Foreign Takeovers - Brain Drain or Brain Gain? Case of Finland Oslo, 29th January 2004

1. Foreign Takeovers - Brain Drain or Brain Gain?Case of FinlandOslo, 29th January 2004

2. Content • Broad overview on trend and current situation of inward FDI and foreign ownership in Finland • Research focusing on impacts of FDI and foreign takeovers of nationally-owned companies • First observations from research

3. Historical trends • Historically level of FDI by foreign firms has been low in Finland. Finns neither really tried to attract foreign direct investment inflows. • However, FDI inflows began to increase in the 1980's and the increase continued in the 1990's. Explanations: • reflects global development - FDI flows increased substantially since the early 1980's and a small part of it found its way to Finland. • attractiveness of Finnish companies increased because of improvement in technological and knowledge levels of Finnish manufacturing firms in past few decades. • mergers and acquisitions in the 1980's and 1990's much more popular method of foreign direct investment than greenfield investment. • atmosphere in Finland has changed: since the early 1990s FDI inflows are encouraged: • Invest in Finland Bureau founded in 1992 and remaining restrictions on FDI inflows abolished in 1993.

4. Direct investments to and from Finland in 1993 - 2002 (per cent of GDP) Source: ETLA, Statistics Finland, Bank of Finland

5. Non-residents' holdings in companies listed in HEX stock exchange (as a percentage of total market capitalisation Jan 1994 - Aug 2003) Source: Arvopaperikeskus

7. The share of foreign-owned enterprises of Finnish enterprises in 1994-2001, % Source: Statistics Finland

8. Foreign-owned enterprises in Finland by the owner country in the year 2001 Source: Statistics Finland

9. Some recent acquisitions in Finland • General Electric completed in Oct 2003 the acquisition of Instrumentarium, a leading Finnish medical technology company. • German-based IVG Immobilien AG purchased in Oct 2003 majority of the shares in Polar Kiinteistöt Oyj, a Finnish real-estate company. • US-based AGCO Corporation bought in Sept 2003 KONE Corporation's tractor business Valtra and the subsidiary Sisu Diesel. • Hon Hai Precision Industry Co.,Ltd (Taiwanese origin), with registered trade name Foxconn, acquired in 2003 Eimo, a Finnish manufacturer of precision and decorative plastic components. • Austrian-based Andritz Group acquired in March 2003 Acutest Oy, a company specialising in condition-monitoring technology (ACM). • Japanese Komatsu Ltd. Bought in Nov. 2003 Partek Forest, the forest machines operations of KONE Corporation. • Singapore-based Flextronics acquired in Aug 2003 Microcell Group, original design manufacturer of GSM, GPRS and EDGE handset products.

10. Relevant Finnish research on the theme: actors • ETLA, the Research Institute of Finnish economy is the most prominent actor in the field • several studies on internationalisation of business since mid-1990s • co-ordinates on-going "Multinational Enterprises and the Finnish Innovation System" -project • Besides of ETLA the expertise on globalisation of business and foreign ownership is scattered around in research institutes and universities • Helsinki School of Business and Administration, VTT Technology Studies (professor Raimo Lovio) • VATT, Government Institute for Economic Research • a new publication on the role of foreign direct investments on small countries' competitive and technological position

11. Acquisition, greenfeeld investment … • Larimo J. (2003) Journal of Business Research • Acquisition or greenfield investment of Nordic companies abroad? • The probability of Finnish companies to acquire is influenced • Size (-) • Knowledge intensity of the firm (-) • Cultural distance to the target country (-) • Level of economic development in the target country (+) • Economic growth in the target area (-) • Dissimilarity of the company and the targeted unit (-) • Level of ownership at the targeted unit (+) • Estimates for Norway, Sweden and Denmark available.

12. …or being aquired • Ali-Yrkkö, J., Hyytinen, A., Pajarinen, M. (2004) ETLA Discussion Papers • Estimate the influence of firm characteristics / strategies on the propensity to being aquired. • EPO patents (dummy) (+) • Larger effect for being aquired by a foreign company • Size matters (+)

13. Why & where do companies do FDI in R&D? • Several strategies from Le Bas, C., Sierra, C. (2003) Research Policy • Type 1: Technology seeking FDI in R&D • Type 2: Homebase exploiting FDI in R&D • Type 3: Homebase augmenting FDI in R&D • Type 4: Market seeking FDI in R&D • Type 5: Competitor eliminating FDI in R&D - implicitly suggested by Lovio, R. (2003)

14. Perspectives in Finnish research on foreign takeovers • impacts of foreign takeovers studied by focusing on the acquired companies' success • in terms of growth, profitability and the development of R&D investments. Some examples: • Pajarinen & Ylä-Anttila (2001) Countries Compete for Investment - Finnish Technology Attracts Foreign Firms. ETLA • Ali-Yrkkö & Ylä-Anttila (2001) Globalisation of Business in a Small Country - Does ownership matter? ETLA • impacts of foreign ownership on management in terms of business strategy, corporate governance and the diversity of business areas: • Tainio, Huolman & Pulkkinen (2001) The Internationalisation of Capital Markets: How International Institutional Investors are Restructuring Finnish Companies. • Few studies focused on more local impacts of foreign takeovers and/or from perspective of local business units. • Jääskeläinen & Lovio (2003) Globalization Arrived Varkaus. • A case study from town of Lapua (2001).

15. General features in recent studies and public debate on internationalisation of companies • FDI and foreign takeovers "other side of coin" of internationalisation of Finnish companies => research on both sides exists • Currently globalisation and its link to locational decisions of company activities raises growing interest • General stance towards FDI to Finland is positive • Invest in Finland bureau established 1992 to promote inward FDI • a broadly shared view stresses stringency and insufficiency of national resources with its adverse effects on economic activity => Finland has to attract foreign investments! • Public debate dominated by "China phenomenon" and enlargement of EU in May 2004 • potential impact on Finnish firms decisions especially in relation to location of manufacturing and production activities.