Features of the Finnish Innovation System. What did happen to Nokia country? Cheljabinsk 18 October, 2011 SUSU Tuomo Kässi Professor

Table of Contents  Background  Some observations on technology policy in Finland  Used resources for innovation and technology development in Finland  Role of public and company sectors in innovation activities  Internetional competitiveness comparisons  BUT  National Agency for innovation and Development (TEKES)  Role of university LUT in innovation activities  Criticism and discussion LUT Lappeenranta University of Technology

Background LUT Lappeenranta University of Technology

Four stages of economic development beneficial basic production factors limited manufacturing of capital goods import of technology limited contacts with end users DEPRESSION capability and will to invest aggrssively use of best practice technology economy of sacale end products ”bulk” B-to-B-markets significant domestic research and development hard competition Human capital a base for competitive advantage differentiated products; wide service cintent Use of wealth benefits at the cost of the future need and will to change limited No motivation for entrepreneurship nor innovations Production factor driven Iinvestment driven Wealth driven Innovation driven 4 LUT Lappeenranta University of Technology

CLUSTER BASED INDUSTRIAL AND TECHNOLOGY POLICY LUT Lappeenranta University of Technology Related and Supporting Industries Demandin g Customers Rivalry & Strategies Specialized Production Factors FDI Change Government PUBLIC INSTI- TUTIONS LABOUR MARKET UNIVERSI- TIES STATE CENTER OF TECHNOLOGY RESEACH (VTT) FINNISH ACADEMY ACENCY OF TAXES MINISTERY OF EDUCATION MINISTERY OF ECONOMY AND LABOUR MINISTERY OF PUBLIC FINANCE ACENCY OF INNOVATION AND DEVELOPMENT (TEKES) ACENCY OF COMPETITION

Some observations on technology policy in Finland 6 LUT Lappeenranta University of Technology

Drivers for growth and conditions for their utilisation Investments are the drivers for growth Education Research and development Innovations Capital Conditions for the utilisation of drivers for growth Opening up of markets Flexibility of structures and regulations Incentives −for the success of innovative companies −for private risk investments Macroeconomic policies The impact of drivers for growth remain minor without continual structural reform. LUT Lappeenranta University of Technology

Formel-G – the first step has been taken GDP Econometric equation Trade openness Human capital Investment ratio Population growth Trend cluster 6 Trend cluster 1 Trend cluster 2 Trend cluster … Fundamental social, economic and technological trends Deutche Bank Research 2005 LUT Lappeenranta University of Technology

Order by 2007 R&D investments in some countries Sources: OECD, Main Science and Technology Indicators and Statistics Finland Percentage of GDP LUT Lappeenranta University of Technology

R&D input in Finland Total 6.9 billion euros, 3.7 percent of the Gross Domestic Product (GDP) in 2008 In 2008 Tekes allocated 523 million euros for R&D projects. Sources: Statistics Finland and Tekes LUT Lappeenranta University of Technology

The figures represent the total extent of each organisation in million euros in 2008, those marked with star are earlier. In parenthesis the share that is funded from the State budget. **includes polytechnics *** includes R&D costs of corporations foreign units Private Basic researchApplied researchBusiness R&D Business development Marketing Internationalisation R&D at companies 4,179* Business Angels Approx. 380* Public Finnvera 468 (44) Universities and polytechnics** 1,165 (482) Academy of Finland 297 (297) Ministries, ELY Centres, sectoral research 413 (402)* Tekes 526 (526) VTT 245 (74) From abroad 407 *** Innofin 7 (5) Finpro 35 (21) Venture capitalists: Private 364 Finnish Industry Investment: direct 19, venture capital funds 131, seed funding 7 Sitra 35 Resources in the innovation environment LUT Lappeenranta University of Technology

Used resources for innovation and technology development in Finland LUT Lappeenranta University of Technology

R&D expenditure in Finland Source: Statistics Finland Billion euros *preliminary LUT Lappeenranta University of Technology

Business R&D input in Finland by sectors Total 4.5 billion euros in 2007 Source: Statistics Finland LUT Lappeenranta University of Technology Billion euros

Degree of challenge in R&D projects funded by Tekes The risk of failure is high in R&D. The job of Tekes is to share in this risk and accept greater uncertainty than other financial backers. LUT Lappeenranta University of Technology Number of projects in 2009

Success of commercialisation Source: Tekes customer survey 2009 % LUT Lappeenranta University of Technology Small and medium-sized companies Survey in spring 2009 on projects ended in 2006

Success of commercialisation LUT Lappeenranta University of Technology Large companies Survey in spring 2009 on projects ended in 2006 Source: Tekes customer survey 2009 %

Tekes customers declaring bankruptcy Annual number of customers declared bankrupt for which Tekes has paid funding during five years preceding bankruptcy or which still had Tekes R&D loan left when bankruptcy was declared. Of the ca. 4,500 companies funded in the last five years, approximately 1%, i.e companies ended up bankrupt each year. About 1.3 percent of all Finnish companies face bankruptcy every year. LUT Lappeenranta University of Technology Number of companies

Role of public and company sector in innovation activities LUT Lappeenranta University of Technology

Input additionality LUT Lappeenranta University of Technology Input additionality means that the company invests more in R&D than it would without public funding. Company’s original R&D investment Public R&D funding Company’s original R&D investment Public R&D funding Input additionality

Tekes funding depends on the project’s degree of challenge, novelty and time to market Degree of research increases Degree of challenge and novelty increases R&D grant or combined funding R&D grant R&D loan LUT Lappeenranta University of Technology International top level National top level Demanding international level Novelty value for network or region

Tekes R&D funding in 2009 Total 579 million euros and 2,177 projects Figures include 12 million euros from the Workplace Development Programme TYKES and 22 million euros funding from EU Structural Funds. LUT Lappeenranta University of Technology R&D grants to companies and public organisations 246 million euros R&D Loans to companies 97 million euros Research funding for universities, research institutes and polytechnics 236 million euros

Tekes programmes in brief Effective utilisation of research results is ensured by scheduling the projects of research institutes and universities concurrently with company R&D projects, and by networking with them. LUT Lappeenranta University of Technology Synergy Networking Part financing Company R&D projects Research projects at universities and research institutes Loans Capital loans Steering group  Companies Grants Tekes  Preparation  Coordination  Decision making

Internetional competitiveness comparisons LUT Lappeenranta University of Technology 24

Competitiveness LUT Lappeenranta University of Technology Finland31966

Technological readiness The Technological readiness index covers laws relating to ICT, technology transfer, foreign direct investments, mobile phones, internet users and personal computers. Source: WEF, The Global Competitiveness Report Points according to WEF LUT Lappeenranta University of Technology

Innovation index The Innovation index covers quality of research institutions, company spending on R&D, university and industry research collaboration, availability of scientists and engineers, utility patents and intellectual property protection. Source: WEF, The Global Competitiveness Report Points according to WEF LUT Lappeenranta University of Technology

Innovation index Source: European Innovation Scoreboard 2008 Index according to the European Commission in 2008 LUT Lappeenranta University of Technology

Finland’s competitiveness Source: WEF, The Global Competitiveness Report Innovation-driven economiesFinland Infrastructure Market size Institutions Innovation Health and primary education Goods market efficiency Macroeconomic stability Higher education and training Labour market efficiency Financial market sophistication Technological readiness Business sophistication LUT Lappeenranta University of Technology

BUT LUT Lappeenranta University of Technology

Foresight model for evaluating long-term growth Deutche Bank Research 2005 LUT Lappeenranta University of Technology

Who the World Economic Forum sees growing most: WEF: “analyze the potential for the world’s economies to attain sustained economic growth over the medium term.” Finland keeps coming out on top, Germany in the upper tier, while China and India score relatively poorly. Deutche Bank Research 2005 LUT Lappeenranta University of Technology

Who Deutsche Bank Research sees growing most: Deutsche Bank Research’s Foresight Model for evaluating long-term growth: Formel-G Finland comes out towards the bottom close to Germany, while China and India rank near the top. Deutche Bank Research 2005 LUT Lappeenranta University of Technology

The growth centres 2020 according to Formel-G India, Malaysia and China will post the highest GDP growth rates over Ireland, the US and Spain are the rich countries expected to grow most Germany, at 1.5%, takes rank 27 of 34 countries Finland just behind at 1.3% Japan and Switzerland at the end of the ranking Deutche Bank Research 2005 LUT Lappeenranta University of Technology

Criticism and discussion LUT Lappeenranta University of Technology

The system is complex to access & administer  Several bodies address the same societal problems with similar tools  Little consideration what are the joint impacts of a myriad of measures  Many publicly-supported instruments & organizations  Reluctance to restructure, exit from obsolete instruments & organisations  The two main issues – (growth) entrepreneurship & internationalization – remain orphans in the system  An outline of (public) actors and their responsibilities 36 LUT Lappeenranta University of Technology

The innovation system’s orientation evaluated by the actors of the system LUT Lappeenranta University of Technology

Finland: a Country of Contradictions … perhaps rather too many contradictions? 38 LUT Lappeenranta Universty of Technology

Contradiction 1 : World class Innovators … 39 LUT Lappeenranta University of Technology

 … but timid Entrepreneurs In high-potential entrepreneurial activity, Finland scores very low. Only two out of one hundred early-stage entrepreneurs expect to employ at least 20 employees within next five years…. Finland falls behind all Nordic and all European countries except for Greece. GEM Finland 2005 p23 40 LUT Lappeenranta University of Technology

Contradiction 2 : Socially cohesive The preferred Finnish model? 41 LUT Lappeenranta University of Technology

… but at the cost of (rarely) celebrating those risk taking individuals that act differently/ entrepreneurially too conformist?  42 LUT Lappeenranta University of Technology

Contradiction 3 : internationally at the hub of technological progress

but a long way (spatially, culturally and emotionally) from global markets  gy

National VC investments versus R&D investments in 2006 LUT Lappeenranta University of Technology 45

Key conclusions  Creation of growth companies  International operations and orientations needed  Better use of human expertise, technologies, know how  International value added operations abroard in global networks needed  Innovation activitiess needed today are totally different from the activities used successfully in 1990s. LUT Lappeenranta University of Technology