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Finland–Nordic exporter of clean tech and ICT

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According to the main stere- otype about finland that has gained ground over the previous decade, the country is most commonly associated with a triad of connotations – Nokia (boom and decline), Formula1 driver Kimi R?ikk?nen(boom and decline) and Santa Claus(eternal boom). But this tiny nordic country is also a stubborn AAA-rated member of the EU and the European Monetary Union and famous for the national persistence and tenacity that kept Finland independent throughout World War II.

In 2010, Newsweek ranked Finland No. 1 in its listing of “Best Countries in the World” according to param- eters linked to health, education, quality of life, economic dynamism and the political environment. Also, Forbes in 2010 placed Finland in the top five of the “Happiest Countries in the World”along with Sweden, Norway, Denmark and the Netherlands. Naturally, such list rankings don’t fully reflect the reality experienced in the Arctic Circle’s winter: minus 25 Celsius, deep, deep snow, four hours of daylight and few human encounters in a normal day.

Nevertheless, during the current struggles and crises faced by the EU and the euro zone, Finland’s public and financial sectors have remained relatively unaffected and stable despite the fact that it is the only Euro-econ- omy in the Scandinavian region which simultaneously has a high level of dependence in terms of its economic ties with Sweden (non-Euro country) and Russia.

Accordingly, the OECD in 2012 reported that the Finnish financial system had fared well through the global financial crisis as local banks had been prudent in lending during the previous expansion phase and had little exposure to high-risk foreign securities, such as those of Cyprus. A stress test conducted by the financial supervisory authority (FIN-FSA) in spring 2011 indicated that the Finnish banks would easily withstand an adverse economic scenario, because the banking system is well capitalized at a Tier 1 ratio of 13.2 per cent, compared to the EBA’s minimum capital requirement of 9 percent.

Finland’s ability to survive and even modestly prosper through the financial crisis is also partly due to the lessons learned from the recession that hit Finland in the early 1990s after the collapse of the Soviet Union and thus Russian-Finnish trade. According to a McKinsey report in 2010, Finland’s economy recovered well from the recessions thanks to a rapid growth in the new information and communications technology (ICT) sector combined with significant improvements to productivity and competitiveness in the private sector.

Today, Finland’s GDP growth is driven by the service sector (65%), followed by manufacturing and refining (31%) and primary products production (3%), according to Invest In Finland. It fares well in international comparisons in terms of growth and development of the economy, society and particularly the technology sector.

Sino-Finnish relationship – opportunity for R&D and innovation exchange

When it comes to the issue of cooperation between Finland and China, the key factor in the establishment of a partnership in trade and economic relations is the huge difference in size between the two countries. China recognizes Finland’s relatively rapid advancement and expertise in high technology and innovation and according to a paper from the Finnish Foreign Ministry, is increasingly seeking information about Finnish solutions particularly in the sectors of environmental protection, clean technolo- gies, education and reform of stateowned enterprises.

For Finland, China is already its second largest trading partner after Russia and is the third largest export partner for Finns after Russia and the United States. In 2011, Sino-Finnish trade totaled EUR 7.0 billion, while foreign direct investment (FDI) from Finland to China amounted to EUR 10 billion, according to European Commission.

But the Sino-Finnish partnership could be deepened further to the benefit of both especially in the areas of scientific research projects and R&D exchange. For the Finns, the good news is that during the past decade China’s R&D spending has increased substantially and the country has set its target to become one of the world’s leaders in terms of R&D output and innovation.

Currently, while China’s rate of investment in R&D stands at a low 1.5% of GDP, China already ranks third in the world in absolute terms after the US and the EU. But China has announced its intention to raise its level of R&D investment to 2.5% of GDP by 2020. In line with this, several Sino-Finnish scientific joint projects are under way involving sectors such as energy, environment, ict and nanotechnology.

In fact, expanded Chinese investment in innovations and R&D offers interesting opportunities not only for Finland, but also for other Nordic countries with their unique know-how in the main industries on which these small countries have focused since the end of World War II. For instance, Norway possesses the world’s leading scientific and technological knowledge about offshore oil and gas technology, shipbuilding and Arctic equipment, while Denmark and Sweden offer an excellent showcase for a service-oriented state model with a strong public sector.

From the viewpoint of China, possibly the most interesting innovation know-how that Finland has on offer is a wide range of technologies for ICT to improve energy efficiency, more efficient use of renewable energy sources and the development of energy infrastructure, housing, transportation and logistics. Finland ranks fourth on the Innovation Union Scoreboard of the EU after Sweden, Denmark and Germany, according to Statistics Finland.

Clean technology –mutual business case

Finland is one of the world’s leading users of renewable sources of energy, bioenergy in particular. In other words, wood- and wood-based fuels, hydropower, wind and solar energy as well as ground heat. Currently, renewable sources provide 25% of Finland’s total energy consumption and account for more than 25% of its power generation, according to the Ministry of Employment and the Economy.

Peat, classified as a slowly renewable bio mass fuel, also occupies approximately 6% of the energy balance and is expected to increase its importance as a domestic fuel securing energy supply. Another quarter of the electricity Finland consumes is produced with nuclear power through four operational nuclear plants and a fifth on its way. Interestingly, nuclear power is one area in which Finland has taken a political stand at variance with Germany and Sweden, which both have announced reductions in nuclear energy pro-duction following the nuclear plant disaster in Fukushima in Japan in 2011.

When looking at the Finnish energy sector and portfolio, the number and diversity of clean technology companies catches the eye – 2,000 enterprises in total. In 2010, the overall turnover of the most prominent Finnish cleantech companies amounted to EUR 17.9 billion with an annual growth rate of 5.6%, Invest in Finland says.

In addition to bioenergy and renewable sources, other key clean technology sectors include clean industrial processes, analysis and automation as well as water and wastewater treatment. As seen in the recent case of China’s failed solar power manufacturer Suntech Power Holdings, the expectations for environmental technologies in China are huge. Even though Suntech’s elimination from the market was caused more by oversupply and vicious price competition, it exemplifies the current imbalances in China’s clean tech market.

There are of course IPR risks related to innovation and R&D exchanges, but there are still many business opportunities for Finnish clean tech companies in China. First, however, they must receive an invitation to the Chinese table.

ICT – Angry Birds and other species

Another interesting Finnish innovation sector is information and communications technology (ICT). As a percentage of GDP, Finnish R&D investments are the third largest in the world and in 2011, Finland ranked No. 1 in Europe and No. 2 in the world according to the IT industry competitiveness index. Moreover, Finland holds the position of an innovation hotspot in Europe due to exceptional developer clusters in high-tech, mobile platforms and operating systems such as Windows Phone, iOS, Android and Linux. Why?

Finnish environment of R&D in the ICT area is strong thanks largely to the support of the Finnish governmental agencies and funds Tekes, Sitra and Finnvera, which all fund research and new business establishments. They provide relatively easy access to public R&D investment funding for Finnish start-ups. For instance, one Finnish ICT success stories (other than Nokia) is Rovio Oy of Angry Birds which seems to be even stronger in the Chinese market than back at home.

China’s huge smartphone market has already attracted many Finnish ICT start-ups, and China has recognized the value of Finnish IT knowhow in many ways, including Huawei’s announcement in December 2012 that it planned to invest EUR 70 million over the next five years to open a research and development office in Finland’s capital, Helsinki. By employing 100 Finns, Huawei inherits some of the leftovers from a declining Nokia that had earlier recycled some of the same human resources to Accenture. The case of Huawei is particularly interesting because there are signs that Lenovo is also, slowly but surely, starting to expand their presence outside of China. ZTE is another Chinese company unwilling to draw the short straw offshore.

It is clear that Finland and China face several areas of mutual interest in the ICT sector. And despite its good ICT reputation and ideal market positioning, Finland should not stay waiting for China to politely ask for consummation of its ICT friendship.