Coverage = (∑ min(Xi,Yi))/ ( ∑ Yi)
3.4 Research Design and Data
Research design
Up until now I have established the definition and categorization of competitive actions in the forestry industry for this study based on existing literature. Also, the method of study has been determined. From here on, the study will be conducted in the following way: the companies for the study will be selected. The selected companies’ 10-K SEC filings, that is, the annual reports for the eight years under scrutiny (1999-2006 reporting the data of 1998-2005) will be studied and the competitive actions taken by the firms will be identified from them. After the competitive actions have been identified, they will be registered according to the year they have been taken and they will be categorized according to the categorization established earlier in this study. Also the estimate of the profitability of the companies, namely ROCE-indicator will be registered from PricewaterhouseCoopers’
annual Global Forest, Paper & Packaging Industry Surveys. After all this data has been gathered, the relationship between profitability and the competitive actions will be analyzed using the fuzzy-set method described above.
Lag
Often the effect of competitive actions on profitability is not immediate. For example if a new paper machine has been installed in the year 1999, its results may be visible only in the financial statements of year 2000 because, amongst other things, of all the start-up costs and complications. In fact, for example, Miller and Chen (1996) use a one year lag when examining the competitive actions and the subsequent performance in the U.S. airline industry. The airline industry is very volatile (ibid.), unlike the forestry industry, so I think it would be reasonable to assume at least the same lag in measuring the relation between the competitive actions and the performance in the forestry industry. Thus, the lag between the competitive actions and the profitability will be set to one year in this study. This means that the competitive actions of the years 1998-2005 will be compared to the profitability in the years 1999-2006.
Selection of the Companies
The companies that are analyzed in this study were selected in several phases. They were all selected from the Top 100 lists of PricewaterhouseCoopers’ annual Global Forest, Paper
& Packaging Industry Surveys, from the 1999-2008 editions (reporting the 1998-2007 results) (from now on referred to as “the lists”) where there is information on the 100 largest forest, paper and packaging companies in the world ranked by sales revenue. This way the companies selected are large enough and they are all listed in stock exchanges, and thus there should be enough publicly available data on them and their actions. As this study aims at analyzing the actions and profitability in the U.S. forestry industry, naturally only the U.S. based firms were taken on account. The companies that appear in the lists for five years or less were eliminated as it would be probable that there would be difficulties in getting the needed data for the whole eight-year period in order to identify the competitive actions taken. Also, Procter & Gamble, which was not mainly concentrated on the forest, paper or packaging industry was eliminated, and so were the companies that had previously, during the period under observation, been a unit of a bigger company (like Appleton Papers), or alternatively two separate firms merged into one (like MeadWestvaco), because of the difficulties to get or interpret the data in a coherent way.
As stated, in this study, my object is to find similarities and differences regarding the competitive action patterns of firms that are characterized by relatively good or alternatively relatively bad profitability. The ROCE6 (Return On Capital Employed) figure that was readily available on the PricewaterhouseCoopers’ lists, was used to estimate the profitability of the companies. The average ROCE of the period 1998-2007 was calculated and the remaining companies were put in order using the average ROCE. The seven most profitable and the seven least profitable companies were selected for the study.
6 ROCE is calculated as net income before unusual items, minority interest and interest expense, on an
after-The selected companies, that had a better than average ROCE, were: Kimberly-Clark, Universal Forest Products, Sonoco, Plum Creek Timber, Schweitzer-Mauduit, Rayonier and Packaging Corporation of America, and the selected companies, which had a lower than average ROCE, were: P H Glatfelter, Potlatch, Wausau Paper / Wausau-Mosinee, Longview Fibre, Smurfit-Stone, Bowater and Pope & Talbot. Subsequently, Kimberly-Clark was also eliminated from the study as it didn’t seem to fit into the group because, amongst other things, a strong business-to-consumer orientation and a ROCE that was constantly substantially higher than that of the other well-performing companies.
10-K SEC Filings
As already mentioned, the competitive actions of the selected companies will mainly be identified from the U.S. Securities and Exchange Commission (SEC) 10-K filings (but also the company web pages will be used to complement the data). The securities industry in the United States is governed by the principle that all investors should have access to certain basic facts about the company they are investing in. Based on that, the SEC requires companies listed on the New York Stock Exchange to disclose certain financial and other information to the public through the company filings. The 10-K SEC filing is an annual report where the company is requested to present certain information regarding the latest fiscal year in a standardized format, which includes, amongst others, a general business overview, and information on properties and operations (see SEC Annual Report Instructions < http://www.sec.gov/about/forms/form10-k.pdf > for more details). It was decided, that SEC 10-K filings were to be used as the main source for identifying the competitive actions of the firms because 10-K filing is a standardized form for all the companies which are quoted in the New York Stock Exchange, and thus should be available for all companies under scrutiny in this study. The fact, that the filing must be in a standardized form makes the comparison between the companies easier as the same type of information should be presented for all the companies.
3.5 Reliability and Validity of the Study
According to Gummesson (2000), a study is reliable in the case when, if the study was replicated, other researchers would get the same results as the original researcher. The validity of the study, instead, measures if the research and the methods used study actually the matter they were supposed to study instead of studying something else.
When talking about qualitative research, it is difficult that two researchers would end up with exactly the same results even when studying the same case and using the same databases. Nevertheless, I think that this study is relatively reliable, because, first of all, if this study was to be replicated and the database to be reconstructed, the researcher should in theory get the same database of competitive actions as presented in Appendix 2:
Competitive Actions. Also, if the assignment of fuzzy-set scores was exactly the same, also the results using fs/QCA (2006) should yield the same results, or in other words the same solution terms. However, after constructing the database and when assigning the fuzzy-set scores, there most probably would be differences because of the difficulties to interpret which cases are “in”, ”out” or something in between regarding some set. Also, the final interpretation of the results and implications of the results might be somewhat different when done by different researchers.
I would also argue that the validity of the study is high. I think, in fact, that this research and the methods used in this study, examine the matter they are supposed to study, namely the effect of configurations of competitive actions on the company’s profitability. Also the method used, namely fuzzy-set analysis suits the study well as discussed earlier in the Methodology-section of the study.
4 COMPANY PROFILES
In this section of the study, I will introduce the thirteen companies included in this study and describe the actions taken by them during the eight-year period. In the Company Profile- sections7 of the introduction I will list the main operating areas of the company and tell how the company has been categorized in this study according to the “Functional Business Areas” by Lamberg et al., (2006). Some details about the company’s history and a snapshot of some indicators in the end of the period under scrutiny, namely year 2006, will also be introduced. Some of the major developments after 2006, like mergers or bankruptcy filings have been reported, too. In the Competitive Actions-section, I will introduce some characteristics of actions taken by the companies during the period under scrutiny (see also Appendix 2: Competitive Actions).
4.1 Universal Forest Products
Company Profile
Universal Forest Products, Inc. engineers, manufactures, treats, distributes and installs lumber, composite wood, plastic and other building products to the do-it-yourself - retail, site-built construction, manufactured housing, and industrial markets. In this study it has been categorized under the core sector 2 – “sawn timber and wood products”.
Universal Forest Products was incorporated in Michigan in 1955 and in 1993 it went public.
Currently, Universal Forest Products operates in approximately 80 facilities throughout the United States, Canada and Mexico. Its sales in 2006 were 2.665 million U.S. dollars and it had approximately 9.200 employees. Universal Forest Products is headquartered in Grand Rapids, Michigan.
7 All the information on the ”Company Profile”-sections under each company have been obtained from the 10-K reports of the respective companies and from the companies’ www-pages listed under “References”,
Competitive Actions 1998-2005
Table 3 Universal Forest Products Competitive Actions 1998-2005
1 2 1&2 3 4 3&4
Buy Build Growth Sell Close Decline
Core Business Area 76 % 75 % 76 % 83 % - 83 %
No Core Business Area 24 % 25 % 24 % 17 % - 17 %
International 15 % 25 % 16 % 17 % - 17 %
No International 85 % 75 % 84 % 83 % - 83 %
Cooperation 3 % 0 % 3 % 0 % - 0 %
No Cooperation 97 % 100 % 97 % 100 % - 100 %
Growth: 86 % Decline: 14 %
Organic: 11 % Non-Org.: 89 %
Table 3 represents the 43 actions of Universal Forest Products during the period 1998-2005.
Expansions Universal Forest Products grew with 37 (86%) actions and reduced its capacity with 6 (14%) actions. These expansive actions included, for example, the acquisition of Shoffner industries in 1998 and an example of capacity reducing actions included the sale of the Bend plant in 2004.
Organic Out of the 37 expanding actions, 4 (11%) were growth by organic means and 33 (89%) acquisitions. The organic growth included the start of a new facility in Thornton in 2005 and the start of two new engineered wood component supplying plants in Berlin, TX and Tecate, MX.
Diversification Out of the 37 expanding actions, 28 (76%) were done in the core business area sawn timber and wood products and 9 (24%) in other areas. Of the 6 declining actions, 5 (83%) were done in the core business area and 1 (17%) in other areas.
Internationalization Out of the 37 expanding actions, 6 (16%) were international and 31 (84%) domestic. Out of the 6 declining actions, 1 (17%) was international and 5 (83%) were domestic.
Cooperation Out of the 27 expanding actions, 1 (3%) was done in cooperation and 36 (97%) independently. All of the 6 declining actions were done independently.
4.2 Sonoco
Company Profile
Sonoco Products Company is a manufacturer of industrial and consumer packaging products and a provider of packaging services. In this study it has been categorized under the core sector 7 – “packaging and converting products”.
Sonoco was founded in Hartsville, South Carolina, in 1899 as the Southern Novelty Company. The name was subsequently changed to Sonoco Products Company. Nowadays Sonoco is present in 327 locations in 35 countries and it has its headquarters in Hartsville, South Carolina. In 2006 Sonoco’s sales were 3.657 million U.S. dollars and it had 17.700 employees.
Competitive Actions 1998-2005
Table 4 Sonoco Competitive Actions 1998-2005
1 2 1&2 3 4 3&4
Buy Build Growth Sell Close Decline
Core Business Area 84 % 80 % 83 % 92 % 75 % 81 %
No Core Business Area 16 % 20 % 17 % 8 % 25 % 19 %
International 52 % 80 % 57 % 42 % 13 % 22 %
No International 48 % 20 % 43 % 58 % 88 % 78 %
Cooperation 5 % 10 % 6 % 0 % 0 % 0 %
No Cooperation 95 % 90 % 94 % 100 % 100 % 100 %
Growth: 60 % Decline: 40 % Organic: 19 %
Non-Org.: 81 %
Table 4 represents the actions of Sonoco during the period 1998-2005.
Expansions Sonoco grew with 54 (60%) actions and reduced its capacity with 36 (40%) actions. The expansive actions include the acquisition of Texas Reel Company’s plywood reel operations in 2002 and declining actions include the sale of the low-density bag
Organic Out of the 54 expanding actions, 10 (19%) were growth by organic means and 44 (81%) acquisitions. The growth by organic means include the expansion of the Hartsville facility in 1998 and building a tube and core plant in Gaziantep, Turkey.
Diversification Out of the 54 expanding actions, 45 (83%) were done in the core business area packaging and converting products and 9 (17%) in other areas. Sonoco had the largest percentage of expansive actions in the core sector as opposed to expansive actions in other sectors amongst the 13 companies. Out of the 36 declining actions, 29 (81%) were done in the core business area and 7 (19%) in other areas.
Internationalization Out of the 54 expanding actions, 31 (57%) were international and 23 (43%) domestic. Out of the 36 declining actions, 8 (22%) were international and 28 (78%) were domestic.
Cooperation Out of the 54 expanding actions, 3 (6%) were done in cooperation and 51 (94%) independently. All of the 36 declining actions were done independently.
4.3 Plum Creek Timber
Company Profile
Plum Creek Timber Co Inc. is the largest private timberland owner in the United States with more than 7 million acres of timberland (see e.g. Plumcreek www-pages
<http://www.plumcreek.com>). Plum Creek Timber harvests trees, sells timberland and converts trees to lumber, plywood and other wood products, amongst other things. In this study it has been categorized under the core sector 1 – “wood and recycled fiber resources”.
Plum Creek Timber Company, L.P., was established in 1989, but its history stems back to the 1930s when lumberman D.C. Dunham had a business named D.C. Dunham Lumber Company located in Bemidji, Minnesota. Nowadays Plum Creek is based in Seattle, Washington and is organized as an REIT (Real Estate Investment Trust) since 1999 in managing its timberlands. The company has been listed on the New York Stock Exchange since 1989. In 2006, its sales were 1.627 million U.S. dollars and it employed
Competitive Actions 1998-2005
Table 5 Plum Creek Timber Competitive Actions 1998-2005
1 2 1&2 3 4 3&4
Buy Build Growth Sell Close Decline
Core Business Area 80 % - 80 % 86 % - 86 %
No Core Business Area 20 % - 20 % 14 % - 14 %
International 0 % - 0 % 14 % - 14 %
No International 100 % - 100 % 86 % - 86 %
Cooperation 30 % - 30 % 0 % - 0 %
No Cooperation 70 % - 70 % 100 % - 100 %
Growth: 59 % Decline: 41 %
Organic: 0 % Non-Org.: 100 %
Table 5 represents the actions of Plum Creek Timber during the period 1998-2005.
Expansions Plum Creek Timber grew with 10 (59%) actions and reduced its capacity with 7 (41%) actions. The expansive actions include acquisitions of timberlands located in Northern Michigan, Arkansas and Florida in 2005, and the declining actions include the sale of timberlands near Kelso, WA in 2001.
Organic All 10 expanding actions were acquisitions. Amongst the companies studied, Plum Creek Timber had thus naturally the lowest percentage of organic growth (0%) as opposed to growth by mergers and acquisitions together with Pope & Talbot and Smurfit-Stone which also had 0% of organic growth.
Diversification Out of the 10 expanding actions, 8 (80 %) were done in the core business area wood and recycled fiber resources and 2 (20 %) in other areas. Of the 7 declining actions, 6 (86%) were done in the core business area and 1 (14%) in other areas. Plum Creek Timber had one of the highest rates of capacity decreases in the core sector as opposed to capacity decreases in other sectors amongst the 13 companies.
Internationalization All 10 expanding actions were domestic. Plum Creek Timber, in fact, had the lowest rate of expansive international actions (0%) as opposed to expansive domestic actions (100%) together with three other companies, namely Potlatch, Wausau-Mosinee and Longview Fibre. Out of the 7 declining actions, 1 (14%) was international and
Cooperation Out of the 10 expanding actions, 3 (30%) were done in cooperation and 7 (70%) independently. This was the highest percentage of expansive cooperative actions amongst the 13 companies. All 7 declining actions were taken independently.
4.4 Schweitzer-Mauduit
Company Profile
Schweitzer-Mauduit International, Inc. is a producer of specialty papers and is the world's largest supplier of fine papers to the tobacco industry (see e.g. Schweitzer-Mauduit www-pages <http://www.schweitzer-mauduit.com>). In this study it has been categorized under the core sector 4 – “paper production”.
Schweitzer-Mauduit became an independent public company on December 1, 1995 with the spin-off by Kimberly-Clark Corporation of its United States, French and Canadian operations that produced tobacco-related products. Schweitzer-Mauduit’s manufacturing facilities have a history of producing paper dating back to 1545. Currently Schweitzer-Mauduit conducts business in over 90 countries and has operations in the United States, France, Brazil, Indonesia, the Philippines and Canada and with a joint venture under construction in China. In 2006, the sales of Schweitzer-Mauduit were 655 million U.S.
dollars and it employed 3.541 people. Schweitzer-Mauduit is headquartered in Alpharetta, Georgia.
Competitive Actions 1998-2005
Table 6 Schweitzer-Mauduit Competitive Actions 1998-2005
1 2 1&2 3 4 3&4
Buy Build Growth Sell Close Decline
Core Business Area 60 % 67 % 63 % - 100 % 100 %
No Core Business Area 40 % 33 % 38 % - 0 % 0 %
International 100 % 100 % 100 % - 100 % 100 %
No International 0 % 0 % 0 % - 0 % 0 %
Cooperation 0 % 33 % 13 % - 0 % 0 %
No Cooperation 100 % 67 % 88 % - 100 % 100 %
Growth: 89 % Decline: 11 % Organic: 38 %
Non-Org.: 63 %
Table 6 represents the actions of Schweitzer-Mauduit during the period 1998-2005.
Expansions Schweitzer-Mauduit grew with 8 (89%) actions and reduced its capacity with 1 (11%) action. The expansive actions include a joint venture in 2005 with China National Tobacco Corporation, to produce cigarette and plug wrap papers in China and the only declining action was the shut down of a paper machine in Brazil in 2001. Amongst the 13 examined companies, Schweitzer-Mauduit had the largest percentage of capacity expanding actions as opposed to capacity reducing actions.
Organic Out of the 8 expanding actions, 3 (38%) were growth by organic means and 5 (63%) acquisitions. The organic growth included, for example, a start-up of a new cigarette paper machine in Santanesia, Brazil.
Diversification Out of the 8 expanding actions, 5 (63 %) were done in the core business area, namely paper production and 3 (38%) in other areas. The declining action was done in the core business area.
Internationalization All of the Schweitzer-Mauduit’s actions, both expanding and declining were international. Schweitzer-Mauduit had the largest rate of expansive international actions (100%) as opposed to expansive domestic actions out of the 13 companies together with Pope & Talbot.
Cooperation Out of the 8 expanding actions, 1 (13%) was done in cooperation and 7
4.5 Rayonier
Company Profile
Rayonier Inc. is a forest products company primarily engaged in activities like timberland management, the sale and management of real estate, and the production and sale of high value specialty cellulose fibers and fluff pulp. In this study it has been categorized under the core sector 1 – “wood and recycled fiber resources”.
Rayonier originated as the Rainier Pulp & Paper Company founded in Shelton, Washington in 1926. In 1937, it became “Rayonier Incorporated,” a public company traded on the New York Stock Exchange, until 1968, when it became a wholly-owned subsidiary of ITT Corporation. On February 28, 1994, Rayonier, again, became an independent public company after the ITT Corporation distributed all of Rayonier’s Common Shares to ITT stockholders. Rayonier now owns, leases or manages approximately 2.6 million acres of timberland and real estate located in the United States and New Zealand. Rayonier is structured as a timber REIT (Real Estate Investment Trust) since 2004 and has its headquarters in Jacksonville, North Carolina. In 2006, Rayonier’s sales were 1.230 million U.S. dollars and it employed approximately 2.000 workers.
Competitive Actions 1998-2005
Table 7 Rayonier Competitive Actions 1998-2005
1 2 1&2 3 4 3&4
Buy Build Growth Sell Close Decline
Core Business Area 80 % 0 % 50 % 75 % - 75 %
No Core Business Area 20 % 100 % 50 % 25 % - 25 %
International 40 % 0 % 25 % 38 % - 38 %
No International 60 % 100 % 75 % 63 % - 63 %
Cooperation 20 % 0 % 13 % 13 % - 13 %
No Cooperation 80 % 100 % 88 % 88 % - 88 %
Growth: 50 % Decline: 50 % Organic: 38 %
Non-Org.: 63 %
Table 7 represents the actions of Rayonier during the period 1998-2005.
Expansions Rayonier grew with 8 (50%) actions and reduced its capacity also by 8 (50%) actions. The capacity expansions included, for example, an acquisition of a sawmill in Eatonton, GA in 2000 and the declining actions included the sales of land in 2002, 2003 and 2004.
Organic Out of the 8 expanding actions, 3 (38 %) were growth by organic means and 5 (63 %) acquisitions. Growth by organic means included the completion of a manufacturing facility in Jesup, GA in 2001.
Organic Out of the 8 expanding actions, 3 (38 %) were growth by organic means and 5 (63 %) acquisitions. Growth by organic means included the completion of a manufacturing facility in Jesup, GA in 2001.