Foreign Takeovers Brain Drain or Brain Gain Case of Finland Oslo, 29th January 2004

1
Foreign Takeovers - Brain Drain or Brain
Gain?Case of FinlandOslo, 29th January 2004
2
Content

• Broad overview on trend and current situation of
  inward FDI and foreign ownership in Finland
• Research focusing on impacts of FDI and foreign
  takeovers of nationally-owned companies
• First observations from research

3
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
Direct investments to and from Finland in 1993 -
2002 (per cent of GDP)
Source ETLA, Statistics Finland, Bank of Finland
5
Non-residents' holdings in companies listed in
HEX stock exchange (as a percentage of total
market capitalisation Jan 1994 - Aug 2003)
Source Arvopaperikeskus
6
(No Transcript)
7
The share of foreign-owned enterprises of Finnish
enterprises in 1994-2001,
Source Statistics Finland
8
Foreign-owned enterprises in Finland by the owner
country in the year 2001
Source Statistics Finland
9
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
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
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
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
Why where do companies do FDI in RD?

• Several strategies from Le Bas, C., Sierra, C.
  (2003) Research Policy
• Type 1 Technology seeking FDI in RD
• Type 2 Homebase exploiting FDI in RD
• Type 3 Homebase augmenting FDI in RD
• Type 4 Market seeking FDI in RD
• Type 5 Competitor eliminating FDI in RD -
  implicitly suggested by Lovio, R. (2003)

14
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 RD 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
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 gt
  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 gt 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.

16
(No Transcript)