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Foreign Takeovers in the Nordic Countries A project by NIFU STEP, ITPS, VTT, RANNIS and the Technical University of Denmark Financed by the Nordic Innovation.

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Presentation on theme: "Foreign Takeovers in the Nordic Countries A project by NIFU STEP, ITPS, VTT, RANNIS and the Technical University of Denmark Financed by the Nordic Innovation."— Presentation transcript:

1 Foreign Takeovers in the Nordic Countries A project by NIFU STEP, ITPS, VTT, RANNIS and the Technical University of Denmark Financed by the Nordic Innovation Centre Per M. Koch, NIFU STEP, Oslo

2 Organisation

3 A Nordic project The Nordic Innovation Centre Forum for Innovation Policy  Building a platform for exchange of knowledge and the development of Nordic projects that are to contribute to the improvement of innovation and industry policies FOTON was developed by the consortium behind the NICe project GoodNIP – Good Practices in Nordic Innovation Policies  www.nordicinnovation.net www.nordicinnovation.net  www.step.no/goodnip www.step.no/goodnip  www.step.no/foton www.step.no/foton

4 Researchers NIFU STEP Centre for Innovation Research, Norway Per M. Koch (Project Leader) Siri Aanstad (Assistant Project Leader) Sverre Johan Herstad, University of Oslo Amir Pirich Johan Hauknes Nils Solum Svein Olav Nås Institutet för tillväxtpolitiska studier (ITPS), Sweden: Anne-Christine Strandell Magnus Frostenson Tommy Borglund Katarina Arbin Hans de Geer Hans Lööf, Kungliga Tekniska Högskolan VTT Technical Research Centre of Finland Juha Oksanen (Team Leader) Bernd Ebersberger Nina Rilla Danmarks Tekniske Universitet, Denmark, Department of Manufacturing, Engineering and Management (IPL) Jørgen Lindgaard Pedersen (Team Leader) Martin Tølle RANNIS Iceland Thorvald Finnbjörnsson (Team Leader) Elva Brá Aðalsteinsdóttir

5 Reference Group Mark Riis, the Ministry of Science, Technology and Innovation, Denmark Isam Salih, the Ministry of Industry, Employment and Communications, Sweden Gabriel Benito, BI Norwegian School of Management, Norway Pentti Vuorinen, the Ministry of Trade and Industry, Finland

6 Organisation The study consisted of three interrelated sub-studies organised as modules All partners fed national studies into each module This allowed for a comparative perspective Module 1 Mapping of foreign ownership in the Nordic countries Module 2 Case studies of the impact of foreign take-overs on local innovation capabilities Module 3 Study of policy responses

7 Background and objective

8 To study the impact of foreign take-overs on local innovation capabilities in the Nordic countries To study how this issue is approached by policy makers and give examples of good policy practices in this area Objective

9 Background All Nordic governments see industrial innovation as a key to future wealth creation and welfare In a globalizing economy, this view makes the question of how foreign takeovers of Nordic firms affect local innovation capabilities highly relevant The focus has been on local R&D and innovation investments and activities, not employment or investments in general

10 Hypotheses Negative hypotheses:  Multinational corporations tend to concentrate strategic activities in their home country and tend to relocate R&D and knowledge intensive activities  Transfer pricing will weaken innovation activities  Takeovers weaken the link between the local branch and the surrounding innovation system due to secrecy Positive hypotheses:  MNCs are adopting decentralized R&D strategies  They buy Nordic companies to gain access to local human capital and the surrounding innovation system  The assets of the MCN is made available for the domestic firm, which may boost regional innovation capabilities as well There may be cultural traits characterizing different MNCs, along the lines of industry and nationality  Anglo-Saxon vs. European companies

11 Research question Are there any major differences between nationally owned companies and local firms taken over by foreign multinationals as regards  innovative capabilities,  research and development,  and interaction with other firms and institutions in the local innovation system?

12 Some facts

13 Foreign ownership is increasing Number of employees in foreign controlled enterprises and share of business sector in Sweden 1981-2001.

14 Norway and Finland Number of employees in foreign controlled enterprises and share of business/manufacturing sector in Finland and Norway

15 Nordic companies own Nordic companies Number of employees in foreign controlled enterprises in Finland by country of origin 2002 and 2001.

16 The FOTON findings

17 Community Innovation Survey data CIS is based on questionnaires sent to companies, and includes data on ownership, R&D and innovation activities We have used this data to see whether there is a correlation between foreign ownership, R&D investments and innovation activities Foreign ownership as a proxy for takeovers

18 The raw data Companies taken over by foreigners are distinguished by having  a larger proportion of innovative firms  a higher R&D intensity  a higher level of innovation sales per employee  a larger proportion of firms applying for patents  a larger proportion of firms possessing patents  a larger proportion of firms conducting R&D on a regular basis  a higher export intensity  a stronger focus on global markets  more human capital in terms of well educated people as a share of total employment  a higher level of labour productivity  a stronger dependence on sources of knowledge for innovation from other enterprises within the group But then again, these are the kind of companies foreigners are most likely to buy!

19 Corrected data The study takes into account that differences in firm performance can be explained by factors such as:  Firm size  Business sector  Human capital  Physical capital  Market orientation  and more

20 Firm categories Domestic uninational firms (DU) Domestic companies that are not part of a multinational group Domestic multinational firms (DM) Domestic companies being part of a domestically owned multinational group Nordic multinationals (NM) Danish, Finnish, Icelandic, Norwegian and Swedish owned companies (with the exception of local companies when analysing individual countries) Anglo-Saxon multinationals (ASM) UK-owned, US-owned, Irish, Canadian and South African corporate groups European and other multinationals (EOM) Rest-category dominated by European countries

21 CIS findings There are no truly significant differences between domestic companies and foreign multinationals as regards innovation activities. However, domestic multinationals outperform foreign owned firms in terms of R&D investments in Finland and Sweden. In Norway domestic multinationals and Anglo-Saxon multinationals have significantly higher R&D intensity than other firms. It seems that domestic multinationals are the main beneficiaries of public R&D support. The domestic multinationals are also more closely embedded in the national innovation system compared to foreign multinationals, meaning that they are more likely to interact with other firms and institutions.

22 Output indicators There are no robust findings as regards the superiority of domestic multinationals (or foreign owned companies) as regards performance  patents  radical innovations  return on investments  labour productivity

23 Reasons for takeovers, innovation the need for complementary products and a broadening of the product line the need for competent owners/affiliates the wish to reach a critical mass (in order to invest in innovation, develop markets etc., i.e. economies of scale) the need for access to competence and innovation networks and clusters the need to monitor new technological development the ability to generate entirely new technologies and products the wish to acquire strong brands the need for financially strong owners/affiliates

24 Other reasons for takeovers access to global or local markets and distribution channels access to a favourable regulatory environments (including tax systems) the wish to increase shareholder value the wish to eliminate a competitor obtaining legitimacy for the organisation using the takeover as a tool for introducing structural change in the organisation to get returns on investments (by selling stock)

25 Case studies Two case studies in each country, one in the pharmaceutical industry and one in the software/ICT industry Examine whether and how foreign take-overs have had an impact on innovation activities (including R&D, learning processes and cooperation with other institutions and companies, locally and internationally). Using a systemic approach to innovation

26 National case studies Iceland  deCode Genetics (US greenfield company)  Tölvuþekking/Computer Knowledge (Medical software company owned by Eastman Kodak) Finland  Santen Finland Oy (Japanese acquisition of Oy Star AB, part of Huhtamäki conglomerate. Manufactures ophtalmic drugs)  Iobox (Terra Mobile S.A. of Teléfonica Group, Spain) Denmark  Nycomed (Norwegian takeover of the DAK Laboratory)  Datacentralen (ICT company taken over by CSC) Sweden  Astra (taken over by British Zeneca)  Internet AB (anonymous firm taken over by German company) Norway  Axis-Shield POC (the Diagnostic Division of Nycomed Pharma)  Kelkoo (French comparison shopping, includes Norwegian Zoom It)

27 Case study findings Acquired firms were looking for a buyer:  to get financial resources (Nycomed/Axis Shield)  to get access to world markets (Astra/Zeneca)  competition policy (Datacentralen)  ethics (DAK and the Danish Pharmaceutical Association) The multinationals were looking for:  growth  new markets (CSC, Santen)  new products, platforms or production line complementary to their own  technology and competences

28 Consequences of takeovers (case studies) All pharmaceuticals have achieved a more central position in the market The units have access to more resources and the number of employees have in some instances increased Two companies have been closed down (Finish and Swedish ICT companies) An increasing demand for reporting on business performance, and an upgrading of local business and innovation practices. But, remember the time perspective Too small sample to draw any general conclusions

29 FOTON policy assessment

30 Political leeway As there are no clear distinctions between foreign owned companies and domestic companies as regards innovative capabilities in general, it is unreasonable to develop a policy that discriminate against foreign investors per se. It would be impossible to discriminate against Anglo-Saxon, European or Japanese companies, based on their innovation practices. National ownership of vital natural resources may be an issue, but it is hard to argue for this on the basis of innovation policy. Participation in the European market and WTO agreements puts strict limits on the political room for manoeuvre.

31 One tool left State ownership may be used to protect national ownership. But the idea of using state ownership as an active tool in a liberalised global economy does not fit well with the Nordic membership in the EEA. That does not mean that state companies cannot be used to strengthen the national innovation system.

32 Foreign takeovers are not bad for you Foreign takeovers are, in general, not bad for the company or the national economy However, such takeovers may be beneficial due to the small size of the Nordic markets:  Our respondents report a need for capital, and foreign takeovers may provide such capital  Takeovers may also open up new markets  Our respondents also report a need for competences and access to laboratories, complementary skills, networks of collaboration etc. This justifies a FDI friendly policy Moreover, foreign owned companies are less involved in the national innovation systems, which indicates a need for policies that involves such companies more actively.

33 The attractiveness of the Nordic markets If attracting FDI is to be a policy goal, one must ascertain to what extent foreigners find the Nordic countries to be suitable for investment The pattern of globalisation is the same in the Nordic countries in the EU and the US. The FOTON researchers have made a general, “non-scientific”, assessment regarding framework conditions for foreign investment. Conclusion: The Nordic countries ought to be attractive.

34 Key Policy Parameters, Relevance & Impact (R&I)

35 UNCTAD Foreign Direct Investment Indicator Composite indicator based on factors such as GDP per capita, GDP growth, ICT infrastructure, commercial energy usage, R&D spending, tertiary education, risk factors, imports and exports, and the share of world FDI inward stock. WARNING: The indicator should be treated with the outmost care, as there are methodological weaknesses!

36 The value of Inward Mergers and Acquisitions in per cent of GDP, 1996-2002. Norway, Denmark and Finland should be able to attract more foreign investments.

37 Policy recommendations

38 Given that framework conditions are favourable, we argue that the best options for attracting foreign investments would be to market these countries as innovation friendly and knowledge intensive countries.

39 Policy proposals The local “Invest in” organisations should be strengthened (and Norway should establish one). FOTON proposes the establishment of a new Nordic innovation and investment portal, containing information on:  local culture  economic and regulatory framework conditions  knowledge institutions and educational systems;  access to finance  public infrastructure and innovation policy measures  industries looking for partners  essential statistics  relevant public institutions, including the “Invest in” institutions  public and private consultants Measures aimed at strengthening the public understanding of foreign investment

40 Integration of foreign owned companies Foreign owned companies are not as closely embedded in the national innovation systems as the domestic multinationals. Participation of such companies in national R&D programmes will strengthen the diffusion of competences from them to national companies and institutions. Research councils and agencies should actively involve foreign owned companies. However, there should be no special programmes for foreign owned companies.

41 The FOTON reports 1.Summary and Policy Recommendations 2.Impacts of Foreign Takeovers in the Nordic Countries – what do Company Case Studies Tell Us? 3.Corporate Innovation Activities – Does Ownership Matter? (including CIS study) Free download: www.step.no/foton Photos © Photos.com


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