Etla » Reports

Implications of Value Creation and Capture in Global Value Chains – Lessons from 39 Grassroots Cases

Jyrki Ali-Yrkkö — Mon, 19 Aug 2013 06:46:40 +0000

This report summarizes 39 detailed ETLA case studies of global value chains (GVCs). The findings suggest that the value added in global value chains is less tied to their tangible aspects than what conventional wisdom suggests. Intangible aspects of GVCs tend to be more important, but their poor measurement in available statistics misguides. With the raise of GVCs, interests of governments and multinational enterprises operating within national borders are increasingly at odds, e.g., when it comes to transfer pricing practices. The evidence from Finland shows that misinterpreted (or ignored) transfer pricing rules have significant impacts on GDP and other macroeconomic measures. Since multinational enterprises, and GVCs they operate, have grown to dominate international trade, the focus of national policymakers should shift from companies and industries to tasks and functions that are conducted within national borders.

Theory and Measurement of Competitiveness

Olavi Rantala — Wed, 14 Aug 2013 10:24:10 +0000

The study deals with the theory and measurement of competitiveness. The basic theory of firm implies that under constant returns to scale the unit cost of production can be used to measure the marginal cost of production and to model the impact of competitiveness on the market share of a firm. The competitiveness and the market share of a firm is the lower the higher its unit costs are compared to the average unit costs of all firms in the market. Empirical measurement of the unit costs of the Finnish industry is made with respect to Germany. It turns out that the unit costs of the Finnish industry have risen higher than the unit costs of the German industry since 2005, calculated without the effect of electronics industry. In addition to production costs the study deals with the theoretical and empirical impact of transportation costs on competitiveness in export markets. This is an important issue for Finland locating geographically far away from the main markets of the world. A major disadvantage for the future competitiveness of Finnish export industry will be the EU sulphur directive and the possible inclusion of shipping into the EU emissions trading scheme. The longer marine transportation distance from Finland means that Finland will lose competitiveness for example compared to Germany.

Servitization as a Productive Strategy of a Firm – Evidence from the Forest-Based Industries

Kaija Hyvönen-Rajecki — Tue, 13 Aug 2013 11:45:57 +0000

A central aspect of the industrial evolution in the advanced economies is the phenomenon called servitization. In general, the term servitization or product-service transition is used to highlight the change, where the tangible offering of a manufacturing firm is augmented with intangible services. In this paper, servitization is addressed broadly as a strategic reorientation by a manufacturing firm which entails adjustments in the firm business model as well. A useful framework to address the product-service transition is the socio-economic view of service productivity. On that basis, the paper shows how the productive strategy of the servitizing firm is linked with the business model that builds on service-dominant (S-D) logic. The resources and capabilities of the firm are central drivers in servitization. Via the empirical case study of the servitization strategies in the Finnish forest cluster, the paper extends the scope of analysis in the servitization research from the installed base -industries to the process industries. In a wider context, this paper contributes to the research collaboration between Aalto University (BIT) and Research Institute of the Finnish Economy, ETLA in the field of service research.

Adjusting the earnings-related pension system to low growth

Tarmo Valkonen — Tue, 25 Jun 2013 06:20:29 +0000

This study analyses the adjustment of the Finnish earnings-related pension system to very low economic growth. The results show that a permanently lower growth rate of the wage bill would raise only moderately the pension contribution rates in the long term. This is because also the benefits are partially linked to wages. But if the rate of return on the pension fund investments would also go down, the contribution rates would increase significantly. External competitiveness and employment would weaken as well as the position of future generations. The study presents a pension reform that stabilizes the contribution rate by raising the retirement age and cutting pensions. These kind of specific reforms are not, however, optimal due to demographic and economic uncertainty. A better solution would be automatic adjustment rules that are designed to provide accepted redistribution of income between various generations.

Survival or performance? Healthcare viewed through organization, information management, and personnel

Antti Kauhanen — Thu, 23 May 2013 12:15:18 +0000

This report is an overview to the presentations and discussions in the seminar Survival or performance? Healthcare viewed through organization, information management, and personnel held on 3.9.2012. The seminar provided an interdisciplinary forum for the question how the health care system may overcome its present challenges

Structural Budget Balance

Kaija Hyvönen-Rajecki — Tue, 14 May 2013 12:27:58 +0000

Euro Area member states have agreed to introduce a structural budget balance target to their national legislation (Treaty on Stability, Coordination and Governance). However, there exists no commonly agreed methodology to calculate this macroeconomic indicator. This report presents the conceptual framework underlying the calculation of structural fiscal balances as suggested by different international organizations such as the European Commission and the IMF. We emphasize that the methodology indeed affects both the quantitative estimates and the interpretation of the indicator for policy analysis. In addition we discuss some of the possible limitations of the indicator within real-time macroeconomic surveillance.

Nokia’s Labor Inflows and Outflows in Finland: Observations from 1989 to 2010

Mika Pajarinen — Fri, 03 May 2013 08:00:34 +0000

Nokia’s ascent, dominance, and descent have resulted in significant labor inflows and outflows in Finland. In this paper, we document the aspects of these flows using official register-based data covering virtually all individuals and organizations in Finland. Our setup may be compared to a laboratory experiment on the impacts of a single company on a country. During the 1990s, a large share of Nokia recruits were recent college graduates. Most of these recent graduates assumed various specialist and managerial positions at Nokia. During the 2000s, Nokia has been a good source of highly skilled labor for other businesses in Finland. More recently, an increasing share of former Nokia employees has been engaged with startups. Additionally, the proportion of former Nokia employees who have migrated to public sector jobs has grown.

The Nature of the Finnish Competitiveness Problem

Mika Maliranta — Thu, 11 Apr 2013 12:04:39 +0000

We assess Finland’s competitiveness in the light of various, mainly short-term indicators. It turns out that the weak export market performance over the last few years is linked to the deterioration of profitability of production in Finland. A better export and employment performance requires a decline of relative unit labour costs and an improvement of business profitability. Wage moderation would obviously serve this purpose. On the other hand, the determinants of Finland’s long-term competitiveness are quite good and maintaining and developing them should remain a key element of economic policy also in the future. In contrast, it would be a mistake to believe that Finland’s current competitiveness challenges could be solved primarily by improving management skills.

Euro – How Big a Difference: Finland and Sweden in Search of Macro Stability

Vesa Vihriälä — Mon, 04 Mar 2013 12:29:32 +0000

Abstract: The euro crisis has rekindled questions about the advantages and disadvantages of membership in the European Monetary Union. In the Northern periphery of the EU, the different monetary regime choices of Finland and Sweden have created a particularly interesting testing ground for the benefits of the EMU. The average growth rates were rather similar before the Great Recession that started in the autumn of 2009, while Sweden has grown faster since that. In terms of price stability Sweden has fared somewhat better than Finland in the EMU period. We assess the effects of the regime choice by simulating the behaviour of the Swedish economy with National Institute’s Global Econometric Model (NiGEM) on the assumption that Sweden had joined the EMU in 1999. The simulation exercise suggests that the independent monetary regime reduced the impact of the global shock on Sweden. The different monetary regimes cannot, however, explain the growth gap between Sweden and Finland anymore in 2012. Other factors, such as the decline of the Nokia cluster, are needed for that. As a whole, our results suggest that the different choices with regard to the EMU have not affected the macroeconomic outcomes very much.

International Investment and Firm Performance: Empirical Evidence from Small Open Economies

Ville Kaitila — Fri, 01 Mar 2013 07:30:00 +0000

Abstract: This paper examines the causal link between foreign investment and firm performance in six small open economies in the European Union. Specifically, using micro data for manufacturing and services over the period 2001-2009, we analyse the effects of foreign mergers and acquisitions on labour productivity and employment growth up to five years after acquisition. Our results indicate that foreign investors tend to acquire larger firms in both manufacturing and services. Other characteristics of acquired firms differ across countries and between manufacturing and services. Taken together, our estimates suggest that foreign investment had stronger effects on firm performance in services in comparison to manufacturing.