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Towards new growth business

By Dan Steinbock, November 2010

Photo: UPM-KymmeneFuture forests: Finnish forest industry giant UPM-Kymmene will plant these seedlings to replace cut timber, but Finland can’t rely solely on its traditional strengths in order to secure its economic future.

In the post-Cold War era Finland has thrived with its forestry, metal and chemicals giants, as well as Nokia. Today more is needed, writes Dan Steinbock, research director of international business at the India, China and America Institute.

Through the Cold War, Finland was dominated by a few corporate giants. Even today, only 25 companies dominate half of Finnish foreign trade.

In the absence of thriving new business, Finnish competitiveness and innovation will erode over time.

Stimulating clusters

Amid the severe recession of the early 1990s, Finland embraced a national export-led cluster strategy, which proved enormously successful – but has now been exhausted.

In the past two decades, the Finnish core clusters – forestry (dominated by UPM-Kymmene, Stora Enso and Metsäliitto), metal engineering (Kone, Metso, Outokumpu and Ruukki), mobile communication (Nokia) and chemicals (Kemira and Orion) – have demonstrated increasing productivity and innovation.

These flagship companies have given rise to new business, but their clusters have not led to new growth firms.

In the Finnish national innovation system, there have been increasing efforts to “stimulate” new business through a dozen national competence clusters, more than 20 centres of expertise, and half a dozen public-private strategic centres for science, technology and innovation.

Along with an array of technology development and innovation institutions, these initiatives seek to facilitate international competence as a resource in business operations, job creation and regional development. 

Still, a critical mass of new growth businesses has not yet materialised.

Creating growth environment

Photo: Stora Enso
Click to enlarge the picture
This young tree may one day wind up as Stora Enso paper. Meanwhile Finland should also foster growth in newer sectors, says Dan Steinbock.

Recently, Newsweek declared Finland the best country to live in. And certainly it is true that, in the past decade or two, the Finns have enjoyed a high level of prosperity, and solid growth in comparison to other EU nations.

The problem is that this wealth may be cultivating the kind of complacency that is working against efforts to overcome the impact of the ongoing global crisis.

Since the mid-2000s, OECD has offered recommendations to boost growth in Finland, including measures to reduce the high marginal tax rates on labour across the income distribution. Other key priorities focus on greater flexibility in wage determination to better align wages with productivity.

As IMF has put it, further structural reforms in Finland would alleviate the adverse impacts of the crisis and population aging on growth, and facilitate fiscal consolidation. Yet, “no major actions are envisaged before the 2011 general election.”

Sustained growth requires hard choices.

New business opportunities

As US Silicon Valley showed in the 1990s, and as Taiwan and Israel have demonstrated in the 2000s, growth businesses thrive at the crossroads of globalising technology development, venture capital and entrepreneurship.

Located right next to Russia, a potential BRIC economy, the Finns are well positioned to participate in and contribute to Russian growth businesses. But in Finland, new growth enterprises require the following: the implementation of the OECD growth recommendations; internationalisation of the national innovation system; internationalisation of venture capital, especially in the global technology sector; and effective initiatives and tax reforms to unleash entrepreneurship

Strong macroeconomic fundamentals have supported Finnish efforts to deter the global crisis, but not without long-term deterioration of competitiveness.

It is time for change.


Dan Steinbock at the India, China and America Institute

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