Helsinki - Troubles at Finland's Nokia Oyj aren't just bad
news for the company, its staff and shareholders. They're also a warning sign
for the small Nordic country's welfare model.
Just as Nokia's sure touch with well-designed,
consumer-friendly products seems to have deserted it, fears are growing that
Finland, whose reputation for innovation rested largely on the handset maker's
success, may be losing its competitive edge.
While Finland remains one of the few triple-A rated
countries in the eurozone, its reputation as an egalitarian society with a
stellar education system belies worries about a decline in once-mighty export
manufacturers and a rapidly ageing population.
For the 5.4 million Finns, the message is stark: prepare for
tougher times, later retirement or lower pensions. And for government, the need
is to encourage business growth beyond traditional mainstays like forestry
while balancing social commitments with economic realities.
On Tuesday Finland reported a second straight monthly
current account deficit. For 2011 as a whole, it posted a deficit of €1.3bn
($1.7bn) due to slower export growth.
"It's useless to dream of achieving the same levels
that we had between the booming years of 2001 and 2007," said
Handelsbanken economist Tuulia Asplund, referring to the years of strong
Economists expect the economy to contract or barely expand
this year. Many forecast growth of just 1 or 2% in the next few years - not bad
compared with some more troubled European economies, but not enough to
alleviate strains on the pension system in one of the region's fastest-ageing
With its baby boom generation retiring and living longer,
and without Norway's oil or Sweden's diverse and internationally successful
corporate sector, Finland's welfare model looks particularly vulnerable.
Nokia reliance hard to shake
Nokia's downfall has hit business activity as well as
national pride. At its peak, Nokia accounted for 4% of Finnish gross domestic
product and supported a myriad of companies as suppliers.
Today it contributes closer to 1%, according to analysts.
Electronics maker Elcoteq, which lost the bulk of its
business when Nokia switched to cheaper Asian suppliers, filed for bankruptcy
last October. Software firm Digia Oyj, another Nokia supplier, reported a 45%
fall in first-quarter profit.
Many Finns are still hopeful for a turnaround at Nokia, a
former rubber boots maker whose rise helped transform Finland from a Nordic
backwater. At a recent shareholder meeting in Helsinki, some investors were
"It probably has nothing to do with numbers. I have to
believe in it since it is this famous Finnish company,"” said one
shareholder, Tomi Lahti, when asked why he still held shares.
The stock is down over 95% from its 2000 peak. It fell to
around €2.20 on Wednesday, a level not seen since 1996.
Some younger Finns, however, are eager to move on from
"I think we generally need to start thinking with our
own brains and not just rely on relics of the past that others built,"
said Vilppu, a university student in Helsinki who didn't give his family name.
One ray of hope has been fast-growing Rovio, maker of Angry
Birds, a simple yet addictive game in which players use a slingshot to attack
pigs who steal birds' eggs. Sales grew tenfold to $100m in 2011.
Last year it attracted $42m from investors led by US-based
Accel Partners and it is aiming for an overseas stock market listing.
Yet games companies don't hire or spawn a chain of suppliers
in the way Nokia and other manufacturers do. Rovio's headcount has risen by
around 200 from 20 over the past year - an employment pinprick compared with
the thousands of job cuts at Nokia and its suppliers.
Last year, Nokia laid off around 3 000 workers in Finland.
Economists say there's no "silver bullet"
solution. Some say looser bankruptcy laws would aid entrepreneurs, but it's
hard to see such a measure having a dramatic short-term impact. There's also
resistance to such a reform in Finland where fiscal responsibility is
considered a virtue.
The government is already investing heavily in encouraging
new business. In 2011, it spent €610m on research and development projects
through state fund Tekes, in addition to efforts at universities and other
Despite such funding, not a single company, excluding
spinoffs from existing listed entities, has gone public on the Helsinki Stock Exchange
since the 2007 listing of construction group SRV.
Some wonder if the state does too much.
"The government should be geared to operate only where
the market fails," said Otto Toivanen, a Finn and professor of managerial
economics, strategy and innovation at Katholieke Universiteit Leuven in
"There should be more of an exercise, at least a mental
exercise, of how businesses and entrepreneurs will act without
Jobs lost forever
The state has played a particularly big role in traditional
industries such as forestry and metals.
State shareholdings, however, have not protected paper mills
or steel makers from global competition. Papermakers Stora Enso and UPM-Kymmene
have been closing mills and cutting jobs in recent years due to pricing
pressure and weak demand.
With some exceptions, such as the sale of Stora's Summa Mill
to Google for a server farm, mill closures are often permanent. Finnish
unemployment is not too high for Europe at 8.5%, but is at 24% for people under
"Many of these jobs are lost forever," said Sampo
Bank chief economist Pasi Kuoppamaki. "We need real industry to replace
what we've lost."
The opposition Finns Party took advantage of such insecurity
in last year's elections. Its call to preserve a Finnish way of life appealed
to rural voters in particular.
The government, led by conservative Prime Minister Jyrki
Katainen, is well aware of such sentiments.
While it recently announced budget cuts for the next few
years, it also mixed in stimulus measures such as corporate tax breaks to
encourage R&D spending and adopted an English-language buzzword:
Most economists believe Katainen will need to make tougher
choices if the economy remains weak.
"We will need to prolong working life. It could mean
raising retirement age, or it could mean starting working life earlier,"
Kuoppamaki said, referring to the long years Finnish youth stays in school.
"In any case, it would be difficult."