1. AMERICAS INNOVATION FORUM March 30 – April 2, 2008 Conrad Resort, Punta del Este URUGUAY The Finnish Case Dr. Heikki Kotilainen S&T Balance ST

2. AMERICAS INNOVATION FORUM March 30 – April 2, 2008 Conrad Resort, Punta del Este URUGUAY The Finnish Case Contents 1. Introduction, Finland as a country 2. Innovation policy and respective organizations 3. Funding principles 4. Funding of innovation and national programs 5. Conclusions ST S&T Balance

3. AMERICAS INNOVATION FORUM March 30 – April 2, 2008 Conrad Resort, Punta del Este URUGUAY The Finnish Case 1. Introduction, Finland as a country ST S&T Balance

4. Finland in Figures * Total Area: 338,000 sq km, this makes Finland the seventh largest country in Europe Neighbouring Countries: Sweden, Norway, Russia, Estonia Capital: Helsinki Main Cities & Population: Helsinki (555,000), Espoo (213,000), Tampere (195,000), Vantaa (178,000), Turku (172,000) and Oulu (120,800). Approximately one million people live in the Helsinki Metropolitan Area. Population: approx. 5,3 million Population Density: 17 inhabitants per square kilometre, 62 % of the population lives in towns and cities. Currency: Euro. Until 2002 markka, also known as the Finnish mark (FIM). Languages: Finnish (93 %) and Swedish (6 %) are official languages. Sami (Lappish) is the mother tongue of about 1,700 people. Climate: The climate of Finland is marked by distinctive seasonal variations. Winters are cold and summers relatively warm. National Legislature: Finland has a unicameral parliament with 200 members. Finland in the International Community: Member of EU, UN, OECD and WTO, among others. Major Exports: Electronic and electrical products, pulp and paper, machinery and equipment, metal products, transport vehicles, timber and wood, chemicals GDP: $176.4 billion (2006) GDP per capita (PPP): $33,700 (2006) GDP real growth rate: 5.5% (2006) GDP composition by sector (2006) Agriculture: 2.7% Industry: 30.3% Services: 67% Unemployment rate: 7% (2006) ECLAC Finnish Report 2007

5. THE POLICY DEVELOPMENTS IN FINLAND ? 1945 LACK OF CONSUMER GOODS INDEPENDENT INDUSTRIES DOMESTIC MARKET RAW MATERIALS AS COMPETITIVE FACTOR GROWING NATIONAL DEMAND INVESTMENT SUBSIDIES MANUFACTURING DRIVEN INTERNATIONAL COMPETITION TECHNOLOGY POLICY TECHNOLOGY SUBSIDIES INVESTMENT DRIVEN INTERNATIONAL COOPERATION SKILLS AS COMPETITIVE FACTOR INTRODUCTION OF NATIONAL INNOVATION SYSTEM PRECONDITIONS FOR TECHNOLOGICAL&SOCIETAL ADVANCEMENT RISK/VENTURE CAPITAL MARKET/INNOVATION DRIVEN TECHNOLOGY& SOCIETY POLICY FOR SOCIAL SCIENCES SURVIVAL POLICY WEALTH DRIVEN ? 2000 TECHNOLOGICAL ADVANCEMENT NATIONAL COMPETITIVENESS © S&T Balance Industrialization & Construction of welfare state Export, technology & innovation

6. Finnish Trade Trade in High-Tech products, 1991-2006*Export by Industry, 1996-2006* The biggest surpluses in Finland’s foreign trade in high technology were recorded in trade with: Russia (+ EUR 1.2 billion) United Kingdom (+ EUR 600 million) Saudi Arabia & United Arab Emirates (both+ EUR 615 million) Italy (+ 520 EUR million). The balance was the most negative for Finland in trade with China (- EUR 1.5 billion). High technology products accounted for 21.3 per cent of all Finnish exports in 2006 * Source:Tekes, 2006

7. Competitiveness comparison 2001 IMDWEF Technology 200220012000 2003 Population over 20 mill. less than 20 mill. 2003 Population over 20 mill. less than 20 mil. 2003 ScienceTechnology UNDP 2 2 1 3 4 5 7 8 9 10 11 13 14 16 19 USA Taiwan Sweden Japan Switzerland Denmark Israel Estonia Canada Norway Germany UK Australia Finland 1 2 4 5 6 11 7 14 8 10 12 15 9 3 3 1 4 6 23 24 12 26 8 2 7 15 10 5 3 3 2 - 3 4 - 18 - 8 12 11 7 9 1 1 1-6-9----2-4831-6-9----2-483 - - 4 - 6 5 8 19 - 10 - 3 3 1-5-2----6-3791-5-2----6-379 - 2 - 3 8 11 25 - 14 - 6 6 1 24 9 7 6 13 8 - 14 29 5 17 23 2 2 Ranking by the science and technology factor Sources: The World Competitiveness Yearbook (IMD), The Global Competitiveness Report (WEF) And Human Development report (UNDP) DM 36054 11-2003 Copyright © Tekes

8. Technology index (WEF) DM 36054 04-2004 Copyright © Tekes Source: The Global Competitiveness Report 2003, 3/4 based on quantitive material, 1/4 on query 4.0 4.5 5.0 5.5 6.0 6.5

9. AMERICAS INNOVATION FORUM March 30 – April 2, 2008 Conrad Resort, Punta del Este URUGUAY The Finnish Case 2. Innovation policy and respective organizations ST S&T Balance

10. Future orientation ” Prepare answers to questions, which will be asked after 5 years ” Motto: Future orientation

11. The Innovation Policy of Finland Education, science, technology and know-how have been a conscious focus of the industrial policy and the foundation of the Finnish economy and society for a very long time. The results of the policy can be seen today: the transformation from a low-tech country to a knowledge based society. Investments in innovations are important, but as important are a consistent long term focus on national facilitating conditions, as well as operational measures to build up a well-committed, co-operative, well balanced, confidential and dynamic innovation environment. Regional development is a special challenge, because the birth of innovations is very centralized. Small countries, like Finland too, have a lot of challenges in the future. DM 88582 03-2004 Copyright © Tekes

12. Tasks in the Finnish Innovation SystemPARLIAMENT Government MoEMEE Science & Technology Policy Council Future committee Academy of Finland Tekes TE-centres Foundation of Inventions Public Universities Research Institutes Centers of Excellence Private Enterprises Research labs Semiprivate Finvera Sitra/VC Industrial Investment/VC Private Venture Capital Banks Research funds General policy S&T&I policy S&T&Innovation policy formulation, implementation, funding R&D performing Business funding Tasks innov. Sitra © S&T Balance

13. Industry Ministries Agencies Patent offices, IPR Regional centres TE-centres Centres of Excellence Technology/Science Parks Knowledge Centres Sectorial Institutes Tech Transfer offices Institutes, labs The Triple Helix Universities Research institutes Government Industry Science & Technology Policy Council Confederations of Industry Banks Venture Capital Business angels EU Commission -state aid -regulations -FP Semiprivate SITRA Finvera Industrial Invest Clusters © S&T Balance

14. Planning and implementing of technology and innovation policy 3 year outlines Ministries (Education, Employment & Economy, Finance etc.) Annual objectives and agreements Institutions (Academy of Finland, Tekes, Universities VTT, Sectoral Institutes) Government Science and technology policy council, STPC Annual & semi- annual reports and feedback Plans Operations Tech.plocy execution © S&T Balance

15. R&D/GDP in Finland % SCIENCE POLICY TECHNOLOGY POLICY INNOVATION POLICY © S&T Balance SERVICE POLICY ? INPUT ADDITIONALITY OUTPUT ADDITIONALITYBEHAVIOR ADDITIONALITY COGNITIVE CAPACITY %

16. Circulation of innovation policy Setting policy agenda Analysing policy Implementation Public interestPrivate interest National strategy Sector policies Implementation of strategies Instrument set-up Research Strategic intelligence Policy evaluation Impact evaluation Performance evaluation Policy circulation Source: Tekes (Council, audit) (Ministries, agencies, universities, industry) (Ministries, agencies, universities, industry,Evalution + outside experts) © S&T Balance

17. BALANCE BETWEEN THE SCIENCE, TECHNOLOGY AND SOCIAL DEVELOPMENT MAINTAIN CLEAR NATIONAL FOCUS STPC MANAGE KEY DEMANDS BUSINESS & SOCIAL CHALLENGES Funding Agency for Basic Research Funding Agency for Applied Research and Development PROACTIVE VISION (Science and University Community, Society) BOTTOM-UP REQUESTS ADAPTING TO CUSTOMERS (The Business Community, Society) NATIONAL POLICY © Balance© Balance S&T Balance The Academy Tekes

18. AMERICAS INNOVATION FORUM March 30 – April 2, 2008 Conrad Resort, Punta del Este URUGUAY The Finnish Case 3. Funding principles ST S&T Balance

19. Prerequisites for administration involvement in R&D Business and research understanding Genuine interest in facilitating development Trust by industrial community Trust by research community Money and funding opportunities Admini.involvement © S&T Balance

20. Public funding of R&D and additionality DEFINITION OF ADDITIONALITY BASIS FOR PUBLIC ACTIONS MEASURE TARGET MEASURE INPUT ADDITIONALITY MARKET FAILUREWhat is the influence of public funding on R&D input of companies? The amount of R&D input of a company OUTPUT ADDITIONALITY MARKET FAILUREWhat is the influence of public funding on the results and output of companies? Increase of output on project leveI Increase of revenues on company level BEHAVIORAL ADDITIONALITY FAILURES AT SYSTEM LEVEL AND LEARNING What is the influence of public funding on the behavior and actions of companies? Soft measures like changes of networking and strategies COGNITIVE CAPACITY FAILURES AT SYSTEM LEVEL AND LEARNING What is the influence of public funding on the growth of skills and understanding of companies? Soft measures like improvement of skills as a consequence of public funding Source: Tekes publication 188/2006 © S&T Balance

21. The Selection of Areas for R&D Funding Administration social needs white spots on technology map emerging technologies globalisation challenges emerging legislation Industry globalisation challenges technology needs clustering needs new business models Research utilizing the strengths of research improving the weaknesses of research improving the industry cooperation facilitating the technology transfer improving the infrastructure of research R&D fnding areas © S&T Balance

22. R&D Expenditures in Finland 2006 5789 M€; 3,45%/GDP Private 4108 M€ 71,0% Public 1681 M€ 29,0 % Tekes 504,3M€ (30,0%) Academy of Finland 275,8 M€ (16,4%) Universities 446,4 M€ (26,6%) Research institutes 282,0 M€ (16,8%) Others 172,7M€ (10,2%) © S&T Balance Source: Statistics Finland Competitive funding Institutional funding

23. R&D investments of public and private sectors 1999- 2006 in Finland 1M € Source: Statistics Finland 710% 70,8% 70,1% 70,5% 69,9% 71,1%70,9%68,2% © S&T Balance 3,16% 3,34% 3,30% 3,35% 3,43% 3,46% 3,48% 3,45% R&D/GDP

24. AMERICAS INNOVATION FORUM March 30 – April 2, 2008 Conrad Resort, Punta del Este URUGUAY The Finnish Case 4. Funding of innovations and national programs ST S&T Balance

25. Multiplication of public money in the innovation system Short term investment Long term investment Government Parliament Ministries Government Parliament Ministries Funding agency grants loans equity funding Funding agency grants loans equity funding Universities Research institutes Universities Research institutes Cumulative tax Public finance New technology, knowledge, skills Businesses, employment Venture capital Pres/Multiplicatioon publicmoney© S&T Balance

26. Innovation Trends Innov.trends © S&T Balance User-based innovations Merger of manufacturing and service Mulitidisciplinary innovations Public and private sector innovations Globalisation of innovations Small firm innovations- large firm interventions

27. Research and Innovation Scientific excellenceTurnover/earnings Growth and Employment Meet R&I Business models Customer needs New knowledge Curiosity R & D WORK Innovation Research © S&T Balance ”If innovation is the commercial application of existing knowledge in a new context, technologically driven innovation is only one form of this. Innovation is distinct from research, which results in new knowledge and from the entrepreneurial function that spots market opportunities for products and services. It is the result of the interaction of these two functions” ”Innovate for a competitive Europe”, A new Action Plan for Innovation, European Commission, 2004 Linear model

28. RESEARCH PARADIGMS Old paradigm (LINEAR MODEL) BASIC RESEARCH APPLIED RESEARCH DEVELOPMENT New paradigm (CONCURRENT MODEL) DEMAND SCIENTIFIC UNDERSTANDING TECHNOLOGICAL SOLUTIONS PROBLEM SOLVING MARKET Basic research Applied research Development SOCIETAL & BUSINESS CHALLENGES © S&T Balance

29. THE GENERAL OBJECTIVES OF THE NATIONAL TECHNOLOGY PROGRAMMES To promote the industrial competitiveness to keep up with the global market change To give input to the industrial innovation process To create new knowledge to fulfil the needs of research, Industry and society To create the critical mass and centres of excellence in important technological areas To enhance the co-operation between industry and universities and research institution To promote international co-operation To support research education and to educate internationally oriented research managers To enhance the research and high-tech image of the country Objectives natl progr© S&T Balance

30. The relation between the national technology programme and innovation Technology programme, joint research with multiple participants Company 1 Company 2 Company 3 Company 4 Company 5 INNOVATIONS Research Development projects Innovations © S&T Balance

31. Process Character of Technology Transfer CURIOSITY KNOWLEDGE CREATION SCIENTIFIC EXCELLENCE PUBLICATIONS CUSTOMER NEEDS MARKET& MARKETABILITY STRATEGY PRODUCT PORTFOLIO R&D PORTFOLIO COMPETENCE MONEY& FINANCING IPR REVENUES RESEARCH (SUPPLY)INDUSTRY (DEMAND) TECHNOLOGY TRANSFER Transfer process ADAPTATION OF SCIENTIFIC RESULTS FOR TECHNOLOGICAL USE ”Requirement for technological success” ADAPTATION OF TECHNOLOGICAL KNOWLEDGE FOR INDUSTRIAL USE ”Requirement for market success” © S&T Balance Is it possible?How we do it? Can we do it? Can we market it?

32. Cooperation between companies Share of cooperating companies of all innovating companies Source: Towards a European Research Area - Key Figures, Special Edition. EU 2001 %

33. Unique features of Finnish innovation system Uniqueness of FI system Simultaneous implementation of following issues: Genuine and voluntary cooperation within Triple Helix High degree of concensus and implementation Funding simultaneously universities, research insititutes and industry to couple basic, applied research to development High degree of freedom for decision making In-house assessment of projects (Tekes) System for national technology programmes Genuine, holistic and simple system (few actors: Tekes, Academy) Clear share of labour: Tekes for applied research and development The Academy for basic research) © S&T Balance

34. Technological success rate of enterprise research projects concluded in 2002 concluded 1145 projects 611 mio. € 905 projects 511 mio. € No information 240 projects, 100 mio. € Stopped or failed projects 37 projects, 17 mio. € Otherwise as expected, but late 188 projects 117 mio. € Success as expected or better 525 projects 278 mio. € 16 % 84 % 3 % 23 % 54 % Number and volume of projects Success less than satisfactory, 155 projects 99 mio. € 19 % 57305, 04-2003 Copyright © Tekes

35. AMERICAS INNOVATION FORUM March 30 – April 2, 2008 Conrad Resort, Punta del Este URUGUAY The Finnish Case 5. Conclusions ST S&T Balance

36. Acceptability of State Aid and Other Incentives in the Society COMPLIANCE with national and international legislation TRANSPARENCY of criteria and processes EFFECTIVE Implementation Speed is crucial! FLEXIBLE adaptation to rapidly changing environment UNDERSTANDABLE and PREDICTABLE operation WIDE ACCEPTANCE in the society CONTINUOUS EVALUATION of results and processes CONTINUOUS EVALUATION of results and processes FEEDBACK © S&T Balance

37. Lessons learned from the Finnish Case Invest in people Consistency in policies Clear national strategy i.e. right choices Long term investments in R&D; Government as facilitator and investor Co-operation within the ”triple helix” Strong national agencies with freedom to act and implement the policies Balanced development of basic research and industrial R&D Continuous evaluation of the organizations, operations and programmes and quick feedback to decision makers Benchmark the best performers, don’t copy any of them © S&T Balance

38. Thank you for your kind attention! S&T Balance