Consider Finland: Gateway to Northern Europe

Consider Finland: Gateway to Northern Europe

by Hannu J. Schadewitz

and

Dallas R. Blevins

Hannu R. Schadewitz hannu.schadewitz@uta.fi is an Assistant Professor at the University of Tampere (Finland). Dallas R. Blevins blevins@um.montevallo.edu is a Professor of Finance at the University of Montevallo.

NOTE: This article about the feasibility of serving markets in Northwestern Europe from Finland incorporates information located at other sites on the Web. This material: pictures, graphs and other supporting material, is made available to you via links to other Uniform Resource Locators (URLs). Click on URLs in blue to access this information. When you are ready to return to this article, click on the "BACK" button on your menu bar. We regret that eventually some of these URLs may no longer exist, but we do not believe for an article that contains a substantial amount of dated material that this justifies not directing you to these sources of substantial relevant information. Now and in the future the following URL is likely to provide you useful information about Finland:

This article provides information about Finland and its potential benefits as a distribution center or as a manufacturing satellite for a foreign-based firm seeking entry or expansion into the massive Northern European markets. Northern Europe may be defined to include: (1) four Nordic countries, with a population of 23 million, (2) three Baltic countries (Estonia, Latvia, and Lithuania), with a population of eight million and (3) the Northwestern parts of the newly formed states of Belarus and Russia, with a population of 44 million. These three groups of countries are vastly different from one another. To view a graphic of this vast and diverse trading area, click the http citation below. The Northern European states are depicted in the context of a trading area greater than the whole of Europe. You can follow the prompts to see more about any of the Northern European states, listed above. When you are finished with the graphic click your BACK button to return to this page.

Many foreign-based firms are interested in entering this large market, but they are encountering obstacles. One solution, already in use by a large and increasing number of firms, is to base operations in Finland. Among these are such diverse U.S. firms as: (1) Kodak, (2) IBM, (3) McDonalds, (4) Pepsi Co., (5) Procter & Gamble and (6) Wilson. Japanese firms, such as Fujitsu, and German firms, such as Siemens, illustrate the diversity of foreign-owned businesses operating in Finland.

The four Nordic countries are all modern, highly industrialized nations. The population of this region is about 23 million. Any of the Nordic countries can easily serve as a base of operations for western style firms. In addition, any of these Scandinavian states provides a competitive import/export market, involving its own indigenous population. For a graphic of the Scandinavian states, click the http citation, then click Denmark, Norway or Sweden. You can freely move about this http selection by clicking the prompts. To move from one country to another, click the back button on the standard button bar, then select the country you want to see. When you are finished with the graphic click the BACK button to return to this page.

The three Baltic countries, with a combined population of about eight million, recently emerged from many years of control by the former Soviet Union (USSR). These countries are making rapid progress toward a higher standard of living. They represent an excellent export market for foreign equipment, technology and know-how. Finland is particularly well suited as an intermediate staging area. Finnish deepwater ports offer excellent storage and loading facilities. Some of these are but 90 miles from Baltic Sea ports. For a graphic of the Baltic states, click the http citation, then click Estonia, Latvia or Lithuania. You can freely move about this http selection by clicking the prompts. To move from one country to another, click your back button on the standard button bar, then select the country you want to see. When you are finished with the graphic click your BACK button to return to this page.

Belarus and Russia are also countries resulting from the breakup of the Soviet Union. The portions of these countries to which firms in Finland have rapid access contain around 44 million people. For a graphic of Belarus and Russia, click the http citation, then click Belarus or Russia. You can freely move about this http selection by clicking the prompts. To move from one country to another, click the back button on the standard button bar, then select the country you want to see. When you are finished with the graphic click your BACK button to return to this page. We regret the fact that eventually some of these links may no longer exist, but in the case of an article containing dated material, this does not seem to be an adequate reason for not mentioning URLs containing a great deal of relevant material.

These two countries are in great need of everything, beginning with basic necessities. However, the barriers to a successful entry are often formidable. [Sherry & Vinning, 1995] The countries of the former USSR are at risk for economic and even for social and political upheaval. In spite of the risks, the magnitude of the market makes an investigation of alternative ways to enter very inviting. For more information about Finland's relation to the Northern European market, click the URl below. Then click "The New Northern Europe" offering along the side.

Many foreign firms have already found that Finland offers a free-market-style base from which to serve these markets. Finnish business people have long experience coping with the problems encountered in dealing with both Russia and the Baltic states. Their long experience in dealing with these countries frees Finnish-based firms from the suspicion that often hampers new contacts from the West. Mr. Pekka Pättiniemi, Managing Director of Haka-Auto Oy, a Toyota subsidiary, says that his company located in Finland in 1993 because it was specifically interested in developing business in Russia and the Baltic states from the ‘safe haven’ of Helsinki, where it holds stocks destined to be sold in these countries. He says that his firm has been able to recruit Western-oriented Finnish management experienced in dealing with East European markets. [Finland--the Investor's Opportunity, 1995, p. 7]

Finland offers easy access to all of the Eastern region of Northwestern European described above. This region has a population of 70 million. Belarus, whose population is less than four million, is the only country in this region that access to it from Finland requires the crossing of as many as two borders. All the other countries have contiguous access from Finland. This means that any foreign firm wishing to enter the Northern European market might be well advised to use Finland as its base of operations. Many firms based in the United States find this to be true. As a result, the U. S. is Finland’s largest non-European trading partner. For more information about firms that have taken advantage of Finland's excellent access to Northern European markets, click the URL below; then click "Case Histories" from the menu on the side. When you are finished, click your BACK button to return to this page.

In spite of the fact that Finland has outstanding access to the whole of this Eastern region of Northwestern Europe, the major emphasis of this paper is on accessing the Russian market. There are three major reasons why entry into the Russian market is the focus of this article. One: the difficulties associated with entry into Russia is relatively greater than are the difficulties associated with entry into the other Northern European countries. There, once the barriers to trading with Russia are overcome, the barriers to entry into the other countries will be comparatively easy to deal with. Two: the Russian market is much larger in size than is that of any other Northern European country. So, the economic incentive is greater there than elsewhere. Three: the Russia's need for interaction with Western free markets is exceeded only by that of the much smaller state of Belarus. Both the well being of the world as a whole and individual firms in the West have much more to gain by trade with Russia that with any of the other of these Northwestern European countries. Finland is an outstanding geo-political anchor for such a strategy. For more information about the benefit/sacrifice trade-off associated with Russian trade, click the Hubbard and Hubbard article in the B>Quest archives. When you are finished with the article click your BACK button to return to this page.

This section provides some general information to introduce you to Finland. Geographically, it is the fifth largest country in Europe. Yet, Finland has a sparse population of just over five million. It shares an 800-mile, generally North/South, border with Russia. For a graphic of this border, click the URL below.

These contiguous nations have interacted for many years. Finland was under the control of Czarist Russia from 1809 to 1917. Over most of this period, Finland was granted almost total autonomy as a Grand Duchy of Russia. During that time, the capital city was moved from Turku, which has ties to Sweden, to Helsinki, which is much closer to St. Petersburg. Large-scale construction of canals and railroads began in the mid-1800’s. These are now state-of-the-art transportation systems. Private enterprise began to flourish during the 1860’s. [Klinge, 1992] With the fall of the Czarist regime, legal independence was achieved in 1917.

During the first years of independence in the 1920’s and 1930’s, Finland’s relationship with the USSR was unstable. The tiny country valiantly protected its independence in World War II, being forced to do battle first with the Soviet Union and then with Germany. [Slany, 1993]

Finland and the USSR gradually regained a friendly commercial relationship after the war, with the USSR finally recognizing Finland as a "neutral Nordic country." The Treaty of Friendship, Cooperation and Mutual Assistance was signed by the two countries in 1948. This treaty provided the foundation for what has come to be known as the "Paasikivi Lines " in honor of Finnish President Paasikivi. During this period, the Soviet Union accounted for about 25 percent of total Finnish exports. [Facts about Finland, 1993, 57-58] For a formal outline of Finnish history, click the URL below; then click the "Case Histories" on the menu on the side.

Since the dissolution of the USSR, Finland and the new state of Russia have continued to develop their commercial and cultural ties. One example of the cooperation between the two nations is the help Finland has provided to Russia as it attempts to modernize its mining and metal industries. [Facts about Finland, 1993, 58] This need is not based on any lack of Russian ability; rather it rests on the many years in which USSR's technical and production activities were focused on national defense as opposed to capital and consumer goods. The new state of Russia is now in the process of converting to a classical consumer oriented economy.

The fact that the tiny country of Finland is able to help its gigantic neighbor illustrates the advantage of using Finland as a base. The Finnish side of that political boundary offers an efficient, modern infrastructure not yet available on the Eastern side of the border. The result of this is easy inter-border transportation and communication between Finland and Russia.

From Helsinki, goods can be delivered to St. Petersburg, with its population of 7.5 million, within 12 hours and to Moscow, with its population of 18 million, within 24 hours. The road and railways on the Finnish side are in excellent condition. For more about the Finnish transportation system, click the URL below.

The railroad track gage is the same on both sides of the border, so goods can remain in one car for the entire trip. Other Finnish cities and towns as well as Helsinki can be used. TNT Express Worldwide, for example, uses three other Finnish towns in the southern part of Finland, in addition to Helsinki, for easy access to the Russian market. [Finland--the Investor's Opportunity 1995, 8]

With respect to communications, Finland’s telephone density ranks fifth in the world, and its mobile phone density ranks number three in the world. [Telecommunications, 1995] For a more broad discussion of the Finnish communication system, click the URL below. Go to the menu on the left of the screen and select "Economy and Industry" and then "Finland--A Communication Superpower."

In January 1997, the New York Times hailed Finland as: "the most wired nation in the world." [Berg, 1998] Due to economies of scale Finland’s trunk and international toll charge rates are among the lowest in the world. Such high quality and low cost combine to allow Telecom Finland to head the joint Nordic/Russian mobile network consortium, which ties the whole of Scandinavia to Russia. [Telecommunications, 1995] Many firms can benefit from this excellent communications network. Mr. Veikko Kettula, Managing Director of Wilson Finland Oy says that:

There are several additional inducements for firms chartered in other nations to have a presence in Finland. Four are mentioned here.

One: the Finnish literacy rate of over 99 percent makes Finland an attractive source of highly skilled employees. [Expatriate Issues, 1995] Two: Finland has an excellent secondary and post-secondary school system. For more about the Finnish education system, click the URL below. Go to the menu on the left side of the screen and select "Education and Research." Then go to "Education in Finland." This will present you with four options: (1) "Comprehensive Schools," (2) "Upper Secondary Education," (3) "Higher Education" and (4) "Adult Education."

Finnish school children learn in senior high school many things that an American will be exposed to in a junior college and some things that will be provided only in an American undergraduate university program. Some have argued that Finland is the most computer literate country in the world. It ranks number one in the proportion of technical and natural science degrees held among all OECD countries. [Finnish Labour Market, 1995] One result of the combination of high literacy generally and a high proportion of advanced technical degrees is the fact that Finland’s ratio of unit labor cost to manufacturing productivity is the lowest of all OECD countries. In spite of this, Finnish unemployment is around ten percent. This means that a relatively large number of extremely well qualified potential employees await the expansion of foreign firms into Finland. [Finland’s Labor Force, 1998] For employment and related statistics, click the URL below.

Foreign citizens working in Finland may have dependent children who require access to secondary or higher education. Such dependents will receive excellent training in the Finnish school system. In the Helsinki area alone there are five schools that teach in major European languages. [Issues to Consider, 1998] This means that foreign companies need not fear to transfer personnel into the Finnish economy, even for the long term.

Another inducement is the good housing available. More than half of the private dwellings in Finland are less than twenty-five years old. [Facts about Finland, 1993] Older, well-kept houses are also available.

Both rental and new dwellings are available for both the business and for the housing of management and staff personnel. [Finnish Property Market, 1995] Many multinational firms locate branches near the Helsinki-Vantaa International Airport. Distributors targeting Russian markets are increasingly locating near the Russian border, which is just 170 kilometers from St. Petersburg. [Property Market, 1998] This means that personnel transferred into Finland will find a ready supply of modern housing available upon their arrival.

An inducement especially attractive for non-Finnish speaking representatives of foreign firms is the fact that Finnish, Swedish and English are languages commonly spoken in the Finnish business community. Most Finnish secondary school children take eight years of English. Spanish, German, French and Russian are also widely spoken. Thus, many languages can take a visitor almost anywhere in the nation. [Issues to Consider, 1998; Finland—Investor’s Opportunity, 1998]

Such experiences as these explain why Finland is the home of over 1000 foreign-owned companies [Make Finland the Base of your Business in the New Northern Europe, 1996]

Finland is a new member of the European Union (EU). [The European Union in the U. S. : http://www.eurunion.org/index.htm ] Elections in March of 1995 put in place a very pro-business government to: (1) facilitate the transition into the EU and (2) promote the recovery from the most severe recession since World War II. The political outlook is favorable in both the short and long run. Finland was one of the first European economies to go into recession, and it was one of the first to recover. Economic growth in 1997 was exceptionally strong, but there are a few signs of overheating. [Finnish Economy, 1998] Inflation stands at about one percent. For current, related financial statistics, click the URL below, then click the "international business statistics" in the menu on the left side of the screen.

The Finnish markka has been allowed to freely float since September, 1992. The current exchange rate is about 5.5 markka per U. S. dollar. The value of the markka is influenced by the Bank of Finland, which engages in open market purchases and sales similar to those conducted by the central bank of several western countries. This means that the exchange rate will be reasonably stable, but it will operate within a framework of market-forced general pricing. Real interest rates are around five percent. [Poikolainen, 1995]

Finland experiences a favorable balance of trade, with a surplus of over eight billion U. S. dollars in 1997. This is a relatively large trade surplus, representing approximately eight percent of its Gross Domestic Product. [Poikolainen, 1995]

Exports account for about 30 percent of Finland’s GDP. Fifteen percent of total exports are to Russia and Eastern Europe. [Finnish Manufacturing, 1998] Many of Finland’s major export items are related to its geography. The country of Finland is shaped roughly as an ellipse running northeast/southwest topped by a thickly-based, upright "Y" shaped structure. For a satellite view of Finland, click the URL below. Go to the menu on the left side of the screen and select "Picture Book of Finland." Then go to "The View From Above-Finland Satellite Map." This will present you with a satellite view that can be expanded by double-clicking on the image. A satellite view of the Helsinki area is also available.

About one-fourth of the country’s total land area lies above the Arctic Circle. In spite of this, the entire coastline is very temperate from the water’s edge to about 30 miles inland. If the weather in Finland currently is of interest to you, click the URL below.

The reason for the relative warmth of Finland is a warm water stream in the Atlantic Ocean that flows alongside the coastline in both the Gulf of Bothnia to the west and the Gulf of Finland to the south. [Facts, 1993]

About half of the ellipse shaped portion of Finland is bounded by coastline. The Gulf of Finland lies to the south. The Gulf of Bothnia begins in the west and extends northward then northeastward. These provide approximately 500 miles of warm water coastline with many deep-water ports . The position of these coastlines so far north also makes them virtually unaffected by the tides. The coastal part of Finland provides an excellent location for shipbuilding and for both commercial and recreational deep-sea fishing. [Facts, 1993] For a brief discussion of maritime safety in the Gulf of Finland and the Gulf of Bothnia, click the URL below, then click the "history" in the menu on the left side of the screen. For their location click "map" in the menu.

One example of ship building activity in Finland is the Kvaerner Masa-Yards. It is the largest shipbuilder in Finland, with construction facilities in both Helsinki and Turku. This firm is part of the international conglomerate: Kvaerner a.s. Indicative of its current international activity is a set of eight ocean going vessels for Carnival Cruise Lines, U.S.A. and a series of liquefied gas carriers for Abu Dhabi.

The picture above is an aerial view of two ships under construction.

The picture above illustrates the character of the work-in-process at the Kvaerner Masa-Yards.

The photograph above depicts the finished product of the Kvaerner Masa-Yards as it appears at sea.

The western portion of the ellipse is farmland. Most of the farming in this region consists of small, family-owned enterprises. The size of the average farm in this coastal plain is about 30 acres. In spite of that, Cultor is a large corporation in this region that harvests beats and processes sugar commercially. In addition, modern meat and chicken processing is found in this area. [Facts, 1993]

The Saarioinen Group is an example of Finnish closed corporations. It is Finland’s leading private sector food producer. Headquartered in Tampere, it has processing/packaging plants in six locations. The photograph to the left illustrates the modern harvesting operation used to acquire some of its over 600 products.

The photograph to the left is a detailed view of Saarioinen's food processing activity. Saarioinen's (above) export markets are, primarily, in Sweden, Norway, Russia and the Baltic states.

The northeastern part of the ellipse portion of Finland is mostly woods and wetlands. This region is known as the coniferous forest zone.

For a brief discussion of the forestry industry in Finland, click the URL below.

Finland's lakes and their tributaries are tied together with an excellent system of inland waterways. Bulk transportation is also provided by an outstanding highway system. To view Finland's major highway system, click the URL below.

Finland is a part of the excellent rail system in Europe. Its physical location makes it an good place to warehouse bulk goods. For a series of charts showing the rail ties of Finland to other countries and regions, click the URL below; then move about the site as your interests dictate.

About a third of the approximately 120,000 metric tons of fish sold commercially by Finland each year come from the fresh water lakes of this region

More than half of the northernmost portion of Finland lies above the Arctic Circle. This region is rich in metals smelting, ranching and recreational activity. [Facts, 1993]

Finland is a major producer of copper and other non-ferrous metals. Not only do the excellent mining and smelting processes provide exports of the finished material, but they are also sources of the technical expertise they utilize.

The northernmost and largest segment of Finland is called "Lapland". The Laplanders follow the migratory patterns of reindeer and provide a supply of meat products commercially. Tourism is a major aspect of the economy of this region. Slalom and cross-country skiing make this area particularly attractive to sports enthusiasts. In addition, its exotic "summer midnight sun" provides an attraction for many tourists who have no interest in outdoor sporting activities. [Facts, 1993]

In addition to exports related to natural resources, there are many major Finnish exports that are related to the country’s high literacy and strong work ethic. These include electronics based technologies, such as cellular phones, telecommunications equipment, information technology, industrial automation, and medical electronics. For a more complete discussion of the Finnish communication system, click the URL below.

Other literacy and work-ethic related exports include specialized machinery and transportation equipment; sports equipment and clothing; chemically based special products (Chemicals account for about ten percent of Finland’s exports.); biotechnology; energy production technology; and environmental technology. These are both large an technically sound industries. [Facts, 1993] For a review of Finnish exports, click the URL below. Go to the menu on the left side of the screen and select "Economy and Industry." This leads to a screen with six selections. The second of these has already been mentioned. If you have not already done so, you might want to look at the remaining five. These will give you a wide spectrum of information, ranging from specific descriptions of exports to descriptive statistical data.

The explosion of output in Finland is the product of the interaction of a very favorable mix of supply and demand factors operating in a very favorable socio-political environment. Among the factors not previously mentioned in this regard is the fact that the cost of electric power in Finland is among the cheapest in Europe. [Electrical Power Market, 1998]

Like Finland’s exports, its import requirements are a function of its natural and human resources. The following is an illustration of that dependence.

There is no significant iron ore mining in Finland. Thus, all domestic steel production is based on imported iron ore. Steel plates, bars, beams and related items were necessary to support the boom in construction that took place in the country a decade ago. Utilizing the principle of comparative advantage, Finnish manufacturers concentrate on the production of specialty steel and items made of steel components. Most of these have to do with shipbuilding, agriculture and forestry. For example, the Finns produce icebreakers form imported steel. For a picture of a Finnish icebreaker at work and for a chart of Northern European seaports, click the URL below.

In addition, luxury liners are produced in Finland from imported steel. However, the Finns purchase other classes of merchant vessels from abroad. In the same way, Finnish manufacturers make specialized forklifts, but they import the utility and heavy-duty trucks associated with agriculture and forestry. [Facts, 1993]

Finland is a growing exporter of such diverse specialized chemical industry based products as fertilizers, glass, cold weather clothing and pharmaceuticals. The country imports much of the total volume of raw chemicals necessary to make these products.

In 1950, the percentage of the country’s work force engaged in agriculture and forestry was 46 percent. In 1990, the percentage was less than nine and is rapidly decreasing. In the case of the forestry industry, the reduction in the work force was predicated by an increase in mechanization. However, the loss in farm workers is the result of a net reduction of commercial agricultural activity. As a result, Finland now increasingly imports such consumer goods as food and clothing. [Facts, 1993]

Although Finland has large, well-managed oil refineries, raw petroleum is imported, and most of the output is exported. This means that Finland needs to import fuels and lubricants, as well as raw petroleum.

Finally, the terrain elevations in Finland vary so little that water driven generators can produce but 20 percent of the country’s electricity needs. There are no beds of coal-laden strata within the country. Therefore, Finland relies on four modern, safe nuclear power plants to generate another 20 percent of its electrical energy. However, the increase in consumption of electrical energy brought about by the rapid growth of industry within the country has outpaced the country’s internal capacity. So a growing share of Finland’s annual consumption of electricity must be met by imported sources. [Facts, 1993]

There are three locations where the shares of a Finnish firm might be found for public sale. The Helsinki Exchange, founded in 1912, is the principle secondary capital market. The Finnish Association of Securities Dealers manages the other secondary capital markets. These are: (1) over the counter and (2) the Brokers’ List (Arvopaperipörssi, 1997). Finnish markets are orderly and are well regulated by supervisory authorities.

Shares traded on the Helsinki Exchange must pass and maintain the scrutiny of a listing process that is similar to that of the other major world stock exchanges. [Listing, 1994] During the past decade an average of around 65 firms, representing 30 Standard Industrial Codes, have been traded on the Helsinki Exchanges. [Emerging, 1993] This number is expanding, with a net increase of about 33 percent from 1994 through 1997. This dynamic environment provides the investor with a wide variety of risk classes from which to choose.

In 1993, the Helsinki Exchanges experienced the highest growth in per share value in Europe. One reason for the growth in share prices during 1993 was a rebound in the Finnish national economy. An additional reason for this success was the opening of access to the market to foreign investors from the beginning of 1993. Not only is foreign participation now allowed, it is facilitated. For example, foreign citizens may freely acquire shares in Finnish companies and purchase real estate (holiday estate acquisition requires special permission). There is no Finnish tax imposed on capital gains or on interest earned by foreign investors. Furthermore, Finland’s corporate tax rate at 28 percent is among the lowest in the OECD. [Finland-the Investor’s Opportunity, 1998, 10] It should also be noted that all Finnish tax treatments, like the tax treatments in all other nations, are subject to revision.

Foreign firms are allowed to compete for: (1) direct subsidies, based upon industry type and geographical location within the country, (2) financial incentives (below market loans, guarantees, government equity purchases) for investment in start-up, development, investment in fixed assets and even for working capital, (3) tax breaks for rapid depreciation and stamp duty refunds (for real estate transactions), (4) grants for 25 to 60 percent of basic and applied research and development costs, (5) reimbursement for up to half the cost of the development of an international market or product, (6) subsidies for energy conservation projects and (7) joint financing of personnel training and development programs (Investment Incentives, 1995). EU funded aid is also available. These are limited to those projects that qualify for Finland’s national regional aid packages, discussed above. [Opportunities, 1995] For a continuation of the discussion of business opportunities in Finland, click the URL below; then click on "investment opportunities."

Finland has a growing internal audit oriented group of professionals. [Halla, 1997] These help with the internal control of firms that operate in Finland. The external audit work is conducted by professionals certified by the Finnish Central Chamber of Commerce, which is the equivalent of the American Institute of Certified Public Accountants. For access to the Finnish Chamber of Commerce web site, click the URL below.

Overall, in the opinion of the authors of this article, Finland, is an outstanding location for the establishment of a free standing business or for the placement of a branch of an international business. For a listing of the relative attractiveness of countries as the host country for the establishment of a business, click the URL below; then click "business environment."

Finland is a country with a large geographical area that is rich in resources. It is populated by a very small number of highly energetic and intelligent citizens. English, French, German, Russian, Spanish and Swedish speaking persons can be expected to cope well throughout the country. The peaceable environment makes movement around the country safe. Its institutions tend to follow the familiar Western, free market model.

Finland shares a common border with Norway, Sweden, and Russia, sharing a very long border with the latter. The transportation and communication facilities on the Finnish side of the border are excellent. The long commercial and cultural ties that Finland and Russia share facilitate cross-border activity and understanding.

Estonia, Latvia, Lithuania, and Denmark are but a short distance away via an open waterway. They are served by modern deep-water ports.

The above factors plus others described in this article in the opinion of the authors of this article and others make Finland worthy of serious consideration for a firm wishing to enter the Northern European market.

The authors wish to thank the following individuals for their kind cooperation in the preparation of this article: