Technology Industry / Finnish Economic Situation and Outlook August 2014

The Technology Industry Is Comprised of Five Sub-sectors Electronics and Electrotechnical Industry ABB, Ensto, Microsoft Mobile, Murata Electronics, Nokia, Planmeca, Polar Electro, Suunto, Vacon, Vaisala… Metals Industry Boliden, Componenta, Kuusakoski, Luvata, Norilsk Nickel, Outokumpu, Outotec, Ovako, Rautaruukki, Sacotec… Mechanical Engineering Abloy, Cargotec, Fiskars, Glaston, Kone, Konecranes, Metso, Normet, Oras, Patria, Pemamek, Ponsse, Prima Power, Stala, STX Finland, Valtra, Wärtsilä... Information Technology Affecto Finland, Basware, CGI, Codebakers, Codenomicon, Comptel, Digia, Efecte, Enfo, F-Secure, Fujitsu Finland, IBM, Knowit, Microsoft, Nixu, Tieto… Consulting Engineering A-insinöörit, Citec, Elomatic, Etteplan, FCG, Finnmap, Granlund, Neste Jacobs, Pöyry, Ramboll, Sito, SWECO, Vahanen, WSP… 25.12.2018 2

The Technology Industry in Finland 25.12.2018 The Technology Industry in Finland Electronics and Electrotechnical Industry Data communications equipment, electrical machinery, medical technology products Turnover (2013): 15.8 billion euros Personnel (2013): 43 200 Metals Industry Steel products, non-ferrous metals, castings Turnover (2013): 8.8 billion euros Personnel (2013): 15 800 Mechanical Engineering Machinery, metal products, vehicles Turnover (2013): 27.2 billion euros Personnel (2013): 125 500 Information Technology IT services, applications and programming Turnover (2013): 8.3 billion euros Personnel (2013): 54 500 Consulting Engineering Expertise for construction industry and infrastructure Turnover (2013): 5.0 billion euros Personnel (2013): 46 300 25.12.2018 3

The Technology Industry – the Most Important Sector in Finland 50 % of total Finnish exports. 75 % of private-sector R&D investment. Some 280,000 employed directly in the sector, 700,000 employed in total, equalling about 30% of the entire Finnish labour force. The Federation of Finnish Technology Industries has over 1,600 member companies. 25.12.2018

Turnover of the Technology Industry in Finland Billion euros, at current prices Source: Statistics Finland 25.12.2018

Export of Technology Industry Goods from Finland by Area in 2013 Total goods exports 24.8 billion euros* Central and Eastern Europe 4.9 billion € 19.6 % Western Europe 11.4 billion € 46.1 % North America 2.2 billion € 8.8 % Middle and Central East 0.7 billion € 2.8 % Asia 4.1 billion € 16.5 % Africa 0.5 billion € 2.1 % South and Middle America 1.0 billion € 4.1 % *) In addition to goods exports the sector exports services worth about 11 billion euros. Source: National Board of Customs, Statistics Finland 25.12.2018

Turnover of the Technology Industry in Finland Change: 1-4,2014 / 1-4,2013, % -1 % 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Seasonally adjusted turnover index, latest information 4/2014. Source: Statistics Finland 25.12.2018

Turnover of the Technology Industry in Finland Change: 1-4,2014 / 1-4,2013, % +13 % 0 % -1 % -7 % -6 % 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Seasonally adjusted turnover index, latest information 4/2014. Share of total turnover in 2012: mechanical engineering 41 %, electronics and electrotechnical industry 26 %, metals industry 14 %, information technology 11 %, consulting engineering 8 % Source: Statistics Finland 25.12.2018

Value of New Orders in the Technology Industry* in Finland Million euros, at current prices 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Change: II,2014 / II,2013 II,2014 / I,2014 Export: -1 % +1 % Domestic: +3 % -9 % Combined: 0 % *) Excluding metals industry and game industry companies. Source: The Federation of Finnish Technology Industries’ order book survey’s respondent companies, latest information April-June 2014 25.12.2018

Million euros, at current prices Value of Order Books in the Technology Industry* in Finland Million euros, at current prices Combined 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Change: 30.6.2014 / 30.6.2013 30.6.2014 / 31.3.2014 Export: -10 % -4 % Domestic: +2 % 0 % Combined: -7 % -3 % *) Excluding metals industry and game industry companies. Source: The Federation of Finnish Technology Industries’ order book survey’s respondent companies, latest information 30.6.2014 25.12.2018

Tender Requests* Received by Technology Industry Companies in Finland 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 “Have you experienced a notable increase or decrease in the number of requests for tenders in recent weeks in comparison to the situation three months ago?”. Balance figure = the number of companies receiving more requests - the number of companies receiving less requests. Source: The Federation of Finnish Technology Industries’ order book survey, latest information: July 2014. 25.12.2018

Value of New Orders in the Electronics and Electrotechnical Industry in Finland Million euros, at current prices 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Muutos / Change: II,2014 / II,2013 II,2014 / I,2014 Vientiin / Export: -23 % -10 % Kotimaahan / Domestic: +7 % +3 % Yhteensä / Combined: -19 % -8 % Lähde/Source: Teknologiateollisuus ry:n tilauskantatiedustelun vastaajayritykset, viimeisin tieto huhti-kesäkuu 2014 / The Federation of Finnish Technology Industries’ order book survey’s respondent companies, latest information April-June 2014 25.12.2018

Value of Order Books in the Electronics and Electrotechnical Industry in Finland Million euros, at current prices Combined 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Change: 30.6.2014 / 30.6.2013 30.6.2014 / 31.3.2014 Export: -23 % -9 % Domestic: +8 % Combined: -20 % -7 % Source: The Federation of Finnish Technology Industries’ order book survey’s respondent companies, latest information 30.6.2014 25.12.2018

Value of New Orders in the Mechanical Engineering in Finland Million euros, at current prices 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Change: II,2014 / II,2013 II,2014 / I,2014 Export: +29 % +14 % Domestic: +16 % -3 % Combined: +26 % +10 % Source: The Federation of Finnish Technology Industries’ order book survey’s respondent companies, latest information April-June 2014 25.12.2018

Million euros, at current prices Value of Order Books in the Mechanical Engineering in Finland Million euros, at current prices Combined 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Change: 30.6.2014 / 30.6.2013 30.6.2014 / 31.3.2014 Export: -3 % -2 % Domestic: -1 % Combined: Source: The Federation of Finnish Technology Industries’ order book survey’s respondent companies, latest information 30.6.2014 25.12.2018

Value of New Orders in the Consulting Engineering in Finland Million euros, at current prices 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Change: II,2014 / II,2013 II,2014 / I,2014 Export: -12 % -10 % Domestic: +20 % -4 % Combined: +16 % -5 % Source: The Federation of Finnish Technology Industries’ order book survey’s respondent companies, latest information April-June 2014 25.12.2018

Million euros, at current prices Value of Order Books in the Consulting Engineering in Finland Million euros, at current prices Combined 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Change: 30.6.2014 / 30.6.2013 30.6.2014 / 31.3.2014 Export: -3 % +5 % Domestic: +14 % +6 % Combined: +11 % Source: The Federation of Finnish Technology Industries’ order book survey’s respondent companies, latest information 30.6.2014 25.12.2018

Value of New Orders in the Information Technology in Finland Million euros, at current prices 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Change: II,2014 / II,2013 II,2014 / I,2014 Combined: -15 % -25 % *) Excl. game industry companies. Source: The Federation of Finnish Technology Industries’ order book survey’s respondent companies, latest information April-June 2014 25.12.2018

Value of Order Books in the Information Technology in Finland Million euros, at current prices 2007 2008 2009 2010 2011 2012 2013 2014 Change: 30.6.2014 / 30.6.2013 30.6.2014 / 31.3.2014 Combined: 0 % -1 % *) Excl. game industry companies. Source: The Federation of Finnish Technology Industries’ order book survey’s respondent companies, latest information 30.6.2014 25.12.2018

Change in Value of Order Books in the Technology Industry in Finland Compared with a Year Earlier Change by companies: 30.6.2014 / 30.6.2013, % Median: 0 % Average: -7 % Companies in random order Source: The Federation of Finnish Technology Industries’ order book survey’s respondent companies, latest information 30.6.2014 25.12.2018

Personnel in the Technology Industry Some 13 000 of employees affected by temporary or part-time lay-offs 30.6.2014 Source: Statistics Finland, The Federation of Finnish Technology Industries’ labour force survey 25.12.2018

Technology Industry Personnel in Finland Source: Statistics Finland, The Federation of Finnish Technology Industries’ labour force survey 25.12.2018

Technology Industry Personnel in Subsidiaries Abroad Source: The Federation of Finnish Technology Industries’ labour force survey 25.12.2018

Retirement of Technology Industry Personnel Individuals per year Salaried employees Blue collar employees Source: Wage inquiry of the Federation of Finnish Technology Industries, Finnish Centre for Pensions, Statistics Finland 25.12.2018

Retirement of Technology Industry Blue Collar Employees Individuals per year Source: Wage inquiry of the Federation of Finnish Technology Industries, Finnish Centre for Pensions, Statistics Finland 25.12.2018

Situational overview and outlook 25.12.2018 Situational overview and outlook - Finland is in the grip of structural change. Development remains uneven between companies. - Turnover in Finland in 2013 was some EUR 65 billion. Between January and April of this year, turnover was slightly lower than twelve months earlier. Turnover in the pre-crisis year 2008 was EUR 86 billion. - The monetary value of new orders in April-June 2014 was remained unchanged from the corresponding period in 2013, but slightly lower than in the precending quarter. - At the end of June, the value of order books was 7 % lower year-on- year, and 3 % below the value reported at the end of March. - The turnover of technology industry companies in the autumn of 2014 is expected to be roughly equal in comparison with the corresponding period last year. - Since 2008, personnel numbers in Finland have shrunk by 48,000 employees, totalling 278,000 at the end of June 2014. 25.12.2018

Situation in Russia and Ukraine hindering Europe’s revival 25.12.2018

Industrial Production Volume 25.12.2018

Industrial Production Volume in EU Countries 25.12.2018

Euro Countries Are Developing Unevenly Manufacturing and Services Sector Purchasing Managers’ Index Purchasing Magers’ Index 50 = ei muutosta edelliskuukaudesta / 50 = no change on previous month Latest information July 2014. Source: Markit 25.12.2018

World Economic Growth in 2014e GDP growth in 2014, % China Rest of Latin America India Rest of Eastern Europe Middle East, Africa Average growth: +3,4 % Rest of Asia Mexico North America Russia Brazil Western Europe Japan The width of the bar indicates the share (purchasing power parity adjusted) of world GDP in 2013, % Source: IMF (July 2014) 25.12.2018

World Economic Growth in 2014e with the Export Shares GDP growth in 2014, % China Rest of Latin America India Middle East, Africa Rest of Asia Rest of Eastern Europe Mexico Brazil Average growth: +2,3 % North America Russia Western Europe Japan The width of the bar indicates the export share of technology industry from Finland in 2013, % Source: IMF (July 2014), Board of Customs 25.12.2018

Breakdown of World Industrial Production % Purchasing power parity adjusted shares. Source: Maddison (Historical Statistics), IMF and ETLA 25.12.2018

Industrial Production Development by Year 2005=100 Source: Consensus Economics 25.12.2018

The Big Challenge for Finland after 2008 25.12.2018

Finnish Exports up to EUR 20 – 30 Billion Short of Annual Target Level Export of goods and services by quarter, billion euros, at current prices 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Working day and seasonally adjusted index. Latest information January-March 2014. Source: Statistics Finland / National Accounts 25.12.2018

Finnish Exports lagging Behind Competitors 25.12.2018

The Share of Industry in GDP in Finland 1900-2013 Source: Statistics Finland 25.12.2018

Finland’s Industrial Production and Exports Will not Regain the Level of 2008 with the Present Production Capacity Finland’s production capasity has decreased by 20 % -21% 2008 2009 2010 2011 2012 2013 2014 Working hours and seasonally adjusted time series. Source: Statistics Finland / National Accounts, Industrial volume index 25.12.2018

Growth of Public Debt and Tax Rate Out of Control Increased cost burden requires cuts to public sector 25.12.2018

Industrial Investments Alarmingly Low Industrial fixed and R&D Investments in Finland Million euros, at current prices Source: Statistics Finland, Confederation of Finnish Industries’ Investment Survey (June 2014) 25.12.2018

Finland not Attracting Companies’ Investment Companies’ Fixed Investments in Different Countries Index, 2005=100 Source: OECD, Economic Outlook, May 2014 25.12.2018

Unit Labour Costs at the National Economy Level (Including the Effective Exchange Rates) 2005,I =100 Finland’s cost competitiveness declines Finland’s cost competitiveness improves 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *) In the ECB Harmonised Competitiveness Index, the average effective exchange rate of each country is calculated vis-à-vis 20 to 30 main trade partners, as well as the development of unit labour costs for the total economy Latest information I/2014. Source: European Central Bank 25.12.2018

What should be done? Support the renewal of the industry Taxes should support growth and investment in Finland Support decision making in companies related to compensation and working time No new European nor national burdens on companies, which are deteriorating the competitiveness 25.12.2018

Long-Term Outlook and Challenges Global Structural Change Set to Continue Apace Industrial production and services will relocate to rapidly developing economic areas Strong growth, large markets, cheap labour and increasing expertise will increase the attractiveness of these regions. Competition over Skills and Raw Materials Set to Increase Due to an increase in retirement, the sector’s annual recruitment need in Finland will rise considerably in the coming years. The availability of reasonably-priced energy also threatens to become an investment bottleneck in Finland Combating Climate Change A challenge as costs are set to grow faster than in competitor countries An opportunity for new environmental and energy technologies 25.12.2018