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HELSINKI SCHOOL OF ECONOMICSFaculty of International Business
Pulp and Friction – Engaging with stakeholders
A case study from Latin America
Master’s Thesis Galina Kosonen
Spring 2008
________________________________________________ laitoksen
laitosneuvoston kokouksessa ___/___ 20___ hyväksytty
arvosanalla ______________________________________________
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Acknowledgements
The idea to conduct a study on Botnia’s pulp mill project in Uruguay was initially born in
2005, when I learned about Botnia’s project while working as a trainee at Finpro’s Project
Advisory Service in Washington, DC. Through the development of this idea I was given a
possibility to conduct the study in cooperation with Botnia.
I am grateful for several people for helping me to receive this mandate, especially; I pay
my gratitude to Marko Janhunen, who has been my tutor in Botnia. I would also like to
express my appreciation for having had an opportunity to be supported by Botnia
throughout the study. Both, guidance and financial support given by the company were
valuable in reaching the final conclusions. A possibility to conduct the empirical part
partially in Uruguay brought deeper perspective in the study, and broadened my outlook on
the case. Last but not least, I am grateful to all the interviewees involved in this study.
Helsinki, January 28, 2008
Galina Kosonen
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Helsinki School of Economics ABSTRACTDepartment of Marketing and ManagementInternational BusinessGalina Kosonen
PULP AND FRICTION – ENGAGING WITH STAKEHOLDERS: A CASE STUDYFROM LATIN AMERICA
ObjectivesThis study contributes to an understanding of stakeholder relationships and engagement inemerging markets. The purpose of the study is to examine the managerial process ofconsidering stakeholders as a part of the corporate strategy. Furthermore, the aim is toanalyze and identify the criteria that companies use when prioritizing diverse stakeholders,which have multiple and many times even contradictory interests towards a company. Theempirical focus is on stakeholder prioritization strategy of a Finnish company doingbusiness in Uruguay.
The study consists of two parts, theoretical and empirical. The theoretical framework of thestudy is positioned within the literature on strategic management and corporate socialresponsibility (CSR). Additionally, literature including the main theories on nationalculture is included in the theoretical part of this study. Stakeholder theory has become awidely accepted theory amongst both academics and practitioners, but it still lacks acommon and comprehensive model for dynamic stakeholder prioritization andengagement. The theoretical framework of this study intends to operationalize the processof stakeholder engagement and proposes a three-step model for prioritizing stakeholders.
Research methodThe empirical part consists of a single case study and is divided in two chapters. The firstchapter consists of the results on Uruguay’s business environment; the second chapterincludes the empirical results on the case company’s stakeholder prioritization process.The empirical part is conducted by collecting data from documented and archivaldocuments. Additionally, interviews that were held with the case company’srepresentatives and stakeholders formed an important part of the empirical study.
ResultsThe empirical results suggest that within a certain project, stakeholders are prioritizedbased on the strategic importance of each stakeholder or a group of stakeholders.Furthermore, a chronological progress of the project guides the strategic choice of – andthus forms a proactive criterion for – the company’s stakeholder prioritization. Thefindings of the case study imply that companies should use more than one criterionproactively when prioritizing stakeholders within a dynamic and a culturally distinctenvironment.
Keywords: STAKEHOLDERS, STAKEHOLDER MANAGEMENT, CORPORATE SOCIALRESPONSIBILITY, NATIONAL CULTURE
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Helsingin Kauppakorkeakoulu TIIVISTELMÄMarkkinoinnin ja Johtamisen LaitosKansainvälinen LiiketoimintaGalina Kosonen
PULP AND FRICTION – ENGAGING WITH STAKEHOLDERS: A CASE STUDYFROM LATIN AMERICA
TavoitteetTutkimuksen tarkoituksena on syventää näkemystä yrityksen sidosryhmäsuhteista ja-toiminnasta kehittyvillä markkinoilla tarkastelemalla yrityksen sidosryhmäjohtamistaosana yritysstrategiaa. Sidosryhmien vaateet yritystä kohtaan ovat monesti hyvinmoninaisia – ja usein myös vastakkaisia keskenään. Näin ollen tutkimuksen tavoitteena ontunnistaa, mitä kriteereitä yritykset käyttävät asettaessaan sidosryhmiänsätärkeysjärjestykseen. Tutkimuksen empiirinen osio tutkii suomalaisen yrityksen strategiaaja sidosryhmien priorisoinnin kriteereitä Uruguayassa.
Tutkimus koostuu kahdesta osasta, teoreettisesta ja empiirisestä. Tutkimuksen teoreettinenviitekehys painottuu strategista johtamista sekä yrityksen yhteiskuntavastuuta käsitteleväänkirjallisuuteen. Teoreettisessa osassa käsitellään myös kansalliskulttuuria ja sen vaikutustasidosryhmien luonteeseen. Tutkimuksen teoreettinen viitekehys koostuu kolmestavaiheesta, jotka yrityksen tulisi huomioida asettaessaan sidosryhmiääntärkeysjärjestykseen. Näiden askelten avulla viitekehys pyrkii tarjoamaan mallin, jokajalkauttaa (operationalisoi) yrityksen sidosryhmäsuhteiden ja -toiminnan hoitamisen.
TutkimusmenetelmätTutkimuksen empiirinen osa koostuu yksittäisestä tapaustutkimuksesta ja jakautuu kahteenlukuun. Ensimmäinen luku käsittelee Uruguayta ja sen toimintaympäristöä; toinen esitteleecase-yrityksen strategian ja ne kriteerit, joita yritys käyttää asettaessaan sidosryhmänsätärkeysjärjestykseen. Aineisto koostuu kvalitatiivisen tiedon käsittelystä ja sisältää muunmuassa asiakirjoja, arkistomateriaalia ja lehdistötiedotteita. Tärkeä osa aineistoa koostuuniin ikään yrityksen avainhenkilöiden ja sidosryhmien edustajien haastatteluista.
TuloksetTutkimuksen tuloksena voidaan todeta että, tietyn projektin puitteissa, yritys pyrkiiasettamaan sidosryhmänsä tärkeysjärjestykseen sen perusteella, mikä on kunkinsidosryhmän strateginen merkitys yritykselle. Lisäksi, projektin kronologinen edistyminenohjaa yrityksen strategista – eli ennakoivaa – valintaa siitä, mitkä sidosryhmät koetaanmissäkin tilanteessa tärkeimmiksi. Toisin sanoen, projektin kronologinen edistyminentoimii kriteerinä sidosryhmien priorisoinnissa. Tutkimustulosten perusteella voidaan myöstodeta, että määrittäessään sidosryhmiensä tärkeysjärjestystä, yrityksen tulisi käyttääuseampaa kuin yhtä kriteeriä ennakoivasti.
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TABLE OF CONTENTS
1 INTRODUCTION ................................................................................................. 8
1.1 Research gap and purpose of the study ............................................................................................... 9
1.2 Research problem and research questions......................................................................................... 10
1.3 Scope of the study and definitions...................................................................................................... 11
1.4 Structure of the study......................................................................................................................... 14
2 LITERATURE REVIEW ..................................................................................... 15
2.1 Framing stakeholder theory............................................................................................................... 152.1.1 Introduction to stakeholder theory ................................................................................................. 152.1.2 Managerial approach..................................................................................................................... 172.1.3 Corporate responsibility and stakeholder theory............................................................................. 20
2.2 Stakeholder prioritization process ..................................................................................................... 232.2.1 Stakeholder identification.............................................................................................................. 232.2.2 Defining stakeholder interests ....................................................................................................... 262.2.3 Prioritizing stakeholders................................................................................................................ 29
2.3 Latin American cultural context........................................................................................................ 38
2.4 Theoretical framework of the study................................................................................................... 42
3 METHODOLOGY .............................................................................................. 46
3.1 Research method ................................................................................................................................ 46
3.2 Selection of the case study .................................................................................................................. 47
3.3 Data collection and study design........................................................................................................ 51
3.4 Reliability and validity ....................................................................................................................... 54
4. EMPIRICAL FINDINGS .................................................................................... 57
4.1 Uruguay context ................................................................................................................................. 574.1.1 Business environment ................................................................................................................... 574.1.2 National culture characteristics...................................................................................................... 624.1.3 Botnia’s stakeholders in the Uruguay project ................................................................................. 67
4.2 Results on stakeholder prioritization process.................................................................................... 714.2.1 Identification ................................................................................................................................ 724.2.2 Interests........................................................................................................................................ 764.2.3 Prioritization................................................................................................................................. 83
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5 DISCUSSION..................................................................................................... 89
5.1. Summary of the main findings.......................................................................................................... 89
5.2 Theoretical implications..................................................................................................................... 93
5.3 Managerial implications..................................................................................................................... 97
5.4 Limitations of the study...................................................................................................................... 98
5.5 Recommendations for future research............................................................................................... 99
REFERENCES
APPENDICES
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LIST OF TABLES
TABLE 1: Typology of influence strategies (Adapted from Frooman 1999)
TABLE 2: Data collection techniques and study design.
TABLE 3: Stakeholder prioritization process of Botnia in the Uruguay-project during
2003-2007.
TABLE 4: Criteria for prioritizing stakeholders.
LIST OF FIGURES
FIGURE 1: Three aspects of stakeholder theory (Donaldson & Preston 1995)
FIGURE 2: Enterprise level strategy process (Freeman 1984, 92)
FIGURE 3: Comprehensive stakeholder management process model (Preble 2005)
FIGURE 4: A stakeholder map of a very large organization (Freeman 1984)
FIGURE 5: Factors influencing the strategic importance of the external stakeholder and the
basic approaches to managing them (Harrison & St. John 1996)
FIGURE 6: Stakeholder typology: one, two or three attributes present (Mitchell, Agle &
Wood 1997)
FIGURE 7: Theoretical framework for prioritizing stakeholders.
FIGURE 8: Location of Botnia’s Fray Bentos mill.
FIGURE 9: Map of Uruguay
FIGURE 10: Botnia’s stakeholder map in the Uruguay-project.
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1 INTRODUCTION
Is profitability excluding responsibility or – maybe it’s the other way around? In today’s
business, responsibility has become competitive advantage for many companies.
Companies coming from welfare societies face frequently a twofold challenge in their
global business operations: while optimizing their profitability, companies face increasing
pressure to act responsibly towards their stakeholders in both their home and host
countries.
Finnish wood-processing industry is actively investing abroad, especially in Asia and Latin
America. These investment decisions are supported by the aim to increase profitability by
planning production close to the sources - and good availability - of raw material, lower
production costs, and potential clients (Arrando et al. 2007, Lang 1996, Paperiliitto 2006).
While many Western companies compete for selling profitably their products, many
emerging economies compete for attracting inward investments in order to spur their
economic growth. These mutual interests attract each other and still, at the same time, may
include unpredictable challenges: the unequal development of laws and regulations, formal
and informal institutions and networks as well as the influence of national culture and
manifold stakeholder pressures in emerging markets may differ substantially from those of
the developed country (Contreras 2004, Vives 2004, 2005). Global business environment
thus poses a big challenge on companies to balance between multiple stakeholder demands
and act according to responsible business practices – locally (Baskin 2006; Haslam 2004;
Muller 2006; Vives 2004, 2006; Weyzig 2006).
During the past years Latin America and the Caribbean (LAC) have become increasingly
attractive marketplaces for Finnish companies; Finnish exports to Latin American
countries doubled during the 1990s. Finnish companies are present in countries like Brazil,
Argentina, Mexico, Uruguay, Chile, Colombia, Venezuela and Peru, of which Uruguay has
been attracting a notable amount of Finnish direct investments since the beginning of this
decade. Due to Metsä-Botnia’s pulp mill project in Fray Bentos Finnish exports to
Uruguay have grown over 16 times amounting almost EUR 160 million in 2006. Uruguay
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has now become – together with Brazil, Mexico, Argentina and Chile – one of the most
important trade partners for Finnish companies in Latin America. Despite the attractiveness
of LAC countries, they remain still quite unfamiliar to Finnish companies. (Finnvera 2005;
Finpro 2005, 2006, 2007; Gustafsson 2005; Kuparinen 2006; Lammila 2004; Landin 2005;
Piilonen 2005; STT-IA 1998; Taivainen 2005)
1.1 Research gap and purpose of the study
The purpose of this study is to examine the managerial process of considering stakeholders
as a part of the corporate strategy and develop a framework for prioritizing stakeholders.
Furthermore, the aim is to investigate the challenges and difficulties international
companies are likely to face when balancing between diverse stakeholder interests and
demands.
Previous literature on stakeholder management has addressed the identification of
stakeholders (Clarkson 1995, Freeman 1984, Mitchell et al. 1997), stakeholder interaction
(Jara et al. 2006, Kolk & Pinkse 2006, Vázques & Polo 2007), stakeholders and corporate
social responsibility (Carroll 1981, 1999; Crane & Matten 2007; Harrison & Freeman
1999), stakeholder management and business performance (Clarkson 1995, Goodijk 2003,
Harrison & Freeman 1999, Waddock & Graves 1997), and managing competing
stakeholder interests (Parent & Deephouse 2007, Rawlins 2006, Reynolds et al 2006).
Stakeholder literature discusses the importance of managing different stakeholder interests
and balancing variable stakeholder demands as the most critical issue for the managers to
deal with (Godfrey & Hatch 2007, Freeman 1984, Harrison & Freeman 1999, Mitchell et
al. 1997, Preble 2005, Reynolds et al. 2006).
Even though the importance of managing stakeholders has been acknowledged and
numerous theoretical and empirical studies have been conducted with the stakeholder
concept as a central theme, far less has been done to integrate and implement this
knowledge into a practical framework for managers of the contemporary organizations
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(Preble 2005). The stakeholder theory as such does not present any preconditions on how
to achieve balance between varying stakeholder interests: in other words, how to prioritize
stakeholders with diverse interests. Little consideration has also been paid on the
motivation of and processes used by corporations to avoid – or deal with – stakeholder
power and pressure (Kolk & Pinkse 2006, Susniene &Vanagas 2007). This study aims to
contribute to filling this gap by deepening the understanding on corporations’ stakeholder
engagement and their strategies to choose, which stakeholders are the most critical ones for
them.
1.2 Research problem and research questions
In their every day business, companies are engaging with various stakeholders: they are
choosing with whom and how to engage. This means that companies have to prioritize the
engagement with their stakeholders, which have diverse – even contradictory – interests
towards the company. The research problem of this study is related to this challenge of
stakeholder prioritization. The aim is to study:
What criteria are used in prioritizing stakeholders, which have diverse interests in the
company?
In order to facilitate answering the problem, the following research questions are
formulated to structure the paper. The first two questions are related to theoretical part of
the study; the third question is empirical in its nature.
a) How can a company identify the relevant stakeholder groups and their interests
in the company?
b) How can a company prioritize variable stakeholder interests?
c) What are the characteristics of stakeholders and the context for prioritizing
them in Uruguay?
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The objectives of this study are two folded. The aim of the theoretical part is to develop a
dynamic model for stakeholder prioritization in an international context. Secondly, the
empirical focus is on exploring what strategies are used by a Finnish company in
prioritizing stakeholders in a foreign environment.
1.3 Scope of the study and definitions
This study contributes to international business studies and is positioned within the
research field of business and society. It applies both, management literature and literature
on corporate social responsibility (CSR). Furthermore, the perspective of national culture
is included in the study. It is considered to be an important part in the field of international
business studies.
Stakeholder management process is the central theme of the study; moreover, it is studied
in the context of a Finnish forestry company doing business in Latin America, Uruguay.
Globalization drives companies to relocate their production processes in countries
providing access to both raw-material and cheaper production and working conditions. The
requirements of stakeholders in the host-country may differ substantially from those that
companies have dealt with in their home-country. This study views the stakeholder
management from a managerial perspective, through a lens of a Finnish corporation.
There are five central concepts, which are important to review for the purpose of the study.
In the following, these concepts are defined in an alphabetical order; thus, they are not
according to their priority.
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Corporate citizenship
Corporate citizenship has emerged as a new way of addressing the social role of the
corporation. Especially, the concept emphasizes corporations’ relationships with and
responsibility towards all the members of the society. (Crane and Matten 2007, 70;
McIntosh et al. 2003, 48-49) Corporate citizenship is often defined by the company itself,
and thus has many definitions. The definition given by the World Economic Forum (2007)
is used in this study: “Corporate citizenship is the contribution that a company makes to
society through its core business activities, its social investment and philanthropy
programs and its engagement in public policy.” This definition is also commonly used as a
reference.
Corporate Social Responsibility
The definition used in this study follows the definition of the European Commission:
“Corporate social responsibility is a concept whereby companies integrate social and
environmental concerns in their business operations and in their interaction with their
stakeholders on a voluntary basis.” (European Commission, 2001) This definition is
chosen for it is commonly used in business. Additionally, it puts emphasis on the
stakeholder perspective.
Emerging Markets
Defining the concept of “emerging markets” is complex; an emerging market can be
defined as a rapidly developing market being in a transitional phase between the
developing and developed country status. What seems to be in common in different
descriptions of emerging markets is, that they all seem to have good growth prospects and
rapidly developing economies; they are volatile and risky and in “a transition phase”.
Originally, the term ‘emerging market’ was proposed by the International Finance
Corporation (IFC) to describe a limited list of middle-to-higher income economies among
the developing countries. The term’s meaning has since been expanded to include more or
less all developing countries. This study uses the original proposition of IFC and
categorizes emerging markets as middle-to-higher income countries. This classification is
chosen for making a distinction between developing countries (defined as low- or middle-
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income countries with a Gross National Income (GNI) per capita of USD 9,265 or less)
and emerging economies (defined as high-income countries on the World Bank’s list with
GNI USD 9,266 or more).
In this study, Uruguay represents an emerging market form Latin America; it forms the
country context for the empirical part. Uruguay has just crossed the line between the
middle- and higher income; its market valued GNI per capita in 2006 was USD 10,700. In
order to avoid misinterpretations; “emerging markets” and “emerging economies” are used
interchangeably. (Finpro 2007, Li 2007, Mody 2004, SustainAbility 2007, World Bank
2002)
National Culture
There are several definitions that explain national culture and many of these descriptions
share the view of culture being a combination of values, beliefs, morals, expectations and
common understanding between a group of people. Hofstede (1984, 21) defines culture as
“the collective programming of the mind which distinguishes the members of one human
group from another”. He describes culture being a character of human collectivity, as what
a personality is to a human being. Hofstede’s definition of national culture is applied in
this study because its compatibility and broad refereeing in relation to business
perspective.
Stakeholders
Stakeholders have been defined in various ways (Clarkson 1995, Mitchell et al. 1997,
Preble 2005), of which one of the broadest definition was given by Freeman (1984, 46): “A
stakeholder in an organization is (by definition) any group or individual who can affect or
is affected by the achievement of the organization’s objectives.” This definition is
particularly important for its emphasis on bidirectional relationship between the company
and its stakeholders. It is also the most quoted definition of a stakeholder in business
literature (Rawlins, 2006), and is therefore used in this study. Literature uses sometimes
synonymous words for stakeholders. Therefore, in this study the words “stakeholders” and
“group(s) of interest” are used interchangeably.
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1.4 Structure of the study
The study consists of five chapters: introduction, literature review, methodology, empirical
study and discussion. The present chapter introduces the purpose of the study, the research
problem and the main concepts. The second chapter consists of the review of the relevant
literature and includes introduction to the concept and theory of stakeholders and the
review of the main managerial implications for stakeholder prioritization process. After
this, Latin American and Finnish national cultural characteristics are discussed and the
literature review is finally concluded with presenting the theoretical framework for the
study.
The empirical part starts from the third chapter with an introduction to the methodology
and a review of the case study. The fourth chapter presents the empirical results of the
study. It is divided in two partitions, of which the first one assesses the Uruguay context
and presents the main findings on the business environment, cultural characteristics and the
case company’s stakeholder map. In the second partition, the results on stakeholder
prioritization process are listed. The study is finally concluded with discussion on the main
findings, theoretical and managerial implications with some critical evaluation and
suggestions for future research.
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2 LITERATURE REVIEW
In order to answer the research problem of the present study, the relevant literature is
reviewed. There are two theoretical settings that are bound together in this study:
stakeholder management and the concept of national culture. These theoretical settings are
combined in order to study, how companies manage their stakeholder engagement in a
foreign, unfamiliar and culturally distinct environment.
The first chapter begins with an introduction to the stakeholder theory and a review of
some earlier history of the stakeholder concept. This is followed by a discussion on the
managerial stakeholder approach after which the application of stakeholder theory in other
disciplines is assessed. The second chapter addresses management’s stakeholder
prioritization process: it covers stakeholder identification, definition of stakeholder
interests, and prioritization of variable stakeholders. The third chapter reviews the main
findings and characteristics on Latin American national culture linking it to international –
Finnish and Latin American – business context. A three-step stakeholder prioritization
model is finally developed and mapped out in the theoretical framework of this study.
2.1 Framing stakeholder theory
Many research fields include implications to stakeholder theory. This chapter reviews the
main considerations of the stakeholder theory and positions it within the main research
fields.
2.1.1 Introduction to stakeholder theory
The concept of stakeholder has developed in various disciplines over the course of history:
stakeholder theory can be linked within the literature on organization theory, corporate
social responsibility, ethical theory, strategic planning and strategic management (Carroll
1979; Freeman 1984, 33-43; Langtry 1994). However, many researchers (Donaldson &
16
Preston 1995, Freeman 1984, Frooman 1999, Goodijjk 2003, Post et al. 2002, Preble 2005,
Rowley 1997) position stakeholder theory within strategic management literature. Freeman
(1984) is one of the most cited and popular researchers regarding his contribution to the
stakeholder literature: he brought stakeholder theory into the mainstream of the
management literature.
The word ‘stakeholder’ appeared in 1960s as the theorists called for a change from a
stockholder perspective to more appropriate, stakeholder perspective: it was recognized
that there are a number of other interest groups to whom organization is responsible for its
business activities, or without whose support it would cease to exist. (Freeman 1984; 31-
32, Lozano 2000, 71-79; Preble 2005) Widely defined, stakeholder is anyone or any group
that is affected by the organization’s activities. The more concise definition proposes that
at least employees, shareholders, customers, suppliers, governments and communities shall
be defined as stakeholders. (Freeman 1994, Mitchell et al. 1997, Näsi et al. 1997)
Basically, the management literature has discussed stakeholder theory on the basis of three
forms: descriptive accuracy, instrumental power and normative validity (Donaldson &
Preston 1995). Although interrelated, these aspects are still quite distinct and include
different types of arguments and implications about the stakeholder theory (see Figure 1).
Normative theory addresses the moral or philosophical guidelines to analyze stakeholder
management and attempts to provide a reason why corporations should take into account
stakeholder interests. Instrumental theory is a tool for analyzing whether it is beneficial for
corporation to take into account stakeholder interests in order to achieve the traditional
corporate objectives. Descriptive/empirical theory describes corporate characteristics and
behaviors; it attempts to ascertain whether and how corporations actually do take into
account stakeholder interests. (Crane & Matten 2007, Donaldson & Preston 1995, Jones et
al. 2007, Mitchell et al. 1997)
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Figure 1: Three Aspects of Stakeholder Theory. (Donaldson & Preston 1995)
Descriptive
Instrumental
Normative
Freeman’s (1984) precursor book Strategic Management: A Stakeholder Approach
expresses one central purpose of stakeholder theory; it aims at enabling managers to
understand stakeholders and manage them strategically. Freeman states that the
stakeholder approach is about managers responding to those groups and individuals who
can affect or are affected by the organization.
2.1.2 Managerial approach
Stakeholder management approach provides the management a practical tool for analyzing
the company and its environment. It aims at broadening management’s vision of its
responsibilities and roles beyond mere profit maximization; it emphasizes management’s
responsibility to consider interests and claims of other groups besides the stockholders.
Stakeholder management approach is generally considered as a part of stakeholder theory,
and it has gained much acceptance amongst researches and practitioners in the past decade
(Kolk & Pinkse 2006, Mitchel et al. 1997, Preble 2005).
From a managerial viewpoint, corporate success depends on an ongoing process of
stakeholder management in which the interests and demands of stakeholders are identified
18
and dealt with properly (Werhane & Freeman 1999). One of the most profound stakeholder
management models has been suggested by Freeman (1984), who has provided a firm and
lasting foundation for many authors intending to conceptualize and to build stakeholder
models, frameworks, and theories (Clarkson 1995). Freeman (1984) develops a framework
for managers for analyzing stakeholders as a part of corporate management; moreover, he
implements the framework within organizational strategic management process. Freeman
suggests an enterprise level strategy process, which sums up the key issues in the
improvement or creation of stakeholder management strategies. This process is shown in
Figure 2.
Figure 2: Enterprise Level Strategy Process (Freeman 1984, 92)
• Who are ourstakeholders?
• What effects do wehave on each inpolitical, economic orsocial terms?
• How do thesestakeholders perceivethese effects?
• What are dominantorganizational values?
• What are the values of thekey executives and boardmembers?
• What are the values of keystakeholders?
• What are the majorissues facing our societyover the next 10 years?(economic, political,social, technological etc)
• How do these issuesaffect our organizationand our stakeholders?
StakeholderAnalysis
ValuesAnalysis
SocietalAnalysis
EnterpriseStrategy
Freeman then further introduces a stakeholder strategy formulation process. Before the
actual strategy planning, he proposes the following steps in order to analyze specific
stakeholder groups: stakeholder behavior analysis, stakeholder behavior explanation, and
coalition analysis meaning the potential for stakeholders with mutual interests to form
coalitions.
19
Another comprehensive model of stakeholder management has been proposed by Preble
(2005). In his model, Preble has combined the theoretical developments with practical
experiments and developed a six-step process model for managing stakeholders. (See
Figure 3.) In comparison to Freeman’s (1984) stakeholder management model, Preble
(2005) operationalizes the model for stakeholder management. Preble does not merely
provide a model; he introduces a process for managing stakeholders.
Figure 3. Comprehensive Stakeholder Management Process Model (Preble 2005)
Step 1. Stakehodler identification- Primary, Public, Secondary
Step 2. General nature of stakeholder claims and power implications- Equity, Economic, Influencers
Step 3. Determine performance gap- Define stakehodler expectations- Conduct performance audits- Reveal gaps- Explore stakehodler influence strategies
Step 4. Prioritize stakehodler demands- Determine stakehodler salience- Assess the strategic importance of various stakeholders
Step 5. Develope organizational responses- Direct communication - Develope policies/strategies/programs- Collaboration/partnering - Allocate resources- Set performance goals - Revise”Statement of Purpose”
Step 6. Monitoring and control- Continually check stakehodler positions--Evaluate strategic progress-- Conduct social/environmental auditsRestart
Preble explains how stakeholders can be identified and then sorted out depending on their
claims or stakes. He then proceeds with suggesting that companies should determine their
potential performance gaps based on stakeholder expectations, after which the
prioritization of stakeholder demands can be done. The fifth step introduces different
20
organizational responses that should be developed for stakeholder interaction And finally,
the sixth step includes monitoring and control.
The aim of the present study is to investigate what criteria companies are using when
prioritizing variable stakeholder interests. Therefore, the first four steps of the Preble’s
model are relevant for this study: they describe how the stakeholder management process
is developing towards organizational prioritization methods. Nonetheless, steps five and
six are indeed important in stakeholder management process, but in order to stay within the
scope of this study they will not be assessed in detail.
2.1.3 Corporate responsibility and stakeholder theory
Stakeholder theory is the most common theoretical framework used in corporate
responsibility (CR) literature and stakeholder management is considered an essential –
though, a separate – part of corporate social responsibility (CSR) (Branco & Rodriguez
2007, Carrol 1991, Crane & Matten 2007, Greenwood 2007, Harrison & Freeman 1999,
Näsi et al. 1997, Werther & Chandler 2006). Carroll (1991) proposes that there is a natural
fit between corporate social responsibility and the stakeholders: he states that the concept
of stakeholders represents the word “social” in CSR and personalizes the social or societal
responsibilities by identifying the specific groups, to whom business holds its
responsibility. Carroll states that in stakeholder management the important functions are to
understand, describe, analyze and manage. He has developed a stakeholder/responsibility
matrix, which draws managers’ attention to question “what kinds of social responsibilities
do we have to our stakeholders”? The objective of Carroll’s matrix is that it can be used as
an analytical tool to help managers to sort out what a company should do regarding the
legal, economical, ethical and philanthropic responsibilities towards its identified
stakeholders.
The literature discusses the concept of stakeholders also as part of corporate citizenship
(Carroll 1981 & 1991, Crane & Matten 2007, Davenport 2000, Hemphill 2004, Matten et
al. 2003, McIntosh et al. 2003, Schmidheiny 2006). This discussion derives from the
21
discussion where the stakeholder approach is seen as a necessary but not sufficient
condition for social responsibility. Hence, the concept of corporate citizenship (CC) has
been developed to addresses the whole relationship between business and society –
corporations and their stakeholders (Crane and Matten 2007, 71-79; Hemphill 2004;
Matten et al 2003). This new terminology of corporate citizenship started to develop from
1990s onward somewhat replacing the use of the concepts of corporate social
responsibility (CSR), corporate social performance (CSP) and social responsibility (SR)
(Matten et al. 2003). Corporate citizenship represents the view of practitioners, including
managers and consultants, that want to emphasize the role of an organization as “a good
corporate citizen” meaning being more than just “socially responsible”. The concept of
corporate citizenship can be seen highlighting the corporation’s role or place in society,
next other “citizens”, with whom the corporation dorms a community. (Crane & Matten
2007, 70-71; Matten et al. 2003; McIntosh 2003, 25-31) In his paper Hemphill (2004)
refers to Carroll’s model by discussing “the four faces” of corporate citizenship. He
presents corporate citizenship being a “model for twenty-first century corporate
governance” especially, in American business society. Hemphill barely makes a distinction
between “social responsibility” and corporate citizenship; he defines CC being an
organization’s approach to social responsibilities – economic, legal, ethical and
philanthropic.
Currently, the literature discusses three perspectives of corporate citizenship: a limited
view, an equivalent view and an extended view (Crane & Matten 2007; 71, Matten et al.
2003). A limited view equates CC with corporate philanthropy thus, the moral grounding is
basically reciprocity and the main stakeholder groups are local communities and
employees. An equivalent view equates CC with corporate social responsibility; a moral
grounding is being responsible to society – to a broad range of stakeholders – and avoiding
doing harm. An extended view of CC acknowledges the extended political role of the
corporation in society and grounding for the company, in stead being moral, comes from
changes in the political arena. McIntosh et al. (2003, 53-55) operationalize corporate
citizenship and present a framework for citizenship capabilities, in which they mention
stakeholder management and engagement as part of these capabilities.
22
The relevance of stakeholder management has also been addressed within the literature on
ethics (Crane & Matten 2007, Fineman & Clarke 1996, Lozano 2000, Sorell & Hendry
1994, Werhane & Freeman 1999). Ethical theories have been applied to business when a
concern for others as opposed to self-interest has become more evident (Crane & Matten
2007, Lozano 2000, Jones et al. 2007). In their review on ethical theory and stakeholder
related decisions, Jones et al (2007) talk about the ‘stakeholder culture’ and tend to analyze
the relationship between firms and stakeholders; they propose five different types of
stakeholder cultures based on ethics and organizational commitment level to its ‘stake
owners’. Lozano (2000, p. 74) sees the stakeholder analysis as mediation to understanding
the linkage between organizational management and ethics. In his view, stakeholder
analysis represents a practical approach to balancing between corporate responsibility and
power. Crane and Matten (2007) base their discussion on Freeman’s (1984) stakeholder
theory and the economist and nobelist Milton Friedman’s (1970) somewhat contradictory
arguments about corporation’s main task being profit maximization for its stockowners:
they argue that also other interest groups than the stockowners have rights that go beyond
merely legal and economical perspectives.
The literature discusses the importance of considering stakeholders from four perspectives:
legal perspective refers to interest groups that hold legitimate ‘stakes’ in the company,
economical perspective represents the groups that hold the stakes in business’s economic
contribution within the society, political perspective includes the stakes held by the society
and thus its power to influence the organization, and ethical perspective represents the
moral “obligations” of the company within the business environment. (Carroll 1979 &
1991, Crane & Matten 2007, Jones et al. 2007, Langtry 1994, Mitchell et al. 1997) When
considering variable demands that stakeholders may have towards companies, they often
fall down under the above mentioned categories. Also organizations then have to choose
which of these categories, under the given circumstances, become the most effective
criteria for prioritizing variable stakeholder interests.
23
Next, the main steps in prioritizing variable stakeholder interests are reviewed. The chapter
starts by introducing the stakeholder identification process, after which the general
assumptions on stakeholder interests are assessed. Finally, the main methods for
prioritizing diverse stakeholder interests are presented.
2.2 Stakeholder prioritization process
Stakeholder management has become one of the key issues for organizations to consider.
In order to contribute to the stakeholder strategy planning process, one has to address the
challenges managers are likely to face. Nevertheless, in strategy planning, not only the
background analysis can many times be complex and time consuming task but also the
choices – i.e. prioritization – that companies have to make in order to allocate the right
amount of resources for strategy implementation. This chapter introduces the theoretical
implications for analyzing and identifying organizational stakeholders and their interests
towards organization, after which the ways to analyze corporation’s level of interest in its
stakeholders are addressed. This is done through assessing the approaches companies may
use in prioritizing their stakeholders.
2.2.1 Stakeholder identification
Stakeholder identification refers to recognition of organization’s “interest groups”; these
groups are those, in which the organization has an interest or/and those who have an
interest in the organization. Stakeholder identification is a key issue in stakeholder
management: not only it helps the organization to identify its interest groups but it also
helps to explain why managers should consider certain groups as stakeholders. The
importance lies in recognizing those groups who have an affect or are affected by the
organization – either directly or indirectly. (Preble 2005) Noteworthy, in the identification
process, is that a corporation should possess an attitude that the interests of all stakeholders
are of intrinsic value and are worth consideration (Donaldson and Preston 1995).
24
There are many ways academics have been identifying stakeholders: owners and non-
owners of the firm; existing on a voluntary or an involuntary bases; being the rights-
holders contractors or moral claimants; actors or those acted upon; and generic or specific
stakeholders (Carroll 1981, Frooman 1999, Mitchell et al. 1997) One way has also been to
distinguish between internal and external stakeholders. Mitroff (1983) draws the dividing
line at the boarders of the company; Cavanagh and McGovern (1988) consider managers,
workers and stockowners internal, and government, customers, environment, as well as
local and international communities external stakeholders.
Clarkson (1995), whose identification typology is commonly referred to in the literature
(Frooman 1999, Mitchell et al. 1997, Preble 2005), categorizes stakeholders into primary
and secondary. He identifies stakeholders by their interest in the organization, despite of
whether the corporation has any corresponding interest in them. According to Clarkson,
the primary stakeholders are the ones, which are crucial for the company’s survival:
shareholders and investors, employees, customers, and suppliers, together with public
stakeholders, which are for example the government and communities. The secondary
stakeholders are those who affect or are affected by, influence or are influenced by the
corporation but are not necessary for its survival nor engaged in direct transactions with the
organization. These can be for example the media, or special interest groups like
environmental or civic organizations. (Clarkson 1995)
In recent years, also stakeholder attributes have received increasing attention in stakeholder
identification (Frooman 1999, Rawlins 2006). Frooman (Ibid.) classifies stakeholders in
two categories: strategic stakeholders are the ones who can affect the firm, and the moral
stakeholders are the ones affected by the firm. Rawlins (2006) suggests that an
organization should identify all stakeholders and then start to narrow them down according
to their attributes: he argues that there has been only a little effort to identify stakeholders
according to their relationship with the organization. He proposes a stakeholder
identification model developed by Grunig and Hunt (1984). This model has four linkages –
enabling, functional, diffused, and normative – which identify stakeholder relationships to
an organization. One of the works based on stakeholder identification and salience
25
considering stakeholder attributes as criteria is that of Mitchell, Agle and Wood (1997). In
their article the authors identify power, legitimacy and urgency as three key attributes of a
stakeholder, and argue that various combinations of these attributes are indicators for
managers of the amount of attention they need to give to each stakeholder.
Freeman’s (1984) work on stakeholder identification and management is probably the most
cited one in the stakeholder management literature (e.g. Donaldson & Preston 1995,
Frooman 1999, Mithcell et al 1997, Preble 2005). He calls managers’ attention to capture a
broad range of groups and individuals as their stakeholders, even though these would have
only a little or no impact on the organization on that certain point of time. He constructs a
general stakeholder map of a very large organization upon the assumption that the firm
should take into consideration all its external and internal groups or individuals that can
affect or are affected by the accomplishment of organizational purpose (see Figure 4). In
his book Freeman introduces several stakeholder maps for different purposes: he builds up
stakeholder maps for different managers according to their units like marketing,
manufacturing, financing or chief executive.
Figure 4. A stakeholder map of a very large organization (Freeman 1984)
Firm
Owners
Employees
FinancialCommunity
ActivistGroups
Customers
CustomerAdvocateGroups
Unions
PoliticalGroups
Government
Suppliers
Competitors
TradeAssociatons
26
Even though some generalization can be made as to whom a corporation is responsible or
which should be the relevant stakeholder groups identified, the company’s stakeholders are
usually dependent on the firm’s size, industry, operations, and location. Therefore, the
stakeholder map is recommended to be drawn up not only by following the stakeholder
identification process, but it should rather be based on the industry, company or even unit
related factors. (Freeman 1984, Preble 2005)
2.2.2 Defining stakeholder interests
Determining stakeholder interests – or, expectations and demands – can be a complex
process. In his comprehensive stakeholder management model Preble (2005) suggests that
the general nature of various stakeholder claims or expectations should be assessed after
the initial identification process has been done. This phase includes identifying the kinds
of ‘stakes’ company’s groups of interest might have: these stakes help to identify what
type of power these groups, or members of these groups possess, and what should be an
appropriate response from the company’s side.
The nature or type of a stake that stakeholders may possess in the firm varies between an
equity stake to an ‘immaterial’ stake (e.g. power) which enables a stakeholder to influence
with and within groups. Furthermore, stakes may be financial (e.g. shareholders, financial
institutions), economical (e.g. customers), political (e.g. civic organizations, government),
and legal (e.g. society, customers), and stakeholders may possess several types of these
stakes: shareholders have a voting power through the ownership of a financial equity stake
in the firm, economic power in that they can sell a stake, and political power, which can be
exercised in the board meetings. Customers and consumers may also possess economical,
legal or political power in an organization. (Preble 2005) Following Carroll (1991), a stake
can be an interest, a right (legal or moral) and/or an ownership. Some stakeholder groups
e.g. the company’s shareholders mainly have on type of stake (i.e. an ownership), while
other stakeholders may possess more that one.
27
Harrison and St. John (1996) discuss the interdependencies between the organization and
its external stakeholders, and mention that the nature of these interdependencies may
change over time. According to the authors, the types of interests and stakes organizational
stakeholders possess are e.g. financial, political, economical and social: moreover, the
authors look into this matter from the strategic perspective – how can these stakeholders
influence the company. The authors propose a theory on how to define the importance of
each stakeholder and which factors are influencing company’s stakeholder prioritization.
The model of Harrison and St. John is discussed closer in the next chapter, when defining
stakeholder prioritization methods.
Freeman and Reed (1983) assess the relationships between organization and its
stakeholders in their two-dimensional grid map: the first dimension is the one about
“interest” or “stake” of a stakeholder (equity, economic, influencers) and the second
dimension stands for the power (formal or voting, economic, political) of a stakeholder.
Then, differently from the previously mentioned two-dimensional mapping, Freeman
(1984) categorizes specific stakeholder groups only according to the types of stakes they
possess; the power attribute is not considered in this categorization. He gives examples of
specific stakeholders like customer segments that have different stakes according to their
usage – varying from high to low – of company’s product; employees, whose stakes
include concerns on job and profit related issues; owners, who have stakes as shareholders;
political parties that have stakes of influencing the company; and other parties like media
and consumer advocates that have stakes regarding the usage of firm’s products.
Stakeholders and special interest groups (e.g. environmental or civic organizations) may
also possess “environmental” or “social” stakes, which can be positive (i.e. cooperative
behavior) or negative (i.e. threatening behavior) by nature (Fineman & Clarke 1996,
Polonsky 1995).
Stakeholders’ interests – and stakes – may also be in connection with the stakeholder
attributes mentioned in the identification paragraph – power, legitimacy and urgency. If a
stakeholder possesses power, he has the ability to influence a firm’s behavior, whether or
not the claim is legitimate. Legitimacy is then a claim on a firm, based upon a contractual
28
or legal obligation or moral right; stakeholders have a moral interest in the harms and
benefits that are generated by a company’s actions. Urgency represents the degree to which
a stakeholder’s claim requires immediate attention from a company’s management.
(Mitchell et al. 1997, Preble 2005) These attributes, argue Mitchell, Agle and Wood (1997)
are often the factors behind stakeholder expectations and demands.
In addition to defining stakeholders’ stakes within the company, it is important to
determine what are their interests and expectations towards the organization: stakeholders
may have an interest in company even though they do not possess any stakes in it.
Difficulty in determining stakeholder interests is often due to insufficient analysis in
identification of the relevant stakeholders (Post et al. 2002, 30-31). Even though relevant
stakeholder groups are properly identified, problems in defining stakeholder interests can
then arise from insufficient means for getting the information from these groups.
Stakeholder interaction becomes then a key issue; in order to reach all stakeholders
communication strategy is required (Ulhoi & Madsen 1997). Some stakeholder
expectations may be relatively easily defined: in the case of unions and other “visible” or
“traditional” stakeholders prior negotiations and open dialogue enable to determine their
needs. But then, companies may face a big challenge in trying to form a dialogue with
specific stakeholders or “special interest groups” like environmental activists or civic
organizations. Lack of communication and discrepancies in interaction often lead to
problematic interpretation of stakeholder interests. (Polonsky 1995, Preble 2005)
The potential claims and interests of stakeholders, and the methods for analyzing
stakeholder expectations discussed above are summarized and listed below.
Interests of potential stakeholders:
Economical
Equity/ ownership/ financial
Legal
Political
Environmental
29
Social
Influential
Methods to analyze stakeholder interests:
Direct communication/dialogue
Collaborating/ partnerships
Public relations
Other (e.g. surveys, previous experience)
Preble (2005) notes that it is important that each stakeholder group’s expectations, needs
and demands are compared to organizations behavior on these areas in order to identify
whether and where performance gaps exist. This means that a corporation should be aware
of what the stakeholders want from it and determine whether it is responding to these
divergent interests. By reducing the gaps companies may minimize potential for conflicts
between organization and its stakeholders.
The methods discussed above help organizations to determine stakeholder interests, and
analyze them in connection with organizational strategies. This allows companies to
explore not just what the stakeholders want but also how they might try to intend to get it
(Ibid 2005). In order to prepare strategies for responding to different stakeholder interests,
companies first need to prioritize their stakeholders. The next chapter will look more
closely into this issue.
2.2.3 Prioritizing stakeholders
Although desirable, companies do not possess sufficient resources to address
simultaneously all the multiple interests that stakeholders have towards them. This requires
companies to develop strategies on how to balance between differentiating stakeholder
interests, and prioritize on which stakeholders they will initially focus. Prioritizing
stakeholders also helps to sort out and clarify organizational priorities; not every person,
30
group or other organization affecting or affected by the organization in question is equally
important as a stakeholder.
Traditionally, management literature has studied and viewed stakeholders from the
company’s vantage point. In his paper Stakeholder influence strategies Frooman (1999)
expands this thinking; he investigates, what types of influence strategies do stakeholders
have available, and what determinants each stakeholder chooses to use. Frooman uses
resource dependence theory to investigate these questions. The author considers the
resource dimension of a relationship and the power stemming from it. He views the power
as an attribute of the relationship between the actors – not an attribute of the actors
themselves. Frooman states that his view differs from previous interpretations of power
within the stakeholder literature, for example Mithcell, Agle and Wood (1997), who have
treated power as an attribute of the individual. The salience theory of these authors (Ibid.)
is reviewed later in this chapter.
Frooman (1999) presents four types of influence strategies based on resource dependence
theory. Central to this theory is that a company’s need for resources provides opportunities
for others to gain control over it. According to Frooman, there are two ways in which
others can exercise resource control over the company: first, they can determine whether
the firm gets the resources it needs – i.e. by not providing the resource – and second, they
can control the usage of the resource by supplying it with “strings attached”. The first
strategy is called withholding strategy and the second one is usage strategy. Basically, the
withholding strategy determines whether the company obtains a resource, whereas the
usage strategy aims to attaching conditions for the continued supply of that specific
resource. Then, there are two pathways to influence the resource allocation discussed
above. These are direct strategies, in which the stakeholder itself (directly) suggests the
flow of resources to the company. This can happen by withholding or usage strategy. The
second pathway is indirect; here the stakeholder works through an ally, which has the
possibility to manipulate the flow of resources to the firm. This Frooman’s (Ibid.) typology
of stakeholder influence strategies is presented in Table 1.
31
Table 1: Typology of Influence strategies. (Adapted from Frooman, 1999)
HIGHINTERDEPENCE
Direct strategy/Usage strategy
STAKEHOLDERPOWER
Direct strategy/WIthholding strategy
FIRMPOWER
Indirect strategy/Usage strategy
LOWINTERDEPENCE
Indirect strategy/Withholding strategy
Is the stakeholder dependent on the firm?
Is the firmdependent
on thestakeholder?
No
Yes
YesNo
Harrison and St. John (1996) argue that the late developments in business environment
(e.g. the traditional ownership thinking moving towards broader interest groups) have
weakened conventional boundaries between internal and external stakeholders and, as a
consequence, stakeholders require now more (and different) management attention than
they have traditionally achieved. The authors state that there are two types of justifications
for companies to pay attention to external stakeholder management: the instrumental
perspective considers the pay-offs of the stakeholder management and according to the
normative perspective “it is the right thing to do”. Harrison and St. John base their analysis
“Managing and partnering with external stakeholders” on the strategic importance of
stakeholders for the company. They propose that one of the key factors that determines the
priority of a particular stakeholder is its influence on the uncertainty facing the firm. By
this the authors mean that stakeholders may possess certain features (e.g. political power,
economical interest, social stake) that can either contribute to or weaken the
environmental uncertainty. Consequently, strategic choices of an organization derive from
minimizing the level and nature of this environmental uncertainty. The authors further
continue that it is important to understand the role of the strategic choice in determining
32
the nature of interdependency existing between a stakeholder and the organization: the
nature of the interdependence between a company and a particular stakeholder is strongly
influenced by a company strategy. These interdependencies are strongly affected by
company’s strategic choices, and may vary between very high to low: for example, if a
company decides to outsource a critical component or function, or invest in aggressive
growth strategy a supplier of the component or the function, or an investor in the latter
situation, becomes a very important stakeholder. On the other hand, a company may
“eliminate” a stakeholder as a source of environmental uncertainty if it decides to divest all
the businesses regulated by a particular government agency. In their paper, Harrison & St.
John (1996) list the factors that influence the strategic importance of external stakeholders,
and propose two basic approaches for managing stakeholders based on these factors (see
Figure 5).
Figure 5. Factors Influencing the Strategic Importance of the External Stakeholder and the
Basic Approach to Managing Them. (Harrison & St. John 1996)
Contribution of thestakeholder to the
environmentaluncertainty facing the firm
Ability of thestakeholder to reduce
environmentaluncertainty for the firm
Firm strategic choice
STRATEGICIMPORTANCE
OFSTAKEHOLDER
(PRIORITY)
HIGH
Increased Use ofStrategic Partnering
Tactics
LOW
Primary Dependenceon TraditionalStakeholder
Management Techniques
Godfrey & Hatch (2007) take another type of view to balancing stakeholder interests and
question, how should managers deal with “selfish stakeholders”: how to respond to
33
stakeholder demands that are either destructively self-serving or patently evil? Godfrey &
Hatch refer to relevance of this issue in the U.S. context, and point out that managers face a
dilemma in trying to make decisions that serve only the one at the long-term expense of the
many. The authors talk about the legitimacy and power of stakeholders that affect
management’s decision making, and mention immediate pressure and long-term
consequences also being important determinants in dealing with selfish stakeholder
demands.
Mitchell et al. (1997) build upon their identification typology discussed earlier and propose
a theory of stakeholder salience. They propose classes of stakeholders that can be
identified by possessing one, two, or all three of the following attributes: power, legitimacy
and urgency. The first attribute implicates the power of the stakeholders to influence the
firm, the second attribute addresses the legitimacy of the stakeholder’s relationship with
the firm, and third describes the urgency of the stakeholder’s claim on the firm. This theory
of stakeholder identification and salience, meaning the degree to which managers give
priority to competing stakeholder interests, is useful for organizations in order to sort out
which stakeholders require the most attention at particular points of time. So in other
words, these attributes together or separately form the base for stakeholders to attain
salience – importance – in the minds of managers. This typology is dynamic in nature and
the authors emphasize the fact that each class of stakeholders can move to other class by
acquiring or loosing on attribute.
Based on their three-dimension stakeholder attribute typology (power, legitimacy,
urgency), Mitchell et al. (1997) suggest a dynamic model, which helps to explain how
managers prioritize stakeholder relationships. This model has been used as a reference in
many stakeholder prioritization strategies developed later on (Preble 2005, Rawlins 2006)
and it has also been tested empirically by Agle et al. (1999), Fineman & Clarke (1996) and
Parent & Deephouse (2007). The model highlights the role of the manager as an interpreter
of stakeholder influence; empirical findings reveal that the role of industry culture and
management values indeed have an affect on the salience of the stakeholders (Parent &
Deephouse 2007, Preble 2005).
34
In their theory Mitchell et al. (1997) aim at “defining the principle of who and what really
counts”. They argue that this rests upon three assumptions: first, in order to achieve certain
ends, managers pay particular kind of attention to specific classes of stakeholders; second,
stakeholder salience is dictated by the manager’s perception; and third, the various classes
of stakeholders may be identified by their possession of one, two or all three of the
attributes. In order to look into how managers can prioritize or balance between multifold
stakeholder interests, stakeholder classes resulting from the various combinations of the
three attributes developed by Mitchell et al. (Ibid.) are presented below in Figure 6.
Figure 6. Stakeholder Typology: One, Two, or Three Attributes Present (Mitchell, Agle &
Wood 1997)
PowerLegitimacy
Urgency
1Dormant
stakehodler
2DiscretionaryStakehodler
3DemandingStakehodler
4Dominant
Stakeholder
5DangerousStakeholder
6DependentStakeholder
7Definitive
Stakeholder
8Non stakeholders
These seven classes represent different stakeholder types and their importance to managers
depending on the stakeholders’ possession of different combinations of power, legitimacy
and urgency attributes.
35
Latent Stakeholders
First, there are low salience classes, the so called latent stakeholders, which possess only
one attribute. These stakeholders are the ones managers are likely to ignore, or even leave
out of the identification process. Similarly, latent stakeholders may not pay any attention to
the company.
Dormant stakeholders have power, but usually little or no interaction with the firm.
Examples of power attributes that a dormant stakeholder can have are coercive (the one
holding a gun), utilitarian (the one having money) and symbolic (the one dominating the
media). Discretionary stakeholders possess the legitimacy attribute, but have no power and
their claims are not urgent. These types of stakeholders can for example be the recipients
of discretionary corporate responsibility (Carroll 1979), which Carroll (1991) has later
defined as philanthropic (i.e. voluntary) corporate responsibility. Thus, academics of
corporate social responsibility and performance often find discretionary stakeholders a
particularly interesting group. Finally, there are demanding stakeholders, which have the
attribute of urgency. Demanding stakeholders want management’s attention, and are often
described being “noisy” in order to get it. These stakeholders do not possess power or
legitimacy therefore their claims usually remain without a big audience.
Expectant Stakeholders
Expectant stakeholders are groups possessing two of the three identifying stakeholder
attributes. Because these stakeholders are “expecting something” they can be described as
being active and requiring management’s attention. The level of engagement between the
company and expectant stakeholders, as well as stakeholder salience, is likely to be higher.
Dominant stakeholders, with the possession of power and legitimacy are definite
influencers in the firm: they are powerful enough to act upon their legitimate claims. It
may be that there will not be a reason for these stakeholders to act on their claims but
nevertheless, managers should be at least aware of the expectations of these stakeholders.
Dominant stakeholders usually do receive the expected attention from managers, but they
should not be to whom managers should relate at the expense of other stakeholders.
36
Examples of dominant stakeholders are boards of directors, owners, employee
representatives, significant creditors, and community leaders.
Dependent stakeholders lack power, but have urgent and legitimate claims. These
stakeholders are called “dependent” because they depend on other groups on the power in
order to carry out their will. Dependent stakeholders can exercise power through other (e.g.
dominant) stakeholders, who can act as an agent for dependant stakeholders. This is also
an example of a dependent stakeholder moving into the most salient class by acquiring the
third attribute through other party. Examples of these stakeholders are victims of an
environmental catastrophe or civic organizations.
The third class of expectant stakeholders is dangerous stakeholders. They are characterized
by having urgency and power, but not legitimacy. These stakeholders may act coercively
or violently, and thus are a potential threat for the organization, managers or other people
involved. Examples of dangerous stakeholder action can be sabotage, strikes, and
terrorism. Mitchell et al. note that these stakeholders require management’s special
attention, it is therefore important for managers to properly identify dangerous
stakeholders even though it is likely to be an unpleasant task.
Finally, definitive stakeholders have a high degree of salience for managers. These
stakeholders “definitely” require managers’ attention, for they possess all three stakeholder
attributes – power, legitimacy, and urgency. Basically any expectant group of stakeholders
may become definitive by acquiring the lacking attribute, but according to Mitchell et al.
the most common occurrence is likely to be the movement from dominant stakeholder into
the definitive category; their legal and powerful claims are most likely to become also
urgent. (Mitchell et al. 1997)
Prioritizing diverse stakeholder interests is also addressed in ethics literature. Jones et al.
(2007) refer to “stakeholder culture” as a guideline for assessing varying stakeholder
interests; they argue that developing stakeholder culture provides managers the needed
tools when facing ethical dilemmas, or experiencing tension between self-interest and
37
“market morality”. Carroll (1981, 1999) places his stakeholder analysis within corporate
social responsibility (CSR), and suggests that organizations have responsibilities –
economic, legal, ethical and philanthropic – according to which corporations have to
manage their stakeholder relationships. By combining the stakeholder perspective with the
concept of CSR Carroll builds up a “stakeholder-responsibility” matrix, which basically
indicates which, of the above mentioned responsibilities may each stakeholder group
require from an organization. Reynolds, Schultz and Hekman (2006) argue that balancing
stakeholder interests is the most critical of stakeholder principals for it represents a
mechanism by which managers maintain the support of those groups or individuals having
variable needs and interests. They state that despite the fact that this task is crucial for
stakeholder approach the research is still lacking studies on how managers actually balance
the disparate interests and expectations of those having a stake in the actions of
organization; the literature on balancing stakeholder interests has mainly concentrated only
on the organization and has yet to consider the individual manager level, which is central
in this question. In their paper, Reynolds, Schultz and Hekman (Ibid.) take another view to
that of Carroll’s (1981, 1999) stakeholder analysis, they study constrains on the balancing
of stakeholder interests, and refer that resource allocation is a determining factor in
prioritizing diverse stakeholder interests.
This chapter has assessed different strategies that companies may apply when prioritizing,
which stakeholders receive the most attention. Prioritizing stakeholders is inevitable, but
usually a difficult task because companies do not have resources to engage with every
stakeholder equally although, the stakeholders might claim on it. In order to prioritize
stakeholders, companies need to define their potential interests and needs towards a
company. The next chapter assesses the aspect of national culture and its influence on the
interests and needs of the stakeholders. First, characteristics of Latin American national
culture are reviewed and compared to those of the Finnish culture, after which the potential
interests that stakeholders are likely to have in Latin America are assessed.
38
2.3 Latin American cultural context
The aspect of national culture can be seen as a complementary point of view to stakeholder
management. As discussed earlier, in stakeholder identification it is important to consider
company and country specific factors. Further, in order to define stakeholder interests it
may be crucial to consider also the cultural point of view in stead of looking into the
situation separately from the country context. Differences in leadership styles, varying
objectives or even cultural incompatibility between parties often result from differences in
actors’ national cultures, and may easily lead to the lack of trust and discrepancies
(Hofstede 1984, Karppinen 2004).
Cultural challenges can not be avoided in the field of international business. Some of the
difficulties arise from these challenges, while others are likely to have no connection to
cultural differences. Nevertheless, cultural conflicts are not unusual, and difficulties in
business are often due to these divergences between partners. In business life, differences
in national cultures are reflected through differences in values, behavior patterns, language
and norms. Many researches (Hofstede 1984, Morden 1999, Kluckhohn & Strodtbeck
1961, Hampden-Turner & Trompenaars1994) have been explaining these differences
through different models and dimensions of national culture. A precursor in combining
national cultural differences with business perspective has been Geert Hofstede (1984).
In his book “Culture’s Consequences: International Differences in Work-Related Values”
Hofstede (1984) studied, how differences in national cultures affect business. From Latin
American countries Mexico, Venezuela, Brazil, Colombia, Peru, Chile and Argentina,
were included in the study. Many other researchers (Erumbana & Jong 2006, Koivisto
1998, Soares et al. 2007) have later on applied Hofstede’s analysis in their research. Other
national cultural research worth mentioning include Kluckhohn and Strodtbeck’s (1961)
analysis on cultural orientations and cultural analysis of Hampden-Turner & Trompenaars
(1994). Kluckhohn and Strodtbeck (Ibid.) introduce a framework of cultural orientations
including six cultural dimensions describing people and their behavior and analysis of
39
Hampden-Turner & Trompenaars (Ibid.) includes seven different dimensions or “cultures
of capitalism”, which include: Universalism vs. Particularism, Analyzing vs. Integrating,
Individualism vs. Communitarianism, Inner-directed vs. Outer-directed Orientation, Time
as Sequence vs. Time as Synchronization, Achieved Status vs. Ascribed Status, and
Equality vs. Hierarchy. These three national cultural analyses are partly overlapping in
their dimensions, but similarly, they all propose that differences in national cultures create
tensions in cross-cultural business.
In the following, the main characteristic of Latin American culture will be introduced and
differences between the Finnish and the Latin Americans will be assessed. The analysis is
based on Hofstede’s work and his followers as well as on other studies on national cultural
differences.
According to Hofstede (1984), there are four dimensions of national culture, which relate
to basic problems of the humanity and describe the main differences in national cultures.
These are power distance, uncertainty avoidance, individualism, and masculinity. Based on
Hofstede’s study (ibid.), Latin American societies have relatively high power distance,
they try to avoid uncertainty in life, they are rather collectivistic than individualistic in
nature and the societies’ values are “masculine”. Finnish society, on the other hand, has
relatively low power distance, thus the society is not hierarchical in nature. Regarding
uncertainty avoidance, Finland scores in the middle while in individualism index Finnish
people are ranked at the upper end, which means the people are more individualistic than
collectivistic in nature. And compared to those of the Latin American countries, Finnish
society is very feminist society, which means the people value “soft values” like family
and good atmosphere at work over money and fast cars, which are typical values for
masculine societies.
Regarding the individualism dimension, Latin Americans are characterized being people
oriented; they are relationship focused and value highly good personal relationships in
business life. They rely on their family members and close friendships, and trust
information gathered from these sources. Also, Latin Americans are more formal in their
40
relationships and most commonly use indirect language, that is, avoid direct answers. They
appreciate politeness; especially during the first meetings one must show their motivation
and professional attitude towards cooperation. People in Latin America tend to make
overall plans, which may be changed easily, and their timetables are usually unpredictable
and non stable. Negotiations proceed usually in a slow tempo and answers are not given
immediately; rather, the harmony of parties is important and decisions are made
collectively. (Hampden-Turner & Trompenaars 1994, Hofstede 1984, Kluckhohn and
Strodtbeck 1961) In contrary to these collectivistic features of Latin Americans, Koivisto
(1998) argues that Finnish people can be characterized individualistic, ehich is one of the
most inevitable consequences of the Lutheran religion. This view is also in line with that of
the Hofstede’s (1984) study where Finland – together with several other countries
dominated by Protestant denominations – ranks high in individualism. This is manifested
in a following way: in Finland business decisions are more often made individually, less
emphasis is given on the mutual relationship between parties for only the outcome is more
important than the relationship in itself, and individual benefits are desirable. (Koivisto
1998)
Latin Americans are generally more concerned about their security and tend to worry about
the future. This uncertainty avoidance reflects the trust of people in a way that people who
avoid uncertain situations do not easily trust in people. In the people of Latin America this
can be seen in the way that they do not trust their partner unless they make a good personal
relationship with them. (García-Lomas & Churruca 2002, Hofstede 1984, Karppinen 2004,
Morden 1999) On the contrary, Finnish people are relatively trustful – and trustworthy.
Also, they are used to give and receive direct answers and appreciate punctuality, clear
plans and timetables. (Hofstede 1984)
In Latin America hierarchy is both internal and external, and means inequality of people.
There is a gender barrier between men and women and an age barrier between young and
old; however, these barriers can sometimes be lowered when the other party is a foreigner.
This is also reflected in organizational structure in the way that Latin Americans prefer
hierarchical and centralized organizations. In general, Latin Americans prefer group
41
decisions and are emotionally dependent on the membership of a group. Latin managers
tend to exercise power and they endorse the traditional points of view instead of supporting
the new innovative ideas. (Erumban & Jong 2006; Gesteland 2001, 20-62; García-Lomas
Churruca 2002; Hampden-Turner & Trompenaars 1994; Hofstede 1984; Karppinen 2004;
Morden 1999) In comparison, Finland is characterized by low hierarchy and equality
between people and within the society and organizations. Equality between managers and
subordinates, and men and women, democracy, teamwork and decentralized organizations
are also mentioned to be characteristic to – or at least admired – in Finnish society.
Innovativeness and personal initiative are encouraged and leadership style is preferred over
the traditional managing approach. (Koivisto 1998, Karppinen 2004)
Potential interests of stakeholders
As Uruguay’s aim is to spur industrial development and assure economic stability in the
long run, FDIs are considered more that welcoming in the country. The private sector plays
an important role in economic growth and wealth creation, and is in many respects
considered a pillar of development. At the same, while the private sector must be
competitive and operate efficiently, companies face challenge in engaging with
stakeholders with diverse expectations: on the other hand there is a call for improvement of
standard of living and on the other hand there are concerns that companies don’t act
according to responsible business practices. (Peinando-Vara 2005) This puts companies in
a position, where they are most likely to face multiple stakeholder expectations.
Gutierrez and Jones (2004) mention that current trends of corporate social responsibility
(CSR) in Latin America are related to deepening and extending of CSR models and
practices to reach also small and medium sized companies. The authors continue that
expectations towards private companies and their role as a corporate citizen have
increased, and now, also the mass media gives increasing attention to social initiatives.
Many studies on CSR expectations in Latin America (Baskin 2006, Gutiérrez & Audra
2004, Vives 2006) emphasize philanthropy as a dominating tradition in Latin America.
This implicates that a private sector company would not only have to comply with the
42
regulation and economical standards but also make contributions to the society when doing
business in Latin America.
2.4 Theoretical framework of the study
The literature review has discussed the concept of stakeholders, and assessed the main
theoretical findings within the stakeholder theory and approach. The main managerial
implications for stakeholder management process have been introduced: stakeholder
identification process, definition of stakeholder interests, and methods for stakeholder
prioritization have been reviewed. The literature review has also assessed the concept of
national culture and how it’s reflected in business. Moreover, general Latin American and
Finnish cultural characteristics, and how they are likely to be reflected in business life were
discussed.
The theory has emphasized the importance of stakeholder management from various
perspectives; stakeholders are considered to be one of the main managerial challenges.
Research fields like strategic management, corporate social responsibility, ethics and
corporate citizenship discuss the importance – and refer to necessity of organizations – to
develop positive relationships with stakeholders. According to this literature, paying regard
to stakeholders is considered to be organization’s moral obligation, good corporate
management and socially responsible business. However, companies do not have
abundantly resources for considering every stakeholder group equivalently. Therefore,
companies have to make choices; they can not satisfy every stakeholder, nor can they
sacrifice organizational interests at cost of satisfying all the interests of stakeholders –
companies need to prioritize their stakeholders.
The literature review has discussed different steps that companies need to take in order to
define, which stakeholders are to be given the most consideration. Yet, the attempts to
organize these steps into a comprehensive model and develop a systematic approach to
identify stakeholders, define their interests and prioritize them have been diversified, and
the theory sill lacks consensus in framing the process of stakeholder management. In this
43
study, a comprehensive approach to prioritizing stakeholders has been developed by
combining stakeholder literature with research on national culture. The purpose of the
literature review was two folded. First, the aim was to find theoretical answers for the
process of identifying organizational stakeholders, and answers for the criteria that
companies can use in prioritizing multiple stakeholders with diverse interests. Second, the
objective was to study the main stakeholder characteristics in a Finnish – Latin American
context.
Even though there is a considerable amount of literature related to stakeholder
management, the literature describes each step in the process of stakeholder management
as a static act. Nevertheless, stakeholder management is a dynamic and complex process
and it should not be studied as a whole in it self; each step should be seen in a dynamic
way. One way of studying dynamically stakeholder management would be to study it
chronologically. This is done in the present study. The cultural context adds to the study by
reflecting another kind of dynamic character in the process of stakeholder prioritization.
The approach developed in this study is based on previous literature on stakeholders. The
theoretical framework considers the models that have been created for framing the process
of stakeholder identification, and definition of multiple interests of stakeholders: it
attempts to unify the current – somewhat scattered – propositions for stakeholder
prioritization. The theoretical framework for prioritizing stakeholders answers the basic
problem of this study: “What criteria are used in prioritizing variable stakeholder
interests?” It consists of the following three steps: a) stakeholder identification process, b)
stakes/interests of stakeholders, and c) stakeholder prioritization methods. The framework
is presented in Figure 7.
44
Figure 7. Framework for prioritizing stakeholders.
Identify stakeholders
Identify the interests of the stakehodlers(country/culture specific context)
Prioritize the stakeholders
CountrySpecificFactors
Industry/OrganizationSpecificFactors
StrategicImportance
STAKEHOLDER MAP
SalienceInfluenceStrategies
Claim and / orStake
(political,economical, legal,
environmental,equity/ownership/financial,
social, influential)
Attributes(power,legitimacy,urgency)
As discussed earlier, the process of managing stakeholders still lacks a model or a
commonly accepted framework. The framework presented in this study aims to
operationalize stakeholder prioritization process. The framework outlines the first steps in
the stakeholder management process: all intends to frame stakeholder management process
include stakeholder identification phase and some variations of the phases where
stakeholder interests, stakes, attributes, or influence strategies are defined.
Companies have several stakeholders, individuals and groups, to whom they need to pay
attention. The actions of an organization affect differently these groups or individuals and
thus, the level of consideration varies according to the importance of each group or
individual to an organization in question. Basically, the first step in any situation where a
company is making business decisions is to define, which are the groups or individuals that
can affect or are affected by the company’s actions. In this process, the relevant
45
determinants are the company and country specific factors that influence the identification
process; only the stakeholders, which are the relevant ones in that specific context, should
be included in the stakeholder map generated from identification process. Then, the
company should be able to define, what interests its stakeholders have towards the
company. The interests are most likely to vary considerably: they can be anything between
being merely a stakeholder’s curiosity towards company’s actions; the interest can also be
economical dependency, or influential power of either one – the stakeholder or the
company. Therefore it is relevant to consider both, stakeholders’ potential interests (or
stakes), and the potential of the stakeholders to act upon these interests: what is the level of
salience (power, legitimacy, urgency) that the stakeholders possess. This should be done in
culture or country specific context.
Finally, the organization has yet to decide how to prioritize – how to act upon – diverse
stakeholder interests. This can be done by using three criteria: strategic importance of the
stakeholders for the company, stakeholder influence strategies and stakeholder salience.
When a company intends to minimize the environmental uncertainty that threatens the
company to follow its business strategy, it prioritizes the stakeholders according to their
strategic importance. Then, stakeholder prioritization can be based on company’s resource
dependence and the ability of a specific stakeholder to influence resource allocation to the
company. The third prioritization criterion is the salience – the power, legitimacy and
urgency to influence the organization – of the stakeholders.
The next step is to empirically test and find answers concerning the criteria that companies
use in prioritizing variable stakeholder interests. The framework will be applied to a
specific case of a greenfield investment made in Uruguay by the Finnish forestry company
Metsä-Botnia. The case and methodology of the study are introduced in the following
chapter.
46
3 METHODOLOGY
In this chapter, the methodology used in the study is presented. The chapter starts by
introducing the research method of the study. Then, the case study will be reviewed
including a presentation of the case company and a description of the case. After this data
collection method and study design are assessed and finally, the validity and reliability of
the study are discussed.
3.1 Research method
The theoretical framework presented in previous chapter can be applied for analyzing how
firms prioritize stakeholders that have various – and diverse – interests towards a company.
The purpose of the empirical part is to analyze the stakeholder prioritization process within
Metsä-Botnia’s pulp-mill project in Uruguay. The empirical study is constructed by
following the theoretical framework of the study. The results are presented on the process
of stakeholder identification based on country, industry and company specific factors,
definition of stakeholder interests and criteria for stakeholder prioritization.
Due to uniqueness of the case, the empirical study is conducted by using a single case as a
reference. The research method of this study is a single, multi-method case study. A
rationale for choosing a single case study as a method of research derives from the
theoretical setting: case study can be used to illustrate or clarify a theoretical argument;
moreover, a single case method can be used in determining whether the propositions of a
theory are correct or whether some alternative explanations could be more relevant. Case
study is used to describe certain event and it aims at providing a base for an intensive
analysis of a phenomenon in total, with its natural surroundings. The most important
characteristic of a case study is to systematically describe a single case, which can be a
company, a department, or even a single individual. Therefore, in a single case study, the
47
data is often collected about the same phenomenon in more than one way. (Hirsjärvi et al.
1997, Velde et al. 2004, Yin 2003)
Even though stakeholder identification and prioritization methods have been tested
empirically before (Madariaga & Valor 2007, Näsi et al. 1997, Parent & Deephouse 2007,
Reynolds et al 2006), chronological approach has not been used in previous research.
Stakeholder identification, stakeholder interests and stakeholder salience have been studied
in static ways. It is therefore important to consider the stakeholder prioritization as a
dynamic process. This is done by studying the process chronologically.
When conducting a case study, it cannot merely be a collection of the material; it is
essential to structure the data and analyze the results. Yin (1984) distinguishes a number of
possible structures, of which Velde et al. (2004) state most important four structures: the
linear-analytical, for making the comparison between theory and practice; the comparative,
if the aim is to compare more that one case or to ascertain a development within a case; a
chronological, when the aim is to describe some evolution at one or more companies or to
describe a development over time, and finally; if the aim is to explain certain results, the
suspense structure is the recommended approach. In this study, the aim is to analyze
stakeholders and investigate how stakeholder identification and prioritization process has
been managed within a specific project. The sequence of events is an important
determinant; it guides the line of the analysis. Therefore, a chronological approach is the
most appropriate method of analysis for this study.
3.2 Selection of the case study
The case used in this study is Metsä-Botnia’s pulp-mill project in Uruguay. The company
was chosen for an interesting project and the uniqueness of the case. This case has been “a
hot topic” during this decade, and the ongoing research on the topic is very extended;
Metsä-Botnia’s pulp-mill project in Uruguay is widely studied in various research fields.
48
This study intends to show one viewpoint from the perspective of international business
studies.
The company
Oy Metsä-Botnia Ab (further referred to as Botnia) is Europe’s second largest pulp
producer. Botnia is part of the Metsäliitto Group, which is the worlds eight largest group in
the forest industry sector. Botnia is owned by the Metsäliitto Group (53 %) and UPM-
Kymmene Corporation (47%). The headquarters is located in Espoo, Finland and Botnia
has sales offices in Germany and France. About seventy per cent of production is sold to
the paper mills of Botnia’s owners, whereas the other 30 per cent is sold to market
customers. At the moment, Botnia has six pulp mills, of which five are located in Finland
and one in Uruguay, and one sawmill located in Russia. Furthermore, Botnia has three
sales offices: in Germany, France and Shanghai.
The construction of Botnia’s newest pulp mill in Fray Bentos, Uruguay was started in
Spring 2005. The mill cost approximately 1.2 billion US dollars and its estimated
production capacity is a million tons of bleached eucalyptus pulp per year. Botnia’s
decision to invest in a pulp mill in Uruguay was big news not only for Finnish forest
industry but also for the economy of Uruguay: it is the biggest industrial investment in the
history of Uruguay and Finland’s biggest private-sector industrial greenfield investment
abroad. The mill is Botnia’s sixth pulp mill – and a first greenfield investment abroad –
with the highest production capacity of all Botnia’s mills. The modes of operation and
techniques are similar to those of the other mills; moreover, the mill takes advantage of the
newest and best techniques available.
The project
At the planning stage, the location of new mill was considered carefully. The availability
of good quality raw material is one of the most essential factors for a pulp mill. Uruguay
proved to be the most natural location for the new mill, although it was not the only option
for Botnia: Asia, Brazil, and Iberian Peninsula, for instance, were also considered. In
March 2003, Botnia bought 60 per cent of the Uruguayan company Companía Forestal
49
Oriental S.A. (formerly FOSA) from Shell International Renewables BV (Shell).
Originally, FOSA was founded by UPM Kymmene Oy and Shell in the 90s. Now, Botnia's
fully owned forestry company Forestal Oriental (merge of the Companía Forestal Oriental
S.A. plus SA en Tile Forestal) is one of Uruguay’s biggest forest owners and a pioneer in
eucalyptus cultivation and seedling production. In 2003 Forestal Oriental had 36,000
hectares of eucalyptus plantations, but the amount has already tripled since then. Now,
approximately 70% of the mill's wood need will be covered from own plantations. The rest
is covered by buying from private landowners with long term agreements. Even though,
the key factor for locating the plant in Uruguay was the availability – and access – to
wood, receiving the Free Trade Zone -status was nevertheless an important factor for
Botnia.
The pulp mill's location in Fray Bentos (see Figure 8) was based on an extensive study of
various factors. Compared to other possibilities, Botnia considered that Fray Bentos was
the ideal location for the pulp mill: when considering the area, the environment,
availability of wood raw material, pulp logistics and socio-economic impacts, the best
option was Fray Bentos. (Faroppa & Annala 2004) The close proximity of the mill to the
most important supply of raw material minimizes transportation distances, and makes the
operations both profitable and environment-friendly. The pulp mill project is realized by
Botnia S.A. founded in Uruguay by Metsä-Botnia (82.1%), UPM-Kymmene (12.4%) and
Metsäliitto (5.5 %). Furthermore, Botnia works with a local partner, the Otegui Group,
who participates in the project with a 9% share in the Botnia S.A. Otegui Group has been
in the agribusiness sector since the beginning of the last century and it started its forest
product activities at the end of 1980s currently owning eucalyptus plantations (FSC
certified since 2001) and sawmills.
50
Figure 8: Location of Botnia’s Fray Bentos pulp mill.
Botnia’spulp mill
The positive attitude towards the project was shown by the state of Uruguay from the very
beginning: the impact of the pulp mill on employment and the economy were predicted to
be considerable. During the peak of the construction process in 2007, approximately 5300
jobs were realized and as a consequence of the project a total of 8,000 new jobs (direct or
indirect) are created. Erkki Varis, the CEO of Oy Metsä-Botnia Ab also adds that the
positive effects on the town and the surrounding region are substantial, and the indirect
influence on the local economy is also significant.
Before the investment decision was made, Botnia organized an extensive assessment of
environmental impacts on the surrounding areas and nature. (See: Botnia 2007, studies on
Uruguay project) Then, in May 2005 Botnia agreed to have the assessments extended
further by independent experts employed by the International Finance Corporation (IFC).
According to Botnia, the environmental impacts of the mill will be minimal and the
welfare of the environment will not be endangered. This has been later on confirmed by
other environmental impact studies conducted by independent consultants. Altogether,
51
seven studies related to social-economical and/or environmental impacts of the pulp mill
were commissioned by either Botnia or the World Bank during the years 2004 and 2006.
These studies took into account two pulp mills, Botnia’s and Ence’s; they were both
planned to be constructed in the same area. (Botnia 2007)
Botnia’s pulp mill being built at the boarder river of Uruguay and Argentina is
undoubtedly the most studied – and known – pulp mill project in the world. The amount of
evaluations made concerning various quality factors and environmental impacts are
enormous. This is mostly due to the environmental arguments raised by Argentina against
the environmental impacts of the mill. However, these arguments have been strongly
politicized, and the mill project has grown to become an international dispute: the situation
has escalated from being a local movement to regional and further to national cause, from
which it further developed from bilateral conflict between Argentina and Uruguay into a
global – political, economical, environmental and social – debate.
Construction of Botnia’s pulp mill in Fray Bentos started soon after the investment
decision was made in March 2005. The mill was under construction only a little over two
years and the original plan was that the mill would start its production during September
2007. However, the start-up was delayed due to discrepancies that arose between Uruguay
and Argentina. At first, the permission was postponed to be given after the Argentinean
presidential elections, after which the prediction was that the final “go signal” for the mill
will be given during the Iberoamerican Summit held in Chile in the beginning of
November. Botnia waited for the start-up permission from Uruguay’s authorities for nearly
two months, receiving it on the 9th of November 2007. (See Annex 1: Chronology 2003 –
2007)
3.3 Data collection and study design
When conducting case studies, it is recommended to use multiple sources of data (Hirsjärvi
2004/2007, Velde et al.2004, Yin 1994/2003). This is called data triangulation. In this
52
study, one part of the data was collected through a desk study and other part by using the
field work research methods. Data used in desk study analysis included both, first and
second hand documented material, such as management plans, agendas, event reports,
formal studies, media reports, news articles and web pages; and archival records,
including organizational records and lists, maps and charts on the site, and survey data.
The principal source of documented and archival information was made available by
Botnia. Media and news reports included randomly selected articles (during the years
2003-2007) from Uruguayan, Finnish and Argentinean sources. The consulted web pages
were those of Botnia and those of Botnia’s stakeholders (Annex 2).
The interviews formed a significant part of the study. Altogether nineteen interviews were
held, of which one was conducted in May 2007 and the rest eighteen interviews were held
during the period of September – October 2007. Nine of these interviews were conducted
in Uruguay. The interviewees included mostly Botnia staff; these were the key persons
involved in different phases of the project. Also one local business person from Uruguay
and one Finnish government representative from Argentina were interviewed (Annex 3).
According to Yin (2003), an open-ended interview is the best suitable for a case study
compared to, for example, focused interview or a survey. All interviews conducted for the
present study were open-ended but guided conversations that followed the interviewee’s
point of view on the case. The interviewees were asked to talk freely about the project, and
encouraged to bring out their personal points of views and roles in the project. In order to
have the company’s general viewpoint on the stakeholder prioritization process,
complementary questions were asked based on the key themes of the theoretical
framework: these included, for example, questions like “How were the relevant
stakeholders for Botnia identified?”, “What were the main interests, expectations or claims
that the stakeholders had towards the company?”, and “What criteria were used in
prioritizing stakeholders with variable needs?”
In addition, five anonymous interviews with Uruguayan citizens were conducted. These
were informal conversations with local people representing, for example, an employee of
Botnia’s stakeholder and local citizens closely affected by the pulp mill project. The
53
interviews included discussion on the citizens’ perceptions about the mill, the mill’s
influence on Uruguay and Uruguayans, and perceived cultural differences.
As discussed above, additional data was collected from multiple sources. This material
includes data that was produced at different phases of the project. In the empirical study
this data is processed following chronological order of the events. The time-scale for the
analysis is five years, during 2003-2007, and the level of analysis follows the main events
affecting development of the project. First, the operational environment, represented by
Uruguay, is analyzed. This includes a review of business environment, main institutional
frameworks, national cultural characteristics and the potential interests of stakeholders
towards Botnia. The stakeholder map is then formed based on country and company
specific factors. The results on the prioritization process and methods – stakeholder
identification, interests and prioritization – are reported on the basis of the five-year time
scale and compared to the main events in the course of the project. This phase of analysis
is based mainly on the interview results although some additional material, like
documented material, was also included in the analysis. (See Table 2: Data collection
techniques and study design)
54
Table 2: Data collection techniques and study design
Phase of the case Method Data
DocumentationEarlier literature; formal studies (commissioned by
Botnia, IFC); media reports; news articles; webpages (Botnia among others)
ArchiveOrganizational records and lists on the project,
maps and charts on the site, and survey dataregarding the environmental, economical and
social aspectsUruguay context
Interviews Eighteen interviews (Annex 3)
Identification processDocumentation
ArchiveInterviews
Administrative documents, agendas, and eventreports on stakeholders; maps and charts on
stakeholder identification, and survey data; 17interviews with key persons involved in the project
Stakeholder interestsDocumentation
InterviewsMedia reports, news articles, web pages;
organizational records on stakeholder interests; 19interviews (including all interviewed persons)
Prioritization methods Interviews 17 interviews with key persons involved in theproject
3.4 Reliability and validity
In qualitative research validity and reliability of the study are often harder to measure than
in quantitative research. This is why, especially in case studies, it is important to have a
correct and complete description of the case, data and data collection methods. (Hirsjärvi
1997, Velde et al. 2004) Yin (2003) introduces four criteria, which can be used in
evaluating the quality of research. These, so called tests, are construct validity, internal
validity, external validity and reliability, of which internal validity is not relevant in this
55
study; it is not applicable for descriptive or exploratory studies. The validity of the study
refers to the ability of the selected instrument to actually measure the observed
phenomenon. According to Hirsjärvi (1997), validity in a qualitative study means
compatibility between the analysis and description of the setting of the study. In this study,
the results on the empirical study are – as described above – based on the chronological
setting. All the material has been processed in a way, where different type of data have
been put together and sorted according to project time frame, after which it has been
processed.
Construct validity refers to establishing correct operational measures for the concepts
being studied, and it can be especially problematic in case study research. This refers to
subjective data collection methods. Construct validity can be increased by using multiple
data collection methods, which has been done in the present study. Nineteen interviews, of
which seventeen persons closely related to the project and two stakeholder representatives
were interviewed. Additional sources of evidence included material from company’s
archives on the project, documentation conducted by independent sources, and media
articles. However, although the interviewees were not guided by the author’s precise
questions, the interviewees’ opinions and answers may have been affected by the
sensitivity of the case. In this type of situation, where one party is “blamed” by many
outside observers, it is more that likely that people become used to being on the defensive
side, which affects also on the nature of their opinions and answers. Therefore, the results
should be considered as case sensitive. It should be noted also that this study was
conducted during one of the most critical stages of the project. Nevertheless, it must be
mentioned that the material provided by the company included both, material created by
Botnia and data originated from Botnia’s stakeholders. Anyhow, this does not exclude the
selectivity of the company nor the selectivity of the author.
External validity deals with the generalization of the results, and is especially relevant – or
problematic – in doing case study research, for single-cases offer a poor basis for
generalizing. With regards to results of this study, no surveys were conducted, and this is a
unique case in nature; therefore, no generalizations are intended to be made. Although,
56
generalizations regarding the interviewees’ answers were made: the opinions of the
interviewed persons were considered to represent the company’s point of view. Also,
impressions like “more then half of the interviewees” and “almost every interviewee” were
used when not everyone, but clearly more then half opinioned in the same way. This study
is a pioneer study in its field, and does not aim at explaining all the future projects with the
results on this study. Rather, it aims at giving the basis for further studies and possible
generalizations.
Finally, reliability of the study refers to demonstrating that if later the same case study
would be conducted again, the same results could be found by following the same
procedures. One way to approach the reliability problem is to make as many steps as
operational as possible and conduct the research as if there was always someone watching
“over your shoulder” (Yin 2003). The studies and documented research conducted on the
project as well as the material regarding the main events and stakeholder analysis maps
acquired from company’s archives can be assumed to stay constant. With regards to the
interviews, as mentioned earlier, the interviewee’s opinions can be subject to changes
when the critical situation has been calmed down. Then again, the material acquired on the
stakeholders’ (CEDHA, Asamblea) web pages, is more than likely to change; these web
pages have been changing regularly by following the on-going situation.
This study does not aim at giving absolute truths, and least it aims at giving half truths.
Rather, the aim is to reveal what was the case like at this point of the project, and present
one perspective that reflects an outsider’s documentation of the viewpoint of the company
and how the company has seen the situation.
The following chapter includes the empirical findings and it is structured as follows. First,
the setting – Uruguay context – based on several sources of data (see Table 2) is reviewed,
after which the results on the prioritization process are presented.
57
4. EMPIRICAL FINDINGS
In this chapter, the empirical results of the current study are presented. The chapter is
divided in two parts, of which the first one begins with a presentation of the country
context. This includes presenting the findings on Uruguay’s business environment and
national cultural characteristics. These findings were produced combining desk study
research methods with field study methods. After this, Botnia’s main stakeholder groups
are briefly introduced and a stakeholder map of Botnia’s pulp mill project in Uruguay is
presented. The findings on the country context are presented in close relation and focus to
the project. The role of Argentina is considered to have a significant influence on
company’s decisions, and thus; Argentina has been included in the analysis.
The second part of empirical findings consists of the results on stakeholder prioritization
process. The findings on stakeholder identification process are based on the interviews and
stakeholder analysis charts created by, or for, the company. The results presented on the
process of defining stakeholder interests and on the criteria for stakeholder prioritization
methods are solely based on the interviews.
4.1 Uruguay context
This chapter reviews Uruguay’s main country specific characteristics. After introducing
the business environment and Uruguay’s cultural context, the main stakeholder groups of
Botnia in Uruguay are reviewed. Due to the unique nature of the project, the relevant
parties and characteristics of Argentina are also introduced. Finally, a stakeholder map is
generated to illustrate stakeholder influence on Botnia in the Uruguay pulp mill project.
4.1.1 Business environment
Uruguay – the smallest Hispanic country in Latin America – is situated between the two
“giants”, Argentina and Brazil. (See picture 2: Map of Uruguay) Uruguay is one of the
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most stable countries in Latin America, which is partly due to its large urban middle class
and rather well functioning democracy. Also, the relative amount of poor in Uruguay is
one of the smallest within Latin America. Uruguay is a member of MERCOSUR together
with Argentina, Brazil, Venezuela and Paraguay. However, this does not result being only
a positive impact for the economy of Uruguay, and Uruguay has expressed its interest for
having a “Chile position” within the Mercosur countries. The investment environment of
Uruguay is relatively good. There are only a few restrictions regarding foreign direct
investments, and the financial sector in Uruguay is relatively developed. Education level is
one of the highest in Latin America, and Uruguay is also distinguished by its high literacy
rate 99%. Additionally, Uruguay has good basic social security and high standard of
education, which enables the supply of well-educated professionals and qualified labor
force. (Botnia 2007, Bucar 1997, Finpro 2007, International Mission Board 2007, Piilonen
2005, World Bank 2005)
Figure 9: Map of Uruguay.
Uruguay's 1967 constitution institutionalizes a strong presidency, subject to legislative and
judicial checks. Executive power is exercised by president, vice president, and Council of
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Ministers. The new administration of Uruguay entered into office in March 2005. The very
first time in the history, a leftist president was elected in Uruguay. The left-wing party
received the majority votes and occupies now both chambers in the congress. The
Colorados (the liberals) and the Blancos (the national party) have formally occupied the
congress. This transformation was, most probably, due to the big economic crises which
left its marks by increasing the poverty and inequality among rural and town population.
Now, the government faces enormous challenges in enhancing the economy while at the
same time it has to respond to social challenges. The government is targeting its priorities
to support Uruguay’s recovering from the extended economical recession, which it
suffered during the years 1999 – 2001. Thus, the actions are aimed at maintaining
economic stability, attracting and encouraging investments, creating jobs, enhancing
competitiveness, and achieving long-term sustainable economic development. (Laitinen
2005, Library of Congress 2005, US Commercial service 2004, US department of State
2007, World Bank 2005)
Until the beginning of 1970, Uruguay was considered one of the most stable democracies
of Latin America. Uruguay then experienced a rough period of turbulence and dictatorship,
from which it started to recover from during the late 80s and beginning of the 90s.
Nowadays, political stability in Uruguay is perceived to be quite good. However, when
setting the price for political risk in Uruguay, Botnia considered that there would be a
possibility of some sort of political risk regarding government regulation policies.
According to Transparency International’s Global Corruption Barometer from the year
2006, the majority of people in nine of the ten Latin American countries polled, perceive
the legal system or/and judiciary to be corrupt: in Bolivia, Mexico, Paraguay and Peru, 80
percent or more of respondents described the justice system as corrupt. The problems in
the region are persistent and political influence in judicial processes is obvious. In
Argentina, for example, the executive is increasing its control of the judicial council, which
is responsible for the appointment, transfer, training and discipline of judges. However,
Uruguay is perceived to be one of the least corrupted countries in Latin America. The 2007
Transparency International’s Corruption Perception Index Regional Highlights from the
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Americas ranks Uruguay the 6th in the North and South American mutual listing. Only
Chile stands above Uruguay from Latin American countries. The 2007 worldwide
Corruption Perceptions Index (part of the annual survey conducted by Transparency
International) places Uruguay in the 25th position within the 163 economies included in the
survey. According to this index, the countries that are perceived to be the worlds least
corrupted are Finland, Iceland, and New Zealand. In this index, corruption is defined as the
abuse of public office for private gain and it measures the degree to which corruption is
perceived to exist among a country's public officials and politicians. Argentina occupied
the 93rd position together with Armenia, Bosnia and Herzegovina, Eritrea, Syria, and
Tanzania. (Transparency International 2007a & 2007b) Also, according to the Reporters
Without Borders’ Worldwide Press Freedom Index (2006) “relations between Argentina’s
national media and the presidency are still very bad and cutting off state subsidies is no
longer the only way used to cow media outlets. Suspensions and dismissal of journalists
are sometimes the result of direct pressure by politicians”.
Uruguay’s legislation is relatively developed; it has its roots in the British and Spanish
legislative base. Recent governments have carried out cautious programs of economic
liberalization similar to those in many other Latin American countries. Even though these
programs included lowering tariffs, the legislation regarding foreign direct investments is
still undeveloped; for example, the tariffs and tax payments still remain relatively high.
Uruguay has special legislation policies for FDIs, and the basic regulation for Free Trade
Zone agreements existed already before Botnia’s investment decision. Thus, there was no
need for Botnia to change or affect Uruguay’s legislative system. Otherwise Uruguay
enjoys a positive investment climate, with a strong legal system and open financial
markets. It grants equal treatment to national and foreign investors and, aside from very
few sectors, there is no discrimination juridically or in practice towards investments by
source or origin. Uruguay’s economy is based on free enterprise and private ownership;
however, Uruguay has traditionally favored substantial state involvement in the economy.
Despite some de-monopolization and privatization over the past ten years, the state
continues to play a major role in the economy owning either fully or partially, companies
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in insurance, water supply, electricity, telephone service, petroleum refining, airlines,
postal service, railways, and banking. (Finpro 2007, IADB 2007, World Bank 2005)
In general, Uruguay’s natural resources are relatively poor; Uruguay's economy is
basically agricultural-pastoral and its greatest natural resource is its rich agricultural land,
of which about 85% is devoted to livestock raising. Uruguay is dependent upon imports for
most raw materials and energy, and lacks fuel resources. The existence of high-technology
based sector and developed infrastructure, especially within the rural areas is still minimal.
Thus, there is a need for considerable industrialization. For great amount of “waste land”
(i.e. agricultural fields) forestry is now starting to add to the country's economy. (Botnia
2007, Finpro 2007)
Uruguay has supported the forest plantations since 1980s. Since the late 80s, in order to
boost investments in the forest sector, the government of Uruguay decided to put forward
tax relief and regulation favorable to forest investments. There is a lot of land, which offers
ideal growing conditions for rapid growth of, for example, eucalyptus trees. Eucalyptus has
good qualities and is well suitable for making pulp; eucalyptus also grows rapidly and is an
excellent tree for cultivation. Land ownership in Uruguay is clear and, as mentioned
before, the country's legislation is well-developed. The example of neighboring countries,
Brazil and Chile, has shown that forestry contributes to development of the industry. In
Uruguay, the mill of Botnia is a stepping stone for other companies – a landmark for
Uruguay – in development of the forestry industry: already, five foreign companies are
planning constructing their mills in Uruguay. (Botnia 2007, Espectador 2003)
Argentina and Brazil have played an important role in the history of Uruguay, not only
geopolitically thinking but also economically: Uruguay’s trade is greatly dependent on
Argentina and Brazil, it shares boarders with the two giants, is a member of Mercosur
together with these countries, and the periods of political instability in Uruguay were
reflected from its neighbor countries. Furthermore, relationships between Uruguay and
Argentina have been relatively interdependent, and Uruguay has had a role of being “a
little brother or a sister” to Argentina. This dependency of Uruguay on Argentina had a
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significant consequence when Argentina suffered from economical and financial crisis in
the turn of the millennium, during the years 1999 – 2002: this affected substantially also
Uruguay’s economy. Thereby, Uruguay is now determinately aiming to reduce its
dependency on Argentina by spurring industrial development and attracting foreign direct
investments. (Brun 1998, Munck 2003)
Uruguay is a member of several international organizations, such as International
Monetary Fund (IMF), MERCOSUR, World Bank (WB) and World Trade Organization
(WTO), of which especially IMF has had a big role in supporting the aftermath of the
economic crisis in Uruguay. U.S.- Uruguayan relations have traditionally been based on a
common outlook and emphasis on democratic ideals. United States are amongst Uruguay’s
five most important trading partners and they have also helped Uruguay to recover from
the economical recession. (Brun 1998, Healy et al. 1998, Laitinen 2005, Library of
Congress 2005, US Commercial Service 2004, World Bank 2005)
4.1.2 National culture characteristics
Several major events in the history of Uruguay have had an important influence in the
culture and the identity of the population. Uruguay has developed through centuries of
historical facts and events, which have shaped its culture: it has experienced colonialism by
the Spanish and Portuguese; received many European immigrants e.g. from Spain, Italy,
Germany, and Eastern Europe; went through a dictatorship; recovered the democracy state;
and suffered an economical crisis. Uruguay's position between Spanish and Portuguese
settlements – later between Argentina and Brazil – also helped in determining the
emergence of Uruguay as an independent state and influenced in the formation of the
country's culture and the personality of people. Most Uruguayans are nominally Roman
Catholic although the majority do not actively practice a religion. (Encyclopedia 2007,
Finpro 2007, International Mission Board 2007, US Department of State 2007)
National cultural characteristics that came out in the interviews support mostly the
theoretical implications on Latin American cultural context. Still, in Uruguay, one can
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notice the humbleness of people, which is – somewhat surprisingly – contradictory to all
those typical Latin American “macho culture” characterizations. This, according to most of
Uruguayans, is due to mostly two factors. Firstly, the country is small, and – as many
Uruguayan see it – the location between the two big countries, Argentina and Brazil,
makes Uruguay seem even smaller. Secondly, Uruguay’s strong dependence and living in
the “shadow” of Argentina, has left its mark on people’s character. Many Uruguayans also
recognize that the country is not – or has not been – well known outside the Americas until
now, of which the thanks’ belongs to Botnia.
Typical Latin American – and Uruguayan – characteristic is to “soften the arguments”, so
basically people don’t use harsh words and direct communication, as in Finland. It is
typical for Uruguayan people to use vague and non-specific language. More of indirect
language is used and the actual message is hidden – not exposed and clear as in Finland.
As in Finland people usually think that it’s better to say the things as they are; someday
they will be exposed anyway. Typically for a Latin American country, in Uruguay the
culture is collectivist; people have time for each other, and personal contacts are
considered to be important. This is also manifested in work environment in a sort of
“workers’ solidarity”: quite often opinion is expressed and statements are made through
strikes.
Cultural challenges related to the perception of time were especially faced regarding the
following up of the project time line and communication strategy. In Uruguay, as well as in
Argentina, long-term perspective is not a common way of thinking. People are inclined to
think in short terms, more on a day-buy-day basis. A comment “in Uruguay people don’t
thing in long term, people think about the ongoing day, the ongoing week…but not about
the next year” represents a general statement made by both Finnish and Uruguayan people.
These different perceptions employed the project management a lot, especially, at the
initiation phase. Sometimes, these different perspectives are simply not understood, and
each party seems to prefer their own way of thinking. Although, many Uruguayans
sincerely think that learning the Finnish way of working and understanding the Finnish
mentality have taught a lot of important things to local people in Uruguay. Many people
64
involved in Botnia’s project mentioned that the project – where Finnish and Uruguayan
have been working very tightly together – has been an enormous learning experience for
both parties.
People are suspicious towards authorities and companies in both, Uruguay and Argentina.
Furthermore, this is affirmed especially in Argentina, which is still suffering from its
difficult political and economical history. This is manifested in practice in a way that
people are not trusting in politicians, companies, and/or media. In general, authorities are
considered as trying to pull the people, and big, “global” companies are barely taken
cognizance of at all. In Argentina, nearly all foreign companies have the image of being
the “global exploiters”. The media in Argentina is, in many cases, frowned upon because
of its tight connection to Argentinean political scene. In Uruguay it is commonly believed
that the “rules of the game” are not as clear in Argentina as they are in Uruguay; this claim,
amongst other, is eagerly used to attract investments in Uruguay. It seems that in Uruguay
people are overall more trustful towards the politicians, media, and companies. In general,
global companies are neither admired in Uruguay. But in advantage for Botnia, it is not
perceived as one: Botnia has an image of being a Scandinavian company. Many
Uruguayans do seem to believe and trust Scandinavians; Finland and other Northern
European countries are considered trustworthy. Despite of partly suspicious attitude
towards foreign companies, a foreign company is still a desired employer according to
many Uruguayans.
In the case of Botnia, the challenge of gaining peoples’ trust has been considerable, before
all in Argentina; when trying to give information about the environmental impacts of the
pulp mill Botnia has faced a problem of credibility and a barrier in trying to form a
dialogue with Argentinean people. In Uruguay, distribution of information and formation
of dialogue between different parties has been done more easily due to the fact the project
is located in the Uruguayan side of the river. The informative job that Botnia has done (and
is continuing to do) has been enormous: people did not know much about the pulp
industry, and Argentina’s rather contaminating pulp and paper mills had been previously
acted as a reference for the industry. People are still confusing paper and pulp mills and
65
even the Argentinean media refers to Botnia’s mill as “the contaminating paper mill”. In
general, communication practices differ a lot between Finland, Uruguay and Argentina:
pro-activity in communication and open dialogue with all the parties is not that familiar in
Uruguay and Argentina; also, there can be a big difference between the newsworthy
messages. However, like in many countries as well as in this case one can notice a big
difference in the ways of thinking between the “city” and “rural” people.
In Latin America, the relationship between Argentina and Uruguay has been that of “los
hermanos”: Uruguay has been considered being “a little brother of Argentina”, and as
mentioned earlier, this has been seen especially through economical dominance of
Argentina over Uruguay. This setting was reflected in public national opinion of both
countries, and particularly it was seen in the attitudes and behavior of the local people from
Fray Bentos and Gualeguaychú communities: during the debate on Botnia’s pulp mill the
former defended, somewhat ardently, the project while the latter party was trying to
question and criticize the project. People form Fray Bentos also expressed their support to
Botnia with hand clapping and booing to people who were making negative comments
about the mill. The national support for the project in Uruguay has been stable throughout
the international debate, and remains still very strong: according to surveys conducted in
Uruguay, over 80% of Uruguay’s population is supporting Botnia’s pulp mill.
Uruguay and Argentina are characterized, by both Uruguayans and Finnish people, being
quite different despite their neighboring location. Many Uruguayan think that the country
is a best place in Latin America to start with when companies are considering establishing
a position in the continent: Uruguay is seen as “gate to Latin America”. This has been
confirmed by Finnish interviewees; as for what comes to a Finnish company in general,
Uruguay is considered maybe the easiest country to start from in Latin America.
The pulp mill conflict
Uruguay’s relationships with Argentina indeed have been experiencing bad times during
the past few years. Based on the media releases and the interviews, the conflict situation
between the two states burst in the beginning of 2005, when Uruguay’s government
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admitted Botnia a permission to build a pulp mill next to Río Uruguay in Fray Bentos,
situated right across Argentina’s border. Since then, the government, civic organizations
and media in Argentina have actively been opposing the construction of the mill.
The organization opposing Botnia, Asamblea Ciudadana Ambiental de Gualeguaychú, was
founded in 2002 by four environmental activists from Gualeguaychú. Activity of
Asamblea was triggered by the ongoing pulp mill project planned to be constructed in Fray
Bentos by a Spanish company Ence: founders of Asamblea visited Ence’s sites in
Pontevedra, Spain, where local inhabitants complained about the environmental problems
of Ence’s mill. Hence, the opposition was already there when Botnia was starting up its
project in Uruguay. Ence decided in 2006 to withdraw its pulp mill project from Fray
Bentos and is now building its mill elsewhere in Uruguay. Nevertheless, Asamblea and the
people of Gualeguaychú oppose now Botnia, albeit the resistance was initiated by Ence’s
project. Ence’s decision to move its mill elsewhere from Fray Bentos was due to Ence’s
willingness to increase the production capacity of the mill from 500 thousand tons to one
million tons; this could not have been realized in Fray Bentos.
The resistance towards both pulp mill projects was already visible in 2003 and 2004:
people from Gualeguaychú gathered to protest and demonstrate the construction of these
two planned mills, on the boarder of Uruguay and Argentina. However, the opposition
strengthened considerably during the year 2005; the investment decision was made in
March 2005, and Argentinean resistance and opposing activity intensified substantially
since then. Compared to Argentina, there have been relatively moderate environmental
movements in Uruguay, concerning mainly the plantations and tree cultivation in the
surrounding area. The international environmental organizations Greenpeace and WWF
have also participated in the conversation regarding Botnia’s Uruguay mill. Greenpeace
organized some demonstrations against the mill, but has withdrawn from them probably
due to the conflict becoming strongly politicized in 2006 (this year Argentina took the case
to the Hague International Court of Justice).
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The general public in Uruguay has not visibly protested against the mill; on the contrary,
people from Fray Bentos organized a demonstration on behalf of the project. It is believed
that not only the economical aspect has affected on people’s positive attitudes but most of
all the strong and stable support of all Uruguayan political parties; not quite like in
Argentina, people in Uruguay have confidence their politicians.
There are many speculations and reasoning about how did the conflict situation between
Argentina and Uruguay begin. One common belief that has been agreed upon is, that the
crisis began locally, from which it then transformed into a national crisis. Otherwise,
things like Argentina’s history (economical and political crises), history of paper and pulp
industry in general in Argentina, Uruguay’s and Argentina’s bilateral historic relations,
European colonialism and general attitudes towards globalization, political motivations
behind the NGO’s environmental and social concerns, Botnia’s failure to inform and
engage with Argentinean interests groups, manipulated and false information, and
propaganda have all been raised as incidents affecting on the formation – and development
– of the conflict. Lately the conflict situation has been moving back towards being only in
the local agenda of Entre Ríos communities.
When asked, if the conflict could have been avoided, or if the project could have been put
in Argentina’s political agenda as a positive issue and used in improving Argentina’s
current contaminating pulp and paper industry, an interviewed local person commented:
“Nothing unites a country more than a shared enemy.”
4.1.3 Botnia’s stakeholders in the Uruguay project
In the following, some of the focal interest groups of Botnia in the Uruguay project are
briefly introduced. These groups were chosen for their central role in the project; however,
they are not elaborated in priority order. Each of these interest groups includes subgroups
of stakeholders that are sorted under the relevant interest group category. Finally, a three-
level stakeholder map summarizes Botnia’s stakeholder scene in Uruguay: the map reflects
Botnia’s stakeholders in regional, national and international contexts (See Figure 6). This
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map was developed during the final stage of the project’s construction phase, before the
operational phase of the project was commenced. Therefore, it reflects a stakeholder map
that is situated in between the two – construction and operational – phases. Certainly, the
initial stakeholder map – the map of the very beginning of the greenfield investment – has
been different to that of the current outline.
Uruguay
Uruguay comprises all the key stakeholder groups and includes the most important
stakeholders for Botnia regarding the project. This group includes all the levels of the
society: national, regional and local. These stakeholders are listed in Figure 10.
The state of Uruguay comprises the government with all the main political parties and
national authorities. These stakeholders have an essential importance in the case; the
approval of the investment, every permission and authorization regarding the development
of the project are dependent on this group. Also, the public opinion depends on the
standpoint of national parties, or put in another way: government and national authorities
are valuable opinion leaders throughout the country. This group also includes professionals
and academicians, which are important regarding conduction of scientific studies,
providing information and acting as opinion leaders in their field. Further, the state of
Uruguay includes the land owners and business people, who are the raw material and
infrastructure providers as well as the local employees or potential work force which, of
course, is an essential stakeholder group for any company. The employees will be
addressed separately in this chapter.
International Finance Institutions (IFIs)
Financial institutions have had an important role in the development of the project and, in
many cases, a key role regarding the existence of the project. As a part of the World Bank
Group, the private sector financier IFC and the investment guarantee agency MIGA have
also had a political role besides the financial interests; the World Bank has been an actor in
the political arena and debate between Uruguay and Argentina.
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Community of Fray Bentos
Local people and administration of Fray Bentos community have always been obvious
stakeholders for Botnia. Location of the mill site is 5km from the town center, and these
interest groups are directly affected by the project and its – environmental and socio-
economical – impacts.
Non-Governmental Organizations (NGOs)
In forestry industry NGOs have an important role in developing the project in cooperation
with forestry companies. This group includes international organizations like WWF
(World Wide Fund for Nature) and Greenpeace, and some other local civic- and
environmental organizations in Uruguay. The aim of Botnia is to work closely with NGOs
and develop the project in cooperation with these stakeholders, and WWF was considered
as potential partner for developing the project in the future. The environmental and civic
organizations in Uruguay have been mainly supportive towards the project. The exception
is formed by the organizations that are not against the mill itself, but protest the cultivation
methods; they are against the exploitation of the land for the eucalyptus plantations.
Suppliers
The suppliers include both, wood suppliers and main suppliers for equipment. These have
both been very important stakeholders for Botnia during the initiation and construction
phase and now, during the operational phase the wood suppliers become even more crucial
for the company. Wood suppliers include Botnias fully owned subsidiary Forestal Oriental
and a local family owned OTEGUI group, which also has a 9% share in Botnia’s pulp mill
project. Botnia also considers the local Uruguayan and Argentinean, small private forest
owners being important stakeholders for the company.
Labor unions and employees
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Employees have been an important, and a challenging, stakeholder group for Botnia. After
the recruitment process, which was mainly done during the last quarter of 2004 and the
first quarter of 2005, a lot of training has been done for the local employees. At the same
time cooperation with labor unions has required a lot of learning from the company’s side.
All in all, both the Finnish workers of Botnia and the Uruguayan went through a practical
cultural training, which required efforts from both sides. Botnia’s objective is resulting in
that the mill would be managed by the locals.
Media
The media includes national, regional and local media in Uruguay as well as in Argentina.
The media has been an important stakeholder from the beginning. First communication
agency was hired in Uruguay during the second quarter of 2003; in Argentina cooperation
with local communication agency began officially in summer 2005 although Botnia had
started to work with some medias of communication already during the year 2003.
Uruguayan media has also been “trained”; the people involved in mass media did not have
previous knowledge on pulp and paper industry communication, so they had to be taught
quite a bit about the industry. In Uruguay, working with the media has been a lot easier
than in Argentina, because the working methods and the freedom of speech differ
substantially in these two countries (Transparency International 2007b).
In addition, undeniably stakeholder groups like owners and customers are of significant
importance to Botnia. These are not assessed as case specific stakeholders; considering that
the company is involved in business-to-business activities, owners and customers are
considered being the “usual” stakeholders and are not further elaborated in this chapter.
The following map illustrated in Figure 6 presents Botnia’s stakeholders in the end of the
construction phase of the project.
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Figure 10. Botnia’s stakeholder map in the Uruguay-project
Botnia
Fray Bentoscommunity
Uruguay’sgovernment
Media
CEDHA
World Bank(IFC, MIGA)
Gualeguaychú andother provinsionalcommunities
Employees
NGOs(Greenpeace, WWF)
Media
Labor unionAsambleaGualeguaychú
Project team
CitizensSuppliers
Customers
Botniaemployees
IFIs:The governmentof Finland
Finnishembassy
Media
NGOs
National and regionalgovernments
Citizens
Regionalgovernment
Localenvironmentaland civicorganizations
Local andregionalgovernments
Owners(Metsäliitto,UPM)
Experts,Acedemics
EC
ARGENTINA
URUGUAY
International
Uruguay
Fray Bentos,Entre Ríos
EIB, NIB,Calyon
Finnvera
Local andregionalmedia
Nationalauthorities
NGOs
Forest owners
ILO
Finpro
Suppliers
EU authorities
Labor union
Uruguay - FinlandChamber of Commerce
The church
Forest owners
Spain
Pöyry Group
Entre Rioscommunities
Academics
Opinionleaders(fire department,police)
4.2 Results on stakeholder prioritization process
In this chapter, the results on how the process of prioritizing stakeholders has been
managed in Botnia are presented. This chapter is constructed in a following way. First, the
results on stakeholder identification process are reviewed, after which the interests of
stakeholders perceived by both Finnish and Uruguayan interviewees are presented. Finally,
the results on criteria and methods used by Botnia in prioritizing its stakeholders in the
Uruguay project are listed.
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4.2.1 Identification
The identification of stakeholder groups in the Uruguay pulp mill project of Botnia was
basically made in two stages, even though the ground work for the project started already
in the beginning of this decade. The first stage was in 2003, when the investigation on the
location of the mill was made public. This period included identifying all those groups who
would affect the development of the project; also, the groups that would be affected by the
project were considered. During this stage, the role of the top management and
environmental specialists was fundamental.
In the view of Botnia’s top management, previous experience in managing these types of
projects was an important factor in stakeholder identification process: the greenfield
investment in Rauma was very helpful in the particular case. The environmental aspect was
initially emphasized in the identification process; nevertheless, also other groups were
considered. Regarding environmental stakeholders both, international and smaller local
environmental organizations were identified. Stakeholders in Finland and Europe, like
owners, customers and authorities, as well as the financiers and local potential employees
in Uruguay were identified. The wood providers, and forest owners, were also amongst the
primary stakeholders identified; ensuring the raw material supply was crucial.
Additionally, an international consultant was hired for the purpose of conducting a
stakeholder strategy. The strategy planning included a) who to approach, and b) how to
approach.
Correspondingly, a local representative from Uruguay was helping with the identification
process and making the contacts. Also, Botnia already had contacts in Uruguay through its
local partners like Forestal Oriental and OTEGUI. Additionally, the global companies
supplying to Botnia had their contacts. Stakeholders from Argentina’s side were also
foreseen in the identification process: Argentinean government representatives and
politicians as well as political representatives and general public in Entre Ríos province
were recognized and they were also informed from the beginning of the project.
Argentinean press and media, as well, were identified.
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The government, political parties, authorities and the decision-makers of Uruguay were the
obvious – and within the first – groups to identify: they have a direct affect on, and are
directly affected by the project. One of the first tasks was to assemble Uruguay team of
experts for the environmental and socio-economical impact assessment studies. This
included the identification of professionals, scientists and university people; they would
contribute to the project. NGOs, which basically are a standard stakeholder group for
Botnia, were recognized and amongst the first ones informed about the project. Also the
local, smaller NGOs and civic organizations were included in the identification process.
“The public” included, according to some interviewees just the general public, and some
identified more stakeholders, like the local people, potential workers, business people,
professionals, press and media, under this category. The “opposing stakeholders” were also
identified; the presence of Spanish forestry company Ence in Uruguay made it easier to
recognize these stakeholders for they had already started their opposition activity against
Ence. Here the main stakeholder groups were the environmental activists from Argentina
(Gualeguaychú), but also some civic and environmental organization from Uruguay.
In 2003 projection of communication campaigns was also started and a communication
office was chosen from Uruguay in summer 2003. First communication plan was generated
by the end of the year: this was a part of the strategy to reach and form dialogue with the
identified stakeholders. At this point, the local press together with the governmental parties
was acting as an intermediary stakeholder for the rest of the public.
In 2006 stakeholder identification process was revised as a part of re-formulation of the
communication strategy. During this “second identification stage” the scale of stakeholders
was considerably widened. The revision was required because stakeholder groups, which
hadn’t before been actively involving in the discussions concerning the project, appeared:
opposition against the construction of the mill arose – and strengthened considerably -
during 2005. Within this period, organizations in Argentina like CEDHA (Center for
Human Rights and Environment) and Asamblea Ciudadana Ambiental de Gualeguaychú
(environmental NGO) grew – involuntarily to Botnia – to represent very visible
stakeholders of Botnia. Basically, local civic organizations and local politicians from
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Argentina’s side “forcibly enrolled themselves as specific stakeholders”. Even the church –
which has a role of opinion leader in Argentina – became to be a meaningful stakeholder
for Botnia. In addition, new international parties were identified as Botnia’s stakeholders;
not only the case had become a political dispute between Argentina and Uruguay but it had
also turned into an international debate. At this point there were already many stakeholder
groups involved, but the complexity deepened because there were several layers of
stakeholders: Uruguay, Argentina, Finland, EU, the World Bank, Hague International
Court of Justice, and other international parties were involved, in one way or another, in
the case.
In October 2006, IFC released its final Cumulative Impact Study regarding the mill’s
economical, environmental and social impacts. This study also included a stakeholder
analysis based on a sample of interviews conducted, in Uruguay and Argentina, in places
close to the site. The role of consultants was notable although, a parallel stakeholder
analysis was made in Spring 2006 inside the company. This analysis was conducted by the
communication teams in Finland and Uruguay. It included a review of stakeholder
identification and reformulation of the previous analysis due to the complicity of the
situation.
There is still a “third stage” in the identification process; the next step in the project – the
operational phase – is about to start. This will bring different challenges to those that
Botnia has faced during the construction period. The focus of stakeholders is likely to
move and even new stakeholders appear: in this stage of the project, the role of
Argentinean stakeholders will increase. This means identification of all the relevant –
either affecting or being affected by the company – Argentinean stakeholders. Many of
these stakeholders are opinion leaders in Argentina, and Botnia considers it being very
important to identify these groups properly.
Over half of the interviewees perceived that the stakeholder analysis and identification
process were done thoroughly: “the stakeholders have been identified broadly” was the
general standpoint of the interviewees. Almost everyone also mentioned that the
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company’s efforts towards identifying the groups that either had an affect on the company
or were affected by the company’s actions were made open and clear. One thing that
occurred to be somewhat confusing in Botnia’s stakeholder identification, was the naming
of the stakeholders. Because of so many layers and multifold stakeholder groups involved,
the same groups were called with different names by different interviewees; furthermore,
the groupings were not always obvious. Some interviewees specified a stakeholder group,
which included various stakeholders and some specified each stakeholder as an own group.
For example, many layers of national parties, like government, politicians and political
parties, national and regional authorities, professionals and environmental specialists and
academicians, were sometimes specified separately, and sometimes only expressions like
“Uruguay” and “Argentina” were used to define these stakeholders. Also, “the markets”
were, according to some interviewees, perceived as a separate stakeholder.
Even though the stakeholders have been defined in various ways, Botnia’s stakeholders
can be summarized under the following nine categories based on the answers of the
interviewees: international parties, the states, regional provinces and local communities,
international financial institutions (IFIs), forest companies, head-suppliers and contractors,
Botnia’s owners, employees, environmental and civic organizations. International parties
encompass, for example, the European Union and Commission, Spain and the Hague
International Court of Justice. The states are Uruguay, Argentina and Finland, and include
both, national and regional stakeholder groups like the government, national authorities,
political representatives, business people and academics, the media and other influencers.
IFIs include the IFC and MIGA and other private financiers. The main forest companies
are Forestal Oriental and OTEGUI Group plus other private forest owners in Uruguay and
Argentina, whereas the main suppliers and contractors include the main equipment and
machine suppliers and contractors related to the construction phase. Botnia’s owner
companies and their private stockholders form the owner group, and employees include
Finnish as well as Uruguayan workforce. Finally, the environmental and civic
organizations consist of both national and international organizations.
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4.2.2 Interests
The pulp mill project was originated from the interests of Botnia’s owners and customers;
as it is seen by the top management of Botnia “the starting point for the initiation of this
project was the needs of the owners and customers.”
Basically, the stakeholders were grouped out and each stakeholder or interest group had
their own people from Botnia responsible for the dialogue. This division of responsibilities
was made according to the main stages and topics of the project: project phases include the
initiation, the construction and the operational phase whereas the main topics consist of the
environmental, political, financial, economical and social issues. The intention was that
each person would be responsible for forming the dialogue with stakeholders and finding
out their interests, and then communicating them inside the company. Nevertheless, these
topics overlapped in the course of the project and thus the roles of dealing with the
stakeholder interests became somewhat vaguer. All in all, the top management was leading
the dialogue with national and governmental parties, environmental people concentrated on
the specialists and environmental stakeholders, financial people handled financial
institutions, project managers were responsible for all these stakeholders locally in
Montevideo and on the site in Fray Bentos including also the surrounding communities.
Types of interests
During the project, the interests – or demands – of the stakeholders have been diverse and
varied: “If you invest 1.2 billion dollars anywhere, there will be lots of interests”. Case
sensitivity has been characteristic for the project and thus, many times the interests of the
stakeholders were defined during the course of events.
Based on the interviews, the main interests of the stakeholders can be divided in
economical, political, juridical, environmental, social, influential and educational interests.
Economical and environmental interests are basically the ones most characteristic for the
entire project from both, the point of view of Botnia as well as from Uruguay’s point of
view. Economical interests were seen, from the company’s point of view, as the primary
interests that their stakeholders were having regarding the project: stakeholders like the
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state of Uruguay, Fray Bentos community, employees, suppliers, owners, financiers and
wood providers (forest companies) were considered to have primarily economic interests
in the project.
According to the top management, the interests of the local people were initially defined
according to two themes: “we believed beforehand that there [in Fray Bentos] are two big
topics regarding the people: the environmental issues and the employment, and what it
[employment] means to people. And what turned out to be there [in Fray Bentos] the
biggest issue for the local people by far was the employment”. The environmental interest
was somewhat even smaller than expected by the company: the economical impacts and
employment were definitely the “hot topics” among the local people. Furthermore, it was
seen that Uruguayan value a lot the economical benefit and their interests in the
economical aspect of the project could be seen throughout the country; people very much
saw and believed that this project is a stepping for further foreign direct investments. So
generally, the environmental concerns have not been overcoming the economical interests.
Nevertheless, interests regarding the environmental aspect have also been considerable and
Botnia has worked a lot on satisfying them. The interviewees are confident that in Uruguay
the environmental concerns have been dealt with and responded to excessively throughout
the whole organization.
Political interests have played a significant role in this project, or rather; the conflict, which
arose from the project, is seen to be caused by political interests. Many interviewees
mentioned that also the World Bank had political interests in this case. It was perceived
that the role of the Bank was not merely financial. The political role of the Bank, according
to Botnia was nevertheless important. World Bank was seen as an indirect influencer:
public support from the Bank meant public – and political – approval for Botnia’s project
at the international level.
According to one interviewee, the legitimate role of Uruguayan stakeholders was divided
in sub-levels, which included the national level, macro-level and micro-level authorities.
Their interests were mainly concerning Botnia’s permits in Uruguay: these authorities were
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committed to enhancing the infrastructure, functionality of the society and regional
planning. Furthermore, these authorities were taking the responsibility for the pulp mill
and thus; it was in their interest to ensure that it will function properly.
The interviewee also mentioned that legitimacy was a primary characteristic to Finnish
government representatives; even though wanting to be outsiders in the project, they were
“dragged in” by Argentinean parties, which considered that the government of Finland
would have the legitimacy to influence the retreat of Botnia from the project. Nevertheless,
other interest characteristic to Finnish government was also an economic interest through
the financing institution Finnvera, which is owned by the government of Finland. NGOs,
including both national and international environmental and civic organizations, were
considered to have urgency to affect the high legitimate quarters like the government and
financial institutions. NGOs were not considered to have legitimacy, but they were
believed to be actively influencing the company indirectly through the legitimate parties.
In addition to the government, and national and regional authorities, labor unions were also
perceived to have power in Uruguay. The government and politicians were seen to have
power to affect the public opinion. Labor unions were seen quite powerful when attracting
people with the strategy to improve working conditions. Furthermore, a power struggle
inside the labor unions was notable; two unions – national and local – were having their
private struggle for power on the site. According to the local business person interviewed,
in Uruguay the labor union is also seen to have political interests and incentives and vice
versa: for example, the labor minister is an ex labor union member and there are other
similar examples as well. Still, it was emphasized, that unlike in Argentina, where
everything, including the labor unions, is arranged with money, in Uruguay the incentives
of the unions are clearly to enhance the working conditions of the employees.
There were also learning – or educational – interests, which can be characterized as being
“new” interests. The whole process was seen, especially from the point of view of
Uruguay’s stakeholders, being a big learning process for the whole country: the
government, authorities, academics, workers, and media went all through a big learning
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process. Although this type of industrial growing in forestry has been in the interests of the
country since the 80s, there was no practical knowledge on this type of a project.
According to the interviewees, Botnia has considered the social interests being an
important factor regarding two aspects. First, the company sees that mill clearly affects
local peoples’ lives and therefore the social interests have been taken into account.
Secondly, the company sees the social approval as a “pre-condition” to economical
benefits, in a sense that economical effects can be utilized only when there is social permit
and commitment to the project. Like mentioned by one of the interviewees: “social
approval in Fray Bentos is important, otherwise they [local people] will not be receiving
the economic benefits”. In relation to social concerns, Botnia’s foundation, Fundación
Botnia, is concentrated only on corporate social responsibility related matters in Uruguay.
This foundation is responsible for cooperating with all the local communities – especially
with the community of Fray Bentos – situated in the regions near the mill site and wood
plantations. The foundation aims at enhancing the employment possibilities through
educational programs and facilitation, and works at maintaining a healthy and sustainable
life and environment. The environmental and social concerns have been notable in
Uruguay, but also in the Argentinean side of the river, where the economical impact is not
visible for the local people. The interests concerning philanthropic responsibilities have
been in many cases expectations towards money or specific article donations. However, the
strategy of Botnia has been “offering knowledge based help”, which has meant educating
people and making long-term projects in cooperation with local communities.
Even though Botnia also considered the interests of Argentinean parties, like the
government and the people in Gualeguaychú, Argentinean governmental or political
parties were not – initially – that interested in the project. Botnia sees that the
environmental interests of the local NGO, Asamblea Gualeguaychú, were transformed into
political interests first regionally and then in national level. In Argentina, there were
clearly also interests form the economical side; there was a strong potential from the
supply side to be involved in the project. Also the forest owners and wood suppliers have
had – and still have – economical interests in the project. Botnia considers that it has not
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been possible to answer to these economical interests – at least not yet. The social and
environmental interests of the local people in Entre Ríos and Argentina are related to actual
concerns regarding the contamination of the mill and its negative influence on the tourism
across the river.
It was encountered that Argentinean stakeholders had power – and urgency – to influence
Botnia’s project: this was done indirectly by disturbing the access to relevant resources.
According to the interviewees, Argentinean stakeholders were lacking the legitimacy for
direct measures so indirect influence strategies became very strong as described by one of
the interviewees closely involved in the project: “Argentina’s sensitivity about the matter
[Fray Bentos mill] was not a surprise, but the scale of the reactions…”. The construction of
the project was continuing despite of the intentions of Argentinean stakeholders to slow
down, or even to stop the construction of the mill: CEDHA’s attempts to affect the World
Bank’s financial decision did not result in a way this Argentinean NGO would have
wanted to. However, it was believed that Argentinean stakeholders do not have the power
to influence Uruguay’s parties’ decision making. In practice, it has been manifested
otherwise; the inauguration of the pulp mill was delayed two months due to the conflict
situation.
Responding to the interests
Even though all the interests could be, more or less, defined they could not all be taken into
account. Basically the methods for exploring the interests were open dialogue and direct
communication. Botnia organized several public forums and hearings, formed dialogue
with the main parties, and used intensive communication in order to respond to possible
expectations towards the company. The list, including the concerns and interests of
Uruguayan NGOs was published. It was based on the questions and answers session
organized during public hearings. The expectations of the citizens were also asked and
documented in public forums. Interests of government, national authorities, other direct
stakeholders and media were explored in various meetings.
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Cooperation with other parties, like environmental and civic organizations, was one of the
objectives for exploring – and responding to – the stakeholder interests: an intention was to
form a cooperation group with international NGOs. This attempt, however, did not work
out ,when initiated in 2004, and it has been postponed due to the political dispute between
Uruguay and Argentina. In order to answer people’s concerns the company has also
provided a lot of information about the environmental, economical and social impacts of
the project. This was made through various ways of communication and media with the
help of the local ream. It has been very important for Botnia to give a correct and profound
picture about the pulp mill and its effects on the society.
At first, the people protesting against Ence in 2002 – 2003 were few. Their claims were
basically concerning both, the withdrawal of Ence from the construction of the mill and
issues related to the eucalyptus plantations. The demonstration had been relatively peaceful
for Ence because it was planning to construct the mill for more that 10 years, but in
practice nothing happened. Then Botnia started the construction within two years from the
announcement of the planning process. So, the claims towards Botnia became much
stronger, when these parties realized that the mill was actually being constructed.
In Uruguay parties not supportive towards the mill are mainly agronomists and sociologists
who disagree on the issues related to the eucalyptus plantations and their multiplication.
Futhermore, they disagree on the simplex cultivation method which is, according to the
environmentalists, harming the land in a way that it can not be used for any other purpose.
Despite the protests, the people protesting were invited to Botnia’s informative meetings
and public hearings held in Fray Bentos. However, the claims – and means – of the
protesters became stronger, and finally the people representing these civic and
environmental organizations did not participate in public hearings. Botnia considers that
the claims were directed at stopping the project were basically one sided, and from the
company’s point of view no constructive claims were made. The basic claim was “no pulp
mill, and especially not in Fray Bentos”. In this kind of situation Botnia found it
impossible to answer to these interests of Argentinean stakeholders.
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In Uruguay, the local people and general public have needed, and have been requiring, a
lot of information about the project. Therefore, many of the interests were responded to by
providing information about the mill and its economical, environmental and social effects.
On the other hand, all the interests regarding the need for information could not be
answered the way Botnia would have wanted to: in Argentina the lack of correct
information, as it is seen by the Botnians, has been causing a big credibility problem and
thus some of the information could not be delivered at all. This is not at all characteristic
on the other, Uruguay’s, side of the river. One of the interviewees working with the
communications team opinioned: “The main request is information and our main goal is to
not only deliver the information but try to gain much more credibility in the [Argentinean]
stakeholder groups”.
The company has tried to keep politics and environmental issues separate: different people
have been responsible for managing environmental and political relations. When asked
about the possession, or division of power between the parties, the interviewees thought
that obviously, with this size of investment Botnia has had some bargaining power. Still, it
was considered that the national and regional authorities, especially environmental and
industry ministries in Uruguay have been the most powerful in this case. These parties
have also been the ones giving their support to Botnia; they have acted as an intermediary
stakeholder for Botnia in the dispute between Argentina and Uruguay.
When discussing and defining the interests of stakeholders, some of the interviewees
mentioned that it is not only about the interests of stakeholders, but also about the interests
of company. It was considered that the interests are not only one sided from the
stakeholders’ or the company’s side. As mentioned by one of the interviewees: “I think
that this is also a dynamic process, because in a certain way you can relate to these interest
groups or the stakeholders if you have as well their […] if you gain their interest as well in
a project.” The company also considered that it was important to manage the expectations
of the stakeholders, because in this kind of big project it is certain that people have various
expectations and interests. “One thing that is very important to mention, is that you know
this kind of large investment projects develop different expectations from different actors,
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and it’s very important to mention from the very beginning that this is not, these projects
are not, a solution to all the problems”. It has been a challenge for Botnia to try to ensure
that the expectations of stakeholders would not be too low or too high.
The interviewees see that in general, stakeholder interests were considered carefully and
responded to successfully in Uruguay both, nationally and locally. As a part of the
stakeholder analysis, Botnia’s communication team conducted a critical issues action plan,
which included analysis of the concerns stakeholders might have and a plan to deal with
these concerns. In Uruguay, the political, economical, environmental and social interests
have been dealt with well; according to both Botnia and the surveys conducted in Uruguay
by local parties, the mill has Uruguayans’ social approval and high commitment to the
project. This does not surprise the Botnians: they state that “social approval is acquired by
investing and creating jobs” and doing it in a responsible way.
4.2.3 Prioritization
Stakeholders have been rather dynamic in the course of the construction process. The
salience of stakeholders inside the company varied somewhat according to the
interviewee’s role regarding the project. Furthermore, the prioritization of stakeholders
varied according to the position – the point of view – of the interviewee.
When discussing stakeholder prioritization, the interviewees based their answers on the
progress of the mill project and the project timeline. The main themes were the different
phases and steps of the project, and the things that needed to be accomplished in order to
proceed with the construction of the mill. “Stakeholder priority list...it’s basically the
general history of the project”, was the top management’s standpoint regarding the
stakeholder prioritization. Still, interviewees’ different views on prioritizing diverse
stakeholders could be noted; moreover, there was a clear division in the prioritization
process between the interviewees in Finland and those in Uruguay. The interviewees who
discussed the stakeholder prioritization process represented the views of the top
management, finance, communication, environment and social responsibility. Based on the
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interviews, it could be presumed that the prioritization process was not centralized; rather,
the process was decentralized and coordinated. A country factor seemed to be an important
part of the prioritization: the work load was quite clearly divided between Finland and
Uruguay. Nevertheless, the World Bank was a stakeholder, which employed personnel
regardless of their location.
Stakeholders were mapped at different project stages by placing them within a two-
dimensional matrix. This stakeholder mapping was done according to first, what is the
impact of project on stakeholder group and second, what is the stakeholder group’s ability
to influence the project. This matrix was basically done for communicational purposes, but
was used as guidance for stakeholder prioritization in communication strategy. Based on
the matrix, the priority stakeholders were the ones that depended on the organization and
vice versa. Regarding the availability and allocation of resources, these “primary”
stakeholders were allocated resources that enabled personal engagement and dialogue to be
formed, while the other stakeholders were communicated through the mass media. The
mapping of stakeholders was updated regularly.
The prioritization of stakeholders has followed the chronological path of the project as
described by on of the project managers: “There are two phases: the project phase, and
then the operational phase.” The criterion implemented was to focus on the different time
frames of the project. So basically, this meant focusing on different stakeholders and their
importance during different project times. From the very beginning of the project, the
government, political parties and authorities in Uruguay were identified as priority
stakeholders. All eighteen persons interviewed considered these stakeholders being the key
interests groups in the project, because they could directly affect the authorization of the
investment and the development of the project. The forest owners and wood providers,
suppliers, contractors and financers as well as the Fray Bentos community were prioritized
from the very beginning when the studies regarding the mill site were initiated.
The project construction phase included civil construction stage and the mechanical and
electrical erection stage. At this stage, in addition to the previously mentioned
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stakeholders, the employees, the nearby communities, Uruguay citizens and also the
stakeholders in Argentina’s side became important stakeholders. Especially the labor
unions in Urugauy were prioritized for it was important to secure advancement of the civil
construction works. Still, throughout the whole project Uruguay’s government, politicians
and authorities have been one of the principal stakeholders. The World Bank Group, on the
other hand, has been the principal, or the major, “employer” throughout the project; it has
required foremost Botnia’s managements’ attention.
Anyhow, generally the priorities have changed in the course of the project, and even the
things that were projected have sometimes been changed very rabidly according to the
evolving situation. As described by one of the interviewees: “In the case of this project
there have been two things that have been very important. One is the delegation of that
prioritization process; that people have to know and try to establish their priorities. But
secondly what is very important is the observation”. The switches in the prioritization can
be seen, for example, in the case of the Finnish government, which had been a stakeholder
of Botnia before, but during the conflict situation it became even more important
stakeholder. Then, when the EU became a stakeholder, it was not as important as it has
now become: with Hague, Argentina, the WB and even Spain involved it has gained more
importance for Botnia. Then again, other stakeholders have been loosing a bit their
importance. During the construction phase, the civil workers’ union and the civil work
contractors were important stakeholders, who they still remain being but with less
importance; they have changed their position in Botnia’s stakeholder engagement map.
There are differing opinions between the interviewees regarding the importance of
Argentina’s role as a stakeholder. Some interviewees think that it would have been better
to pay more attention – from the initiation of the project – to Argentinean stakeholders and
especially to the people from Entre Ríos community. Others agree with the strategy which
did not give the primary importance to Argentinean stakeholders in the very beginning. All
in all, the interviewees found the reasoning about the correct method of action quite
impossible and almost every interviewee opinions that, regardless of the stakeholder
prioritization methods chosen, the crisis situation could not have been completely avoided.
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However, Botnia tried to reach the people, media and the regional government of Entre
Ríos from the beginning of the project. The company managed to establish a contact with
these parties, but it did not manage to form a dialogue with them. Basically, the
interviewees felt that Botnia didn’t have the opportunity, even though they had the will, to
be more active on Argentina’s side. However, the company feels that these stakeholders
are now a bit more open so that there can also be more interaction with them. Therefore,
these stakeholders are also becoming to be more important for Botnia; they agree to
receive information from the company and show more initiative to work with Botnia. So
basically, the importance and stakeholder prioritization has also been dependent on the
responsiveness of the stakeholder group. For example, in 2003 the Argentinean
stakeholders did not have the same importance as now; stakeholders like the Argentinean
and the Entre Ríos government, authorities, civic and environmental organizations and
main social actors as well as the Argentinean public opinion gained more of Botnia’s
consideration since the conflict year 2005. Although, the Gualeguaychú community has
been one of the stakeholders from the beginning of the project, now the whole Entre Ríos
community and region have been added more importance than they had in the beginning of
the project: since the second half of the year 2006, Botnia started to pay more attention
also to the different cities and communities of Entre Rios, like Paraná and Concepción.
The church and academics in Argentina have, as well, gained much more importance as the
company’s stakeholders: they both are significant influencer groups in Argentina. The
academics have always been one of the priority groups in Uruguay. However, their
importance in Argentina is currently higher, as pointed out by one of the interviewees:
“they [academics] are the main endorses we can have because they know better with whom
we can talk to, and they can understand better what we’re doing.” Additionally, there is
very important forestry activity in Argentina, so the company has also been working with
the stakeholders that could be potential wood suppliers for the company.
When discussing the short term and long term goals, the interviewees to not see that
stakeholders are unambiguously prioritized according to one way or the other: both views
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were considered important. In some situations the short term prioritization were seen more
relevant than the long term, because by neglecting the short term issues it may be that the
company would never get to the long term or vice versa. Like, for example, for Botnia
maintaining good working conditions and industrial peace has been very important issue.
Nevertheless, this was sometimes not possible in the short term. When the claims of the
stakeholders were so unrealistic that they were impossible to prioritize, the balance
between both long and short term perspectives was considered important as described by
one of the project managers: “…and the focus is, you have to shift the focus. Sometimes
you have to be able to develop and establish and give more focus to the short term issues
and sometimes you have to work on the long term issues.”
Besides, the stakeholders were considered to be interconnected; they were interacting and
some of them were partly interdependent, so one’s decision easily affected the other ones.
Therefore, it has been difficult for Botnia to manage these relationships and they did not
necessarily result in a desired outcome. The interviews also revealed that in order to
prioritize, one can not look merely into the interests of the stakeholders. The criteria for
prioritization have been following Botnia’s needs regarding the development of the project
and the stakeholders’ ability to promote them as expressed by one of the interviewees: “We
had to prioritize from the viewpoint of those things that we had to achieve.” Most of the
people interviewed mentioned that the prioritization has been extremely complex due to
the political situation, which has affected on the enormous scale of the stakeholders. The
re-evaluation of the stakeholder prioritization process is taking place now since the mill is
operating and the next phase in the project is taking place.
In Botnia, it is believed that the conflict in itself could not have been totally avoided.
Nevertheless, it can be speculated whether some actions could have prevented the situation
from expanding in this kind of scale. Afterwards it is easier to say ”one should have”; the
information that Botnia had was all that was available at that point of the time. So, the
decisions made were entirely based on the respective current situation, as expressed by of
the interviewees: “You don’t know what’s going to happen tomorrow or the next month.
You have to make a decision. Then, you understand the decisions much better, and that
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there weren’t many choices… And it’s the same with this case: if you start thinking, why
was something decided once – well, you have only known just the things present at that
point, and not at all what is going to happen tomorrow.”
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5 DISCUSSION
The final chapter of the study returns the discussion to the original theoretical interest. The
intention is to analyze the results of the study on the basis of the theoretical setting
introduced in chapter two. In addition, implications for Finnish managers with some
critical evaluation regarding the limitations of the study will be discussed. Finally,
recommendation for future research will be suggested.
5.1. Summary of the main findings
The empirical results were divided in two parts: the Uruguay context, which included
results on cultural characteristics perceived by both Finnish and Uruguayan interviewees
and Botnia’s stakeholder prioritization process in the pulp mill project in Uruguay. Based
on the country analysis, Uruguay forms a potential investing environment for Finnish
companies above all, in forestry industry. Uruguay is – together with Chile – a democratic
republic and an open emerging market with a relatively stable political environment.
Uruguayan themselves describe the country being “the Switzerland of Latin America” and
see it as a gate to the rest of Latin American countries.
Regarding the national cultural characteristics, the results revealed that Uruguayans indeed
had some similar characteristic to those of “typical Latin American characteristics” but
partly, Uruguayans were perceived to differ a lot from other Latin American nations.
Uruguay’s history, current population, geopolitical location and economical-political
situation were considered to have the most influence on the cultural characteristics.
Uruguayans can be characterized by sharing the “Latin” mentality with the rest of Latin
American nations only to the point they are not directly compared to the Argentineans. The
main difference between Uruguayan and Finnish cultures that was perceived to affect
business relations was the approach to and perception of time. Apart from cultural
differences like straight forwardness vs. indirect language and collectivistic vs.
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individualistic working attitude the cooperation between Finnish and Uruguayan parties
was described having been relatively easy. Botnia’s pulp mill project not only brought
Finnish business culture in Uruguayans awareness but has united Uruguayans to stand up
before their “big brother’s” commands. Unfortunately, Botnia’s project did not only result
in being a positive investment for the economy of Uruguay; it triggered a diplomatic
conflict situation between the states of Argentina and Uruguay.
Partly due to the conflict situation, Botnia’s stakeholder map in the Uruguay pulp mill
project has been very wide. The map has grown substantially in the course of the project
and it has been a big challenge for the company to try to identify all the various levels –
and layers – of stakeholders that should be included the map. The map was formed as a
result of country, company and industry specific factors and it reflects Botnia’s
stakeholders at the end of the first phase of the project – the construction phase.
In Botnia, the process of identifying stakeholders was basically done in two stages. The
first identification period was in the early planning stage of the project, in the beginning of
2003. Stakeholder identification was done based on previous experience, local partners’
assistance, outside consultants, industry related factors and country analysis. The main –
and the most relevant – stakeholders with a direct relation to the project and to the
company were identified. Also stakeholders potentially affected by the company’s actions
were considered. Due to unexpected, and rapidly developed, international political dispute,
identification of Botnia’s stakeholders was reconsidered and the stakeholder analysis
renewed. This was done in 2006, although the re-identification process started already in
2005. As a result, the scale of Botnia’s stakeholders widened considerably.
Stakeholder interests were defined by using different methods depending on the
stakeholder group in question. Dialogue and direct communication methods were applied
with engaging with the most important and critical stakeholders like those, who had direct
influence on the development of the project. Several public and open forums were
organized for general public as well as the channels of mass media were used to reach the
citizens in Uruguay. In Argentina, similar methods were used, however; the efforts to reach
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the stakeholders remained less proactive than in Uruguay. The main stakeholder interests
defined where economical, environmental, legal, social, political, influential and
educational.
The criteria for prioritizing stakeholders were basically those, which enabled Botnia to
proceed with the project as well as possible: stakeholders were prioritized according to
their potential influence on the development of the project. The process of stakeholder
prioritization has followed the project phases and project timeline. The first project phase
was the construction phase, which can be divided into the initiation of the project and the
civil construction stages, commenced in 2003 and 2005 accordingly. Due to the conflict
situation, which developed into a rather big diplomatic crisis during the year 2005, many
of the stakeholders switched their position in Botnia’s stakeholder map and gained more
importance than the company had originally planned by the company. Botnia’s
prioritization process is summarized in Table 3.
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Table 3: Stakeholder prioritization process of Botnia in Uruguay-project during 2003-2007
Prioritizationprocess
2003 – 2005 2006 – 2007
Identification UruguayNational, Regional and Local levelsGovernment, Political parties, AuthoritiesAcademics, Professionals, Business peopleGeneral public, Local citizensSuppliers, Forest ownersEmployees, UnionsNGOsMedia
ArgentinaNational, RegionalGovernment, Political partiesMediaLocal citizensSuppliers, Food suppliers
InternationalWB (IFC, MIGA)Financiers (Other)Consultants (Pöyry)NGOs (WWF, Greenpeace)Finnish governmentEmployeesOwnersSuppliersCustomers
UruguayNational, Regional and Local levelsGovernment, Political parties, AuthoritiesAcademics, Professionals, Business peopleGeneral public, Local citizensSuppliers, Forest ownersEmployees, UnionsNGOsMedia
ArgentinaNational, Regional, LocalGovernment, Political partiesAcademics, Professionals, Business peopleChurch, other influencersMediaNational, Regional, Local citizensWood suppliers/forest owners
InternationalWB (IFC, MIGA)Financiers (Other)Consultants (Pöyry)NGOs (WWF, Greenpeace)Finnish governmentEmployees, Owners, Suppliers, CustomersEU, ECHICJ (Hague International Court of Justice)Spain
Interests Economical, Environmental, Legal, Social, Political, Educational, Influential
Prioritization UruguayGovernment, Political parties, Authorities(national, local)Forest owners, Local citizens (Fray Bentos),Employees, UnionsMedia, Academics, Professionals, Businesspeople, NGOs
InternationalWB (IFC, MIGA)Owners, Suppliers, Financiers (Other),Consultants (Pöyry), Employees, CustomersNGOs (WWF, Greenpeace)Finnish government
ArgentinaGovernment, Political partiesSuppliers, Food suppliersMedia, Local citizens
UruguayGovernment, Political parties, Authorities(national, local)Forest owners, Local citizens (Fray Bentos),General public, Media, Academics,Professionals, Business people, NGOsEmployees, Unions
ArgentinaGovernment, Political parties, Academics,Professionals, Business people, Church, otherinfluencers, Media, National, Regional, Localcitizens, Wood suppliers/forest owners
InternationalWB (IFC, MIGA)Financiers (Other)NGOs (WWF, Greenpeace)Finnish government, EU, EC (more
importance than during 2003-2005)Employees, Owners, Suppliers, Customers Spain, HICJ (Hague International Court ofJustice)
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5.2 Theoretical implications
The objective of the present study has been first, to develop a dynamic model for
stakeholder prioritization in an international context and second, to explore what criteria
are used by a Finnish company in prioritizing stakeholders in a foreign environment. In
order to answer the research problem, stakeholder prioritization process was explained,
Latin American and Finnish national cultural characteristics were reviewed, and a model
for prioritizing stakeholders in an international context was constructed. Moreover, the
theoretical framework of the study suggests an answer to the research problem by
presenting a dynamic stakeholder prioritization model.
The model was developed, for the previous literature does not provide an operational
stakeholder prioritization model. This dynamic model suggests how companies should
manage their stakeholder prioritization process by following three steps: 1) identify
stakeholders in a country, company and industry specific context, 2) define stakeholder
interests considering the cultural aspect, and 3) prioritize stakeholders based on their
strategic importance, salience and influence strategies. The theory has emphasized
stakeholder identification; several studies suggest that many of the problems can be
avoided if all the relevant stakeholders are carefully identified. In practice, the case study
has shown that even if the identification in it self is done well, apparently it is not enough:
the prioritization and engagement strategies seem to have considerable affect on the actual
outcome.
Furthermore, the theory suggests that companies should carefully consider what interests –
stakes, claims or attributes – the stakeholders have towards the company. The results
propose that stakeholder interests have indeed been carefully considered in this case.
Botnia also prepared strategies and allocated resources in order to answer the interests of
the stakeholders, and they guided – in many cases – the company’s actions. However,
Botnia’s interest in its stakeholders played comparatively equal role in the decision
making. In relation to the nature of the interests, the case study revealed that stakeholder
interests enumerated by the theory corresponded in the practice rather well; the interests
94
identified by the company were identical with the theoretical propositions. The only
exception was the educational interest, which was not presented by the theory, but this case
showed the importance of the educational interest in practice.
As discussed earlier, the theory suggests different criteria for stakeholder prioritization. In
the dynamic model of this study, the main criteria for prioritizing stakeholders suggested
by the literature were interconnected: it was considered important to test, whether more
than one criteria proposition should be used in stakeholder prioritization. The case study
showed that in practice, Botnia partly compound criteria for prioritizing stakeholders.
As proposed by the theoretical framework, there are three main prioritization criteria. The
empirical study suggested that the primary prioritization criteria used by the case company
was based on the strategic choices the company had to make: the results suggest that
Botnia used proactive strategies in prioritizing stakeholders according to their strategic
importance. In other words, the model proposed by Harrison & St. John (1996) appeared to
be the main criterion for prioritization, because Botnia took proactive strategies in
prioritizing its stakeholders according to their strategic importance to influence on the
environmental uncertainty of the project and the company.
Regarding the Frooman’s (1999) proposition to consider stakeholder influence strategies,
the empirical findings suggest that Botnia proactively considered the possibilities, where
the stakeholders could directly influence the company’s resource availability (i.e. where
the company was dependent on the stakeholder). The indirect stakeholder influence was
not considered as one of the (proactive) criterion for prioritizing stakeholders; reactive
strategy was used in prioritization based on indirect stakeholder influence strategies.
Basically, Botnia reacted to the claims of those stakeholders (of whom the company was
not dependent on) trying to affect the company’s resource availability (Table 4). This
strategy was described by one of the company representatives in a following way: “fire-
fighting was something we did a lot at one point.”
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Table 4: Criteria for prioritizing stakeholders
1) Proactive criteria
Contribution of thestakeholder to the
environmentaluncertainty facing the firm
Ability of thestakeholder to reduce
environmentaluncertainty for the firm
Firm strategic choice
STRATEGICIMPORTANCE
OFSTAKEHOLDER
(PRIORITY)
HIGH
Increased Use ofStrategic Partnering
Tactics
LOW
Primary Dependenceon TraditionalStakeholder
Management Techniques
1
2) Proactive / reactive criteria
HIGHINTERDEPENCE
Direct strategy/Usage strategy
STAKEHOLDERPOWER
Direct strategy/WIthholding strategy
FIRMPOWER
Indirect strategy/Usage strategy
LOWINTERDEPENCE
Indirect strategy/Withholding strategy
Is the stakeholder dependent on the firm?
Is the firmdependent
on thestakeholder?
No
Yes
YesNo
2
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All in all, stakeholder influence strategies were considered to have a great affect on the
company although, they were realized only when the stakeholders actually intended to
influence – indirectly – Botnia’s resource availability. The results show that Botnia did not
conduct a separate analysis on indirect stakeholder influence strategies nor on the different
stakeholder strategies (usage/withholding) to influence the resource availability; the
criterion for prioritizing stakeholders was based on the company’s dependency on the
stakeholder and the stakeholder’s possibility to directly influence the company’s resource
availability.
The salience of stakeholders (Mitchell et al. 1997) was not one of the prioritization criteria
used by Botnia. The results indicate that in practice, the prioritization method by
stakeholder salience proposed by Mitchell, Agle and Wood (1997) is rather complicated to
apply, and quite hard to measure for the different attributes are not specifically recognized
by the managers. Especially, the urgency attribute is hard to define and measure; however,
urgency was a stakeholder attribute that actually had a big role in this case. The practice
suggests that companies should consider the salience attributes as additional criteria for
prioritization.
Generally, the interests of Botnia played an important role in stakeholder prioritization. A
chronological approach clearly framed the prioritization process: Botnia chose to prioritize
its stakeholders according to the steps that needed to be taken in order to proceed with the
project. The empirical study proposed that both short-term and long-term criteria were
important in stakeholder prioritization. The long term prioritization was especially seen in
company’s CSR strategy; corporate responsibility thinking was guiding company’s long-
term objectives. Short-term decisions were nevertheless crucial in order to proceeding with
the project and finally reaching the long-term goals.
Previous literature on stakeholder approach represents the view of the western countries:
most research views the stakeholder management form the perspective of the developed
countries. However, it is important to consider stakeholder prioritization process also from
the perspective of emerging markets. The interests and characteristics of stakeholders in
97
emerging countries vary, sometimes considerably, compared to the interests and
characteristics of the stakeholders in developed countries, or welfare states. This puts a big
challenge on companies to choose proper stakeholder prioritization criteria, which may
differ a lot from those they are using in “Western” societies.
5.3 Managerial implications
The case has shown that these kinds of project require not only tangible and financial
resources but also enormous amount of intellectual capital. A lot of managerial capacity is
needed; these kinds of projects can be big learning processes for the entire organization.
The biggest challenge in this case was probably the fact that this was Botnia’s first
international operation: the Uruguay mill was Botnia’s first pulp mill constructed outside
Finland. However, the fact that Botnia has, undeniably, experience in and know-how for
managing pulp mill projects has helped the company to complete the construction of the
mill – surprisingly – in time, despite of the obstacles faced in the course of the project. So
probably the main question is not the question of “what was done wrong”, rather; it’s a
question of how to manage the process of prioritization.
Other important issue to consider is the role – or the image – of international and global
companies in emerging markets. This case showed that responsible business practices are
not only those that contribute to the economical growth of the emerging countries; the
requirements for responsible business practices are usually much higher than those faced in
a developed country. Furthermore, the interests of stakeholders are likely to differ from
those that companies coming from welfare states typically deal with in their host countries,
and even new interests may arise. Therefore it is extremely important for managers to pay
attention to culture and country context in order to recognize and properly define
stakeholder interests.
Finnish companies are many times accused of neglecting the cultural aspect in their
international business operations. Even though Finnish technology based knowledge is
98
many times at the top end, it is obvious that different practices in doing business are to be
considered when planning international operations. As seen in this case, the best home
work for any company planning its international operations would be to conduct a
thorough country analysis – including both the country’s cultural and historical aspects.
Emerging markets offer attractive investment environments for many companies coming
from developed countries. Still, the risks involved in these types of investments may be
unpredictable and beyond those that were originally forecasted. The most common
political risk in Latin America has normally been related to political instability and land
ownerships, however; this case has shown that the list is actually longer.
Finally, what comes to stakeholder prioritization, managers should consider using
proactively more than one criterion: some of the difficulties may be unnoticed if the
stakeholders are given importance only according to, for example, their strategic
importance to reduce the company’s environmental uncertainty. In order to prevent
problems arising from neglecting the stakeholders, at least two of the prioritizing criteria
should be used proactively in stakeholder management. In complementing the criteria
initially chosen for prioritizing stakeholders, companies should consider applying a
reactive strategy.
5.4 Limitations of the study
This study has looked into a process of prioritizing stakeholders through a lens of a Finnish
company. The process has been complex and challenging for it has included many
unpredictable situations. Furthermore, the study has showed that there are many
perspectives to view this case: business, political, socio-cultural, environmental, and
economical. Even though every one of these perspectives has been assessed in one way or
another, the stakeholder management process has been presented form the viewpoint of the
company. Therefore, the interests of stakeholders, for example, are presented as the case
company has seen them; they are likely to vary if the standpoint of the stakeholders is
presented.
99
The political context is left out from the study although; today’s business is many times
seen being “all about the politics”. In developing or emerging markets, foreign
(multinational) companies are easily seen as political influencers. Furthermore, in these
countries, the role of the government is usually significant in all economical activities.
Also, in this study the sensitivity of the case is not about business secrets; rather, it’s about
politics. Therefore, the results presented in the study are subject to being “conciliatory”
opinions in stead of representing a generalized view that could be directly applied to all
similar cases.
5.5 Recommendations for future research
Stakeholder theory or, moreover, stakeholder management approach is a useful tool for
both academics and practitioners. But more study on stakeholder management process is
needed in order to develop an operational model for engaging with stakeholders. So far,
attempts to frame the process of managing stakeholders include only a few comprehensive
models. Future work should concentrate on completing the model for stakeholder
management process by studying how stakeholder prioritization is manifested in practice.
This requires studies on how companies engage with stakeholders that they have chosen to
prioritize. Basically, it calls for defining how does the company’s interaction strategy
support and reflect the company’s choices to prioritize its stakeholders.
100
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Annex 1: Chronology 2003 – 2007, BOTNIA’S PULP MILL PROJECT IN FRAY BENTOS, URUGUAY
Date Event Stakeholders
3/2003 Botnia buys 60% share in Compania Forestal OrientalS.A. (FOSA)
FOSA, UPM
8 – 9/2003 Assembling the Uruguayan group/team of experts
10/2003 Botnia S.A. founded.
Feasibility study and EIA (Environmental ImpactAssessment) initiated
24.10. First press release: announcement aboutBotnia’s interest to study the possibility of startingpulp production in Fray Bentos, Uruguay.
Ence acquires the AAP (Autorización AmbientalPrevia) permit
30.10.2003 Press conference in Montevideo
About 1000 people protest in M’Bopiqua against Ence
Metsä-Botnia, UPM-Kymmene, Metsäliitto
Pöyry Group as Botnia’s consultant
Representatives of Uruguayan political partiesand authorities, Representatives ofArgentinean Ministry, Local employees,Local media including Argentina, FinnishForeign Ministry representative
ENCE, Dinama
Local media (FB), Finnish Foreign Ministryrepresentative, Uruguayan and Argentineangovernment representatives
Local people from Gualeguaychú
11/2003 Conferences and meetings held in Montevideo andFray Bentos
First Public Forum; informing environmentalauthorities, presentation to politicians and public
EIA commissioned by Botnia begins
Local NGOs including Argentina, Uruguayanpolitical representatives, EIA team, CARU,DINAMA, Local political representatives andrepresentatives of local communities, Localand national media from Uruguay, Localmedia from Argentina, Local people fromnearby communities
Uruguayan specialists
12/2003 Presentation of Botnia staff in Uruguay; First PublicForum
Ministry representatives, Labour union, Localschools, Local community members, LocalArgentinean parties, Local media includingArgentina, NGOs
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2/2004 Uruguay delegation visits Finland
Meetings and Second Public Forum held in FrayBentos and Mercedes
Local press from Uruguay and Argentina invited tovisit Botnia in Finland (Argentinean press does notaccept the invitation; one journalist comes fromGualeguaychu)
Local Worker Union representatives, LocalMinistry representatives, Finnish Ministers,Finnish Labor Union, ILO and IndustryChamber representatives
Local community representatives, LocalMedia from Uruguay and Argentina, EIAsocioeconomic team, Local people, NGOsfrom Uruguay and Argentina
Uruguayan media representatives
3/2004 Scientific Seminars held in Fray Bentos andMontevideo
Informative Meeting in Mercedes: EIA resultspresented to public and media
Several other meetings held in Fray Bentos andMontevideo
31.3.2004 EIA (Environmental Impact Assessment)released
Botnia’s specialists, International Scientificexperts, University representatives fromUruguay, local professionals, Argentineanparties, local people
Soriano’s Mayor, local people, Fray BentosNGO
EIA team of experts, NGOs from Uruguayand Argentina, Local communityrepresentatives, Local people, National andlocal media including Argentina,
Uruguayan government representatives
4/2004 Socio-economic evaluation completed
Protests in Gualeguaychú (app. 10-30 000 people ofwhich about 500 from Uruguay)
Local people from Argentina and Uruguay
5/2004 Environmental permit application submitted toUruguayan environment authorities
Press Conference; EIA final results presented
Discussions with IFC and MIGA start
Uruguayan environment authorities
WB group representatives, Finpro
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6/2004 Uruguayan TV journalists visit Finland
Meetings with politicians, local authorities, NGOs,media, forest stakeholders
Uruguay’s media
Local governmental representatives andauthorities, Local media, Local andinternational NGOs, Local foreststakeholders, CARU
8/2004 Politicians and different authorities from Uruguay andArgentina visit Finland
NGOs invited for further discussions, invitation turneddown
First edition of the Magazine Espacio Botniadistributed
Uruguayan, Argentinean and Finnishauthorities, and political parties’representatives, CARU, DINAMA, Entre Riosrepresentatives, Finnish and Uruguayan media
Argentinean, Uruguayan, International NGOs
Fray Bentos, Local communities includingEntre Rios, Local press, NGOs, Schools,Opinion leaders and National authorities(Uruguay)
9/2004 Journalists visit Finland and FOSA plantations inUruguay
10/2004 Presentation of EIA to local authorities
Elections in Uruguay
CARU, Local government representatives andauthorities, Argentinean authorities andrepresentatives, Local forest stakeholders,Local and Argentinean community
11/2004 Uruguayan government grants a free trade zone statusto the project
Government of Uruguay
12/2004 Information office opens in Fray Bentos21.12 Public hearing in Fray Bentos
Botnia’s specialists, Uruguay’s authorities(DINAMA), Local people also fromArgentina, NGOs, Local media
1/2005 7.1. 2005 Ronald M. Beare appointed as ManagingDirector of Botnia S.A.
2/2005 DINAMA grants an environmental permit to theproject (permit granted under the government ofBattle)
DINAMA, Uruguayan governmentalrepresentatives
3/2005 1.3.2005 New Uruguayan government steps in
7.2.2005 Botnia’s board of directors approves theconstruction of the mill
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Press conferences held in Helsinki, Montevideo andFray Bentos
Demonstrations in Entre Ríos
Finnish, Uruguayan, and international Media
Asamblea, Local community (Argentina)
4/2005 4-5/2005 CEDHA steps in and Asamblea and CEDHAstart their active opposition
CEDHA, Asamblea
5/2005 Public Forum held in Fray Bentos Argentinean political representatives, IAHRC,ICH, WB
6/2005 Complaints by Busti to IAHRC (Inter-AmericanHuman Rights Commission) and World Bank (WB).Argentina talks about taking the case in InternationalCourt of Justice (ICJ).
2nd edition of the magazine Espacio Botnia distributed
Meetings with local stakeholders
Local people in Fray Bentos; Localauthorities, Schools, NGOs, Institutions,Opinion leaders Press, Forestry companiesand associations in Uruguayan nearbycommunities
Uruguayan environmental authorities andspecialists, government representatives, Locallabor union representatives
6-9/2005 Finnish journalists visit Uruguay
Uruguay’s Minister of Housing, Territorial Planningand Environment visits Finland
Intensive meetings with local press
Stakeholder consultations with IFC
July. IFC starts CIS-process
Finnish and local media
IFC, Uruguayan government representatives,International government representatives
10-12/2005 Complains from Argentina to IFC and other financialparties; IFC commissions an independent cumulativeimpact study (CIS)
Parliament elections in Argentina, Busti wins in EntreRios
Civil construction work starts; cooperation withsuppliers, recruiting local employees
IFC, MIGA
Finnish and local suppliers, local employees
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CIS by IFC completed with positive results in linewith the previous EIA study and consultation round 1commences
Open Forum organized in Fray Bentos
Local authorities and governmentrepresentatives, IFC, Local community ofFray Bentos
1-3/2006 Construction in process; first structures erected Suppliers, local employees
2/2006 IFCs public hearing
3/2006 1.3.2006 TILE Forestal becomes a fully-ownedsubsidiary of FOSA
The presidents of Argentina and Uruguay suggest astoppage of the construction works for 90 days. Thisrequirement does not acquire approval of the presidentof Uruguay.
IFC: CIS- consultation round 1 ready
FOSA
Argentina, Uruguay
WB - IFC
4-6/2006 IFC: “Further consultation necessary”
Construction in process; building of the mainprocessing structures
Argentinean journalists visit Finland
WB - IFC
Argentinean and Finnish media
4/2006 Botnia stops the civil construction works for 10 days. Argentina, Uruguay
5/2006 Argentina goes to ICJ with the lawsuit againstBotnia’s pulp mill. Uruguay complains to Mercosurcouncil.
Hague International Court of Justice,CEDHA, MERCOSUR
7-9/2006 Construction of the mill and relevant infrastructurenear the site; training in process
June. Fundaciòn Botnia founded
July. CIS consultation round 2 commences
Interested organizations invited to visit Botnia’sJoutseno mill in Finland
Local employees, Local authorities
Botnia S.A., Compañia Forestal Oriental
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9/2006 ENCE decides to change the location of its mill ENCE (Spain)
10-12/2006 Final CIS released
Civil construction works finalized, installationproceeds
IFC
Suppliers, Local employees
11/2006 World Bank (IFC) admits the loan of USD 170million and (MIGA) a guarantee of USD 350 millionto the project.
World Bank; IFC, MIGA
1/2007 Handling of the lawsuit continues in the InternationalSupreme Court of Hague. Argentina is suing Uruguayfrom violating the waterway deal made in 1975between countries. Uruguay is suing Argentina fromillegal roadblocks in bridges of the frontier river.
Uruguay, Argentina, Hague
3/2007 Loan agreements with banks and guarantee fromMIGA signed
IFC, MIGA, Nordea, Calyon
5 – 6/2007 Argentinean journalists invited to visit Helsinki
Meetings with WWF, environmental people andGreenpeace
NGOs
8/2007 Workers’ accidents at the mill debated in Uruguay andin the international media
Projected start-up of the mill in mid-August.Postponed to mid-September.
Local employees, Uruguayan labor union,government of Uruguay, local andinternational media
9/2007 Start-up of the mill postponed; lack of the final start-up permission from the Uruguayan government due toconflict situation between Uruguay and Argentina.
11/2007 8.11.2007 The Iberoamerican summit begins in Chile.
8.11.2007 The government of Uruguay grants thestart-up permission for the pulp mill.
Annex 2: Consulted studies and web pages
Annala, K. (2006) Metsäteollisuus Amerikassa. Botnia. http://www.dipoli.tkk.fi/ymparisto(15.9.07, 14.11.07)
Asamblea Ciudadana Ambiental de Gualeguaychú (2007) www.noalapapelera.com.ar(20.9.07, 8.10.07)
Fundación Centro de Derechos Humanos y Ambiente, CEDHA. (2007)http://www.cedha.org.ar/ (10.9.07, 2.11.07)
Dwernychuk, W. (2007) Argentina’s environmental hypocrisy. Latin Business Chronicle.http://www.latinbusinesschronicle.com/app/article.aspx?id=1301 (30.10.07)
Estrucplan (2007) ¿Es necesario profundizar en forma conjunta entre Argentina, Brasil,Paraguay y Uruguay un polo forestal, pastero, químico y de la industria maderera en gral?http://www.estrucplan.com.ar/Articulos/verarticulo.asp?IDArticulo=1685 (20.9.07)
Helsingin Sanomat (2007) Aktivistit osoittivat jälleen mieltään Botnian sellutehdastavastaan, verkkouutiset. www.hs.fi (12.9.07)
Inter-American Development Bank, IADB http://www.iadb.org (29.5.2007)
International Finance Corporation, IFC (2006) Cumulative Impact Study on Uruguay PulpMills. http://www.ifc.org
International Finance Corporation, IFC (2007) http://www.ifc.org (29.5.2007, 6.9.2007)
International Mission Board (2007) South America International Mission Board.http://southamerica.imb.org (12.9.07)
Talentum. (2005) Argentiinalaiset pelkäävät naapurimaahan tulevan tehtaanympäristöhaittoja Metsä-Botnian sellutehdas repii Argentiinan ja Uruguayn välejä.www.talentum.com (12.9.07)
Vives, A. (2004) El papel de las multilaterales en el fomento de la responsabilidad socialempresarial. IADB (www.iadb.org) Development, 2004, 47(3), (45–52) Society forInternational Development www.sidint.org/development
World Bank (2006) Uruguay Country Brief. http://web.worldbank.org (26.9.07)
World Bank (2007) Doing Business in Uruguay. www.doingbusiness.org (26.9.07)
World Economic Forum (2007) Corporate Citizenship Initiative. http://www.weforum.org(6.9.2007)
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Annex 3: Interviewees
Interviewee Title Company
Annikki Rintala Vice President, Communications Oy Metsä-Botnia Ab
Carlos Faroppa Strategic Consultant Botnia S.A.
Erkki Varis Chief Executive Officer Oy Metsä-Botnia Ab
Esa Kaikkonen Secretary to the Board, Senior VicePresident, General Counselor
Metsäliitto
Florencia Herrera Manager, Communications Botnia S.A.
Guzmán Solari Communications Botnia S.A.
Juan Otegui Chief Executive Officer OTEGUI Group
Kaisu Annala Technical Manager, Environment Oy Metsä-Botnia Ab
Kirsi Seppäläinen Manager, Communications Oy Metsä-Botnia Ab
Luis Martínez Partner MM&A Servicios Profesionales
Marko Janhunen Vice President, Communications andPublic Relations
Oy Metsä-Botnia Ab
Matilde González Botnia Foundation
Ritva Jolkkonen Ambassador Finnish Embassy, Argentina
Ronald Beare General Director Botnia S.A.
Sami Saarela Technicial Director Oy Metsä-Botnia Ab
Timo Karinen Director, Strategic Planning andFinancial Control
Metsäliitto Group
Timo Piilonen Senior Vice President, UruguayOperations
Oy Metsä-Botnia Ab, Botnia S.A.
Ville Jaakonsalo Senior Vice President, Finance Oy Metsä-Botnia Ab
