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The economic downturn has led to the forest industry re-inventing itself
By Avrim Lazar
For the last decade, I have been on the front lines of a historic shift in the fabric of the Canadian forest products industry. Its odyssey through tumultuous times is in itself a fascinating story, but it also offers insights into the challenges and changes faced by the entire Canadian economy.
Dramatic cyclical swings are not new for natural resource industries, but the forest products industry had to face fundamental shifts that shook the foundations of its world: the rise of the Canadian dollar from $.62 in 2002 to around parity today, an incredible 60 per cent increase; the explosion of the information age, depressing the demand for paper; the collapse of the U.S. housing market; the faltering recovery of European and North American markets and the shift of the engine of economic growth from these traditional customers to Asia.
Any of these shifts would be a serious challenge for industry adaptation, but the cumulative impact was cataclysmic: the loss of around 100,000 jobs and the closure of well over 200 mills, with the human and social toll felt across rural Canada.
Many believed that Canada’s forest industry was a sector fading to black. But sometimes dramatic challenges lead to heroic innovation.
Instead of sinking into the sunset, the industry reinvented itself. Investments in new technologies opened vast new markets for bio-products extracted from wood fibre, including fuels, chemicals, and health products. Mill managers and workers found ways to improve productivity that left both U.S. competitors and the rest of Canadian manufacturing behind. Ambitious efforts to open markets made forest products Canada’s most successful exporter to China and India. World-leading improvements in environmental practices won the support of big-name environmental groups.
In short, Canada’s forest products industry found a new footing and now faces the future with sober self-confidence.
How does an industry reverse itself from an accelerating downward spiral to a profitable path? Through my ten years of living in economic turbulence, three factors stood out: courageous leadership, rethinking the business model, and smarter government.
We tend to underestimate the pressures on industry leaders when change is occurring. Major economic shifts might be seen as an opportunity to transform but what is actually experienced from inside is loss, confusion and threat. And while it may be clear that change is needed, it’s rarely clear what type of change will work.
Making the right changes only happens if leaders take risks, yet support for risk-taking is often perversely lowest when things are the most insecure. It takes courageous leadership to identify the uncertain path to success and commit to it.
Improving productivity and innovating are necessary. But being better at what we do is rarely sufficient. Rethinking the business model is more powerful than simply improving productivity: new partnerships, new products, new markets and new positioning are essential in addressing a new economic reality.
And, yes, government matters. Government policies and programs often create barriers to change. And in times of stress, governments feel pressure to slow down painful transformation or may step in to freeze the status quo. Smart governments do the opposite: they provide support to accelerate the pace of industry adaptation.
The transformation of the forest industry is well launched but not complete. However the downward spiral has been reversed and industry leadership, the rethinking of business models and government support for change helped achieve this shift in direction.
It’s also clear that changes were only possible because they were grounded in the industry’s enduring character: an innovative resource based industry, a global trader, an industry aware of its dependence on nature, and a creator of human value from natural resources. Those remain the fundamentals that will see Canada’s forest products industry into the future.
Few industrial sectors in Canada are insulated from the threats of the rapidly shifting global economy. And all have the capacity to adapt, prosper and continue to support the quality of life Canadians enjoy.
Avrim Lazar recently retired after 10 years leading the Forest Products Association of Canada.
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