Finland’s IT sector recovers after break-up of Nokia

Finnish government plays vital role in helping IT sector recover from the shock of Microsoft taking over the country’s biggest company

Finland’s IT sector has rebounded strongly in the aftershock of Microsoft’s takeover of Nokia’s mobile phones and smart devices business units in 2014.

The €5.44bn acquisition triggered a series of factory and research and development (R&D) facility closures and the lay-off of thousands of highly skilled engineers and software designers in Finland.

The break-up of Nokia’s mobile and telecoms network business also struck a heavy blow to a fragile economy struggling to escape from six years of recession and tough austerity budgets following the 2008 financial crisis.

But the Finnish IT industry’s impressive rate of recovery was unexpected, particularly in the wake of several rounds of restructuring by Microsoft that resulted in the closure of manufacturing plants and R&D facilities in the country. This coincided with a far-reaching programme of lay-offs by Microsoft, which affected a broad sweep of Nokia’s mobile communications operations across Finland.

Microsoft laid off more than 1,350 workers in Finland in 2016. Most of those people worked in its mobile phone design and production areas. A further 500 employees were made redundant at Nokia units overseas.

The reorganisation of Nokia’s mobile phones and smart devices business areas under Microsoft deflated growth prospects in Finland’s IT sector. This was of deep concern to a government battling to revive the ailing Finnish economy faced with falling exports and starved of investment.

Hardest-hit urban areas included Espoo, Tampere and Salo, the location of much of Nokia’s administrative, mobile production and R&D capacity.

But the turnaround began when the government drew up a reinvestment plan with Microsoft to help soften the blow of its reorganisation. In its reassessment of the Microsoft acquisition, the Ministry of Economic Affairs and Employment (MEAE) pinpointed the joint initiative as the primary driver behind the swifter-than-expected recovery of Finland’s IT sector.

MEAE’s case review also said the reorganisation produced the unforeseen dividend of releasing skills and managerial talent back into the IT sector, which resulted in significant growth in new Finnish tech startups and advanced development of digitisation technologies.

Joint initiative

The state’s joint initiative with Microsoft also benefited from a partnership with the European Globalisation Adjustment Fund (EGF), which provided capital to finance new Finnish tech projects.

In its analysis, MEAE found that almost 90% of all employees laid off by Microsoft found new jobs and became directly involved in founding new tech companies.

The Finnish government deployed five main tools to support its Nokia-linked rapid re-employment programme. These included services such as a digitisation expansion scheme for enterprises that was operated by state innovation agencies Digiboost and Tekes.

Also, the government tasked Finland’s industrial development agency, Invest in Finland, to bolster efforts to attract foreign IT companies and tech investors to the country. In a parallel project, Microsoft’s Polku programme collaborated with the EGF to channel support to startups and to fund skills maintenance and development schemes.

“It was really reassuring to see so many of our former colleagues find new work through Polku,” said Rilla Hiillos, director of Microsoft’s Polku programme. “The programme earned high praise from participants and external actors.”

Read more about Microsoft’s Nokia acquisition

  • Microsoft is to acquire Nokia’s mobile phone business, including its patents and mapping services, in a $7.2bn deal.
  • By laying off thousands and writing off billions in Nokia assets, Satya Nadella sets a new direction for Microsoft’s device business.
  • Following leaks on the web of an internal memo from Windows chief Terry Myerson, Microsoft confirms plans to cull 1,850 jobs at the company’s smartphone hardware business.

Microsoft established the Polku entrepreneur and skills retraining programme in 2015. A total of 205 startups received support from the scheme, and 11% of participants obtained special funding to start their own business.

Support programmes funded by the EGF saw 80% of participants re-employed or in training by August 2017. Meanwhile, the Digiboost programme aided the re-employment of digital specialists and supported the digitisation of existing companies that recruited former Nokia workers laid off by Microsoft.

“The overall collaboration with Microsoft and the EGF was very positive,” said Mika Lintilä, Finland’s economic affairs minister. “It was also an advantage that experienced professionals went on to establish new IT companies. This development also contributed to accelerating the rate of progress of digitisation in Finland.”

The size of the challenge of repairing Finland’s damaged IT sector and economy post-2014 should not be underestimated. Microsoft’s dissection of Nokia saw 32,000 employees – 4,700 located in Finland – transfer to Microsoft.

The break-up of Nokia also had a negative affect on Finland’s R&D output. Nokia’s share of corporate R&D in the country was about 40% in 2009, dropping to 31% in 2012. By 2015, after the acquisition, its R&D share had fallen below 17%.

The significance of Nokia to Finland’s economy was marked by its status as the largest company on the Helsinki Stock Exchange up to 2008. At its peak, the internationally expansive Nokia accounted for 4% of Finland’s annual GDP between 2000 and 2007.

Sustainable recovery

The partnership approach adopted by the Finnish government to drive growth in the IT sector after 2014 helped to protect the industry from a hard fall. It also served to smooth the path for a more sustainable recovery.

Software and IT services largely made up the loss of jobs in the Microsoft reorganisation. Although ICT hardware manufacturers did shed workers after 2014, more opportunities opened up in existing software firms and startups.

The post-Nokia break-up years have left a Finnish IT industry landscape that no longer relies on a single tech giant. The IT sector has seen a constant wave of niche and export-focused tech starlets emerge

The post-Nokia break-up years have left a Finnish IT industry landscape that no longer relies on a single tech giant. The IT sector has seen a constant wave of niche and export-focused tech starlets emerge, such as Rovio and Supercell.

Nokia Oyj, the telecom communications networks business that was not part the Microsoft acquisition, is also showing strong signs of growth following a substantial reorganisation and market-led realignment of its business.

Nokia has 6,300 workers in Finland and a further 102,000 worldwide. The renewed expansion comes as the Finnish state increases its equity holding in the company to more than 3.3%. The market value of this holding is estimated at €850m.

“The technology sector in Finland continues to strengthen, and Nokia is an obvious target for us,” said Antti Makinen, CEO of Solidium, the Finnish state’s share ownership and asset management agency.

“We consider the investment in Nokia to be a good one. Despite everything that has happened, Nokia remains Finland’s largest company. Finnish ownership in the company has been rather thin. Our investment changes that.”

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