Knowledge for sale - the future of Finnish technology?
Suddenly it seems that everyone is talking about Finland. It holds the European Presidency till the end of the millennium, and to kick off the year 2000, Helsinki is to be European City of Culture. Euroabstracts interviews Martti Mäenpää, Director General of Tekes, the National Technology Agency of Finland(1) to find out how this small peripheral country has grown into a major European player.
Finland has been a full member of the EU since 1995 and was one of the first countries to embrace the euro. How has membership helped Finland and in particular Finnish R&D and technology?
Martti Mäenpää: There are so many facets to European membership it is difficult to answer this simply. Looking at the global stage, it is obvious that, compared to countries such as America, Finland is a small country. As part of the European Union however, we have an opportunity for our voice not only to be heard but also to be taken notice of, particularly when it comes to international trade. The single European market is also important to us. As a member state the trade barriers are minimal - enabling us to export our high-tech products to other member countries with relative ease.
Having long had an economy based on forestry, we also want to play a part in any discussion of environmental issues, and again it is far easier for the European Union to present a united case to the global forum than a host of individual countries.
In terms of R&D and technology, Finland has actually been participating in EU research programmes since as far back as 1987, and has benefited in two major ways. First of course Europe has an R&D budget of its own and participating in its programmes enables Finland to be involved in a much wider research scenario than we could possibly hope to afford on our own. More importantly however, the programmes offer a platform for companies to network and interact. We have found that research collaboration frequently leads on to other forms of international collaboration, for example marketing partnerships, and this is a very tangible benefit in terms of competitiveness.
How did Finland succeed in becoming a world leader in mobile telecommunications given that other, much larger countries, have dedicated finances and resources to the same market?
Martti Mäenpää: People often think that Finland reached this position overnight, but in fact the success is based on years of liberal market policies. For example, the state has never dominated the telecommunication sector in Finland, unlike most European countries. Competition is a good driver for technical innovation. We have also been blessed by the presence of a number of visionaries within the industry who have had the foresight to see where the future lies, and ensured that we have always been moving in the right direction.
Good ideas are not enough on their own of course, and one of the main factors for success has been continuous investment. Individual companies have naturally re-invested their profits in R&D, but a positive technology policy and increasing public investment in R&D has also enabled industry to reach a wider market than it might otherwise have done.
Collaboration has also been an important factor, particularly regarding standards. Together with the other Nordic countries, Finland worked hard in the early days to ensure that money and effort was not being ploughed into technologies that would quickly become obsolete.
In December 1996, both the private sector and the Finnish Government committed themselves to increasing R&D expenditure to 2.9% of GNP by 1999. Has this been achieved and what impact has it had?
Martti Mäenpää: Finland has had a strong policy of R&D investment for the past 15 years. Because we do not have the natural resources of other countries, for example oil, we have realised that it is essential for us to become a knowledge-based society - one in which our technical know-how can be turned into an economic asset. Investing in R&D and technology is the way to achieve this. Finland actually invested the equivalent of 3.0% of its GNP in R&D in 1998, exceeding the goal that was originally set. Currently, more than two-thirds of R&D investment is coming from the private sector.
Quite a lot of the public contribution came from the sell-off of state-owned companies. This policy had a two-fold benefit - both creating the money to invest in R&D and providing the companies with a new flexibility to operate in the marketplace. In terms of its impact, the policy is working well. Finland has increased its exports of high technology at a very satisfactory rate over the past few years, and we fully expect to continue to do so.
It should, of course, be noted that it isn't just the volume of the investment that is important, but where the investment has gone. We feel that it is important to ensure that all aspects of the innovation environment are receiving balanced attention. For example Finland has invested in developing its vocational training system to ensure that we continue to have one of the most skilled workforces in Europe, and that naturally acts as an inducement for companies to locate in Finland.
How important has venture capital been in promoting innovation in Finland compared to more traditional investment?
Martti Mäenpää: In the early 1990s the venture capital industry was relatively under-developed in Finland. About that time, Sitra, the Finnish National Fund for Research and Development, issued a report highlighting the fact that although Finland was not lacking in new technology-based companies, those companies were not achieving the growth rates of similar companies in other countries.
Since then, the venture capital industry has really taken off, although it is fair to say it still hasn't reached the level of countries like the USA or UK. Especially the private venture capital business has grown really fast during the last few years. The opportunities companies have to obtain risk capital from domestic and international sources to bring innovations to international markets have really improved. Sitra has extensive venture capital networks and has established nearly 100 research-based companies over the past few years.
One of Sitra's briefs is also to invest in international venture capital projects in order to introduce new models to Finland, and promote competence and expertise in the field, and this works well. Similarly Sitra wants to encourage overseas venture capital organisations to view Finnish companies as a good investment risk, although this is still relatively new ground for us.
To an outsider it may appear that Tekes and Sitra have very similar briefs. Is that the case?
Martti Mäenpää: It is true that both organisations aim to promote technological excellence in Finland, and there is a close collaboration between them. However they have quite separate approaches. Tekes has a budget from the state and is the main financing organisation for applied and industrial R&D in Finland. It co-ordinates and offers financial support for participation in international technology initiatives, including the EU research programmes.
Sitra's operations are mainly financed through income from endowment investments and project finance, and its mission is to invest in technology firms and venture capital funds both in Finland and abroad.
Because its domestic market is relatively small, Finnish high-tech companies have to launch themselves onto the international market very quickly. Is this a problem?
Martti Mäenpää: Not really. This may be one of the reasons why some of our companies do not grow as fast as could be expected. Some companies are not able to internationalise as early as they would need to, but the ones that are able to take hold of global capital markets early on usually become very strong international players in their field.
We do have a number of organisations that have the experience to help such companies find their way. For example, Finpro, the Finnish Foreign Trade Association, concentrates on offering services to help companies in this way. Tekes also has a number of overseas offices that provide useful support to companies in this respect.
The Finnish Academy of Technology has recently published a book called High technology in Finland in which the need for international partners is highlighted. What steps are being taken to encourage other countries to look to Finland for technology partners?
Martti Mäenpää: Finland has an active policy to make itself as attractive as possible to foreign companies. However, while some countries offer tax benefits to overseas businesses, we haven't chosen to go that route because we don't think it offers a long-term advantage to economic health. Instead our aim is to create an infrastructure that encourages innovative research and enables companies to bring the results of that research to the market-place in as fast a time as possible. That is why a strong knowledge base and a skilled workforce are important.
Part of Tekes' job is to provide channels for co-operation with Finnish companies, universities and research institutes, and we have a network of scientific counsellors and attachés whose aim is to increase technological co-operation between their base countries and Finland.
(1) After conducting research in physics in Finland and California, Dr Martti Mäenpää was head of division at the Semiconductor Laboratory of the Technical Research Centre of Finland (VTT). After a period with the Metra Corporation, he served as an adviser at the Finnish Ministry of Trade and Industry before taking over the Directorship of Tekes in 1995.