In order to respond to global competition challenges, the woodprocessing industry in Finland and elsewhere is outsourcing roundwood harvesting to harvesting contractors. The industry also seeks to negotiate with fewer, larger and more diverse contractor enterprises. The weak profitability, liquidity and solvency of harvesting contractors and the consequent difficulty in hiring qualified machine operators make networking and enterprise growth a complicated process. Financial data of 1,060 Finnish wood harvesting contractors from the period 2001 to 2007 were studied using the 'closing of the accounts' data. The material represents most of the full-time contractors. For 2007 net profit was about 6%, credit share of turnover over 50% and median financial reserve €18,000. High machine depreciation and interest expenses together with low solidity make it difficult for small enterprises to absorb seasonal variations and to cope with recessions. Profitability varies considerably amongst smallest enterprises, which most often are soleoperator enterprises. Moreover, even the median profit of the smallest enterprises tends to be negative, which means that enterprise capital will be consumed and many enterprises are at risk of failure. Larger enterprises are more likely to be limited liability companies. Their median profit is clearly positive and the profit varies relative little between enterprises.

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Micro-, small and medium-sized enterprises (SMEs) carry out most of the forest harvesting activities all over Europe. They often act as service providers only and do not own land or wood-processing capacities. They are under pressure from the bargaining power of the wood suppliers (the forest owners, regulating the access to the resource) and the bargaining power of the customers (timber-based industries, regulating the access to the global markets). Innovation in technological development or in business practices is required to improve the situation of forest service enterprises in a difficult market. This chapter studies eight cases of innovation, which have been identified in micro-, small and mediumsized firms in the forest harvesting sector in central and eastern Europe. The aim is to identify the market and policy-related conditions of innovation. It was asked whether there is a relationship between the innovation-related policies and the market in which the firms operate and innovate. It was also of interest to explore if any market-based mechanisms have helped the firms to implement innovation, and if any policies created enabling conditions for innovation. The results suggest that most innovation policies have not yet led to a considerable uptake of innovation among forestry contractors. The innovations that could be identified are mainly incremental applications of already existing technical solutions, and in some cases departing from and/or embarking on additional tasks and new product markets. These innovative activities can be characterized as reactions to market developments and customer demands. There is, moreover, a need for supporting investment in technical innovation in forest operations; for reacting to the increasing demand for harvesting and transport capacities; and for curbing the forecasted lack of workers in many countries. At this stage, a higher degree of mechanization cannot be achieved without public support of investments. An even more important political goal should be to build up or maintain the capacities for support, training and commercial advice of SMEs to develop further the human resources and entrepreneurial capacities needed.

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