Multinational%20Corporations%20in%20a%20Local%20Perspective%20

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Multinational Corporations in a Local
Perspective the Case of Varkaus in Finland

• Prof Raimo Lovio
• Helsinki School of Economics

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The message of the paper

• In favorable circumstances local business units
  may have surprising power vis-à-vis multinational
  companies
• Multinational companies lose a significant amount
  of knowledge base and innovation potential if
  they fail to use knowledge available in their
  local units
• think locally, act globally

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The proportion of foreign-owned enterprises of
Finnish enterprises The position of foreign-owned
enterprises has become stronger in Finland during
the 1994 to 2002 period. In 2002 the proportion
of turnover was 17.5 per cent.
                                                  
                                                  
                                                  
                          
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The effects of foreign acquisitions in Finland?

• Foreign ownership has primarily had a positive
  influence on the profitability and productivity
  of the acquired enterprises
• It has changed the management style of the
  acquired companies
• Some concern is related to the RD investments
  and growth perspectives of the acquired
  enterprises
• The effects of foreign acquisitions have been
  mainly studied on the corporate level, therefore
  focus in the paper is on the level of local
  business units

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Varkaus case in a nutshell

• Small industrial company-town with 23 000
  inhabitants in eastern Finland, first industrial
  units established in the 1850s
• Ahlström Ltd continued invest in its factories in
  Varkaus up until the 1980s a sawmill, pulp mill,
  four paper machines, three engineering units
  (steam boilers, pulping equipment, screen
  plates), process automation unit, etc. employees
  over 3 000
• Between 1985 2002 all units were sold to
  international companies

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Following the change in ownership, the links of
the business units in Varkaus with the global
economy were altered

• The historical emotional ties disappeared
• The companies turned from builders of the town
  into tenants
• From domestic family ownership to foreign stock
  markets
• The significance of the units in Varkaus in the
  business of the new owners is very small, when
  compared to Ahlströms times
• From owners of a diversified company to owners of
  companies with a clear focus

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New owner Country of origin Employees total Employees in Varkaus Business
Stora Enso Finland and Sweden 45 000 1 350 pulp paper
Hartmann Denmark 2 000 50 egg cartons
Foster Wheeler USA 10 000 550 energy technology
Andritz Austria 4 500 300 pulp technology
AFT Canada 1 000 150 screen plates
Honeywell USA 115 000 400 industrial automation
Tellabs (a new unit) USA 7 000 15 telecommunications
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New owner Business Development Strenghth Weakness
Stora Enso pulp paper no growth Large integrated unit Long distance, somewhat old systems
Hartmann egg cartons no growth in Finland competitive cost structure in other countries non-competitive c.s.
Foster Wheeler energy technology growth technology, engineering non-competitive cost sturucture in production
Andritz pulp technology no growth technology a minor advantage non-competitive cost sturucture in production
AFT screen plates growth technology and production competitive only in Europe
Honeywell industrial automation lots of ups and downs applications in paper, pulp and graphical ind credibility in a huge major company
Tellabs (a new unit) telecommunications new RD unit closed knowhow in embedded information systems only additional unit
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Honeywell unit in Varkaus

• Idea of the acquisition was to buy a competing
  product off the market and replace it with its
  own product (technology transfer from the center
  to periphery)
• Surprise customers were not interested the
  Finnish original product back to production,
  secret development work started in customer
  projects
• Competition three competing products in
  Honeywell, difficult situation
• Honeywell bought Measurex new possibilities to
  Varkaus unit because of Measurexs marketing
  channels and of a new unit in Kuopio, in Finland
• Honeywell was in financial difficulties it was
  first acquired by the American Allied Signal and
  after that merger negotiations started with GE
  due to the quest for profitability the unit in
  Kuopio was closed down and its product was sold
• New thinking in Honeywell when the merger with GE
  did not happen
• new customer-based structure, new role for
  Varkaus unit as a developer for platforms in its
  strong application industries
• the product of Kuopio unit was reacquired
• a new RD unit was relocated from USA to Finland
  to develop new sensor systems for different
  industrial applications in the paper industry but
  also in some others
• These developments are leading to technology
  transfer from periphery to the center

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Lessons

• Local units may have strong and surprising
  cumulative knowhow due to historical and other
  reasons and they may have tacit advantages in
  keeping this knowhow accurate
• Difference between generic (technology driven)
  RD and specific (customer driven) RD
• Credibility of local units in head offices,
  capital cities and mainstream studies is often
  low local units have to be active in
  showing their capabilities