages • integrated assembling in factory • effective use of mass production • automatized production processes • low labour input need Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

20. INNO-FOREST 24. May 2005 Iisalmi, Finland Supply of Wood Components, Modules and Elements Pre- fabricated wood frame modules Competitive advantages • highly specialized craftmanship • degree of factory finishing and assembling can be varied • indoor assembling – low quality variation possible Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

21. INNO-FOREST 24. May 2005 Iisalmi, Finland Supply of Wood Components, Modules and Elements Pre- fabricated wood frame modules Competitive advantages • effective use of subcontracting • high applicability of specialized value networkss Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

22. INNO-FOREST 24. May 2005 Iisalmi, Finland Supply of Wood Components, Modules and Elements Pre- fabricated wood frame modules Competitive disadvantages • profitability imply high utilization of production capacity • large capital investments Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

23. INNO-FOREST 24. May 2005 Iisalmi, Finland Supply of Wood Components, Modules and Elements Pre- fabricated wood frame modules Competitive advantages • Syncronized delivery and site assembling • Precision time schedule • low labour input need Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

24. INNO-FOREST 24. May 2005 Iisalmi, Finland Vertical Profile & Subsidiary in Architecture – New Town Planning Process innovations for new town planning that make production network/chain competitive with concrete module frame? Product innovations applying wood based elasticity to make consumer specific solutions? Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

25. New Town Planning – wood pilot alternative: Puu-Linnanmaa Oulu (BtoB, mainly in situ construction) Area: 12 hectares, Total constructed space: 25 000 m2 Aggregated space: 20 000 m2. 308 apartments, 45 wood frame multi storey houses (2-3 storeys) all buildings with wood fasade and majority wood frame inhabitants 450-500 Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

26. INNO-FOREST 24. May 2005 Iisalmi, Finland Vertical Profile & Subsidiary in Architecture – New Town Planning Mixed demand segments to pre fabricated wood frame modules Case research: Karisto Lahti • parallel BtoC and BtoB construction • subsequent subtowns – opportunities for chains based on partnership & leaning advantages Interview/questionnaire (2005): BtoC: - choice of wood frame type - competitive advantages among suppliers BtoB: - formation of business networks - use of product/process innovations Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

27. INNO-FOREST 24. May 2005 Iisalmi, Finland Challenges to wood - forest product chain Competitive factors of SMEs in Woodworking Industries Input factors/suppliers Timber : majority of firms have only some supply contractors which narrows their access to high quality timber Labour: excess demand of qualified workforce impeding systematic intellectual capacity increase Capital: risky capital investments are insufficient in one third of firms Market/Competitors: High demand elasticity among customers implying of price competitiveness Inferior position wrt house construction firms implying oligopsony features in the market High barriers to entry implying high cost competitiveness in the market and lack of new competitive factors to entrance Parameters of market competition: Dominant: price, product quality, delivery and logistics Minor: R & D, marketing mail surveys: 78 firms, 2000 (Petäjistö, Selby, Mäkinen 2001); 19 firms, 1998 (Mäntymäki 1998) Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

28. INNO-FOREST 24. May 2005 Iisalmi, Finland Competitive factors of SMEs in Woodworking Industries Summary on impeding factors • Slight business management planning: even large firms subsidize documented management planning with systemic non documented management planning • Low investments to R & D; mainly oriented to product development • Missing strategic planning and structure analyses; However, use of MP do not explain performance • Missing generic strategies and benchmarking: only 20 % of firms apply these tools systematically • Inferior market knowledge: also among firms is what concerns relevant customers and market competition mail surveys: 78 firms, 2000 (Petäjistö, Selby, Mäkinen 2001); 19 firms, 1998 (Mäntymäki 1998), expert survey: Industry Outlook 2003 Woodworking (Ministry of Trade and Commerce) Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

29. THE FOREST-WOOD VALUE CHAIN The use of coniferous wood Sawmilling, paper and pulp industry Knotty furniture quality zone Best quality Wood working Weakest quality Pulp production Planing Lamwood panels Furniture Dry knot zone Pulp production / Structural timber Drying Construction components Wooden houses Sawntimber Sawmilling Nearly knotless zone Wood working Profile planed products Lamwood preforms Pekka Ollonqvist & Thomas.Rimmler METLA.Joe / Source: Antero Lepojärvi, Lapin Liitto

30. Challenges to wood - forest product chain Products & processing steps in the forest-wood value chain • Roundwood production • Roundwood harvesting and delivery • Manufacturing of plywood, chipboard & fibreboard • peeling, chipping, defibration, gluing, laminating, pressing • Sawmilling • Standard sawn timber • Secondary & further processing of sawn or chipped timber • Special sawn timber products • Preforms and wood components for the carpentry, joinery and construction industry • Engineered wood products: LVL, Glulam, I-bars • Wood components for building construction • Customer products • Prefabricated wooden frame houses • Joinery products: door and window frames, casings, parquet, flooring, staircases Degree of processing Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

31. INNO-FOREST 24. May 2005 Iisalmi, Finland Towards A Sustainable Competitive Advantage among SME’s in Woodworking Industries - COST Action E30 Action focus: New rural economic development through the creation of entrepreneurship Firms with Sustainable Competitive Advantage (SCA)? Comparative advantage of (nations, clusters, industry groups, industries, firms) Characteristics of a firm environment wrt SCA: (i) factor conditions, (ii) demand conditions, (iii) related and supporting industries and (iv) firm strategy, structure and rivalry. Under conditions of: political and legal structures, state of technological knowledge and macroeconomics (Porter 1990). Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

32. INNO-FOREST 24. May 2005 Iisalmi, Finland Success factors of Finnish woodworking industry SMEs in a changing competitive environment Enterprises, Innovations and Public Policy Related to Forestry-wood Value Added Chain. February 11-12 2005, Joensuu, Finland. The purpose of the seminar: promote knowledge formation on challenges related to new SMEs in forestry wood-product value-chains in house and timber construction. The special focus: business activities, product and process innovations in forestry wood-product value- chains, market supply and demand of wood products in house construction public policies associated with production, supply and demand of these wood products http://www.metla.fi/tapahtumat/2005/woodconstruction/index.htm Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /

33. INNO-FOREST 24. May 2005 Iisalmi, Finland Success factors of Finnish woodworking industry SMEs in a changing competitive environment METLA 2004-2008 Katja Packalen* business networks and other co- operation Thomas Rimmler** innovations Ashley Selby & Leena Petäjistö knowledge management Pekka Ollonqvist public policy & business environment Mikko Toropainen macroeconomics of woodworking industries Eero Vatanen METLA house Joensuu (wood frame office) Jari Kärnä (PuuOske) (assoc.) technology programs Pekka Mäkinen (Univ of Hel,) (assoc.) business strategies * STSM Nov. 2004 INEA Legnaro PD (Luca Cesaro) ** STSM spring 2005 BOKU (Ewald Rametsteiner) Pekka Ollonqvist & Thomas.Rimmler METLA.Joe /