Because the world is not flat.

Month: February 2019

Finnish Multinational Corporations, global competition and the role of FINNVERA

We recently completed an exploratory study to understand how FINNVERA in particular, and Export Credit Agencies in general, affect the survival and growth of international firms. One major conclusion was that, for some industries, and major Finnish firms, the work of FINNVERA is an essential part to sustain in global competition. FINNVERA’s traditional role is to assume certain risks, such as country risks and commercial risks, to moderate Finnish firms’ internationalization. However, over the past few years the global business environment has changed and to some extent redefined the role of FINNVERA. Here are a few reflections on what has changed that makes FINNVERA, more than ever, strategically important for some Finnish Multinationals:

# A changing world. From the late 1980s to recently – we see diminishing abilities of MNCs in general to: (a) Use institutional ‘deficiencies’ across the globe to their advantage (e.g. transition and developing economies closing institutional gaps; international cooperation to reduce spaces to allow this kind of opportunism, etc.). (b) Utilize arbitration advantages – in a model in which MNCs optimize internal division and integration of work internationally – many previously important location advantages have been changing (e.g. China). For instance, instead of cheap labor we see that now technology is gaining importance. Arguably, in the longer run, when technology takes over to define competitiveness, then costs are likely to fall in general, while labor cost are generally likely to rise when economies grow. That means also that for many production locations the competitiveness might be more critically determined by other factors, e.g. infrastructure, market seeking or resource seeking motivations – shifting bases of location advantages.

# Business models. In many industries, we see post 2008 a change in the business models which generate greater value. Until then it was challenging for local firms (especially in smaller economies) to overcome traditional MNCs’ (a) monopolistic advantages (e.g. in form of immaterial rights, IPR, brands, etc.) and even harder for local firms to develop (b) scale and scope economies to match MNCs in a liberalizing global trade landscape. Comparing the largest firms (by market capitalization as the shared understanding of future promise and growth) 10 years ago and now – the top 10 list of most appreciated firms looks rather different. What do these firms do differently? They shifted the game from economies of scale to network economies. That requires an ecosystem, where firms’ immaterial rights are entered into a larger system of value creation and the more actors enter that ecosystem the higher the potential (and thus the realized) value these ecosystem drivers can produce.

This has started to have implications also for the typical Finnish firm (industrial markets, global tech leaders in their niches). Business models are also shifting for them and for their typical linear value chains. To stay in the lead, firms need to build cooperative networks attracting partners who enter their capacities into a larger pool and these ecosystems might subsequently compete with other networks of firms on global scale. These new business models run under many labels, focusing on slightly different perspectives, including ecosystems, networks, solution business approaches, service innovation approaches, open innovation arrangements, etc. But they have some core items in common that relate to the question of how value is generated, and given the trend to converging industry approaches through technological advance (i.e. the industry 4.0 catch phrase), – it is a cooperative effort within ecosystems of specialized partners who need to bring in their specific capabilities and mechanisms.

# FINNVERA’s role. In many important industries, for Finland, FINNVERA has de-facto been an ecosystem partner. There is no subscription to a membership, it evolves through adaptations to dynamic environments and is largely defined by actions rather than ex-ante designed structures. FV is the partner firm needed to compete in certain global markets. Without their contributions to some ecosystems it would be rather impossible to build high tech (or any) large ships in Finland; it would be difficult to develop and commercialize state of the art power plants for onshore energy generation; difficult to sell 4G, 5G networks  (even to some Western partners); or to build major state of the art pulp mills, to name some examples.

# Concluding. This sheds an interesting light on the issue of international finance and how Export Credit Agencies, like FINNVERA, are performing strategic functions with Finnish MNCs, in some industries. Their function is to help Finnish Multinationals’ customers to manage enormous international risks; they provide the enabling mechanisms by which Finnish firms’ customers and their banks can put together long-term financing, on the back of Finland’s appreciated credit ratings. At the same time, FINNVERA, as a necessary competitive factor to enable international finance of large projects, is in ‘regulated competition’ with other Export Credit Agencies around the world, without which major Finnish firms would have fewer options ‘to play’. For our discipline of International Business, this implies that we need to review our frameworks and models and widen the scope. The ‘international success and failure of the firm’ is not only determined by necessary conditions found inside the firm and based on firms’ choices (e.g. locations and governance), but by a functioning ecosystem, that includes strategic partners like FINNVERA. They enable many major firms to enter into international competition to start with.

[Exploratory impact studies have been undertaken in cooperation with FINNVERA in two stages, between 2016 and 2018. Project members have been Prof. Beth Rose from Leeds University, UK; Prof. Stephané Lhuillery from Université de Lorraine, France, and researchers at the University of Turku, International Business – Mr. Majid Aleem, Dr. Johanna Raitis and Dr. Peter Zettinig]


A link to the study:


Peter Zettinig

University Research Fellow

The relationships between the nation-states and MNCs

For many decades there has been discussion on the power relationships between states and multinational corporations. Claims have been proposed that the power of MNCs is growing, and that states are losing their power in global affairs. Babic, Fischer and Heemskerk (2017) defines this process: “The transnationalisation, or de-nationalisation, of production and finance has created new and growing opportunities for firms to shift production, participate in complex global value chains that are difficult to regulate, and circumvent state attempts to regulate and tax corporate activities”

However, there are possibilities to better understand and improve these relationships.  Rahim (2010) emphasizes that “these relationships are not a zero-sum game but one of ‘complex governance’ where all actors have to be considered to understand the changes in the international system”. And further, “the increasing power of TNSs does not mean the inevitable decline of the power of countries – countries still remain the ones that have to enforce the norms or use the instruments proposed, if not respected by TNCs.”

In today’s world, political development seems to have great impact on the business environment. The current and best known cases are the ‘Brexit and Trump phenomena’. The global warming challenge is basically dependent on political decisions, but creates both risks and also new opportunities for companies.

It seems that the globalization is facing major setbacks and national interests are emphasized in political decisions. In the big picture, major political powers like the US and UK are isolating themselves from global and EU communities. Russia’s decision to annex Crimea to itself and start military operations in the Eastern region of the Ukraine forced the EU and US to establish economic sanctions against it. Gradually, these sanctions and the trade war between the US and China will have a major influence on business activities, and is decreasing global economic growth.

From the companies’ point of view, the political environment is one of the least predictable elements. Makhlouf (2017) writes that: “Current literature does not give sufficient emphasis to the ways to increase the shared interests and contain the conflicts of interest between nation-states and multinational corporations”

Indeed, MNCs can today be considered as quasi-governmental institutions having much power over social and societal life in general. The big challenge for MNCs is that they have to interact with many national governments, which all have their own policies. No doubt, situations arise in which there are real conflicts between MNCs and nation-states. Examples of MNCs actions increasing conflicts of interest are: tax avoidance and tax evasion, profit shifting, endangering workers’ health and safety, disrespecting local cultures. Examples of government policies increasing conflicts of interest are: excessive taxes and fees imposed on foreign-owned businesses, discriminatory government procurement policies, restrictions on repatriation of profits and surplus capital.

These questions are at the core of my new research project aiming to publish a book in the foreseeable future.

Professor Esa Stenberg