The role of high-impact SMEs in Finland

This report studies the role of high-impact firms in the Finnish business environment from an ecosystems perspective. High-impact firms are companies that have at least doubled their sales and achieved an employment growth quantifier of 2 or more during the most recent 4-year period (Acs et al.,
2008). We also draw on the EU definition of small and medium-sized enterprises (SMEs), examining firms that employ fewer than 250 persons and have a maximum turnover of 50 million euros and/or an annual maximum balance sheet total of 43 million euros. We study six clusters of firms in the creative, environmental, experience, health, ICT, and maritime industries. SMEs not belonging to one of these clusters were grouped as “other”. The dataset of this study consists of 1,572 high-impact Finnish SMEs reporting average sales of at least 400,000 euros in 2008–2011. The database Orbis was used to identify the firms, but we also carried out extensive manual work visiting company websites in order to determine the relevant cluster. Several firms were also interviewed about their business activities for the purposes of the study.Once the firms were grouped into their clusters, we performed a comprehensive financial statement analysis of the dataset. Financial statement analysis is defined as the process of identifying the firm’s financial strengths and weaknesses by establishing relationships between the items of the balance sheet and the profit and loss account. In 2012 the qualifying high-impact companies reported a combined turnover of 9,976 million euros and employed more than 51,400 people. While these firms represent less than 0.5 percent of all SMEs in Finland, they nevertheless account for close to 5 percent of total SME turnover and employment. The regional distribution of high-impact firms in Finland is very uneven. This affects the vitality of the Finnish business ecosystem. Almost half of all high-impact firms can be found in the more populous southern regions of Uusimaa and Pirkanmaa. Add the western coastal regions of Southwest Finland and Northern Ostrobothnia and almost two-thirds of Finland’s high-impact firms are accounted for. Thus, the contribution of high-impact firms to the robustness of Finland’s ecosystem is limited. High-impact SMEs in Finland are relatively long-established. Two-thirds of those identified in our study were founded between 2000 and 2009, leading to an average age of 16 years, with a 12-year median. The average number of personnel is 38, while the median is 22. A full one-fifth of the identified high-impact SMEs were mid-sized firms with between 50 and 249 employees. This is a significant finding because according to the national statistics institution, Statistics Finland, the share of mid-sized companies among all companies is less than one percent. High-impact firms are largely Finnish-owned and tend to operate on the B2B market. Foreign ownership of firms is particularly skewed in terms of location, as approximately two-thirds of SMEs with at least some kind of foreign ownership are located in the capital city Uusimaa region. Only one-fifth of the firms in our clusters do business on the international market, a surprisingly low percentage. In fact, our findings actually contradict the global trend in some areas. We expected health and environmental firms in Finland to demonstrate a high degree of internationalization to coincide with increased global activity in these areas. Instead, our research showed that international activity is relatively low in both Finland’s SME environmental cluster (N=44, I=31%) and health cluster (N=104, I=17%). Due to expansion elsewhere, however, these clusters must still be
considered future key business areas.We find that as a rule high-impact SMEs are highly aware of their role in the business ecosystem, but are lacking in platform management capacity. This means they are unable to make maximum use of platform services, tools and technologies for co-creating value within the ecosystem. We have therefore created a platform development toolbox as part of this study, to be utilized by managers and institutional actors when creating and evaluating various platforms. As for policy implications, we surmise that the current start-up hype in Finland has caused the potential of existing high-impact firms to be somewhat ignored. Our recommendation is that established high-impact SMEs be made the focus of on-going internationalization programs, due to the low risk they present, both in terms of personnel and business expansion. Those high-impact SMEs in clusters found to already maintain a high level of internationalization (sales percentages: creative 30, health 17, ICT 39, environmental 31 and maritime 75) would deliver the most benefit and find the most success in such programs. It is also reasonable to believe that these types of firms have the managerial capabilities to grow and become global ecosystem leaders in the near future.