Transcript FP6 Priority 7

Foreign Takeovers in the Nordic Countries
A project by NIFU STEP, ITPS, VTT,
RANNIS and the Technical
University of Denmark
Financed by
the Nordic Innovation Centre
Per M. Koch, NIFU STEP, Oslo
Organisation
A Nordic project
 The Nordic Innovation Centre
Forum for Innovation Policy
 Building a platform for exchange of knowledge
and the development of Nordic projects that
are to contribute to the improvement of
innovation and industry policies
 FOTON was developed by the consortium
behind the NICe project GoodNIP – Good
Practices in Nordic Innovation Policies
 www.nordicinnovation.net
 www.step.no/goodnip
 www.step.no/foton
Researchers
 NIFU STEP Centre for Innovation Research, Norway
Per M. Koch (Project Leader)
Siri Aanstad (Assistant Project Leader)
Sverre Johan Herstad, University of Oslo
Amir Pirich
Johan Hauknes
Nils Solum
Svein Olav Nås
 Institutet för tillväxtpolitiska studier (ITPS), Sweden:
Anne-Christine Strandell
Magnus Frostenson
Tommy Borglund
Katarina Arbin
Hans de Geer
Hans Lööf, Kungliga Tekniska Högskolan
 VTT Technical Research Centre of Finland
Juha Oksanen (Team Leader)
Bernd Ebersberger
Nina Rilla
 Danmarks Tekniske Universitet, Denmark, Department of
Manufacturing, Engineering and Management (IPL)
Jørgen Lindgaard Pedersen (Team Leader)
Martin Tølle
 RANNIS Iceland
Thorvald Finnbjörnsson (Team Leader)
Elva Brá Aðalsteinsdóttir
Reference Group
 Mark Riis, the Ministry of Science, Technology and
Innovation, Denmark
 Isam Salih, the Ministry of Industry, Employment
and Communications, Sweden
 Gabriel Benito, BI Norwegian School of
Management, Norway
 Pentti Vuorinen, the Ministry of Trade and Industry,
Finland
Organisation
 The study consisted of three
interrelated sub-studies
organised as modules
 All partners fed national studies
into each module
 This allowed for a comparative
perspective
 Module 1 Mapping of foreign
ownership in the Nordic countries
 Module 2 Case studies of the
impact of foreign take-overs on
local innovation capabilities
 Module 3 Study of policy
responses
Background and objective
Objective
 To study the impact of foreign take-overs on local
innovation capabilities in the Nordic countries
 To study how this issue is approached by policy
makers and give examples of good policy practices
in this area
Background
 All Nordic governments see
industrial innovation as a key
to future wealth creation and
welfare
 In a globalizing economy, this
view makes the question of
how foreign takeovers of
Nordic firms affect local
innovation capabilities highly
relevant
 The focus has been on local
R&D and innovation
investments and activities,
not employment or
investments in general
Hypotheses
 Negative hypotheses:
 Multinational corporations tend to concentrate strategic
activities in their home country and tend to relocate R&D
and knowledge intensive activities
 Transfer pricing will weaken innovation activities
 Takeovers weaken the link between the local branch and
the surrounding innovation system due to secrecy
 Positive hypotheses:
 MNCs are adopting decentralized R&D strategies
 They buy Nordic companies to gain access to local human
capital and the surrounding innovation system
 The assets of the MCN is made available for the domestic
firm, which may boost regional innovation capabilities as
well
 There may be cultural traits characterizing different
MNCs, along the lines of industry and nationality
 Anglo-Saxon vs. European companies
Research question
 Are there any major differences
between nationally owned
companies and local firms taken
over by foreign multinationals as
regards
 innovative capabilities,
 research and development,
 and interaction with other firms
and institutions in the local
innovation system?
Some facts
Foreign ownership is increasing
Number of employees in foreign controlled enterprises and share of business sector in
Sweden 1981-2001.
600000
25,0
500000
20,0
400000
15,0
300000
10,0
200000
0,0
Employees
19
97
19
99
20
01
0
19
87
19
89
19
91
19
93
19
95
5,0
19
81
19
83
19
85
100000
Share of business sector
Norway and Finland
160000
14
140000
12
120000
10
100000
8
Number of
employees
6
Share of business
sector
80000
60000
4
40000
20000
2
0
0
1995
1996
1997
1998
1999
60000
20
18
50000
16
40000
14
12
30000
10
8
20000
6
10000
4
2
0
0
1994
1995
1996
1997
1998
Number of
employees
Share of
manufacturing
Number of employees in
foreign controlled
enterprises and share of
business/manufacturing
sector in Finland and
Norway
Nordic companies own Nordic companies
Number of
employees in
foreign controlled
enterprises in
Finland by country
of origin
2002 and 2001.
The FOTON findings
Community Innovation Survey data
 CIS is based on questionnaires sent to companies,
and includes data on ownership, R&D and
innovation activities
 We have used this data to see whether there is a
correlation between foreign ownership, R&D
investments and innovation activities
 Foreign ownership as a proxy for takeovers
The raw data
 Companies taken over by foreigners are
distinguished by having

a larger proportion of innovative firms

a higher R&D intensity

a higher level of innovation sales per employee

a larger proportion of firms applying for patents

a larger proportion of firms possessing patents

a larger proportion of firms conducting R&D on
a regular basis

a higher export intensity

a stronger focus on global markets

more human capital in terms of well educated
people as a share of total employment

a higher level of labour productivity

a stronger dependence on sources of knowledge
for innovation from other enterprises within the
group
Corrected data
 The study takes into account
that differences in firm
performance can be explained
by factors such as:
 Firm size
 Business sector
 Human capital
 Physical capital
 Market orientation
 and more
Firm categories
 Domestic uninational firms (DU)
Domestic companies that are not part
of a multinational group
 Domestic multinational firms (DM)
Domestic companies being part of a
domestically owned multinational
group
 Nordic multinationals (NM)
Danish, Finnish, Icelandic, Norwegian
and Swedish owned companies (with
the exception of local companies when
analysing individual countries)
 Anglo-Saxon multinationals (ASM)
UK-owned, US-owned, Irish, Canadian
and South African corporate groups
 European and other multinationals
(EOM)
Rest-category dominated by European
countries
CIS findings
 There are no truly significant
differences between domestic
companies and foreign
multinationals as regards
innovation activities.
 However, domestic multinationals
outperform foreign owned firms in
terms of R&D investments in Finland
and Sweden. In Norway domestic
multinationals and Anglo-Saxon
multinationals have significantly
higher R&D intensity than other firms.
 It seems that domestic multinationals
are the main beneficiaries of public
R&D support.
 The domestic multinationals are also
more closely embedded in the
national innovation system compared
to foreign multinationals, meaning
that they are more likely to interact
with other firms and institutions.
Output indicators
 There are no robust findings
as regards the superiority of
domestic multinationals (or
foreign owned companies)
as regards performance
 patents
 radical innovations
 return on investments
 labour productivity
Reasons for takeovers, innovation
 the need for complementary products and
a broadening of the product line
 the need for competent owners/affiliates
 the wish to reach a critical mass (in order
to invest in innovation, develop markets
etc., i.e. economies of scale)
 the need for access to competence and
innovation networks and clusters
 the need to monitor new technological
development
 the ability to generate entirely new
technologies and products
 the wish to acquire strong brands
 the need for financially strong
owners/affiliates
Other reasons for takeovers
 access to global or local
markets and distribution
channels
 access to a favourable
regulatory environments
(including tax systems)
 the wish to increase
shareholder value
 the wish to eliminate a
competitor
 obtaining legitimacy for the
organisation
 using the takeover as a tool
for introducing structural
change in the organisation
 to get returns on investments
(by selling stock)
Case studies
 Two case studies in each country,
one in the pharmaceutical
industry and one in the
software/ICT industry
 Examine whether and how
foreign take-overs have had an
impact on innovation activities
(including R&D, learning
processes and cooperation with
other institutions and companies,
locally and internationally).
 Using a systemic approach to
innovation
National case studies
 Iceland
 deCode Genetics (US greenfield company)
 Tölvuþekking/Computer Knowledge (Medical software company
owned by Eastman Kodak)
 Finland
 Santen Finland Oy (Japanese acquisition of Oy Star AB, part of
Huhtamäki conglomerate. Manufactures ophtalmic drugs)
 Iobox (Terra Mobile S.A. of Teléfonica Group, Spain)
 Denmark
 Nycomed (Norwegian takeover of the DAK Laboratory)
 Datacentralen (ICT company taken over by CSC)
 Sweden
 Astra (taken over by British Zeneca)
 Internet AB (anonymous firm taken over by German company)
 Norway
 Axis-Shield POC (the Diagnostic Division of Nycomed Pharma)
 Kelkoo (French comparison shopping, includes Norwegian
Zoom It)
Case study findings
 Acquired firms were looking for a
buyer:
 to get financial resources
(Nycomed/Axis Shield)
 to get access to world markets
(Astra/Zeneca)
 competition policy (Datacentralen)
 ethics (DAK and the Danish
Pharmaceutical Association)
 The multinationals were looking for:
 growth
 new markets (CSC, Santen)
 new products, platforms or
production line complementary to
their own
 technology and competences
Consequences of takeovers (case studies)
 All pharmaceuticals have achieved a
more central position in the market
 The units have access to more
resources and the number of employees
have in some instances increased
 Two companies have been closed down
(Finish and Swedish ICT companies)
 An increasing demand for reporting on
business performance, and an
upgrading of local business and
innovation practices.
 But, remember the time perspective
 Too small sample to draw any general
conclusions
FOTON policy assessment
Political leeway
 As there are no clear distinctions
between foreign owned companies and
domestic companies as regards
innovative capabilities in general, it is
unreasonable to develop a policy that
discriminate against foreign investors
per se.
 It would be impossible to discriminate
against Anglo-Saxon, European or
Japanese companies, based on their
innovation practices.
 National ownership of vital natural
resources may be an issue, but it is
hard to argue for this on the basis of
innovation policy.
 Participation in the European market
and WTO agreements puts strict limits
on the political room for manoeuvre.
One tool left
 State ownership may be used to protect
national ownership.
 But the idea of using state ownership as an
active tool in a liberalised global economy
does not fit well with the Nordic membership
in the EEA.
 That does not mean that state companies
cannot be used to strengthen the national
innovation system.
Foreign takeovers are not bad for you
 Foreign takeovers are, in general, not bad
for the company or the national economy
 However, such takeovers may be
beneficial due to the small size of the
Nordic markets:
 Our respondents report a need for capital,
and foreign takeovers may provide such
capital
 Takeovers may also open up new markets
 Our respondents also report a need for
competences and access to laboratories,
complementary skills, networks of
collaboration etc.
 This justifies a FDI friendly policy
 Moreover, foreign owned companies are
less involved in the national innovation
systems, which indicates a need for
policies that involves such companies
more actively.
The attractiveness of the Nordic markets
 If attracting FDI is to be a policy
goal, one must ascertain to what
extent foreigners find the Nordic
countries to be suitable for
investment
 The pattern of globalisation is the
same in the Nordic countries in the
EU and the US.
 The FOTON researchers have made
a general, “non-scientific”,
assessment regarding framework
conditions for foreign investment.
Conclusion: The Nordic countries
ought to be attractive.
Nordic
ountries
Key Policy Parameters, Relevance & Impact (R&I)
Regulatory Environment
Additional Factors
Non-regulatory
Measures
Stability &
Transparency
International
Legal
Obligations
Fiscal
Incentives
& Tax
Breaks
Proactive
Investment
Promotion
Facilitation
and/or
targeted
grants
Access to
Markets
Access
to Skills
&
Expertise
Access
to
Finance
Access
to
Technological
Capabilities
Acess to
Networks
& Clusters
Access
to Infrastructure
Cultural
Attitudes
4
4
1
0
0
3
4
1
4
1
3
3
4
4
2
4
1
4
4
2
4
4
4
3
4
4
3
2
1
4
4
4
4
3
3
4
4
1
3
1
2
4
2
4
4
2
3
4
4
1
1
0
3
4
1
4
3
3
4
High R&I
Medium R&I
Low R&I
Insignificant R&I
No R&I
UNCTAD Foreign Direct Investment Indicator
Composite indicator
based on factors such as
GDP per capita, GDP
growth, ICT
infrastructure,
commercial energy
usage, R&D spending,
tertiary education, risk
factors, imports and
exports, and the share of
world FDI inward stock.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
United States
Norway
United Kingdom
Singapore
Canada
Belgium and Luxembourg
Ireland
Qatar
Germany
Sweden
The Netherlands
Hong Kong
Finland
France
Iceland
Japan
United Arab Emirates
Republic of Korea
Denmark
0.659
0.471
0.467
0.465
0.459
0.446
0.433
0.433
0.432
0.427
0.420
0.413
0.409
0.396
0.394
0.389
0.388
0.387
0.387
The value of
Inward Mergers
and Acquisitions in
per cent of GDP,
1996-2002.
Norway,
Denmark and
Finland should
be able to
attract more
foreign
investments.
Policy recommendations
Policy recommendations
 Given that framework
conditions are favourable,
we argue that the best
options for attracting
foreign investments would
be to market these
countries as innovation
friendly and knowledge
intensive countries.
Policy proposals
 The local “Invest in” organisations should be
strengthened (and Norway should establish
one).
 FOTON proposes the establishment of a new
Nordic innovation and investment portal,
containing information on:

local culture

economic and regulatory framework conditions

knowledge institutions and educational systems;

access to finance

public infrastructure and innovation policy
measures

industries looking for partners

essential statistics

relevant public institutions, including the “Invest
in” institutions

public and private consultants
 Measures aimed at strengthening the public
understanding of foreign investment
Integration of foreign owned companies
 Foreign owned companies are not
as closely embedded in the
national innovation systems as the
domestic multinationals.
 Participation of such companies in
national R&D programmes will
strengthen the diffusion of
competences from them to
national companies and
institutions.
 Research councils and agencies
should actively involve foreign
owned companies.
 However, there should be no
special programmes for foreign
owned companies.
The FOTON reports
1. Summary and Policy
Recommendations
2. Impacts of Foreign Takeovers
in the Nordic Countries – what
do Company Case Studies Tell
Us?
3. Corporate Innovation
Activities – Does Ownership
Matter? (including CIS study)
Free download:
www.step.no/foton
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