Seeing a bright future through a technological window.

Paper companies have a great opportunity to push into higher margin businesses by embracing advances in technology, but they must move soon.

Research and development is one of those corporate areas that is viewed either as the lifeblood for future growth or as a black hole that swallows profits with no tangible returns. In theory, everyone may believe that R & D is a "good thing," but in the pulp and paper industry, the practice is usually quite different.

When it comes to funding and securing resources, the reality is that short-term financial imperatives often leave R & D playing the role of poor relation in the corporate family. Indeed, even among so-called "specialty" paper producers, R & D spending amounts to just 1% of turnover (sales).

Some will argue that R & D must take a back seat in a mature, commodity business with low margins struggling to make a decent return on capital. But at least one consultant believes that there is a great opportunity to reap some impressive rewards if just a little more time, effort and cash were to be invested.

Petri Vasara has been tracking technological advances for the Jaakko Poyry consultancy for several years. He believes that the conditions are now perfect for the paper industry to take a lead in the development of new high margin products for the future.

"Actually, there are a few basic messages in this," he said. "The first is that there are plenty of technologies already out there that can be exploited--it's like a horn of plenty. The second is that it does not cost all that much to get involved--for now, that is, until someone else snaps up the ideas. A great window of opportunity has opened up, as there are many new technologies coming through. Of course, if our industry does not move to embrace them, then we will miss out. The third and final message is that our industry is uncommonly well placed to take advantage of what other people invent, because paper is such a versatile material. We should dare people to invent things that we can adapt to our products."

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DATA TRACK

Jaakko Poyry began systematic technology monitoring across the research spectrum in late 2000. "We wanted a map for ourselves of what was going on. Not a medieval map with: "Here be Dragons" warning of new ideas; instead, it's a map helping us navigate through trickier and trickier straits," Vasara explained.

The idea is that the monitoring system pulls all the strands together in such a way that it can help the group identify potentially useful applications. For the paper industry, the team has identified a number of exciting innovations in areas such as wireless and nanotechnology; but even traditional fields such as chemistry and physics are yielding interesting new technologies, according to Vasara.

"One of the most important elements we've come across using the proprietary technology that we've developed to track developments is that there are a lot of possibilities. What is not so good is that when we look at who is following these technologies, those most involved in the hot areas are plastics companies and other competitors to paper," he said. "The depressing thing from our industry's point of view is that the people who produce the technologies, whether they're from the United States, Finland, Germany, South Korea or anywhere else on earth, rarely have paper in mind when they think about applying their technology. The first thing they look at is plastic because it's considered more technologically advanced. When you contact these smart, creative people to talk about paper you find that they really still have the blinkers on when it comes to using paper as a medium for their technology."

The battle, it seems, is to ensure that paper is at least considered as a realistic option when it comes to creating applications for new technologies. But it appears that the "slow metabolism" of the industry makes it less likely that papermakers will benefit as they lag behind the innovation curve. As Vasara pointed out, "There are more possibilities now than ever, but the window of opportunity will close. Other, competing industries will have snapped up these new technologies. Of course, it's often still possible to license these technologies later, but there is a catch. Many of the innovations are looking to be adapted to a certain material. When they have been "bonded" to plastics, it's often not economically viable to transform them to paper usage."

OFFERING SUPPORT

According to Vasara, paper companies do not even have to spend huge sums to get involved in developing new technologies. They just have to be more willing to offer clear support to the efforts of technologists who will then find it easier to get funding from their backers. That means going out and interacting with a variety of outside organizations so that suitable candidate technologies can be found.

The consultant himself, though, sees no shortage of good ideas that are already available. "Frankly, I'm fed up with people that talk in soft focus about trillion-dollar markets for future technologies, with violins in the background but no facts," he said. "These technologies are already here and waiting to be used. Our monitoring system alone contains, as a sample, something like 3000 nanotechnologies and smart packaging technologies that are either ready to be adopted now or close to it. It is application creation time."

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Based on what the Jaakko Poyry team has learned, there are technologies looking for applications and applications looking for technologies to make them work. The trick is bringing the elements together--acting as a "matchmaker". That is the difficult part in a capital-intensive industry where money has been traditionally focused on adding capacity rather than trying to develop new ideas and higher margins.

Surveying the rash of new technologies available, Vasara mentioned advances in sensors, safety features, logistics, computer chips and algorithms, wireless, printed electronics--even design. "Making design and technology play together is something that could bring our industry that critical distance closer to the consumer that we have always wanted," he pointed out.

Fortunately, much work is already being done on incorporating interactive electronics into packaging design, for example. Likewise, there are whole new ranges of "smart" materials that can change their properties with the application of an electrical charge, for example. There are also new materials that are sensitive to temperature, pressure, humidity and other characteristics that could be useful in the coating area. The question for Vasara is this: are companies taking this seriously, or is it only a sideline or a hobby that they pursue while clinging on to the big bulk products?

NOTABLE EXCEPTIONS

The packaging arena probably boasts the brightest prospects as small-scale active displays in packaging elements and the ongoing development of different tags (RFID, EMID, embedded chips) all create new opportunities for suppliers to get close to their customers and make packaging an integral part of the product. Indeed, the possibilities are really only defined by the imaginations of those involved.

Certainly, the paper industry is working on these issues, and there have been some notable success stories in recent years that the industry can point to. The feeling remains, though, that much more could be done.

Offering one example, Vasara points to a new DVD concept from Sony. It is a DVD for the new Blueray format (a different laser wavelength), boasting a maximum storage capacity of 25 GB, made of 51% paper and almost completely recyclable. As he pointed out, "While it was nice of Sony to do that for us, and declare that paper is the environmentally sound alternative, we wish that the announcement had had a paper company behind it as an active partner."

Ultimately, the question is whether the paper industry actually sees itself as having a role in such technological developments. As Vasara asks, "Is our industry content to sit back and remain volume commodity producers on low margins with a seemingly never-ending trend of sinking prices, or are we serious about climbing up the chain towards value-added consumer products?"

If paper companies do want to push the frontiers, then they will have to work with their partners right down the supply chain to generate a debate about what's possible and work with them to develop new solutions. That is likely to require a broad range of expertise and a systematic approach to creating technology networks that can implement innovative ideas. It remains to be seen whether that is a challenge paper companies are willing to embrace.

IN THIS ARTICLE YOU WILL LEARN:

* How technological advances are opening up new opportunities for paper.

* How RFID and electronic inks could help re-shape packaging.

* How paper companies can embrace new markets by exploiting R & D relationships.

ADDITIONAL RESOURCES:

* www.poyry.com

* www.sca.se

* www.metsopaper.com

RELATED ARTICLE: THE WRITING IS ON THE BOX

Petri Vasara's call to arms to the paper industry--asking producers to embrace emerging technologies (see main article)--is likely to herald some complaints that the companies involved are already making progress. But even the vice president of corporate R & D at SCA, Ulf Carlson, reluctantly concedes that the industry has to do more to boost its image and start an aggressive program to implement new applications relevant to paper.

Considering that SCA is widely held to be one of the sector's forerunners in terms of pushing customer-oriented innovation through its hygiene and packaging businesses, it is fair to say that even the best-placed industry players know they have much to do if they are not to be left trailing in the wake of plastics ... again.

"When you ask 'do we spend enough money on R & D,' I'd have to say that no-one ever really spends enough," says Carlson. "But some awareness has started to show itself across the industry, and companies are waking up to the possibilities. It is about perception, though, and that can be changed. I think that with the EU's new emphasis on sustainability in its programs, the paper industry has a big opportunity to ride into the frame and work with projects that will put paper in the spotlight. It's a great product for lots of things and it's environmentally friendly."

Carlson believes that some parts of the industry are likely to remain commodities well into the future and that there is plenty of room for those players to co-exiat with more advanced products. However, he believes that SCA's long-term strategy of focusing on hi-tech, high margin products means that it will be leading the pack when it comes to pushing paper into new technological territory.

"SCA is looking toward the front end of the value chain, but on the other hand, there will always be room for the big bulk producers; it's about getting a balance. For SCA, though, we're looking at a different future and that means getting close to the customer in the hygiene area. That is a very different business from bulk newsprint, for example. Packaging is somewhere in the middle and I think there are good opportunities for us there. Right now, everyone is looking at RFID tags, but to be honest that's only one part of it. Personally, I am excited about the prospects for conductive printing inks and the opportunities that those will open up. By doing that, paper, printing, IT and electronics all come into the same area."

The group is investigating a broad range of technologies that Carlson believes will help SCA maintain higher margins than many of its competitors long into the future. One thing he is sure of is that the paper industry is in a great position to exploit current advances.

"The technology is there and we've been building the know-how for decades. The industry should not be talking about what might be possible in the future. We should be going into the implementation phase right now," he said. "We should be thinking about how we're going to use this technology for our customers. That is going to bring about a big shift in our industry and also, hopefully, in how other people see us."

RELATED ARTICLE: PAPER STILL PUSHES THE ENVELOPE TWO MILLENNIA LATER

Paper itself may be old news--a couple of thousand years, in fact. But if there was ever any doubt about the role of paper in a hi-tech future, then a new joint venture being set up between Metso, Nokia, and Hansaprint should serve to highlight its ongoing potential.

Metso, famous as a paper machine builder, is linking up with mobile phone giant Nokia and a Finnish printing house, Hansaprint, to develop intelligent packaging solutions through a new corporate vehicle called Avantone.

Metso and Nokia will own the majority of the new company's stock, with each holding an equal number of shares; although for now the new company is awaiting the approval of the authorities, as the president of Metso Ventures, Vesa Kainu, explained. "Because it's a joint venture between Nokia and us, we have to get approval from the international competition authorities," he said. "It's very difficult to say exactly when we'll get started, but we've already been cleared by the EU, which is a big step, and we have a lot of ideas."

According to Kainu, the deal was partly prompted by Metso's sell-off of its converting operations to Bobst. After the sale, the company still had some valuable intellectual property in terms of coating, basic paper technology and the use of electronics in paper and printing. "We want to be in a business where we see the future turning more and more toward incorporating the printed areas of packaging and paper and board and using that to convey information," says Kainu.

If all goes well, Avantone plans to develop a range of solutions for consumer packaging and printed media that will provide more information and visual appeal to printed products, as well as combining digital content and additional services to packaging. Kainu reports that successful tests have already been made in the areas of automatic stock re-ordering and predicts that security applications will offer good opportunities for the future.

"People are using some holograms today that are quite easy to counterfeit," he says. "Using electronic inks, for example, what we will be able to do is to print the same security information on to the packaging, the seal and the product. That means that it will be very easy to spot counterfeits."

Paper, it seems, will be around for a long time yet.

JIM KENNY, CONTRIBUTING EDITOR/EUROPE

ABOUT THE AUTHOR

Jim Kenny is contributing editor/Europe for Solutions! magazine, and is based in Brussels, Belgium. He is the former vice president of editorial for Paperloop and today heads his own company, DSI. Contact him by phone at [phone], or by email at [e-mail].

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