The effects of value-added creation and cost efficiency strategies on the financial performance of finnish medium-sized and large sawmills

Since 1990s the business environment of sawmill industry has changed notably due to the increase in competition both between European and non-European enterprises, as well as within the EU following its enlargement and the relocation of production to the new member countries. The changes in the business environment are posing further challenges for maintaining competitiveness and acceptable financial performance of the Scandinavian sawmills. However, for the sawmills located in the higher cost-level areas, the possibilities to use cost competition strategy are limited. For them, counterbalancing the higher production costs by manufacturing higher-priced value-added timber products has been pointed out as a main option for aspiring sustainable financial performance. The outcome of this strategic orientation is nevertheless not studied. In this research, the effects of efficiency and value creation strategy on the business success of Finnish sawmills are studied. Financially measured, efficiency is assessed with production costs and value creation capability with prices paid for products. The data of the study comprises official financial statement information of 27 Finnish, other than large international forest industry corporations owned medium-sized and large sawmills for the period of 2000–2004. The effect of cost- and value-added components on the firm-level financial performance is evaluated using regression analysis. Costs are assessed with the proportion of material- and salary expenses of turnover, and value-added with the share of value-added and investments of turnover. Preliminary results indicate that cost-efficiency strategy was explaining financial performance better than value-added model irrespective of indicators used.