Forest industrial products companies - A comparison between Japan, Swedenand the U.S

Shutdowns of forest products mills in “traditional” producing countries as Japan, Sweden and the U.S. is a consequence of a shift in the comparative advantage from regions abundant in forest resources to regions that have cheaper production factors (land, labour and capital) and more favourable growth conditions and a shifting center of economic activity to Asia and South America. The purpose of this report is to describe and compare the situation in Japan, Sweden and the U.S. The U.S. is the largest producer and consumer of forest products. Japan has quite a large domestic market and a forest products industry that satisfies this demand. Sweden is a small country but has a relatively large forest sector that exports the major part of its production. Data were collected in 13 Japanese (1991-2001), eight Swedish (1991-2003) and 16 U.S. forest products companies (1989-2003). The average rate of return on equity (ROE) is 4.6 % for Japan, 12.6 % for Sweden and 9.1 % for the U.S. The Japanese ROE lagged by one to two years. Rate of return can be calculated from profit margin (PM) multiplied by the equity utilization rate (EUR). The average PM is 2.1 % for Japan, 7.5 % for Sweden and 3.6 % for the U.S. The average EUR is 2.2 for Japan, 1.7 for Sweden and 2.5 for the U.S. Thus the primary explanation for the low Japanese rate of return is the profit margin. The average solidity of Japanese and the U.S. forest products companies is 31 %, and for the Swedish companies 43 %. The report also compares size of companies, efficiency and use of wood. For the Swedish companies more details are presented. This report has concentrated on “internal factors”. It is possible to note differences. However, when trying to understand differences, other factors must be added. For example, product prices and the prices of input factors are important to the financial performance of companies. Furthermore, the exchange rate has an impact for some products. Differences in interest rates are another variable of interest, in trying to find explanations for differences between countries