Size matters – an analysis of business models and the financial performance of Finnish wood-harvesting companies

Abstract

The size of Finnish wood harvesting enterprises has grown, and entrepreneurs have become responsible for various additional tasks, resulting in networking with other harvesting enterprises of various sizes and suppliers of supporting services, but the profitability of the wood harvesting sector has remained low. In the present study, the financial performance of 83 wood harvesting companies in Eastern and Northern Finland was evaluated, based on public final account data from a five-year period between 2013 and 2017. The factors underlying economic success were identified based on 19 semi-structured entrepreneur interviews. The Business Model Canvas framework was applied in the analyses. In particular, the smallest companies (with an annual turnover of less than 600 000 €) struggled with profitability. They showed increasing indebtedness, suffered from poor power in negotiations, had typically short-term contracts, and faced difficulties in retaining skilled operators. Most of the small companies were subcontractors of larger wood-harvesting companies. The better economic success of larger companies was likely based on their capacity to provide wood harvesting services in large volumes and supply versatile services, power in negotiations, and more cost-effective operations. The future development of wood harvesting seems to be polarised: larger enterprises are likely to continue growing, while the size of smaller enterprises has stabilised. Enhancing business management skills and practices is required in enterprises of all size groups.

Characterization of forestry contractors’ business models and profitability in Northern Sweden

“…Based on the positive trend for the amount of work available for contractors, one could expect that the market for forestry contracting would be rather attractive from a business perspective. However, a long-lasting problem for many forestry contractors, not only in Sweden, has been to achieve and maintain the profitability of their businesses (Mäkinen 1997;Rummukainen et al 2006;Penttinen et al 2011;Eriksson 2016;Jylhä et al 2020). In recent years, net profit margins have, in general, been very low (2-3% for the median firm), and in a normal year, as many as 25% of Swedish contractors fail to make a profit (Kronholm et al 2019).…”

“…Historically, this has also been the case in Finland (Penttinen et al 2011). Small contractors (<0.6 million euro turnover) in particular have been found recently to have low profitability (Jylhä et al 2020).…”

Key drivers and obstacles for performance among forest harvesting service contractors – a qualitative case study from Sweden

“…Various organizational characteristics are often described in the forestry contractor performance literature. For instance, good leadership and processes are commonly mentioned in conjunction with high customer satisfaction (Norin and Thorsén 1998) and profitability (Norin and Karlsson 2010;Jylhä et al 2020). Moreover, Cacot et al (2010) argue that the profitability of large contractors is affected by knowledge, performance measurements and systematic improvement efforts.…”

“…A lack of skilled machine operators was the most common obstacle that the participants mentioned when discussing the resources factor. Finding skilled machine operators has also been identified as a challenge for contractors in other European countries (Kronholm et al 2019), especially for small contractors (Jylhä et al 2020).…”

“…-To some extent, this may be explained by the nature of the work. Larger contractors have more employees operating the machines and, as such, will take on a clear management role (both internally and externally), with more time spent on managing the company rather than operating the machines (Jylhä et al 2020). This does not mean that smaller contractors do not need leadership skills, but rather that the importance of leadership skills may increase successively with the size of the organization.…”