Two years ago, in an article headed ‘A Gold-Medal Economy’, author Richard D. Lewis could raise eyebrows by pointing out why Finland’s attractions as a target for foreign direct investment (FDI) were hardly surprising. The country was, he noted, writing in FINANCE TODAY, the leader in global competitiveness in business in 2004. By John Sebastian.
This was not some fancy or fantasy purveyed by the promotional Invest in Finland people. The independent World Economic Forum was judge and jury, placing Finland first in its annual and famous Growth Competitiveness Index. The success has continued in subsequent years – although not quite at the same heady level. In the latest ranking, Finland has dropped to second place, overtaken by Switzerland, in a high-stakes race for top position.
The contest is for the favour of multinational investors. The more competitive the economy, the more attractive it must be for FDI, of which Finland represents a substantial and growing quantity. In 2006, according to LOCOmonitor, 41 fdi projects were worth a total of $302.5 million. That more than doubles the $143 million of capital investment in 30 projects achieved only three years before.
There is no single factor or small group of factors to explain the competitive value of Finland to foreign investors. The Forum ratings are arrived at by considering a huge number of criteria – getting on for 300 – covering such broad areas as the openness of the economy, technology, government policies and integration into trade blocs.
All such criteria are relevant to the kind of company that dominates the world-wide movements of fdi. For Finland, these are led in the latest rankings by multinationals such as Borealis, Svenska Handelsbanken, Mondo Minerals, New Boliden and BASF. Between them, this handful of companies has been responsible for 15 FDI projects in Finland since 2002. Since that year, 22 projects by Swedish investors have matched the US total of 22, followed by Germany (14) and the UK (10).
The spread of businesses is wide; retail leads the list, followed by sales, marketing and support, and then manufacturing. But these three categories dominate the numbers of projects noted by LOCOmonitor – over 160 in total. Even business services, with 19 projects, represented only half the numbers of retail.
Research and development is also significant, which is hardly surprising in view of Finland’s high position (4th) in the World Economic Forum’s separate rating of global IT competitiveness – IT, of course, being the dominant technology of the not-so-new millennium. The sector accounts for only 13 fdi projects, but in this case the quality is more important than quantity. In e-banking, and other rapidly growing sectors of the web world, the Finns can claim global leadership – while also boasting a 100% digital fibre-optic network.
Nor is the high technology confined to IT. Several medical biotechnology companies have chosen to come to Finland. Technology, however, is only one factor in the appeal of Finns to foreign investors, which ultimately rests on a few highly important characteristics of the Finnish economy and people. Not all of these are measurable. Richard Lewis, whose book is titled Finland, Cultural Lone Wolf (published by Nicholas Brearley), says the country has several important intangible advantages:
• A combination of educational superiority (Finns claim to have the best system in the world) and technological research
• Moral strength, shown in low corruption, fast payment and minimal bureaucracy
• Humility and honesty
• Fresh and innovative thinking
• ‘Doing’ rather than just talking about doing
• Vision, imagination and calm judgment, which are encouraged by respect for silence and a ‘synthetic’ language
• Pragmatism – preferring to go straight to the point
Finns also speak English exceptionally well, very useful as that becomes the lingua franca of the 21st century and its global economy. One writer, according to Lewis, has coined the word ‘world-classness’ to describe the above bundle of useful virtues. As shown by the success of Nokia in creating and exploiting the mobile telephone boom, Finland is perfectly capable of world-class management – indeed, one international leadership expert has confessed to admiring Finland’s management style more than anybody else’s.
Looking back over the above list of virtues, however, it’s obvious that they are related to an unavoidable reality: size. Although Finland provides access to markets containing 80 million people, it ranks as a small country – and it’s notable that the leaders in scoresheets such as the Growth Competitive Index see smaller countries like the Scandinavians and Switzerland jostling and even beating the giants, like the US and Japan. Small can apparently be beautiful when it comes to displaying the qualities that should attract fdi.
This parallels developments in the corporate world in general. The age of the dominant giants is over. The lead in breaking new ground in high-growth markets has been taken from the giants by focussed, non-bureaucratic, pioneering and young newcomers. Their successful challenges are the equivalent of university students outflanking and outperforming managers twice or thrice their age – and, indeed, world-beating companies like Google (now a giant itself) were founded by students.
In such an age, small countries need not be at a disadvantage. Finland can compete with its rivals when it comes to technological capability, sound political and business infrastructure and industrial spread – although it has to concentrate. The Invest in Finland organization, for example, limits its primary efforts to six areas: information and communications technology, environmental technology and services, healthcare (including a major stake in biotechnology), plus the traditional industries, based on forestry and mining, which are still sources of substantial strength.
Invest in Finland, along with the other agencies seeking to encourage fdi, can point to some reasonably impressive figures. Over 2,400 foreign enterprises (meaning where more than 50% of the company is owned by a foreign party) operate in Finland, employing some 185,000 employees. Still, the opening years of the 2000s saw some stickiness in the inflow, with acquisitions falling as greenfield investments rose, and there has been concern about the need for a more effective strategy.
That would certainly be the case if Helsinginin Sanomat is justified in reporting that "managers of large multinational companies see Finland as a fairly uninteresting country for investments". The evidence was contained in an Ernst & Young survey of more than 500 corporate executives, mainly from Europe and the US. While Europe is, obviously enough, generally a rewarding area for expansion and setting up new enterprises, many other European countries come out ahead of Finland, led by the giants, Germany and Russia.
Finland must also face the competition of Poland and the other ex-Soviet bloc countries, whose economic strength is growing steadily. Finland is just not in the running, according to Antti Hautamäki of SITRA, the Finnish National Fund for Research and Development. He says that Finland is simply too far from large European markets - even the Baltic States are significantly nearer. Nor is this observer impressed by the corporate dynamism in his country, or by other attributes necessary to attract fdi.
Who is right? The internal critic or the World Economic Forum? On the one hand, it’s true that Finland does not loom large either on the map, or in the consciousness of most people – including most fdi decision-makers. But the experience of those who have invested in the country (averaging 200 a year) has been good, and that will be an aid to marketing, as will the renewed efforts of the agencies. A vigorous strategy demands making the incentives to invest in Finland more compelling – which is another bull point for this inviting country.
Even Hautamäki agrees that Finland is able to offer investors a skilled labour force and considerable know-how – as in the IT sector. Another Nokia or two would help mightily, of course. As the critic says, foreign companies have flocked around Nokia hoping to benefit from Finnish know-how. The Forum is surely right. Finland has the ability to compete for a place in the global economy which will match that ability.
John Sebastian is a freelance journalist. LOCOmonitor tracks fdi projects of over 15,000 multinational companies worldwide.
Contact: carmel.ferris[at]ococonsulting.com
The articles published here in the Thinking CEO are internet updates of the latest management knowledge and practice, which have been commissioned by Sovereign Publications for their bi-annual magazine, CEO Today, and will appear later in the first 2007 issue of this publication. To contact Sovereign and CEO Today, go to:
http://www.sovereign-publications.com/ceo-art.htm
read all 70 gurus with one feed read all Read all media
