1. VTT TEKNOLOGIAN TUTKIMUS Foreign Takeovers - Brain Drain or Brain Gain? Case of Finland Oslo, 29th January 2004

2. VTT TEKNOLOGIAN TUTKIMUS Content 1)Broad overview on trend and current situation of inward FDI and foreign ownership in Finland 2)Research focusing on impacts of FDI and foreign takeovers of nationally-owned companies 3)First observations from research

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

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

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

8. VTT TEKNOLOGIAN TUTKIMUS Foreign-owned enterprises in Finland by the owner country in the year 2001 AmountPersonnel Turnover Value added million € Sweden63954 40511 0462 566 USA29020 6967 4261 793 Denmark16915 7132 505661 Netherlands15515 6604 3031 112 Switzerland8615 2433 7581 052 Norway9911 5883 423644 Great Britain16411 1242 231752 Germany1719 8432 967762 France686 6841 298376 Japan383 9151 836326 … Total2 030176 09944 98310 757 Source: Statistics Finland

9. VTT TEKNOLOGIAN TUTKIMUS 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. VTT TEKNOLOGIAN TUTKIMUS 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. VTT TEKNOLOGIAN TUTKIMUS 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. VTT TEKNOLOGIAN TUTKIMUS …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. VTT TEKNOLOGIAN TUTKIMUS 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. VTT TEKNOLOGIAN TUTKIMUS 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. VTT TEKNOLOGIAN TUTKIMUS 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.

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