1. 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

2. 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: euro
Finland
Helsinki

3. 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

4. …about innovation in Finland…

5. 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 and
Copyright © Tekes 5 5

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. Source: Batelle, 2009 Global R&D Funding Forecast, R&D Magazine Dec16

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

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

19. Source: Nordic Council of Ministers, 200919

20. Finland’s GDP forecasts for 2009-10

21. Finland’s export forecasts 2009-10

22. Finland’s unemploymnent trends February 2009
Unemployed
Vacancies

23. 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

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

25. 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

26. Key directions of Finland’s STI policy 2007-2011
Key directions of Finland’s RDI policy
Strengthened public R&D investments catalysing growing corporate R&D investments in Finland  aiming at 4% GDP share of R&D
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

27. 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
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

28. 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

29. 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

30. John Kao Harward Business Review March 2009

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

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

33. 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