Paula Lehtomäki at the Luncheon of the Finnish-American Chamber of Commerce, New York City 16.1.2004

Speech by Her Excellency Paula Lehtomäki, the Minister of External Trade and Development of Finland at the Luncheon of the Finnish-American Chamber of Commerce, New York City, January 16, 2004


Competitiveness and the internationalization of Finnish companies

Ladies and Gentlemen,
Dear friends of Finnish-American business relations,

I would like to start by thanking the Finnish American Chamber of Commerce for its longstanding and tireless work and the opportunity for me to address this audience.

"Finnish competitiveness as a national asset" is the message of my presentation here today.

Numerous surveys, opinion polls and analyses have placed my country on "the top of the world" in competitiveness. The Institute for Management Development, the World Economic Forum and, quite recently, the Harvard Business Review are among the bodies who have reached that conclusion. Moreover, Transparency International has ranked Finland as the world’s least-corrupt country.

There is more to come. The Economist Intelligence Unit has indicated that Finland will be the third-best country in the world with which to conduct business over the next five years (2003-2007). In 2002, Finland was ranked in eighth position.

And lastly, a survey conducted by Balance Consulting and published in the Finnish business newspaper Kauppalehti, indicated that foreign-owned companies are very profitable in Finland. The survey showed that in 2002, the average return on investment achieved by foreign-owned companies was 20.2 per cent (twenty point two per cent), up from 17.9 per cent in 2001.

All this evidence underlines the fact that Finland has one of the most competitive business environments in the world - and that the foreign companies have succeeded in benefiting from it.

Creating brands for countries is quite a trendy activity these days. A brand is of course only viable and credible if the image created is based on real qualities. In the case of Finland, I venture to to say that the positive qualities are authentic.

Recently, we have had two examples of large American corporations investing in the Finnish economy.

In October 2003, General Electric completed the acquisition of Instrumentarium, a leading medical technology company headquartered in Finland. Consequently, Instrumentarium will be the European headquarters for GE’s 2.6 (two point six) billion dollar healthcare information technology unit, and will continue to provide significant contributions in the fields of advanced research, development and manufacturing. On the 10th of September last year, the US-based AGCO Corporation acquired Valtra, including the group’s tractor business which includes the subsidiary Sisu Diesel.

Ofcourse Finland does have the benefits of scale of the American economy, but Finnish companies too have been successful in their efforts to go global. In 2002, foreign subsidiaries of companies resident in Finland employed a total of 334,000 persons. There are currently about 130 Finnish-owned companies in the USA, employing some 44,000 persons. The total number of separate production facilities and sales offices is more than 500. You can find a Finnish production plant, representation or sales office in 46 states of the USA. The most recent example highlighting the the Finnish commercial presence in the US is offered by Nokia. The company decided in December to establish a new corporate office here in New York.

This indicates how well the Finnish and U.S. economies have become interwoven and how they contain much potential for synergy. Irrespective of the size difference of the Finnish and American economies.

One positive factor for American companies is Finland's position as a gateway between the European Union and Russia. Locating operations in Finland gives a company a competitive edge - especially in terms of infrastructure that functions - as economic structures develop in Russia and the EU expands. Furthermore, Finland can provide valuable knowledge for American companies aspiring to enter the Russian market.

Reform in Russia is a process - at times painful - through which a country is trying to reinvent itself. In Finland we see that step-by-step new legislation is being introduced across our eastern border. But we would also like to see that the implementation of the new legislation is uniform and transparent everywhere in Russia.

We support Russia's accession to the WTO, but it must not be the result of a decision based on political motives. The European Union and Finland have repeatedly emphasized that the WTO's membership criteria should be met fully. Accession would help Russia to integrate itself into the global economy and would assist the ongoing reform process.

The enlargement of the European Union is a historical event. The population of the Union will increase by a third. Even though the immediate impact of the enlargement is likely to be fairly small in terms of GDP, it is obvious that in the longer run, the current member states too will benefit as resource allocation and the functioning of markets become more efficient in Europe as a whole. From the Finnish perspective, the enlargement does offer significant rewards.

Corporate taxation is one of the fields where we have lost some ground because our main competitors have moved forward by cutting their tax rates. In response to this trend, the Finnish Government is reforming company taxation in order to reinforce my country's international competitive position. The reform will promote corporate investment and growth and companies' capacity to generate employment.

For the purpose of ensuring the international competitiveness of the Finnish tax system:
-- the corporate income tax rate will be reduced by 3 percentage units to 26 per cent
-- the capital tax rate will be reduced by 1 percentage unit to 28 per cent.

It needs to be emphazised that a bitter competition for the lowest tax level is not the Finnish way to ensure our competitives. Our startegy is based on other factors, especially on research and development but also other important qualities for companies to feel comfortable in doing their busines Finland.

I can not think of a way to succeed in the global economy without a strong research and development base. In Finland we have been building that base systematically for years. In 2002, our R&D investments totaled 4.8 billion euros, (four point eight billion euros) with over 3.4 billion euros coming from the private sector. This figure represents 3.5 % (three point five per cent) of the gross national product.

Dear Friends,

I have been speaking about recent successes and challenges, but I would like to remind you that in the early 1990s we were very far from the top of the world. At that time. Finland fell into a recession that was deeper than in any other western industrialized country since the Second World War.

The change of course in the Finnish economy from recession to recovery - "from rags to riches" - was made possible by curbing any further growth in public sector debt. Also, a strict inflation target was adopted in monetary policy. At the same time, substantial expansion in the share of the open sector was encouraged. We realized that our aim had to be an extremely open, global and forward-looking business environment.

Then, membership of the European Union in 1995 created new momentum - the change was far-reaching. Now, we were able to enjoy the benefits of the EU's internal market. Today, we have a very important advantage, as the only Nordic country to have adopted the euro. The euro provides substantial opportunities for companies operating within the EU, or in the northern part of Europe. We are confident that the euro has greatly enhanced business opportunities for Finnish companies - and also opportunities for foreign investors to come to Finland.

We have managed to produce a unique mixture of expertise by bringing together the scientific community, the business community and public and private financing. Knowledge and skills have become our most important resources. Today, a crucial factor for a company, or a country, is development, that is to say expansion and diversification of production in order to accelerate their integration into the global economy. The competitiveness of Finnish high-tech companies is based on their ability to combine and utilize technical innovations. There are numerous such companies in Finland, ranging from small two-people-in-a-room operations to mid-sized companies ready to conquer the world.

Traditional sectors too, such as wood, paper and machinery, have taken advantage of technological innovations. Today, as environmental protection, energy saving and sustainable use of natural resources could be make or break business factors, Finnish companies have invested in mastering these fields.

Recently in Finland, as well as here in the United States, the "China syndrome", and its effects, have been in the spotlight of public discussion. Transferring production to China is but one side of the coin. We must also remember that China is facing increasing competition for investments and production. Secondly, China is a huge market for companies to compete in and the standard of living and purchasing power of Chinese consumers are rising. Thirdly, Chinese business is looking for suitable investment opportunities abroad.

So, I regard China as a new, positive challenge to the Finnish business community. Nevertheless, the general conclusion about the "China Syndrome" is that we need to constantly develop new ways and means to keep existing investments in Finland and attract new ones at the same time. As a WTO member, China is also committed to the multilateral trading system. Our task is to make sure that the rules are followed, and applied uniformly and transparently.

Usually, discussions on competitiveness and economic performance revolve around the question, "Which one comes first?" The jury is still out, so I do not expect to hear any conclusive answers on that topic. But I hope we all can agree that an open and well-functioning society, with its infrastructure - all aspects of it - is a necessary precondition when pursuing sustainable economic development and high performance.

My point is that success has to be built by taking the overall picture into account. So I have listed a few of the key factors that work in our favor. They are:
-- stability and dynamism in the Finnish economy,
-- a high level of education in the labor force,
-- an advanced environment for science and technology,
-- a functioning labor market,
-- relative wage level
-- infrastructure that functions well and,
-- geographical location.
-- social security system
-- equality of sexes
-- equal access to higher education irrespectively of their economic status

So, the emergence of “ Finnish competitiveness” is explained by several parallel factors. There is no “master plan” behind it. More likely, it is a mixture of well considered policy measures and a sense of direction – “knowing what needs to be done in order to succeed”.

In conclusion, ladies and gentlemen, as I see it, Finnish competitiveness is a process of learning, doing, and analyzing.
-- learn how to do things better, and above all “how to get where you want to go”,
-- apply what you have learned, in order to get there,
-- and finally, analyze what needs to be done in future, in order to learn the right things, and how to put them into practice.


Thank You