Explaining the success of Finland’s start-ups

Explaining the success of Finland’s start-ups

Finland’s economic performance over the last 8 years has been somewhat subpar vis-à-vis that of its Northern neighbors. Yet the country boasts a relatively strong start-up network, a potential source of much-needed growth.

Two factors help explain the current momentum of Finland’s start-ups, while a third (more recent) development is likely to benefit the country’s start-up ecosystem in the long-run.   

First, a slump in traditional Finnish exports has been an impetus for innovation. While Nokia’s implosion is widely recognized as having contributed to the country’s current economic malaise, it has also ultimately been conducive to the growth of smaller, more agile enterprise. Nokia’s epic demise has left behind a pool of tech-savvy entrepreneurs, many of which have helped expand Finland’s now diverse start-up scene.

Supercell, a mobile game developer headed by a Nokia veteran, now has offices in Europe, the United States and Asia and boasts revenue of over 2 billion dollars. In general, Finnish start-ups have pivoted strongly towards profitable gaming technology, which is easy to disseminate online.

Other pillars of Finnish growth are also increasingly under strain, making it necessary to identify innovative, growth-spurring alternatives. With a tenth of Finnish exports going to Russia alone, EU-Kremlin sanctions have damaged Helsinki’s economy. Russian-Finnish trade nose-dived in 2015, falling by almost 35%, due to Ukraine-related sanctions and a feeble Russian currency. The Finnish forest industry, which accounts for roughly a fifth of all Finnish exports, is generally becoming increasingly less competitive.

Second, start-ups in Finland benefit from a robust support system. The Finnish government has relatively liberal funding policies, even for still embryonic ventures. Tekes, the Finnish Funding Agency for Innovation, is largely responsible for the financial support of nascent companies.

Moreover, platforms like ‘Startup Sauna’ have been designed to fast-track start-ups. Startup Sauna sponsors a five-week ‘accelerator program’ for entrepreneurs and contributes to the organization of Helsinki’s annual start-up ‘Slush conference’. It is, in this context, telling that Finland has been classified as the second-best country for innovation by the World Economic Forum.

There are further grounds for relative optimism. The Finnish economy has hitherto suffered from the fact that Finland’s comparatively low labor productivity has been awkwardly coupled with high labor costs. Yet a deal – the ‘Competitiveness Pact’– aimed at loosening up the country’s excessively rigid labor market was struck last month by the Keskusta government and trade union representatives.

The accord is a big deal: it involves a temporary brake on wage increases, more hours for workers per annum, and a cutback in a host of other employee privileges, all in return for income tax reductions. The agreement will probably increase the output of Finnish firms, start-ups included, by depressing labor costs. For the latter, the labor market reform deal is likely to become most important when they attempt to significantly expand business operations after having attracted significant investment.

Start-ups always involve risk for entrepreneurs and investors alike. Yet the three above factors – an abundance of tech-specific human capital, a robust support network and the introduction of more market-friendly labor reform – are likely to ensure the continued dynamism of the start-up scene in Finland.

Categories: Europe

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