Executive Interview -- Timo Varhama, President & General Manager, UPM-Kymmene Japan KK.

The chances are that somewhere in your office, the paper you are using came from UPM-Kymmene Japan KK, the Tokyo-based unit of the global forest products group with core businesses in printing papers, specialty papers, label materials and wood products. Headquartered in Finland, UPM has key mills located in Finland, Germany, France, the UK, Austria, the United States, Canada and China.

Timo VarhamaTimo Varhama

In Japan, UPM’s product range covers all types of paper and label materials as well as timber and plywood. UPM has been in the Japanese market since 1975. It also has an office in Sendai to handle the timber business.

Heading up the Japan operations is Timo Varhama. Born in Finland, he has been with UPM all his working life, serving in Europe, Australia and Japan.

J@PAN INC: When did you first come to Japan?
Timo Varhama: About 21 years ago. I was in sales at that time. After that, I went to Australia and then I came back to Japan 12 years ago as president.

JI: What is UPM’s history in Japan?
TV: We have been in the Japanese market in one way or another for 33 years. For most of that time, we were in a joint venture that was dissolved five years ago.

JI: How big is the Japanese market for UPM?
TV: Overall, Europe is still our biggest market. We sell 70 percent of our products there. Then comes the US. I would say that Japan used to be No. 3 but China is probably bigger now. However, in quality paper, Japan is No. 1 and the most advanced market for us in Asia.

JI: What’s happening in the market in Japan?
TV: In paper, the import penetration ratio is only 5 percent and it’s a tough fight against locals. In timber, imports are 50 percent, so it’s quite different. Most of the timber used to come from North America but they haven’t looked after their forests and supply has dropped. So in the last few years, Japan has started to look for a reliable source for sawn timbers from fir trees such as pine and spruce. Finland and Sweden are the best sources for that.

JI: Where are your products made?
TV: Our products still come mainly from Europe but we now have a big paper mill in China. A lot of our supplies come from there now and our regional head office is in Shanghai. It takes about four days to ship to Tokyo, in contrast to 40 days from Europe.

JI: Has 2008 been a good year for UPM in Japan?
TV: Yes, it has actually. The Japan economy has seen good demand and we have been able to draw on our long established name here and pick up some new business. I am optimistic for the Japanese economy. However, our business here is heavily dependent on exchange rates. All our sales are in yen and production costs are in euros in Europe and dollars in China. The last four years we struggled because of the strong euro but now it is getting better.

JI: How do you market the company?
TV: Our total number of active customers is less than 100, so we don’t need to advertise. It is based on long-term relationships. Everybody knows each other—the manufacturers, distributors, publishers and printers. Same with the builders, traders etc.

JI: What’s happening in the newsprint industry as more consumers use the Internet to get their news?
TV: In Japan, newspaper circulation has been holding-up pretty well. That’s related to the fantastic home delivery system—you get your paper delivered morning and night. Magazines have been suffering more. Circulation has been going down for the past 10 years. That’s happening in all mature markets. Our presence in the newspaper industry is small. It is a difficult market and they are fussy about what they buy, even more so than big magazine publishers.

JI: What are the most important factors in doing business in Japan?
TV: You must have a good product, good service and something else on top of that—relationships and reliability. It’s also vital that we guarantee stable supply on time.

JI: What is UPM doing in terms of forest conservation?
TV: Biodiversity is very important for us. UPM is the biggest recycler in Europe and probably the whole world. We make 11 million tons of paper and recycle about 2.5 million tons of materials. Sustainable forestry is an area that Scandinavia is good at. We have double the amount of forests today which we had 50 years ago. UPM promotes a global increase in the use of certified wood and supports different credible forest certification schemes.

JI: How would you describe forest management in Japan?
TV: Quite frankly, it is a mess. There are heaps of cedar forests growing in Japan but unfortunately, they haven’t been looked after for the past 40-50 years. The forest management system is not regenerating. That’s why timber imports are growing. Things are slowly changing but it will take a long time.

Chris Betros is editor of Japan Today.