VANCOUVER, Jan. 6 /CNW/ - Forest, paper and fibre-based packaging companies face a changed world requiring fundamental transformation within the industry, according to a recent PricewaterhouseCoopers survey of 33 industry chief executives based in North and South America, the Middle East, Europe, Africa and Asia.
The 2010 edition of PwC's annual CEO Perspectives report showed that while some North American and European CEOs believe the worst is over, they anticipate a long road ahead and a slow recovery. All CEOs in the mature markets agree that it's unlikely that demand will return to pre-financial crisis levels due to the rise of digital media and other factors.
For executives in the emerging markets such as China, perspectives differ widely from those in mature markets such as Canada and the US. Emerging markets face continuing strong growth for wood and paper products. Every Asian CEO interviewed was bullish on the future. Executives reported demand is already recovering somewhat and they see forest products as a growing industry in their regions.
"The economic crisis exacerbated structural market declines in the paper sector and precipitated steep drops in demand in lumber and panel markets," said Bruce McIntyre, leader of PricewaterhouseCoopers' Canadian forest, paper and packaging practice. "In Canada a fundamental condition for success is to position the industry to generate financial returns in line with the cost of capital, which it has not done for many years. And it's not about shrinking your way to success; the industry needs to innovate and grow."
Executives need to look beyond short-term survival to the long-term future of their companies and the new challenges ahead. For instance, every forest, paper and packaging company needs a strategy to capitalize on the sustainable nature of forests and the growing global demand for 'green' products.
The industry needs to consider new partnerships and business models. For example one CEO described wood fibre as representing around 60% of his production costs, in contrast, HR costs, a frequent focus of cost reduction programs, made up only about 12%. In Canada, where 95% of the fibre supply is controlled in some way by government, an opportunity exists for industry and government to collaborate on innovative ways to reduce the cost of fibre inputs. Reduced costs and enhanced revenue streams resulting from new or alternative uses of fibre and biomass (energy, chemicals, etc) could fundamentally alter the structure of the entire industry in due course.
CEOs reported a need to:
- Adjust capacity as the first step to long term survival.
Consolidation may be a precondition to achieving significant
- Improve cost structures and increase process innovation and efficient
use of raw materials such as through alternative uses of wood fibre
to produce energy and fuels, to reduce costs in existing business and
generate new revenues.
- Continue changing existing business models to maintain or restore the
health of core businesses.
- Become far more innovative in every realm of existing operations and
in developing new businesses and collaborations.
PwC's survey revealed that the industry has perhaps over-invested in physical assets and underinvested in markets, stakeholders and other players along the value chain. CEOs reported that too many people still have a negative perception of the industry's environmental impact, when in reality the overall footprint is significantly less than is popularly believed. The industry needs to invest in communications to positively influence key stakeholder groups (i.e. policymakers, customers and consumers at large) to position the forest products sector as a truly sustainable industry that derives the most value from every tree.
McIntyre added: "A number of CEOs also felt that the industry needs to do more to attract bright young graduates with business and technical educations to help develop solutions to today's issues and ensure a solid future for the sector."
Copies of CEO Perspectives and related publications can be downloaded at www.pwc.com/fpp.
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