The size and profitability of a company often go hand in hand. Many smaller forest machine companies are facing difficulties, although some are also highly successful. Return on investment is usually no higher than satisfactory even among larger companies, while it is adequate or even poor in smaller companies. These are but a few facts indicated in the study of the Natural Resources Institute Finland (Luke), in which forest machine entrepreneurs from eastern and northern parts of Finland were interviewed to analyse the financial standing of their limited liability companies on the basis of publicly available financial statements.
Companies were divided into three size categories based on their median turnover between 2012 and 2016:
The median turnover of the 19 companies included in the study was EUR 948,000 between 2012 and 2016 (EUR 808,000 in 2016). The median return on investment was 6.2%, which can be regarded as satisfactory (guideline value 6–10%). However, there was a significant variation between the companies.
Larger companies have direct agreements
Smaller wood harvesting enterprises usually act as subcontractors for larger logging companies, whereas medium-sized and large companies mostly have direct agreements with their clients. The largest forest industry companies have mainly entered into agreements with the largest logging companies. Medium-sized companies have the most varied group of customers. They mainly harvest wood for Metsähallitus (a state-owned enterprise) and for forest management associations. The largest companies often set up networks with other companies in order to strengthen their competitive position.
Smaller companies have frequently changing clients, whereas medium-sized and larger companies have more long-term client relationships. Subcontracting agreements are often based on price competition, even though there often is no formal bidding process. Some subcontractors feel that main contractors select the best stands for themselves and designate less productive ones to subcontractors. Often, the stand resources assigned to subcontractors are so small that their concentration is not always possible. Then again, some subcontractors consider cooperation to be fair and believe that it is important to main contractors that their subcontractors also succeed.
Owners of smaller companies work longer days than other entrepreneurs and spend most of their working hours behind the wheel of their forest machines. They work nearly 2,900 hours on average, while owners of the largest companies work Ca. 2,100 hours. Supervisors are only employed by the largest companies that have more than ten employees. All large companies, some medium-sized companies, but none of the smallest companies, monitor operator-specific production and apply incentive schemes to operators.
Smaller companies own older machines. For example, the average age of harvesters is approximately six years in smaller companies, whereas it is three to four years in other companies. Forest machines clocked 2,600 operating hours in smaller companies, 2,900 hours in medium-sized companies and 3,100 hours in large companies.
Shortage of forest machine operators
Most companies have faced difficulties in finding skilled and motivated employees. The smallest companies, in particular, lose operators they have trained to larger companies.
Nearly all entrepreneurs interviewed consider the high quality of work to be one of their company’s strengths. Most of them are satisfied with their work, and they are not planning any career change. Investment plans in the forest industry are adding faith to the future, while political decision-making related to the use of forests is regarded as a significant risk.
This study will be used to produce training material, on the basis of which forest machine entrepreneurs can identify their strengths and weaknesses. Due to the small amount of data available, the study results cannot be expanded to cover the whole industry.
Translation: AAC Global Oy