Around 2005, as Terneyles steadily grew, investors from rapidly expanding economies like China and South Korea started to rush to Terneyles, but Hayashida had confidence in the relationship between Sumitomo and Terneyles. He had always followed the advice that Tomishima was fond of repeating: “Whenever you are faced with a difficult decision, choose the option that benefits Terneyles.” But he was frustrated to see Terneyles and Sumitomo gradually falling into a mere seller-buyer relationship.
After repeated discussions, the project members reached the conclusion that the best thing to do would be to increase Sumitomo’s shareholding in Terneyles. That would directly link the profits of the two companies, allowing them to share the same objectives and enhance their partnership for further business development. Tomishima conveyed the decision to General Director Scherbakov directly.
“Ten to one, I thought it would be shot down,” says Tomishima, noting that Terneyles is a large and well established company, not a newly founded joint venture. He was therefore surprised, he says, as well as excited when General Director Scherbakov said yes. This was the beginning of a new, more solid phase of the partnership.
It took about one year to acquire a 45% share in Terneyles, so it wasn’t until July 2007 that Sumitomo Corporation became the company’s largest shareholder.
Almost immediately the project members were once again confronted with a challenge: the Russian government announced what amounted to a de-facto ban on non-processed log exports by introducing tariffs of 80%. Terneyles was already producing processed timbers by this stage, but this was only 30% of its total business. The team members felt discouraged at “so many problems” coming one after another, but they never gave up. Trying to put their anxieties aside, they went over all the possible solutions. One month after the announcement, the project members reached a conclusion, one that involved the boldest challenge they’d ever taken on: construction of huge log processing facilities.
The new tariff would come into effect in a year and a half. Because of the freezing weather and other reasons, there was only about one year in which to do the actual construction work. In no time, the team drew up a project plan to get internal approval for the investment, which amounted to around 18 billion yen. Two months later—an incredibly short time for Russia-related investment—the plan was approved. The rapid decision was only possible because both Terneyles and General Director Scherbakov had become well-known within the company, thanks to the 15-plus year partnership. When Tomishima heard the news, he was with General Director Scherbakov in Italy looking at machinery for the facilities. In a small restaurant in a remote town, they toasted with a glass of wine—which neither of them can actually drink—almost shedding a tear, so happy and relieved were they that their partnership would continue.
Sumitomo Corporation and Terneyles recognize that coexistence with the natural environment is essential for achieving expansion and sustainable growth in the timber business. The forests owned by Terneyles are so vast and so cold that it is extremely difficult to plant new trees by hand after logging. To promote the natural growth of new forest, the company therefore decided to adopt ribbon cutting (strip felling), in which logging is done in strips of 20 to 30 meters to allow seeds from surrounding trees to drop into the logged areas and regenerate them.
Terneyles became the first company to receive FSC (Forest Stewardship Council) certification in Russia. When the company launched the project to acquire the certification, Russia didn’t actually have an accreditation body anywhere in the country. Terneyles therefore started by calling on the provincial government to establish an inspection body for FSC accreditation.
