Keith Townsend became the head of International Paper Russia. BRICS Business Magazine asked the new president about the potential of the local market and a model of sustainable development.
Mr. Townsend, welcome to Russia and congratulations on your assignment as president of International Paper in Russia. What is your professional background, and what are your expectations from Russia?
I started my career at International Paper back in 1991, so it’s my 25th anniversary with the company. Being a mechanical engineer by education, I started in manufacturing, but then after obtaining an MBA, I worked in various business roles and was responsible for different geographies, most recently the US, Chile, and Mexico. One of the defining features of International Paper as an employer is that it gives its people stretch roles and chances to develop – it is an essential part of our leadership model. When I was responsible for global sourcing back in 1999, I came across Russia for the first time as International Paper was acquiring the Svetogorsk mill.
So you are not new to Russia?
Right. I was a member of the team that was working back then on an investment to improve the mill’s capability. Our business in Russia has grown and diversified a lot since that time and many aspects of this business are relatively new to me, so it’s another stretch assignment and I am very excited about being part of the International Paper Russia team.
You have worked with both developed and emerging markets throughout your career at International Paper. What is the difference in running a paper business in different markets, from your point of view?
As a company, International Paper strives to improve people’s lives, the planet, and the company’s performance by transforming renewable resources into products people depend on every day. This reflects our status as a truly global company and our commitment to all of our markets, both developed and developing – and that we also give back to the communities where we operate. But indeed, there are some differences between the two types of markets you mentioned. First of all, the growth dynamics are very different, and that defines many aspects of business planning. Developed markets previously enjoyed high growth for a number of years but now are growing at a more modest rate, and we don’t expect that steep growth to return anytime soon.
On the other hand, some emerging markets are currently experiencing short-term challenges, but long-term growth prospects are much higher in the emerging markets, and long-term prospects are positive in countries like Russia. What is more important is the globalization and digitization of the economy and trade that are impacting both developed and developing markets. We in the paper industry see this change happening through the lens of the industrial packaging business that I was part of, most recently in the US and Latin America. As for the paper business, the per capita consumption is much lower than in developed countries, so there is room for growth.
Russia is one of the 24 countries where International Paper has a presence – how important is this market as part of your global operations?
Business outside the US is a substantial part of our global operations, as it represents approximately 25% of our global revenue, and Russia plays an important part. Russia benefits from having the largest area of forests in the world, accounting for approximately one-quarter of global forest stocks. Moreover, it has its own developed power and transport infrastructure, a highly educated workforce, and one of the largest and fastest-growing domestic markets for pulp and paper products. This creates a solid base for developing a pulp and paper business here. We see Russia as an important country, and thus, we strive to support our local communities here. International Paper Russia is a major employer and taxpayer in the Leningrad region. It brings modern technologies and best practices in sustainability, and actively promotes ideas of sustainability among key industry stakeholders. Last but not least, you can judge the importance of this market to us by the size of our social investments – in Svetogorsk alone, we have invested over $9 million in various purely philanthropic projects to support the local community.
What is the structure of your business in Russia, and what are your strategic priorities?
We are running a big and successful business at our key production facility in Svetogorsk. The company’s forest exploitation operations are centralized in Tikhvin (Tikhvin Complex Logging enterprise, the Leningrad Region) since 2011. Our key products in Russia are Svetocopy and Ballet office paper, which are two of the most recognized brands one the Russian market.1 The other two growth businesses for us are bleached chemical thermo-mechanical pulp, which is used in the production of all sorts of tissue and board, and liquid packaging board – a popular packaging for milk, juices, and other products. We sell our products primarily in Russia but also export to the CIS, Europe, and some other markets.
What impact have the recent economic crisis and geopolitical tensions had on your business plans in Russia?
Pulp and paper is a very capital-intensive business globally, and our investments are only long-term. We have invested more than $700 million in expanding and modernizing our Svetogorsk mill, which has become one of Russia’s largest pulp and paper factories, and is a systematically important Russian enterprise. So, we have made significant and long-term investments in Russia, and we continue to look forward to growing and developing this business and strengthening our capabilities. We continue to see potential to develop our business.
What is it like to be a systemically important enterprise, a large taxpayer, and employer in Russia from the point of view of government relations?
We have a history of a very constructive working relationship with government stakeholders. We see support for and understanding of our needs as a business in this very dynamic environment, and we, in turn, are very actively supportive of the development of our industry and the regions where we work. But we are not just an industry leader in Russia – we are also a big international business and a major foreign investor in Russia. In this capacity, we are big supporters of growing trade between Russia and the world, and we are vocal advocates of investments in Russia. That is why we are one of the active participants in key business associations like AmCham and platforms that help to develop dialog between the state and business, like FIAC, and bodies that to improve trade, like USRBC.
You have mentioned investments in sustainability projects in Russia. Could you please give us some examples?
Sustainability is in our DNA. In fact, our products represent what sustainability means. Paper and board are produced from transformed renewable resources. It is our natural role and responsibility to use our global expertise to promote the principles of sustainable business in Russia, particularly Sustainable Forestry Management. With all these vast forest resources that Russia owns, it is vital to manage this valuable asset sustainably for the future generations. That’s why we are partnering with the St. Petersburg Forest Institute to develop and implement an applicable model of sustainable forestry in Russia. International Paper has invested over 48 million rubles in this program. Another important project to support sustainability in Russia is our strategic program with SKOLKOVO, as both of our organizations share the same views on the mission of major international business in Russia and educational institutions such as SKOLKOVO. It has two elements: a Sustainability Lab, which is accumulating international expertise in this field and explores the opportunities to apply and promote such principles in Russia; and International Paper, being a member of the SKOLKOVO International Advisory Board and a partner of the flagship SKOLKOVO MBA program, providing educational grants for the future generation of business leaders in Russia. We are very proud of this partnership, which started back in 2012, and have recently signed a new three-year agreement through 2019 with the school as it celebrates its 10th anniversary in 2016. I would like to take this opportunity to congratulate our partner and wish it many more decades of success.
You mentioned that people are important part of your business. What does International Paper give to them in turn?
We highly value local talents as local knowledge and expertise are important for our business. We employ a leadership model and run a Leadership Institute to develop talent globally and create opportunities for our talented employees to grow and develop both personally and professionally. We believe in giving people stretch assignments – this makes International Paper special and creates a world-class team.
At International Paper, we attach particular importance to career development opportunities for our people. For instance, in 2016, the company celebrates the fifth anniversary of its Success Formula program in Russia, which involves work experience across a number of departments at the Svetogorsk mill. Educational forums and training on company-wide practices and programs are also held on a regular basis.
I am very impressed with the local team in Russia. I see a strong team desire to be winner, and a strong sense of a family. Svetogorsk is an example of a great community of people, and I have met many multi-generational staff at our mill there.