FACTORS AFFECTING THE COMPETITIVENESS OF FOREST wOOD / NON- NON-wOOD ADDED VALUE CHAINS

Forestry is among the major sources of the economic sustainability in rural development and a key activity to feed up the value chains and value creation based on rural resources. The income flow upward from the forest product markets to the rural communities is the tool towards the multiple wealth creation, financing for the innovative initiatives and development of these communities. Value chain is a unified

1 The paper was contributed by Krzysztof Jodlowski (Polish Forest Research Institute, Poland), Thomas The paper was contributed by Krzysztof Jodlowski (Polish Forest Research Institute, Poland), Thomas Rimmler (Finnish Forest Research Institute, Finland), Dariusz Zastocki (Warsaw Agricultural University, Poland), Barrie Hudson (European Network of Forest Entrepreneurs, Scotland) and Leonard Padureanu (Ministry of Forestry Romania, Romania).

2 The paper was contributed by Dainis Daukstra (Cefncoch, Wales) and Anders Q. Nyrud (Agricultural The paper was contributed by Dainis Daukstra (Cefncoch, Wales) and Anders Q. Nyrud (Agricultural University of Norway, Norway).

3 The paper was contributed by Diana Ivanova (University of Forestry, Bulgaria) and Aidas Pivoriunas The paper was contributed by Diana Ivanova (University of Forestry, Bulgaria) and Aidas Pivoriunas by Diana Ivanova (University of Forestry, Bulgaria) and Aidas PivoriunasUniversity of Forestry, Bulgaria) and Aidas Pivoriunas, Bulgaria) and Aidas Pivoriunasand Aidas Pivoriunas (Lithuanian Forest Research Institute, Lithuania)

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downstream source of income creation from the viewpoint of local resource use. The share of local value creation in the chain can vary from case to case.

The identification of the vertical wood based value chains down to the final consumers and corresponding major markets are important towards the cohesion in the value creation as well as to identify the new potentials to competitive advantages (CAs). Entrepreneurship as well as network and co-operation solutions provide best potential CAs towards competitive value chains.

The major potentials for new small and medium sized entrepreneurship in wood product value chains can be identified in secondary wood processing industries. Those related to wood harvesting, transport and procurement imply structural changes in the market and those in primary wood product industries imply tailor made wood supply based value chains. CAs in wood product industries, as low-tech industries, imply use of positive scale economies or focused value chains from the wood resources up to the secondary wood processing. The competitiveness of SMEs depends, besides the actions of the individual firms, on the comprehensive value creation in the chain.

Entrepreneurs must support the progress in the added value creation of the whole value chain concerned, parallel with the development of their own business.

They major value chains in wood product industries are in wood frame construction and wood-based bioenergy respectively what concerns their source as rural incomes from forest resources. Timber frame construction and its link into domestic construction as well as virgin plus recycled wood streams into bioenergy generation and timber harvesting were covered in the subgroups of Work Group 2 (“Human development, niche production and innovation related to SMEs in wood processing industries using local forest resources”) of COST Action E30. The delocalization of production plants or even whole industries both in primary and secondary wood production industries were discussed as issues related to the creation of added value in the value chains.

Forestry contracting

Majority of the issues characterizing business infrastructure in forestry contracting are impeding what concerns profitability, business growth opportunities and options to new entrepreneurship. Deteriorating profitability is a common problem among forestry contracting firms throughout the European countries. Wood delivery prices are stagnating or remaining constant at the same time when all costs are growing higher. Forest harvesting and transportation business is frequently called survival what concerns the quality of business. The latter impedes the entrepreneurship

through low credit rating and consequent high interest rate (because of the credit risks). SMEs in the business have limited options to internal financing because of the low profit margins. There are large country specific deviations, however, from the benchmarking determined by the Scandinavian countries.

Ergonomic problems caused by long working days and stressing, alone working conditions are among the reasons behind the constant shortage of employees in logging and forest transportation. Many forestry contractors are well trained in mechanics and may have completed even forestry schooling. They are, however, frequently equipped with inferior managerial and business skills, which when accompanied by shortage of own assets, impedes entrepreneurship and investments to modern machinery. There are growing challenges related to customer needs in wood processing industries what concerns precision of deliveries. Public governance has raised awareness related to sustainable forest management meaning to forestry contractors more and more restrictions and regulations, which are e.g. laid down in forest certification schemes.

Forest operation management must meet environmental and ecological requirements without reflections through higher prices under increasing costs.

Wood product industries supplying wood frame construction

Business performance in low tech industry firms under competitive product and input factor markets are predefined by factors originating in the external environment of the firm. The latter is true in majority of primary and secondary wood processing industries respectively. Resource based and competence based view on the sources of the competitive advantages of the primary wood processing firms concerned probably provide a better description of the real world than innovativeness and superior business concepts. The latter is due to the position of basic, standard products dominating in the portfolio and being sold in the bulk product markets. The competitive advantage of primary wood processing industries, therefore, relies much on the well functioning production and management processes and related process technologies. Innovations are not only dependent on the technological opportunities available, but also rely on the performance of the innovation system and on a supportive regulatory and competitive environment.

The primary wood processing industries are dominated by basic production representing low technologies. Firms are weakly integrated downflow in the value chain towards structural timber products and system components. Traditionally, it has

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been typical for every participant in the chain to develop their own independent value creation and concentrating to use the specific competitive advantages of their own Wood product industry delocalization

Many forest sector enterprises, even the whole industry groups, have reallocated their production activities over the national borders. Delocalization has been driven, not only by economic forces, but also by social dynamics and strategic objectives. There are two basic drives, markets and minimisation of production costs to delocalisation.two basic drives, markets and minimisation of production costs to delocalisation.

Delocalisation decisions are in the long term strategy of large multinational companies more it generally applies to large companies or multinational companies (see Delocalisation of wood processing industry from Finland to the Baltic countries).Delocalisation of wood processing industry from Finland to the Baltic countries).

However, some small/medium size enterprises have started their delocalization activities in dynamic markets as a part of adapting to global market competition in the wood and furniture sector (see. Delocalization of wood working industries to Balkan Delocalization of wood working industries to Balkan Countries).

Three types of delocalization are identified in the subgroup:

• Local specialised centres: mainly outcomes from autonomous growth of: mainly outcomes from autonomous growth of existing, local, traditional craft business characterized by the dominance of SMEs but also from the decentralisation of developed/structured industrial areas. In the latter case low costs of production can be traced behind those delocalisation activities. The less technological phases of the value chainThe less technological phases of the value chainhe less technological phases of the value chain can be delocalised into these local specialised centres

• Industrial districts: characterized by the integrated SME networks. The individual SMEs in the mutually related network can acquire the CAs to participate more resource requiring businesses. Benefits from delocalization to industrial districts come from diversified but qualified knowledge base in the vertical value chains of the industrial districts

• System areas (cluster): provide business platform for highly specialized firms and access to international markets. Delocalization solutions, by multinationals imply takeovers but also provide options for the SMEs commanding superior technology knowledge.

The word “internationalization” implies several meanings (foreign trade, Foreign Direct Investments – FDI, outsourcing, subcontracting, etc.) but emphasis in the papers on delocalization have been given to FDI, due to the fact that traditional statistical sources mainly refer to FDI. The differences in production costs among the

European countries promote delocalization that in turn decreases ceteris paribus the international roundwood trade. Horizontal and vertical types of FDIs are discussed here. The former one relates to the international diversification of sawmills using imported roundwood and allocating production along cost minimization principle. The latter one is related to the vertical delocalization of upflow units of wood product value chain. Both types have tangible input factor conditions pushing delocalization investments.

2. BARRIERS TO ENTREPRENEURSHIP