Transition to a sustainable bioeconomy is one of Europe’s responses to the key environmental challenges of climate change and resource depletion. A robust bio-based industrial sector will reduce dependency on fossil-based products, support climate targets, and lead to sustainable growth.
Currently, the bioeconomy accounts for around four percent of the gross domestic product (GDP) of the European Union (EU) and around 16 percent of the GDP of Finland. The backbone of the Finnish bioeconomy, the forest-based bioeconomy, is formed by the pulp and paper industry (PPI) and the wood processing industry, but also increasingly the energy and chemical industries.
Cooperation with other industries, such as the machine industry and the packaging industry, has created unique technologies, know-how, and solutions, and has made Finland a forerunner in bioeconomy development.
In relation to its size, Finland is more dependent on its forest and the forest-based bioeconomy than any other country in the world: bioeconomy-related exports account for more than 20 percent of export earnings. In addition, the bioeconomy creates welfare through employment effects, especially in sparsely populated regions.
A successful forest-based bioeconomy in Finland requires a user-driven approach, innovations, and initialisation of new technologies, as well as competitive production costs. Such technological and product-related changes can increase the added value of products, improve employment, and help achieve targets set out in the Finnish Bioeconomy Strategy and global climate change agreements.
In recent years, structural change in the PPI has driven pulp production investments towards regions with the lowest raw material prices and production of finished paper products closer to major markets.
In Finland, this development has led to a 43 percent decrease in the number of people employed in the sector (approximately 32,000 jobs), a 40 percent decrease in value added in forest-based production, a 17 percent increase in wood usage, and almost tripled pulp exports. Current investment plans envisage 23 million cubic metres wood capacity in pulp and energy production and, if realised, wood usage will grow by approximately 34 percent.
However, it has been forecast that with an assumption of two percent productivity increase annually, 30 percent of jobs are in the sector are threatened by 2035. This may slow down the development of sustainable economy, e.g., economic, environmental, and societal equilibrium are not realised.
Biomass is utilised in traditional forest-based bioproducts, such as sawn goods and paper, but also in textiles, medicines, chemicals, functional groceries, plastics, cosmetics, intelligent packaging, and bio-based oils.
The emergence of an international trend for greater and more varied usage of bioproducts has been discernible in recent decades. In Finland, however, despite many statements by business leaders to the contrary, diverse use of wood and value addition have not been achieved on a large-scale, and trust in a closed-network structure and the domination of the bulk production strategy have kept currently prevailing industry structures intact.
Lock-in arises through the utilisation of technologies and technological systems that follow a specific path and are challenging and expensive to escape.
Technological and system lock-in can slow the emergence of alternative and innovative technological solutions. This paper argues that forest-based bioeconomy lock-in in Finland has kept the focus on traditional products and new bioproducts have primarily been developed as extensions to existing product portfolios.
Research on sustainability transition has focused mainly on the energy, transport, and agriculture sectors, and less attention has been devoted to other domains. Nevertheless, a number of lock-in cases have been examined in the forest-based bioeconomy sector, for example, as regards regional innovation policy and technology and market shifts.
Studies on sociotechnical transitions have tended to focus on the notion of system innovation, and thus there is scope for greater consideration of the topic of regime transformation. The concept of regime as used in sustainability transition studies imposes a path and logic for incremental sociotechnical change along established pathways of development.
Transition in a complex system is a result of coevolution at different scales where various domains and their components interact: an economy changes in the short-term, whereas technology changes slowly over a longer time scale.
By increasing returns, cumulative path-dependent processes reinforce that which gains success or exacerbate that which suffers loss, which can cause economic lock-in.
Recent studies in sustainability transition research have examined transition through lock-in mechanisms and have investigated product diversification.
Lock-in mechanisms and related phenomena such as learning effects, economies of scale, and network externalities can reinforce market position. On the other hand, even though diversification may be required, sociotechnical lock-in that favours dominant designs can hinder the development of alternatives which may be excluded merely because they do not fit the prevailing paradigm.
Despite its importance, the relation between lock-in mechanisms and product diversification in a bioeconomy context has received only marginal attention in the literature. Diversity offers systemic robustness, flexibility, and the qualities of precaution that are central to long-term sustainability.
This paper investigates the interconnection of the lock-in mechanisms of regime and their relation to product diversification in the forest-based bioeconomy in Finland from 1850–2019.
Finland’s Forest-based Industry
Manufacturing of forest-based products has long roots in Finnish history; from tar-burning in the 17th century, to sawmilling, to pulp and paper production, to the diversified bioproduct production of more recent times.
Since gaining national independence in 1917, the design, development, and production of wood products in Finland have increased greatly due to technological improvements and there have been considerable advances in pulp and paper production.
Production has been fuelled, for example, by industrial synergy between the energy and pulp sector, which has allowed exchange between actors in the key areas of energy, water, byproducts, and waste.
Cooperative operations have evolved into an influential Finnish forest industry cluster that is an important part of the European forest industry. During this transition, companies’ strategic actions and focus have varied over time. Competitiveness has been supported by industrial associations, national policy priorities, and institutional path dependence within competitive market dynamics.
Globalisation and EU expansion in the 1990s significantly changed the ownership base of forest products companies and internationalised operations, which has had an influence on the Finnish forest cluster and structural change in Finland.
In recent years, the, forest-based bioproduct sector has diversified and innovation management has developed to become a part of managerial thinking. Biorefineries are thus seen as a business opportunity.
The forest-based bioeconomy is an important part of The Finnish Bioeconomy Strategy and The European Strategy for Growth, but also the United Nations (UN) and the Organisation for Economic Co-operation and Development (OECD) have recognised the potential of a bioeconomy to promote sustainable growth.
Diversification From Sawn Goods
The dominant trend in the structure of the forest-based bioeconomy regime in Finland since 1850 has been diversification from sawn goods to pulp and paper products (PPP) to high-value bioproducts.
The changes appear to follow the Abernathy–Utterback model, e.g., lower cost phase in the sawmill, wood panel, and PPI in the 1990s and 2000s. The bioproduct range and industrial symbiosis in the forest-based bioeconomy are presented below.
The original product range has diversified in three phases: the first wave of diversification was around the 1900s, the second in the 1950s, and third wave in the 2010s. Industrial symbiosis between the wood processing and machine industries is first found in the product diversification of the 1900s.
In the 1950s, war reparations, a trend towards disposable packaging, and office work accelerated cross-industry cooperation: the product range diversified into commercialisation of byproducts and related diversification without losing the focus on wood-based products.
A new product diversification phase began in the 2010s. It has been broader than earlier, but new robust industrial symbiosis has not yet developed.
The sawmill industry expanded in the second half of the nineteenth century and wood-based pulp production started in the 1850s. In the late nineteenth century, the industrial dry distilling process of tar production was unprofitable, but the economic viability was improved by use of an oven that also produced turpentine and allowed stump use instead of logs.
In contrast to tar production, technology always had an important role in the sawmill industry, and technical and skill requirements were high in the PPI. However, prior to Finnish independence in 1917, technological know-how was relatively limited and technology and professionals needed to operate the sawmills and pulp mills were bought from international companies.
In the early years of independence, strategic actions of Finnish companies focused primarily on exploitation of forest resources and raw material management.
Over time, the quality of research and technical education started to increase and the first journals that focused on technology and the paper and sawmill industry started to be published. The sawmill industry improved as a result of electrification and improvements in power, blades, maintenance, and artificial drying.
After the Second World War (WW2), the strategic focus of Finnish companies changed from raw material extraction and intermediate products to finished product.
The shift to higher value products was facilitated by adoption of new technology and in the 1950s and 1960s, the value chain integrated forward from pulp to paper production and from small-scale to large-scale production. Coinciding with this development, emphasis on research and consulting led to specialist know-how developing within the Finnish forest cluster and companies such as the paper machine producer Valmet became market leaders able to gain competitive advantage from such knowledge.
In the 1980s, most investments focused on development of improved paper technology and modernised small-scale PPI production.
Regarding large-scale production, the focus moved towards greater integration as a strategy to address the cyclical nature of the PPI. World-class research was one source of competitive strength, and around 90 percent of Finnish research and development (R&D) was spent on PPI.
Numerous technical innovations were introduced in pulp and paper production: barking, hacks, conveyors, and storage, but also new process innovations such as the Jylhä, the pressure grinding process, versatile lines, and the medium consistency (MC) pulping technique.
In addition, the mechanical wood industry saw improvements in automation: laser equipment, more accurate measurement devices, Röntgen radiation (X-ray) measurements and computerised numerical control (CNC) were introduced.
However, an innovation paradox was created by the contradiction between short-term cost-efficiency targets and long-term innovation; the forest-based bioeconomy aimed for short-term cost-efficiency and competitiveness.
By the early 2000s, all the biggest forest-based bioeconomy companies in Finland ended up with similar outcomes, namely, a focus on paper production.
Biorefineries offer new possibilities to diversify business activities. Currently, there is greater emphasis on diversified skills and knowledge, along with greater focus on higher grades of paper and paperboard production.
With demand for graphic paper decreasing, the forest-based bioeconomy has undergone a change in strategic direction, which has led to more diversified R&D. In 2015, the R&D spending was focused on chemicals (43%), pulp, paper, and paper products (39%), construction (12%), energy (4%), and sawn goods (2%).
Finnish tar producers and sawmills became established in European markets in the 19th century. International demand of tar, especially in Europe, was high in the 1880s and Finnish tar accounted for almost half of global production, but at the end of the century, production started to decrease rapidly.
The sawmill industry created a second wave of forest-based exports, with sawn goods being exported to meet rapidly growing European markets. In the PPI sector, most paper was exported to other parts of the Russian empire, but the main market areas changed in the 1900s.
One of the most significant changes in the operative environment was the Russian Revolution. Russian markets closed in 1917–1918 and following the cessation of hostilities of the Finnish Civil War, Finnish forest-based bioeconomy companies started to turn to Western markets: Finland became one of the world’s biggest sawn goods exporters in the 1920s.
Access to international markets required cooperation through associations bringing companies together, especially in view of the business structure in Finland at the time, with many small independent manufacturers and suppliers; Finnish companies taken together were a major player on the markets.
One of the most important associations, The Central Association of Finnish Woodworking Industries (CAFWI), was founded in 1918. However, the fast-changing economic environment of the time together with prejudices and infighting limited its impact, and the first rules of association of CAFWI prohibited other societies or associations from joining.
The Finnish Paper Mill’s Association (Finnpap), founded in 1918, allowed small-scale producers to export to international markets and supported investments.
On domestic markets, Finnpap and other bioeconomy associations were, in effect, cartels, and their cooperation led to situations where forest owners received offers from only one purchaser. Finnish forest-based products were exported via marketing associations until the 1990s, which meant that domestic competition was controlled.
In the immediate aftermath of WW2, international trade was quite negligible as companies focused on rebuilding their business networks. The Finnish economy was directed towards Russian markets due to war reparations, but at the same time, efforts were made to serve Western markets.
Industry in Finland recovered quickly as reconstruction, war reparations, and the Korean war increased demand. The institutional environment of the time was highly collaborative and there were few competitive pressures from abroad.
Interactive dynamics of organisations gained positive externalities by cooperation and competition in the forest cluster. Clustering within the machine industry accelerated due to war reparations.
In the last two decades of the 20th century, around 80 percent of exports in the forest-based bioeconomy went to Europe. The focus was on the core countries of the EU: France, Germany, and the United Kingdom.
Especially, paper production was fuelled by exports. From the 1970s, industrial symbiosis with the machine industry accelerated and paper mill machinery was purchased domestically; Tampella produced grinders, Valmet produced paper machines, and Wärtsilä produced coaters.
By the 1990s, machinery and production equipment in the PPI and sawmill industries were largely domestic. In addition, the maturing chemical industry started to reinforce the forest cluster.
Changes in Finnish economic policy meant that the role of shareholders became stronger while the operations, as well as ownership base of Finnish forest-based bioeconomy companies, became more international; average foreign holdings increased from a small share to over 50 percent of the Finnish forest-based bioeconomy companies by 1999.
Digitalisation and changes in behaviour began to affect paper and board markets in the early 21st century: paper production in Finland dropped by 45 percent between 2004 and 2017. In recent years, demand for pulp, paper, and sawn goods has decreased in Europe, whereas it has increased in Asia, which now accounts for one fifth of export returns. A major part of sawn goods (33 percent of total sawn good exports) and pulp (42 percent of total pulp exports) with low added value were exported to Asia.
Economies Of Scale
Forest-based bioeconomy production was a home industry until the 19th century, when such dispersed production began to be replaced by greater centralisation, which benefitted large-scale production and allowed economies of scale.
Private companies bought millions of hectares of forest area and tried to monopolise forest resources. As a result of industrialisation and larger production volumes, integration was considered necessary in order to achieve economies of scale.
Vertical integration was part of strategic behaviour in the industry from Finnish independence in 1917 until the 1980s. In the vertical integration, parts of supply chain were purchased or established; from forests to international sales organisations.
The limits of organic business growth were reached in the 1980s. Horizontal integration was a part of business strategy in the Finnish forest-products industry from independence until the 1990s.
In the mid-20th century, renovation and upgrading of production lines and investment in new capacity aimed to make production more efficient both to achieve economies to scale and to increase the added value of products.
Mass production, a focus on large production volumes, and low specialisation were typical characteristic features of the forest-based bioeconomy of the 1990s and early 2000s, which limited innovation activity. In connection with changes in the overall Finnish business environment, forest products companies set higher targets for return of investment (ROI), and increasing shareholder value became a major target.
In the 2010s, the competitive advantage of pulp producers in Finland was based on large-scale, efficient long fibrous pulp production. Substantial foreign investment funding has led to large-scale investment in pulp production.
From the above analysis, it can be seen that interactions between lock-in mechanisms have occurred and the lock-in mechanisms have affected the product range. The results are summarised in Table 1.
Interactions between the lock-in mechanisms have occurred vertically, e.g., foreign investment has increased along with Asian networks, and renovation and upgrading of production lines have targeted higher added value of the products along with the changes in the strategy. In addition, horizontal interactions have occurred, e.g., marketing associations and cartels co-operated with Western timber networks, and international purchases in technology and knowledge allowed symbiosis between the wood product, wood panel, and machine industries.
The lock-in mechanisms have influenced the product range as Table 1 illustrates: Product diversification has occurred as a result of international takeovers, industrial co-operation as well as changes in strategy and R&D. Product diversification has been hindered by a focus on incremental improvements (innovation paradox), industrial associations and cartels, and a resource-based strategy. Large-scale networks abroad in the dominant design have most likely hindered product diversification, whereas dispersed networks have most likely promoted product diversification.
System Lock-in Affects Industry Strategy
System lock-in in the forest-based bioeconomy in Finland has resulted in robust group thinking with a narrow perspective of how the industry should operate strategically. A path-dependent business strategy has created the foundation for an operational model that has followed specific technology, products, resources, and international as well as domestic market status.
Certain courses of action have been restricted or prevented due to coevolution of the capability base of Finnish bioeconomy companies and the institutional environment. This reciprocity has manifested itself in business privileges, a sense of entitlement among actors in the industry, and state enabling of allowance of intra-industry joint investment, marketing, and R&D.
The forest-based bioeconomy in Finland is an archetypal case of lock-in that shows how path-dependent increase in returns create techno-institutional lock-in that leads to the development of conventional products in a particular and desirable direction.
The number of actors and the linkages between them have increased continuously in industrial symbiosis and correlated production and diversification of products. The significant distance between the firms and their end customers and a focus on the incremental development of process technology and the value chain have caused a reduction in the importance of strong regional clusters.
A need for efficient commercialisation and marketing of know-how abroad along with active network creation nationally and internationally have been recognised as prerequisites for diversification of business activities.
Similarities can be found in nanotechnology, where it has been shown that the degree of clustering can have a negative association with creation of technological diversity. In this sense, industry symbiosis and clustering first influence product diversification beneficially, but as the degree of symbiosis and clustering increases, the effect can change to adverse.
At the regional level, market-related regulatory barriers can limit the development and adoption of radical and path-breaking innovation, which in turn results in limitations in regional innovation policy in the context of locked-in old industrial regions.
On the other hand, demands from a large number of industry sectors can split the papermaking development to new development sectors, e.g., the energy, textile, and chemical sectors.
Similarities can be found in the Indian software sector, which is highly export-dependent on the US market. The lock-in effect implies neither high productivity nor any particular tendency for innovation.
Similar to industrial symbiosis and clustering discussed in the previous paragraph, diverse and dispersed demand can first beneficially influence product diversification, but as the degree of demand increases, the effect can change from beneficial to adverse.
Interactions between different lock-in mechanisms can reinforce or weaken technological trajectories. Coevolution at the regime level is clearly visible. In this sense, a lock-in mechanism that does not affect product diversification directly can have an impact by interaction with other mechanisms, e.g., interaction between foreign investment and new networks.
On one hand, the impact may be seen in higher productivity rather than product diversification, because foreign funding of production results in the major share of produced pulp being exported. On the other hand, new foreign-funded biorefineries, such as BioFutureFactory, and more diverse networks may increase product diversification.
Transition in the forest-based bioeconomy in Finland has been influenced by historical events and megatrends such as industrialisation, wars, globalisation, digitalisation, and climate change, which have all had an impact on the product range. Lock-in mechanisms have offered opportunities for maintaining and increasing returns.
The literature of path dependence and lock-in and the used research design are highly relevant in analysis of transition of the forest-based bioeconomy. The effect of lock-in mechanisms in relation to product diversification can be neutral, adverse, or beneficial.
Network effects can first have a beneficial influence, which later becomes adverse. In addition, vertical and horizontal interactions can occur between the lock-in mechanisms, which can change the effects on product diversification from neutral to beneficial or adverse.
This research extends knowledge of lock-in mechanisms in the forest-based bioeconomy and offers insights for sustainability transition studies investigating the role of lock-in mechanisms in relation to product diversification. The results are not globally generalisable due to the historical, geographical, and societal specificity of the case; nevertheless, there are similarities with other countries, Nordic countries in particular.
It is recommended to qualitatively and quantitatively study lock-in mechanisms of the forest-based bioeconomies in other regions and political systems in order to comprehensively understand the role of the lock-in mechanisms in economic development and sustainable transition.
The phenomenon could be studied further in different economic systems with abundant forest resources, for example, within a liberal market economy like Canada, a former transition economy such as Russia, and emerging markets such as China and Indonesia.
Future industrial policy, as well as future research, should take into account the effects of lock-in mechanisms on product diversification in order to achieve all spheres of sustainability. This study adopted a broad-brush approach and considered transition over the long term; future research could investigate recent trends and the effect of networks and foreign investment on industrial symbiosis.