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XIV International Economic History Congress, Helsinki 2006Session 40

Competitive Behaviour and Business Innovation in the Forest Industry:Family Firms, Listed Companies and Cooperatives Compared

Jari OjalaUniversity of Jyväskylä(jaojala@campus.jyu.fi)

Anders MelanderJönköping International Business School

Anders.Melander@ihh.hj.se

Juha-Antti LambergHelsinki University of Technology

juha-antti.lamberg@hut.fi

AbstractThe growing interest in family-business-related research is founded on the assumption that familybusinesses behave differently from listed companies, while in the literature on cooperatives thedisadvantage/advantage of the ownership structure is a highly debated topic: the pro-cooperativesargue that the ownership structure is advantageous as it provides stability and room for innovationin strategic behaviour; the opponents argue that the cooperative ownership structure only works as alock-in mechanism, slowing down necessary changes.

This paper analyses the competitive behaviour in companies representing three ownership structures(listed, family and cooperative) in order to reach a greater understanding of the relationship betweena specific ownership structure and the competitive behaviour in that group. Furthermore, our aim isto achieve a better understanding of how business innovations happen i.e. how innovativecompetitive behaviour in one company or group leads the way to behavioural changes in othercompanies or groups. In this paper, we speculate on these links only at the group level (listed,family and cooperative).

The sample consists of nineteen companies in the pulp and paper sector. The companies are fromSweden (10), Norway (1) and Finland (8). Six of the companies are classified as family firms, fouras cooperatives and nine are listed firms. In order to identify competitive behaviour we use eventdata analysis. We have systematically compiled the “strategic actions” of the companies since theSecond World War up to the turn of the millennium. In all 1694 company-specific strategic actionsin the period of 1946–2000 were coded according to the scheme presented in Lamberg and Ojala2006.

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Competitive Behaviour and Business Innovation in the Forest Industry:Family Firms, Listed Companies and Cooperatives Compared

Introduction: Business Innovations and Ownership Structure

In the literature within the tradition of the Carnegie school (e.g. Cyert and March 1963), suchactions by firms have been defined as “innovative if they differ significantly from current or recentactivities” (Greve and Taylor 2000, p. 55). Similarly, if a local search (March and Simon 1963) orthe inert properties of an organisation (Hannan and Freeman 1989) spur firms to changeincrementally, this creates “… non-imitative actions as the organization embarks on a wider searchbecause the innovation changes cognitions about the appropriateness or exigency of taking action.”(Greve and Taylor 2000, p. 54).

An evolutionary perspective on company behaviour assumes that the usual way firms evolve is viaincremental changes in the routines and procedures, eventually resulting in systemic changes overrelatively lengthy periods of time (Nelson and Winter 1982). Recently, both evolutionary (Augierand Teece 2006) and behavioural (Becker, Knudsen and March 2006) researchers have suggestedthat the entrepreneurial acts of individual actors may be a source of novelty. Indeed, as Winter(1968/2006: 140) suggests, an historical explanation of a firm's activities means that “…theexistence of a multiplicity of unobservable factors that shape firm behaviour would be explicitlyrecognised.”

Another related question is the influence of a firm’s ownership structure (Williamson 1985). Forexample, in strategic management (Mintzberg and Waters 1982), it has been assumed that somefirms are per se more “novelty-driven” than large machine-organisations which rely heavily onformal planning and other types of bureaucracy. According to Mintzberg, family firms or othertypes of organisation in which the power is centralised and which have a lean organisationalstructure may adopt more novel strategies than larger systems. Moreover, according to the standardSchumpeterian (Schumpeter 1947) assumption, there ought to be more managerial innovation inentrepreneurially oriented firms. Therefore, this should be the case at least to a certain extent withfamily firms, which are often (but not always) regarded as “entrepreneurial” compared withpublicly owned companies (Kreiser, Ojala, Lamberg and Melander 2006).

Despite the increasingly common claims that firms differ in terms of their level of innovation, theliterature is silent about the actual impact of the ownership structure. In particular, we have onlyscattered knowledge about business innovations that are not necessarily technical in nature. Inbusiness history too, Chandler’s (1990) view that only large corporations are able to adopt thecomplicated marketing and organisational structures required by the modern economy can becriticised. Thus there is an urgent need to study firms in their natural context in order to findsimilarities and differences vis-à-vis their ownership structures. The purpose of this paper is toinvestigate whether the management in family firms is more innovative than in other ownershipstructures, and how the level of innovation may be studied?

As strategic management researchers have suggested, the actions of firms eventually build acompetitive position and thus lead to a certain level of business performance. Mintzberg, forexample, defines strategy as a pattern of actions: strategies emerge through activity over time ratherthan reside in the structural properties of a firm. Following Miller and Chen (Miller and Chen1994), by we use the term “action” to refer to “…a specific and observable competitive move, suchas new product introduction, an advertising campaign, or price cut, initiated by a firm to improve or

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defend its relative competitive position”. Thus the nature and content of actions can be seen as afundamental building block in a firm’s history. With regard to the level of innovation (Baden-Fuller1995), we suggest that an operational distinction be made between strategic actions that aim tofollow rivals in the industry (catch-up actions) and business innovations. Catch-up actions, eventhough they are strategic for the individual company, are often of a second-best nature as theindustry leaders are already moving on. On the other hand, business innovations are strategicactions that force rivals to make costly responses. Business innovations thus break boundaries andintroduce new ideas in the industry. If successful, a business innovation will pave the way for futuresuccess, i.e. industry leadership, but a failure is also equally important as an indicator of theinnovative character of the organisation.

In this paper, our focus is on the identification of strategic actions at the level of the individualcompany and the comparison of patterns at the group level. This analysis is to be seen as the inputfor an analysis at the next level, in which we aim to identify those actions that could be classified asbusiness innovations. The object of our empirical research is the forest industry. As Chandler (1990,p. 113) states of the forest industry: “… the technology of production was not complex enough toprovide an incentive for a substantial investment in research and development”. Therefore, rightafter the Second World War, the paper industry had one of the lowest research intensities amongthose lines of business in which there were large corporations in the USA; that was also the casewith the firms in the Nordic forest industry (Chandler 1990, Kettunen 2002). This characteristic ofthe forest industry makes it potentially interesting for studying business innovation.

Our aim is to find out whether there were any differences in the strategic behaviour of firms withdifferent types of ownership. Our sample includes publicly owned companies, family firms, andcooperatives. We argue that in fact there were only limited differences in the strategic actions madeby these firms despite the differences in ownership structure. It has also been possible for us tocompare companies with different national backgrounds, though the similarity in the institutionalstructure in the Nordic countries does not offer a good basis for such an analysis.

We suggest that the exogenous environment, both competitive/technical and institutional, has amore pronounced role in strategic behaviour than the ownership structure of the firm – at least inthe case of a mature line of business like the forestry industry. In other words, possible managerialinnovations did not depend on the ownership structure as such, or at least not only on it. However,certain differences can be noted, such as certain quick (and innovative) turnarounds made byfamily-owned companies.

The conceptual background

In the literature on strategic management, the governance structure has been seen as an important animportant background factor behind antecedent to firms’ stimulus-response processes in the contextof business activities and thus potentially, to innovations. In the research tradition originating fromMintzberg’s work (Mintzberg 1980 (1973), Mintzberg 1987, Mintzberg 1994), different governancestructures are seen to have a tendency to emphasise different aspects of decision-making. It isimportant to note that this perspective can help researchers make sense of the complexity of modernbusiness settings. As Miller (1986) has emphasised :“[configurations]… are not intended to beexhaustive but merely illustrative of important relationships … one can begin to identify somecentral themes that orchestrate the alignment among a great many variables of strategy andstructure.”

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Thus in this study firms are seen as comprehensive sets of structures and systems that include aparticular way of scanning the organisational environment and making decisions. Hence theunderlying assumption is that different governance structures may include certain mental modelsand action modes that are fairly comparable in similarly structured organisations. UsingMintzberg’s typology, the two most relevant types of firm are the entrepreneurial and thediversified organisation.

In an entrepreneurial organisation, decision-making is built around a chief executive who isfrequently also the owner. This type of firm’s strongest feature is its flexibility in adapting toenvironmental changes. Hence the strategy process in an entrepreneurial organisation is “broadlydeliberate but emergent and flexible in details”. A diversified organisation is structured according todivisions under a central administrative headquarters. The divisions have more or less autonomy intheir operations and occasionally in their strategy-making. Especially in the 1970—1980s, strategyprocesses in diversified firms were divided into business and corporate levels. In this model, thecompany headquarters controlled corporate strategy, and the divisions had responsibility forbusiness strategy.

As this study concentrates on the link between ownership structure and business innovations, thebasic assumption is that business innovations are more or less likely to occur as a result of theownership structure. This implies that there is a link between ownership and strategic actions. As aresult, our definition of family firms focuses on control and the opportunity to exercise this control.Those who exercise this control can do so merely as owners (for instance as board members) or bybeing involved in the daily management of the company. Consequently we define a family firm asone in which the family is in control and wishes to maintain this control (Chua, Chrisman andSharma 1999).

The definition of family business has been the object of considerable interest in the relevantliterature (Handler 1989, Sharma, Chrisman and Chua 1997). Numerous definitions still exist, and itis therefore more important than ever to state explicitly which definition applies (Hall 2003). Thedefinitions used range from those stating that a company is a family firm when the family has avoting control of the company to those in which it is stated that the company must be executivelycontrolled by the family, several generations of which are involved in the day-to-day operations ofthe company (Sharma, Chrisman and Chua 1997).

It has been argued that inherited business creates complacency and conservatism and delays theadoption of efficient administration and organisational structures (Chandler 1977, Chandler 1990,Nicholas 1999). Family firms are attributed with several disadvantages compared to listedcompanies. For example, the limited ownership structure constricts growth capabilities. Althoughfamily firms can be dynamic in the beginning, financial factors prevent them from growing as fastas listed companies. The willingness of the family members to invest more capital in the companymay diminish as their family grows in size and the owners are no longer able to involve themselvesin the daily affairs of the company. A change of leadership is always problematic in industrialenterprises, but it is especially difficult in family firms as the number of possible managerialcandidates is relatively low if the choice is limited to the immediate family or kin. Nepotism and,concomitantly, conflicts within the family are among the major disadvantages in family firms(Casson 1993, Rose 1993). The importance of family ownership declines as the companies grow.Thus many authors have emphasised managerial failure in family firms on the one hand, andentrepreneurial decline on the other, as a result of the changing role of family firms (Coleman 1973,Koiranen 1998). Chandler (1977, 1990) even sees family ownership as a cause for stagnation in theeconomic growth of certain countries. This condemnatory attitude to family firms has led to an

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underestimation of their importance in business history (Jones 1999–see also Ojala and Pajunen2006).

On the other hand, family firms are also often seen as having a number of advantages. Theentrepreneurial attitude towards business activities is a breeding ground for dynamic, innovativebehaviour, to use in Schumpeter’s terms (Casson 1982). However, while entrepreneurialmanagement decreases bureaucratic structures, it may also cause difficulties by disorganising themodes of operation. In family firms the needs of the family and firm are partly overlapping: what isgood for the family is good for the business and vice versa. Thus the owners’ commitment to thecompany is typically much tighter than in other forms of enterprise. This is crucial in terms of theirwillingness to overcome crisis situations (Ojala and Pajunen 2006). The definition of family firmsas entrepreneurial organisations, however, is rather simplistic and misleading. Though family firmsmay have characteristics typical of entrepreneurial organisations (such as innovativeness, risktaking and pro-activeness), they are also quite often associated with rather non-entrepreneurialvalues, such as financial conservatism, security and family control over the firm (Kreiser, Ojala,Lamberg and Melander 2006).

On the basis of the above discussion, our research questions can be stated as follows:

1. To what extent are family firms different in their competitive behaviour and the level ofinnovation in their actions vis-à-vis other types of firm?

2. To what extent do family firms become more similar or different along the industry life-cycle;i.e. what is the effect of time in the potential convergence or divergence processes?

3. To what extent does the level of innovation result in differences in business performance (forexample growth and survival)?

Research setting: the evolution of the forestry industry

The forest industry represents a group of relatively mature, large-scale lines of business that havegradually become “more global” during the last couple of decades. Over the long term, the forestindustries have been one of the fastest growing lines of business. While below ten million tons ofpaper was produced at the beginning of the 20th century, in 1950 the figure was already 43 milliontons, and in 1995 around 260 million tons. Since 1950, the average annual growth of the paperindustry has been around four per cent. For example, the growth exceeded GDP growth in Europeduring the last decades of the 20th century and grew three times faster than the average for themanufacturing industries (Diesen 1998, Huolman 1992, Lamberg and Ojala 2006, Rytkönen 2000).The main period of growth occurred in the 1990s and during the first years of the third millennium.In a sample of Nordic forest-industry companies studied previously, over 61 per cent of the postwarsales was produced during the period of 1990-2003 (Ojala, Lamberg, Ahola and Melander 2006).

During the postwar era, the Nordic forest-industry companies have caught up with the traditionalmarket leaders, the North American companies (Lamberg and Ojala 2006). Our previous analysis ofa sample of Nordic and US-based forest-industry firms suggests that while the Nordic companiesproduced only around one fifth of the combined sales of the analysed companies, this share rose toaround one third by the 1990s. Large-scale investments in new production and technology,consolidation process, and the overall importance of the forest cluster in national economies haveboosted this growth in the Nordic countries. Demand factors have also affected this development:the demand for forest-industry products grew more slowly in the U.S. than in Europe during the1980s and 1990s. The whole forest industry sector experienced a period of diminishing returns

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throughout the postwar era, and this in turn led to a need to improve productivity. According to astudy by analysts at Merrill Lynch, the paper and pulp industry underperformed with regard to theoverall European market by 914 per cent between 1974 and the end of 2000. (Ojala, Lamberg,Ahola and Melander 2006)

Sample and Method

Most of the forestry industry firms analysed in this paper originated as family-owned enterprises;some of them evolved into limited liability companies, and a few into multinational corporationswith an international – sometimes even institutional – ownership structure. At the beginning of the21st century, the era of family-owned firms seems to be over as far as the larger companies areconcerned. However, small and medium-sized firms, which are mostly family-run, are stillimportant to the forest industries, especially in small-niche markets that require constantinnovations and operational consistency. The evolution of the ownership structure has developed inline with the overall economic development. The paper and pulp firms were mostly founded duringthe age of industrial capitalism, they emerged and developed domestically through organic growth,mergers, and acquisitions during the era of financial capitalism, and finally, they experienced aninternationalisation of their operations during the age of global capitalism in the postwar era(Cantwell 1989, Chandler 1977, Chandler 1990, Ojala, Lamberg, Ahola and Melander 2006).

Family firms have played an important role in the paper and pulp industries as a whole. Forexample, the British paper industry was dominated by family-owned enterprises up to the 1970s(Chandler 1990). However, family-owned companies had lost their relative competitiveness amongthe large producers by the 1980s. The international ownership of the Nordic forest-industrycompanies did not occur until the 1990s, when the majority of Finnish paper industry companies,for example, gained stock owners from outside the country’s borders. Of the companies mentionedin this paper, the foreign ownership of Stora-Enso in 1999 was 70 per cent, of Metsäliitto around 35per cent, and of United Paper Mills approx. 60 per cent (Lammi 2000, Ojala, Lamberg, Ahola andMelander 2006).

Shareholder value, typical of the North American companies, was emphasised in the Nordiccompanies only from the early 1990s on. Thus in the 1970s, high profitability was not a key issuefor the Nordic companies as it was for the U.S. based firms – though the U.S. paper companies havealso had problems in delivering shareholder value in terms of high profits (Ojala, Lamberg, Aholaand Melander 2006). The fact that more emphasis was put on profitability within the Nordiccompanies during the 1990s was related, among other things, to changes in the ownership structure.State-owned companies like Enso were restructured to become publicly owned, as was partly thecase with certain co-operative companies

Our sample consists of nineteen forest-industry firms (Table 1), all engaged in various branches ofthe sector, though during the last decades of the study most notably the paper industry. Of thesecompanies, six are family firms, including the Swedish-based MoDo and Korsnäs and the Finnish-based Ahlström, Schauman, Serlachius, and Myllykoski. Public and state-owned firms, altogethernine of them, include United Paper Mills, Kymmene and Enso from Finland, and SCA, Holmen,Iggesund, Munksjö, Stora, and Assi from Sweden. Cooperatives include four companies: NorskeSkog in Norway, Södra and NCB in Sweden, and Metsäliitto in Finland.

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Table 1. The Company SampleNationality Founding

year1999 turnover

(billion USdollars)

Originalfocus

Ownership structure

Ahlström Finland 1851 2.7 Timber Family firmSchauman Finland 1883 .. Timber,

PlywoodFamily firm

(acquired by Kymmene 1988)MoDo Sweden 1872 9.1 Timber Family firmKorsnäs Sweden 1855 0.71 Timber Family firmSerlachius Finland 1868 .. Paper Family firm

(acquired by Metsäliitto1987)

Myllykoski Finland 1892 1.1 Paper Family firmEnso-Gutzeit (Stora-Enso)

Finland 1918 11 Timber Public

Kymmene Finland 1904 .. Paper Public(acquired by UPM 1995)

UPM Finland 1920 8.8 Paper PublicSCA Sweden 1920s 2.1 Pulp PublicHolmen Sweden 1854 .. Paper Public (1988-1999 MoDo)2

Iggesund Sweden 1876 .. Iron/Timber Public (Modo- Iggesund-Holmen 1988)3

Munksjö Sweden 1862 0.674 Paper PublicStora Sweden 1888 .. Iron Public (Stora-Enso 1998)5

Assi Sweden 1942 .. Lumber Public(Assi-Domän-NCB 1994)6

Metsäliitto Finland 1934 4.5 Lumber CooperativeNorske Skog Norway 1962 37 Lumber CooperativeSödra Sweden 1938 1.18 Lumber CooperativeNCB Sweden 1959 .. Lumber Cooperative

(Assi-Domän-Ncb 1994)9

As Table 2 below suggests, public firms were over the whole period larger than family firms orcooperatives in terms of personnel. The family firms’ share of the combined labour force wasaround one third during the 1950s but declined steadily thereafter, so that by the 1990s it wasaround one fifth. At the same time the share of the limited companies’ personnel rose from 50 to 57per cent. This implies scale advantages that public firms might have had in comparison with othertypes of ownership. As Figure 1 shows, in terms of turnover the development was even morestriking as the productivity growth was substantial within the forest industries. The figure for asample of only eight companies suggests that public companies and cooperatives outperformedfamily firms in the paper industry during the 1990s and the first years of the third millennium.However, as the number of cases is relatively low, these figures are only tentative. With a largersample of companies, including US-based ones, however, the pattern is similar, albeit not asdramatic as that presented in Figure 1.

The growth rate of family firms was lower than that of listed firms and cooperatives. Indeed thenumber of personnel in family firms has less than doubled while in public firms and cooperatives ithas almost tripled. Cooperatives are interesting in this respect: they arrived in the wood-processingsector rather late, but they succeeded in growing not only to be among the major players in all three

1 The turnover for Korsnäs is from 2000 and is 5209 million SEK2 Holmen was a part of MoDo during the years 1988-19993 Iggesund became a part of Modo in 1988 as a result of a merger.4 The turnover for Munksjö is 4854 million SEK.5 Stora became Stora Enso in 19986 Assi became AssiDomän after a series of mergers that started in 1994.7 The turnover for Norske Skog is 18 500 million NOK.8 The turnover for Södra is 8106 million SEK9 NCB was acquired and became a part of AssiDomän in 1994.

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Nordic countries by the turn of the third millennium but also to be among the important globalactors in the forest industries.

Table 2. Average number of personnel in the sample companies, divided according to ownershipstructure

Family firms Public firms Cooperatives All1946-1960 4593 7036 2844 57441961-1970 5777 8678 4394 72261971-1980 6481 8856 6922 77421981-1990 6920 12739 6602 98861991-2000 7153 19299 7561 138451946-2000 6040 10932 6049 8603

Source: Database compiled by the authors.

Figure 1. Average annual sales by Nordic family forest-industry firms in comparison with publicand cooperative companies, 1945–2003 (def. 2003 mil. dollars, log.)

0

2000

4000

6000

8000

10000

12000

14000

1945-1959 1960-1969 1970-1979 1980-1989 1990-1999 2000-2003

Family firms Public and cooperative

Sources: annual reportsNote: the sample includes only 8 companies: MoDo, Ahlström and Schauman as family firms, and Enso, Kymmene,Upm, and Metsäliitto as public and cooperative companies.

Our methodology in the paper is based on an event data analysis that was developed in our previousresearch (Lamberg and Ojala 2006). The sources for this quantification-based analysis are historicalevents that are arranged according their sequences. This chronological set of events can be coded byusing a set of dichotomous variables. The idea of coded event data is that they can be analysed byusing different quantitative methods, and that these systematic event series can be used incomparative studies (Van de Ven 1990, Van de Ven and Poole 1995). Our action database consistedof 1694 company-specific strategic actions in the period of 1946–2000. These actions were dividedinto different decades, so that we have altogether 210 actions for the period 1946–1960, 233 for1961–1970, 377 for 1971–1980, 516 for 1981–1990, and 358 actions for 1991–2000.

All the strategic actions were coded according to a four dimensional coding framework (Lamberg,Laurila and Nokelainen 2006, Lamberg and Ojala 2006). The first dimension is industry-invariant,showing the general nature of each action (e.g. acquisitions, investments, divestments). The seconddimension is industry-specific focusing on specific actions in the product and resource market (e.g.actions related to raw materials, semi-finished products or marketing). The third dimension defines

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whether the actions were conducted independently or with other organisations, and the fourthdimension deals with the geographical focus of the actions (domestic or international).

Analysis

The number and repertoire of actions

The overall picture in the forest industry is that all companies had a similar pattern of growthstrategies. During the late 19th and early 20th century, the growth resulted from green-fieldinvestments, followed by vertical integration from the 1940s to the 1960s, diversification in the1960s and 1970s, and finally the phase of mergers and acquisitions and geographical expansionduring the 1980s and 1990s. The existence of these dominant logics does not exclude the existenceof other logics, although these dominant logics occurred in a sequential order in all companies anddid not manifest any notable national differences (Ojala, Lamberg, Ahola and Melander 2006).

Why then did the companies act with such apparent similarity? We can offer at least twoexplanations. The first derives from the path dependence principle: all the most important technicaland business innovations originated before the 1960s. After the 1950s, competitive advantage wasno longer created through technical innovations but rather from solutions related to scale and scope(Chandler 1990, Melander 1997, Toivanen 2004). At this stage, the similarity resulted from thecognitive constraints of the organisational actors, which in turn were a direct result of the historicalexperiences. Moreover, after the industry assumed its typical characteristics the imprintingmoments in the early 20th century, the sunk-costs tied to the machinery and plants alone made itpractically impossible to change the direction of the entire industry or even of particular companies.The diversification wave of the 1970s was clearly an attempt to change the basic determinants ofthe industry. Secondly, all the major alterations were caused by radical changes in the surroundingsocio-economic environment. Thus it is no wonder that the sequence of strategy logic more or lessfollows the Chandlerian sequence of growth strategies (Cantwell 1989, Chandler 1990; Ojala,Lamberg, Ahola and Melander 2006).

We may state that the strategy logic was strongly dependent on history and the market environment,resulting in few “strategic innovations” and consequent similarity in the repertoire of growthstrategies. It is clear that the industry has not yet faced the kind of changes that inevitably create aradical rupture in the evolution of industries, namely changes in the basic technology (such as thesubstitution of wood as the principal raw material) or in the market channel (for example, a radicalmarginalisation of print media).

The overall number of actions per year rose until the 1990s and then declined (Table 3). Thisdecline is mostly due to mergers and acquisitions: there were simply fewer companies executingactions, although larger companies do execute more actions than smaller ones, which can be seenby comparing U.S. based large forestry-industry firms with Nordic ones (Ojala, Lamberg, Aholaand Melander 2006). There were also notable differences between the companies from the differentNordic countries: the Finnish companies were especially active during the 1970s and 1980s, whilethe Swedes outperformed the Finns in terms of activity during the earlier decades and againespecially during the 1990s. As has been noted in previous literature, investments in new productioncapacity were especially high in Finland throughout the 1970s and 1980s, and large mergers alsooccurred during the 1980s (Näsi and Sajasalo 2006, Peterson 2001).

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In terms of ownership structures, public and state-owned firms were far more active than familyfirms and cooperatives (Table 3). This was mostly due to the larger size of these firms (for example,they were active and capable of acquiring relatively small-scale companies, paper merchants, andproduction facilities, as well as converting units). However, certain family firms in the sample werelarge, at least by Scandinavian standards; for example, Ahlström was among the largest industrialenterprises in Finland during the period in question.

Cooperatives were seemingly less active than family firms or publicly owned companies. This wasespecially the case during the 1950s and 1960s, when the cooperatives were still relatively small-scale companies. However, during more recent decades cooperatives were active, especially interms of the number of actions compared to the size of the companies (Table 4).10 In fact, relative tothe size of the firms, the cooperatives seem to have been the most active type over the wholeresearch period.

Table 3. The average annual number of actions by family firms, public and state-owned firms andcooperatives 1946-2000

Family firms Public & state Cooperatives All1946-1960 4.6 9.0 1.4 15.01961-1970 7.4 12.6 3.3 23.31971-1980 10.8 18.5 8.4 37.71981-1990 14.3 27.5 9.8 51.61991-2000 8.9 18.9 8.0 35.81946-2000 8.7 16.4 5.7 30.8

Table 4. Actions per year/average personnel in different ownership groups (1946-1960 = 100)Family firms Public & state Cooperatives All

1946-1960 100 100 100 1001961-1970 129 114 149 1231971-1980 167 163 242 1861981-1990 208 169 295 2001991-2000 125 77 211 991946-2000 145 117 188 137

The direction and timing of actions in the production chain

Vertical integration and related diversification was a typical feature in the paper and pulp industriesup to the mid-20th century (Ohanian 1994), and unrelated diversification up to the 1980s. During thepast few decades, the companies have sought cost savings, better profitability and higher growthrates especially through horizontal integration rather than diversification strategies by concentratingon core business activities (Siitonen 2003) Up to the 1980s vertical integration was morepronounced, as a number of sawmilling companies moved forwards in the production chain andstarted to produce pulp, and later also paper.

10 Here only the number of personnel is being used as the measurement of size as turnover figures were not availablefrom certain companies. However, there seems to be clear correlation with the figures obtained in an earlier study usinganother sample of companies in which turnover was used,.

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Table 5. Strategic actions in the value chain for all sample companies. The percentages of strategicactions per decade, 1946–2000

Upstream(1-3)

Midstream(4-5)

Downstream(6-8)

Related and unrelateddiversification (9 and 11)

Multiplecategories (10) Total N

1946-1960 33 19 12 27 9 100 2101961-1970 28 30 19 17 7 100 2321971-1980 34 18 21 18 7 100 3741981-1990 23 18 19 26 14 100 4831991-2000 17 28 22 18 16 100 3521946-2000 26 23 19 21 11 100 1678N 433 388 316 354 187 1678 ..

Source: Database compiled by the authors.Note: upstream strategies include the actions related to raw material acquisition and semi-finished products (sawntimber & pulp), midstream strategies include actions related to finished products (paper and paperboard), downstreamstrategies include converted products and marketing, whilst diversification strategies include all related and unrelateddiversification.Table 6. Strategic actions in the value chain, family firms. The percentages of strategic actions perdecade, 1946–2000

Upstream(1-3)

Midstream(4-5)

Downstream(6-8)

Related and unrelateddiversification (9 and 11)

Multiplecategories (10) Total N

1946-1960 42 14 16 20 8 100 641961-1970 23 26 28 20 3 100 741971-1980 24 19 30 23 5 100 1081981-1990 16 13 24 33 13 100 1431991-2000 10 19 30 29 11 100 891946-2000 21 18 26 26 9 100 478N 102 84 125 126 41 478 ..

Source: Database compiled by the authors.Table 7. Strategic actions in the value chain, public and state-owned companies. The percentages ofstrategic actions per decade, 1946–2000

Upstream(1-3)

Midstream(4-5)

Downstream(6-8)

Related and unrelateddiversification (9 and 11)

Multiplecategories (10) Total N

1946-1960 24 24 10 33 10 100 1261961-1970 29 31 12 17 11 100 1251971-1980 31 21 19 21 7 100 1821981-1990 20 28 16 25 10 100 2701991-2000 18 34 22 12 15 100 1861946-2000 24 28 17 21 11 100 889N 209 247 147 191 95 889 ..

Source: Database compiled by the authors.Table 8. Strategic actions in the value chain, cooperatives. The percentages of strategic actions perdecade, 1946–2000

Upstream(1-3)

Midstream(4-5)

Downstream(6-8)

Related and unrelateddiversification ( 9 and 11)

Multiplecategories (10) Total N

1946-1960 60 0 15 15 10 100 201961-1970 33 33 21 9 3 100 331971-1980 56 12 14 6 12 100 841981-1990 35 20 13 11 21 100 971991-2000 23 22 12 19 23 100 771946-2000 39 18 14 12 16 100 311N 122 57 44 37 51 311 ..Source: Database compiled by the authors.

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Upstream strategy actions are here classified as those related to raw material acquisition and thoserelated to semi-finished products (pulp and sawn timber). Midstream strategy actions are classifiedas those related to the production of paper and board, and downstream strategy actions those relatedto conversion and sales. Diversification strategies (both related and unrelated) are classified here asseparate units. Multiple strategies refer to actions that concern several of the business areassimultaneously, as in the establishment of a production unit which produces several different endproducts. Typically, large-scale mergers and acquisitions are events that concern a variety ofbusiness areas.

The centre of gravity in the Nordic forest-industry companies has moved from raw materials andsemi-finished production (sawmills and pulp) towards finished products such as paper; thus fromupstream to downstream strategies (Galbraith 1988). Interestingly, upstream strategies played onlya minor role when analysed in terms of the number of actions. While from the 1940s up to the1970s around one third of the actions concerned upstream strategies, this share diminished toseventeen per cent by the 1990s (Table 5). However, here the analyses most probably underestimatethe strong role played by the raw material base. Both in Sweden and Finland, the fear ofdiminishing timber in the 1960s led to a number of reforms throughout the industry (Kuusela 1999,Melander 1997). It is also important to remember that in Finland cartels, in particular, made itpossible to concentrate on mid-stream strategies as it was these centralised associations that bore themarketing responsibilities until the 1980s and 1990s. (Ojala, Lamberg, Ahola and Melander 2006)

At the same time, midstream strategies, i.e. paper and board production, gained more importance instrategic actions. This can also be seen from the export figures: in the case of Finland, sawnproducts were the most important export items from the early 19th up to the mid-20th century, whenthey were replaced by pulp. However, exports of pulp more or less disappeared in the 1970s, whenit was more often refined into paper in domestic production units (Ojala and Lamberg 2006).Furthermore, a number of companies were also engaged in producing end products, like UnitedPaper Mills with laminates, and Stora-Enso and SCA with packaging (Eloranta and Ojala 2005).

As cooperatives started to operate later than the other types of organisation, their movement in theproduction chain also occurred later. This can be clearly seen from the actions related to rawmaterials, saw milling and pulping: during the 1940s and 1950s, around sixty per cent of thestrategic actions of the cooperatives emphasised upstream strategies, while the share in the 1990swas 23 per cent (Table 8). Midstream strategies in cooperatives were pronounced during the 1960s.The clearest trend from upstream to downstream strategies can be found in the case of family firms:altogether 42 per cent of the actions concerned upstream strategies during the 1940s and 1950s,after which this share declined steadily and was only ten per cent in the 1990s (Table 6). The trendis not as clear in the case of public and state-owned companies, as the share of upstream strategiesrose somewhat from the 1950s to the 1970s, but declined thereafter (Table 7).

Midstream strategies, i.e. actions related to paper and board production, grew throughout thepostwar period (Table 5). The largest share of midstream strategies can be found in the public andstate-owned firms that integrated forwards in the production chain at a quite early point in time.Investments in paper production have always been expensive and thus difficult for family firmswith limited possibilities for outside financing to carry out (Ojala and Pajunen 2005). Family firms,for their part, were the most active in downstream strategies, for example in the production ofconsumer products such as special papers and also in marketing (Table 6). The share of both down-and midstream strategies in family firms rose at the expense of upstream strategies.

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Vertical integration was a part of the related diversification that occurred within the forest industriesgenerally throughout the period. Though the share of related actions was reasonably low, theirimportance especially for the Nordic companies was crucial. Related diversification gave birth tothe forest clusters in both Sweden and in Finland. Companies like Ahlström, Tampella, Rauma-Repola, SCA, and United Paper Mills started to produce machinery for their own use, and later on,this machine industry developed its own branches and sub-industries (Hazley 2000, Jääskeläinen2001, Lammi 2000). In the 1970s, diversification was still the dominant strategy, but from the1980s onwards. the forest-industry companies began to concentrate on their core businesses. While,during the 1960s and 1970s forest-industry firms diversified into several unrelated sectors, by theturn of the 1990s the Nordic forest-industry firms had become considerably less diversified – thesame phenomena occurred in U.S. based firms some what earlier (Davis, Diekmann and Tinsley1994, Ojala, Lamberg, Ahola and Melander 2006).

The number of strategic actions related to diversification was, however, still high even in the 1990s,comprising around eighteen per cent of all actions taken by the sample companies (Table 5). This isrelated to the divesting of unrelated businesses. Thus the share is composed mainly of actions thatended diversified businesses. The concentration on traditional core business activities not onlymeant the divestment of (unrelated) diversified businesses, but in some cases even the closure ofsome branches of paper production. For example, MoDo relinquished the production of newsprintand magazine papers to a new company (Holmen) in 1999, Metsäliitto divested itself of tissuepapers (1997) and Ahlström of all other but special papers (Melander 2006, Ojala and Lamberg2006, Ojala, Lamberg, Ahola and Melander 2006, Ojala and Pajunen 2005, Siitonen 2003).

Cooperatives had the smallest share of diversification (Table 8), which is understandable as theywere latecomers in comparison with the other two groups. On the other hand, family firmsdiversified actively throughout the period. Even in the 1980s and 1990s, almost one third of thestrategic actions by the family firms were related to diversification. Again, especially in the 1990s,the number of these actions can be explained by the high share of divesting diversified structures.

Growth strategies

The development of forest-industry firms was achieved either through organic growth, i.e. bybuilding new production capacity, or through mergers and acquisitions. Mergers and acquisitionshave led to growing consolidation within the industry, though there are significant differencesbetween geographical areas and also in the lines of production. The top ten paper companiesproduced around one fourth of the top 1000 companies’ production at the beginning of the 21st

century (Ojala, Lamberg, Ahola and Melander 2006, Siitonen 2003). For example, in 1999 the topfive companies made up 35 per cent of total production of newsprint, 35 per cent of uncoatedpapers, 50 per cent of coated mechanical papers, and around 40 to 45 per cent of market pulp(Rowland 1999). Despite several bouts of consolidation, there were still almost 2000 papercompanies in the world in 2000, while the number at the beginning of the 20th century was over4000 (Lamberg and Ojala 2006). Overall, the forest industry is not as concentrated as many othermanufacturing industries. In Japan, for example, there were altogether 275 pulp and papermanufacturing companies in 1995, and at the beginning of the 21st century Italy alone had around200 privately owned paper-makers (Economist 2001, Noda 2003, Ojala, Lamberg, Ahola andMelander 2006).Whilst organic growth clearly played a more significant role in the strategies of the Nordiccompanies from the 1940s up to the 1970s, the focus in strategic actions from the turn of the 1980swas on mergers and acquisitions (Tables 9 and 10). Mergers and acquisitions were carried out

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mainly to create operational synergies, to open new market areas, to save raw material resources, torationalise transport costs, to lower general administrative and R&D expenses, to gain a betterbargaining position in dealing with the suppliers or, as Siitonen (2003) states, for defensive reasons.The fact that Finnish firms were far more active in pursuing organic growth is in line with thefindings of previous research, which suggests that a willingness to invest was a typical strategy ofFinnish firms when compared to those of other nationalities (Artto 2001, Peterson 1996).

Family firms were especially eager to built new production facilities in the 1950s – a fact that seemsquite at odds with the problems usually associated with family-owned companies with only limitedpossibilities for organic growth. However, the share of actions related to organic growth declinedrapidly in the case of family firms, as it did with the listed companies, and the share of mergers andacquisitions grew correspondingly. Again cooperatives do not follow the pattern. Cooperativesseem to have built more production facilities even in the 1990s by comparison with other types ofownership, and correspondingly they were quite eager to undergo merging operations alreadyduring the 1950s, 1960s and 1970s.

Table 9. Organic growth, per cent shares of strategic actionsFamily firms Public & state Cooperatives All

1946-1960 70.5 66.4 40.0 65.01961-1970 56.8 47.2 48.5 42.51971-1980 54.2 41.1 22.6 40.71981-1990 35.2 23.1 18.6 25.61991-2000 22.1 24.4 28.2 24.71946-2000 45.1 36.4 26.6 37.0

Table 10. Growth through mergers and acquisitions, per cent shares of strategic actionsFamily firms Public & state Cooperatives All

1946-1960 6.6 21.0 55.0 20.01961-1970 29.7 25.2 36.4 23.81971-1980 29.0 29.7 41.7 32.21981-1990 39.4 33.0 34.0 35.01991-2000 48.8 33.3 24.4 35.21946-2000 33.0 29.7 35.3 31.6

Closing actions, either through selling out or ending production (Tables 11 and 12), have only takenon more importance during the last few decades. In the 1940s and 1950s, only around fifteen percent of strategic actions were related to the selling or divesting of units, while this figure wasaround forty per cent during the 1980s and 1990s. This is related to the dismantling of thediversified structures of the companies, when a number of units were either sold or closed down ascompanies concentrated on their core competences. Old and unproductive mills were also closeddown at the same time (Barnett and Grier 1996, Gagne 1995). For example, Kymmene divesteditself of its diversified lines of businesses in just a couple of years in the late 1980s, as United PaperMills had already done in the 1970s (Ojala and Lamberg 2006). Selling and divesting productionunits was far more typical of the Swedish firms than of their Finnish counterparts: during the wholeperiod over forty per cent of the strategic actions of Swedish firms were closing ones, whilst theshare for the Finnish firms was around 22 per cent.

Family firms were generally not as eager to sell or divest units as listed firms and cooperatives. Thisimplies a certain amount of conservatism in their actions, or perhaps a family-related “involvement”with the production. Throughout the period, only around one fifth of the actions of the family firms

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were related to selling and divesting, while this figure was well over one third for both listedcompanies and cooperatives. Only in the 1990s did family firms apparently become active in sellingoff units. Ahlström, for example, sold off a number of its diversified units in this period andconcentrated on producing special paper grades.

Table 11. Selling of units, per cent shares of strategic actionsFamily firms Public & state Cooperatives All

1946-1960 6.6 1.7 5.0 3.51961-1970 5.4 11.4 12.1 23.81971-1980 5.6 17.8 14.3 13.61981-1990 12.7 33.3 30.9 27.11991-2000 22.1 33.9 38.5 32.01946-2000 10.9 22.8 24.7 19.8

Table 12. Divesting units, per cent shares of strategic actionsFamily firms Public & state Cooperatives All

1946-1960 16.4 10.9 0.0 11.51961-1970 8.1 16.3 3.0 9.91971-1980 11.2 11.4 21.4 13.61981-1990 12.7 10.6 16.5 12.31991-2000 7.0 8.3 9.0 8.11946-2000 11.1 11.1 13.5 11.6

Cooperation: network activities

Cooperative capitalism was a typical feature of the Nordic industries throughout the 20th century.Therefore, the fact that Nordic companies carried out joint ventures in their strategic actions is notsurprising (Table 13). The cooperation can be clearly seen in the case of sales associations inparticular, although other kinds of cooperation also existed, for example in raw materialsacquisition and in industrial policies (Heikkinen 2000, Skippari, Ojala and Lamberg 2005). Theshare of joint ventures seems to have declined over the decades. Family firms and publicly ownedcompanies were more eager to engage in cooperation than cooperatives. This, in fact, was perhapsnot due to the unwillingness of cooperatives to cooperate with other companies but rather to the factthat other companies were not willing to cooperate with them; they were regarded as disruptiveelements on the market, and their ownership structure also aroused suspicion.

Table 13. The per cent shares of joint ventures in strategic actionsFamily firms Public & state Cooperatives All

1946-1960 9.4 10.3 5.0 9.51961-1970 9.5 12.7 3.0 10.31971-1980 8.3 6.5 6.0 6.91981-1990 10.5 7.3 4.1 7.61991-2000 3.4 6.9 5.0 5.61946-2000 8.4 8.2 4.8 7.6

An interesting feature is that the Finnish firms were more eager to cooperate than their Swedishcounterparts. In the case of the Finnish firms, around ten per cent of the strategic actions over thewhole period were cooperative, while in the case of Sweden the share was below 6 per cent

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respectively. Thus cooperative capitalism was more pronounced in Finland (Ojala and Karonen2006).

The internationalisation of production

Globally, the forest-industry companies have remained by and large within certain geographicaldomains (Sajasalo 2003). In the 1990s, the paper and pulp industry still had one of the lowest levelsof globalisation within the manufacturing industries; for example, in 1998 the top five companiesaccounted for less than 15 per cent of the world capacity, while within the automobile or airlineindustries the level was around 55 to 65 per cent. The primary reasons for the low level ofglobalisation are the local raw material base, high capital costs, the constant growth of regionalbusinesses, and also the institutional environment in which it originated (Lamberg and Ojala 2006,Laurila and Ropponen 2003, Siitonen 2003). Nevertheless, globalisation has accelerated within theforest industries, too, as a result of reasonably low transport costs and diminishing trade barriers(Rytkönen 2000).

Internationalisation also came quite late to Nordic forest-industry firms. Though the markets for theproduct have always been mainly abroad, the production facilities have remained basically indomestic areas. In the case of Finland, the first steps in internationalisation were taken in the 1930s,and continued during the 1950s and 1960s. Owing to a number of failures in the internationalisationprocess, however, it was not until the 1980s that it clearly took on more importance in the strategicactions of the companies (Table 14). By the turn of the millennium almost half of the actions werebeing taken outside the companies’ domestic borders. Furthermore, Finnish companies were moreeager to undertake internationalising actions than Swedish ones: over the whole period one third ofthe actions of the Finnish companies were international in scope, while the share in the Swedishcase was around one fourth.

Family firms tend to have been the most active in terms of internationalisation. For example,Myllykoski is among the Finnish success stories in internationalisation, as the company hassucceeded well on the US markets from the 1970s on. The cooperatives clearly lagged behind thefamily firms and listed companies in internationalisation, though there are differences even withinthis group. Norske Skog, for example, has stated that it is “the most global forest-industry companyin the world”.

Table 14. The per cent shares of internationalisation in strategic actionsFamily firms Public & state Cooperatives All

1946-1960 6.3 7.9 0.0 6.71961-1970 18.9 24.0 18.2 21.61971-1980 29.6 27.0 13.1 24.71981-1990 35.7 27.8 21.6 28.81991-2000 55.1 45.5 24.4 43.21946-2000 31.4 28.0 18.3 27.2

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Conclusions

Earlier literature has been divided into two opposite views on the effect of ownership structure onfirm behaviour. On the one hand, many scholars have seen family firms as innovative, risk takingand pro-active per se. The underlying assumption, thus, is that family firms carry certain propertieswhich allow them seek novel solutions during their evolution. On the other hand, family firms canbe equally associated with rather non-entrepreneurial values, such as financial conservatism,security and family control over the firm. It is highly likely that neither of these views correlatesperfectly with all existing family firms. We have examples such as Wallmart which carry manyproperties of an innovative firm but as likely family firms that have stagnated and unable to takeinnovative actions.

Our study contributed to the literature by empirically examining a sample of companies withdifferent ownership structure. By concentrating on strategic actions rather than structural elementsof the companies (cf. Chandler 1990) we were able to measure the behavioural attributes ofdifferent types of firms.

Our first research result is empathetic with the critical view of Chandler (1977; 1990) and hisfollowers. The growth rate in family firms correlated strongly with other types of firms until the1980s but after that their growth rate was dramatically slower than in public and cooperative firms.In the 1980s and 1990s, paper industry was characterized by a wave of merger and acquisitions.Simultaneously, the width, speed and price of the paper machines expanded tremendously. For thecompanies this meant increasing need for financial and organizational resources and it seems highlylikely that family firms simply lacked both of these.

Also, public firms and cooperatives obtained a higher level of activity vis-à-vis family firmsthrough the entire period of analysis. What is interesting in these figures is that public firms alsomade more divestments. Earlier study on North American paper industry firms (Ahola 2006)demonstrated similar tendency; i.e. public firms ‘do more’. In terms of our theoretical starting pointthis phenomenon could be interpreted as public firms obtaining a higher level of novelty in theiractions. However, an alternative explanation may be found in the neo-institutional literature(DiMaggio and Powell, 1983). From that perspective, higher level of activity can signal a need tolook legitimate among the competitors and other stakeholders. On the contrary, the institutionalpressure may be lower in family firms allowing more stable pattern of activities. This questiondefinitely needs more research in the future.

Finally, family firms were relatively active in internationalization and, surprisingly, conductingacquisitions. This may mean that slower absolute growth in the 1980 and 1990s may have been anintentional decision allowing active strategizing in smaller niche markets. Thus, growth can bemore important in listed firms which are dependent on the opinion of the financial market whereasother performance measures (profitability; longevity) may drive family firms to adopt specializedniche strategies. Again, this question requires more qualitative work in terms of analyzing themotivational aspects in firm decision-making.

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