Innovation Department Ministry of Employment and the Economy Learning from the Finnish Experience: Emergence of the Technology Sector and the New National Innovation Strategy in Finland Petri Peltonen Director General Innovation Department Ministry of Employment and the Economy 21.9.2018

Finland Population: 5.3 million Capital: Helsinki Area: 338 000 km2 EU Member State Currency: Euro Corporate tax: 26% GDP: 179 billion euro GDP per capita: 35 041 euro Finland Helsinki 21.9.2018

Finland One of the most competitive economies in the world, WEF Global Competitiveness Report 2008 Top in the OECD's PISA study of learning skills among 15-year-olds Global number three in R&D investments of GDP Ranked best in the Environmental Sustainability Index, WEF 2008 Ranked best in knowledge transfer between universities and companies, IMD 2006

…about innovation in Finland… 21.9.2018

Why promote R&D and innovation? Impact on economy and society Direct effects Renewing business structures Affluence Regional vitality Employment Environment Health Security and safety Social well-being Results Competence Knowledge Networking Products Services Business models Methods Processes Organisational innovations Start-ups New business areas, services Growth and globalisation Productivity R&D investments Tarvitaanko tätä kalvoa? DM 218475 and 431181 02-2009 Copyright © Tekes 21.9.2018 5 5

Finnish innovation environment = public-private partnership Parliament of Finland Research and Innovation Council Government Ministry of Education Ministry of Employment and the Economy Other ministries The Finnish Funding Agency for Technology and Innovation The Finnish National Fund for Research and Development Universities Finpro Finnvera Industry Investment and other research centers TE-Centers Industries & Enterprises

1. 2. 3. Strengths of the Finnish Innovation Environment Cooperation Expertise High-quality education, science and innovation Investments in infrastructure 2. Commitment Public and private sector investing in R&D Trust and transparency 3. 1. Cooperation Industry - academia and business - business Government - business interaction

R&D investments of GDP Percentage of GDP Israel Sweden FINLAND Japan Korea Iceland USA Austria Germany Denmark Singapore OECD France Great Britain Norway China Ireland Prel. Sources: OECD, Main Science and Technology Indicators, and Statistics Finland 8

Public sector €1.8 billion (28%) Enterprises €4.6 billion (72%) R&D investments in Finland Total 6.4 billion euros, 3.5 percent of the Gross Domestic Product (GDP) in 2008 Competitive public funding 47% of total public R&D funding: Tekes ~550 M€ for business RDI Academy of Finland ~300 M€ for basic research Public sector €1.8 billion (28%) Enterprises €4.6 billion (72%) Nokia approx. 45% of all industrial R&D >80% of telecom R&D

R&D expenditure in Finland Billion euros Enterprises Universities Other public research 6.4 6.2 5.8 5.5 5.3 5.0 4.8 4.6 4.4 3.9 3.4 2.9 2.2 1.7 1.8 1.5 1.1 *prel. Source: Statistics Finland 10

Business R&D investment in Finland by sectors Billion euros Total 4.1 billion euros in 2006 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Services Other manufacturing industries Pulp and paper Chemical industries Metals and engineering industry Electronics industry Source: Statistics Finland 11

Finnish exports by industry Finnish exports of goods in 2008 totalled 66 billion euros and total exports including services 81 billion euros. Billion euros Wood and wood products Pulp, paper and paper products Basic metals and metal products Machines, machinery and vehicles Electronics and electro technical products Chemicals and chemical products Other goods Services Sources: National Board of Customs, Bank of Finland and Statistics Finland 12

R&D&I Programmes – Strong point of Finland ? SHOK = Strategic Center for Science, Technolgy & Innovation OSKE = Centre of Expertise Programme OSKE (13) National R&D Programs (Tekes & Academy) (approx 40) SHOK (5) EU FP7 JTI, ETP, EIT Eureka ERANET, art. 169

Strategic Centres for Science, Technology and Innovation (SHOKs) Radical renewal Focus & Impact Visibility Attractiveness Metal products and mechanical engineering Built environment Forest Cluster Industry steered SRAs 20-50 M€ per SHOK p.a. Basis for stronger international partnerships Energy and environment Health and well-being ICT industry and services

Finland in EU R&D FP6 2002-2006 1050 projects 1440 project participations 265 M€ EU funding 2,2 % of total EU finding 1439 June 2007

Source: Batelle, 2009 Global R&D Funding Forecast, R&D Magazine Dec 16

…past success does not guarantee future performance… …in the rapidly changing global playfield… … and in the era of financial crisis… 21.9.2018

The World is Flat… The World is Spiky…. Scientific publications Patents Source: Tim Gulden, UMD, Richard Florida, U of T, Pekka Himanen, HIIT

Source: Nordic Council of Ministers, 2009 19

Finland’s GDP forecasts for 2009-10 21.9.2018

Finland’s export forecasts 2009-10 21.9.2018

Finland’s unemploymnent trends February 2009 Unemployed Vacancies 21.9.2018

The rapidly changing global playfield Transformation of firm strategies Off-shoring of manufacturing industries and also R&D Shift from integrated manufacturing system to globally distributed value networks Increased importance of alliances and partnerships Competition converges on services instead of products Financial crisis New Innovation Models From closed to open innovation Globally networked innovation processes Growing importance of service innovation Pronounced role of users and customers for successful innovation delivery Both technological and non-tech sources of innovation

…innovating in innovation?…. Finland’s national innovation strategy 21.9.2018

Finnish innovation system/policy SWOT STRENGTS Education Commitment & continuity Co-operation & competition Industry share of R&D investments Proactive and client-oriented public innovation services (funding, expert) Public R&D funding with strong incentives for co-operation and risk-taking WEAKNESSES Small absolute volumes in R&D (3,4% GDP = 6,0 bn €, < 1% global R&D) Dependence on global developments Low foreign direct investments Low international researcher mobility Small number of growth-oriented enterprises Small venture capital volumes for start-up and early growth-phases OPPORTUNITIES More coherent and strategic national policies (foresightinsightpolicy) Stronger focusing of public R&D resources Going beyond “industrial innovation”: Promotion of innovation in private and public services Market-pulled innovation stimulation Tech and non-tech innovation Active participation in major EU R&D programmes and platforms Going beyond EU: Active linkage with global innovation hotspots THREATS Dominance of one sector (ICT) and one company in business R&D Risk of declining business R&D expenditure Businesses increasingly move their operations abroad, including R&D Loosing focus: Participation in too many projects with scarce resources 21.9.2018

Key directions of Finland’s STI policy 2007-2011 Key directions of Finland’s RDI policy 2007-2011 1. Strengthened public R&D investments catalysing growing corporate R&D investments in Finland  aiming at 4% GDP share of R&D 2. Wider-range promotion of innovations:  technologies, services, business, branding/design, public sector  direct support, marked-driven incentives, tax incentives 3. Strategic choices and focusing of resources Market incentives 4. Reaching world-class level in focus areas, strong international interaction Growth ventures R&D&I programs 5. Structural reforms of the innovation system SHOKs Tax incentives Foresight Strategy +3-5%/year public R&D invest’s FinNode EU FP7 FiDiPro OSKE Ministry of Empl’t & Economy Aalto University Sector research University reform Innovation strategy

Impact of different factors in the increase of added value in Finland Intangible Investments  Productivity Economic Growth Impact of different factors in the increase of added value in Finland Intangible business investments are the sources of MPF Share of effect on productivity increase % Average 1995-2007 Economic competencies Business concept Brand Human capital Organisational structure Workplace development 2 % 1 % 0,5 Computerised information R&D Other innovative property 0,5 Multifactory productivity (MPF) Labor Capital The impact of r&d investments in productivity can be increased by combining them with other business intangible investments leading to integrated innovations. Source: Statistics Finland, Tekes 27

Innovative public services New / missing Existing Users’ tax incentives Standars Norms Demand-based innovation policy ”Demand pull” Competence-based Innovation policy ”Knowledge push” Lead markets Public procurement Innovative public services VC tax incentives EU ERC Green Procurement Tekes programs Aalto University EU FP7 TYKES SHOK EU EIT Living labs Sourcing know-how SA programs OSKE EU JTI ESR EAKR User communities SA Centers of Expert. Yritys-Suomi TEM Investment aid Tekes programs Tekes programs Pre-comp procurem. (R&D) KY- service YIC funding

Finland’s innovation strategy - change areas Mobility and attractiveness Participation and contribution WORLD WITHOUT BORDERS Innovation communities & hubs Lead markets INNOVATIVE INDIVIDUALS AND COMMUNITIES DEMAND AND USER ORIENTATION COMPETENCE BASE Individuals and entrepreneurship Co-innovation SYSTEMIC APPROACH Broad-based innovation Leadership & change management

John Kao Harward Business Review March 2009

… innovating through the economic downturn. … … innovating through the economic downturn?…. …impact of the financial crisis on innovation policy… 21.9.2018

Finland’s recovery form the recession of early 90’s Development of Tekes’ public funding for industrial R&D 1991-99… and 2007- Finland’s financial crisis 1991-94 Major bank sector difficulties Exports down by >20% GDP down by 13% Unemployment from 3,5% to 18% Million euros 32 32

Innovation policy in economic downturn Incentives and funding Firms’ innovation time-span shortens and risk-averseness increases Longer-term and higher-risk R&D projects delayed or stopped Firms’ capabilities to co-fund research in universities and institutes diminishes Public RDI funding support levels and swift payments gain importance Private venture market for growth funding “frozen” R&D tax incentive ?  Public RDI support critical in maintaining innovation activity Demand and user orientation Competition increases as demand slows Downturn reduces demand, but also creates new needs, e.g. as firms modify business models, supplier networks and outsource Customer-focused and user-driven innovation gains even more importance Speed and cost-effectiveness emphasised in firms’ innovation activities Open innovation rather than internal R&D  Fast and agile innovation models needed Broad-based innovation Innovation = Knowledge-based competitive advantage Using and combining both technological/scientific and non-tech/non-sci know-how as sources of innovation Service, business model, operational, management, work-life innovations Support for training required in taking new innovations in use “Every-day innovations”  Broad-based innovation (continous innovation) supports “cost-chase” and increases productivity Spring-board for new growth Firms’ longer-term RDI activity has to be maintained also in downturn Firms’ co-operation with universities & institutes has to be supported Programs for developing and renewing industrial clusters (Tekes, Academy, EU) SHOKs, local and int’l innovation hubs Public R&D investments played significant role in Finland’s quick recovery in1990’s  Maintaining longer-term RDI crucial to support renewal (“creative destruction”) and build basis for future growth