HELSINKI A SUMMARY The metro-region of Helsinki s main challenges and strengths Metropolitan Inc. 1
Foreword Metropolitan Inc. is a consortium of three Nordic metro regions Stockholm, Helsinki and Copenhagen represented by Stockholm County Council, Uusimaa Regional Council (Helsinki) and The Capital Region of Denmark (Copenhagen Region). The partners carries out joint analysis on the future challenges of metro regions and exchanges ideas and new knowledge about good practices within regional economic policy. The idea is to pool analytical resources from each of the three metro regions and jointly build a solid fact base which the participating metro regions can drawn on in their regional strategy work. The analytical activities are co-funded equally by the three Nordic metropolitan regions and the Danish Enterprise and Construction Authority. The project has been led by a steering committee with representatives from the three metro regions while the analytical work, including this summary, has been carried out by FORA (The research unit of the Danish Enterprise and Construction Authority) and IRIS Group. Metro regions have become central nodes in the global economy. Even the most globalised industries and the largest multinational companies has a production process that is at least partly placed bound because of the combination of resources it requires ( ) increasingly, metro regions become strategic sites where much of the work of globalization actually gets done. Saskia Sassen Professor, Columbia University 2
Introduction - Analytical framework The aim of this paper is to present the key conclusions of the metro-region of Helsinki s performance on Human Capital and Knowledge Creation, Entrepreneurship and Clusters in the metro-region of Helsinki. The results presented are extracted directly from the main papers within the three areas and the related database. Thus, if a more indebt and comprehensive analysis is desired please direct the attention to the main papers within the three fields. The Metropolitan InC benchmarking model Regional prosperity Innovation & competitive clusters The paper is in particular indented to highlight the metroregion of Helsinki s key challenges constraining the region from achieving regional prosperity. Human capital Knowledge creation Entrepreneurship The figure illustrate how the three areas contribute to regional prosperity. The content of the each area of investigation are presented below, before turning to the analysis of the three areas. 1. Human capital concerns the access to highly skilled workers in the region. And it has to do with companies ability to manage and cultivate innovative organizations where the creativity of knowledge workers are utilized to the full. 1. Knowledge creation concerns public and private investments in research and development. And it concerns the quality of the educational system and public research. 2. Entrepreneurship is about the entrepreneurship activity and extent of high growth entrepreneurs in the region. Further it concerns the region s efforts to establish entrepreneurship education and venture capital funding for high-growth entrepreneurs, which are important parts of the entire ecosystem of entrepreneurship. 3. Clusters competitiveness and prosperity are the product of these framework conditions and thus the last section presented. These key areas will be applied to the metro-region of Helsinki in the order just presented. 3
1. Human Capital and Knowledge Creation Regional prosperity Competitive clusters Human capital Knowledge creation Entrepreneurship 4
Human Capital and Knowledge Creation Key indicators of human resources and knowledge creation in metro regions This section concerns human capital and knowledge creation in Helsinki. The three areas of concern are: 1. Regional performance Indicators under regional performance expresses to what extent the private businesses employ highly skilled workers, invest in knowledge creation and are capable of turning skills and new knowledge into innovations. The main indicator encapsulating this is private investments in R&D. 2. Regional framework conditions These indicators includes information on the access that private businesses have to new knowledge and highly skilled young people in the region. The key indicator in this area is public R&D expenditures. 3. Universities as drivers of growth in metro regions Regional embedded universities that are engaged in collaborative research with the private businesses and are capable of providing the skills that regional businesses need, are important drivers of growth in metro regions. Key indicator in this section is higher education institutions (HEIs) interaction with the business community in knowledge creation and sharing Please note that this section is an extraction of Helsinki s results from the human resources and knowledge creation paper and if more information in this regard is desired please direct the attention to that paper. 5
Human Capital and Knowledge Creation 1.1. Regional Performance (R&D expenditures) The private R&D expenditures in the metro-region of Helsinki is surprisingly lower than the country in general, and significantly lower than Stockholm and in particular Copenhagen, indicating that the metro-region of Helsinki employ to few resources on private R&D relative to GDP. Private expenditures on R&D is a key performance indicator for the knowledge creation that takes place in private companies in metro regions. Although, it is far from being a perfect indicator since it only captures a fraction of the total knowledge creation that takes place in private companies, it is an important indicator especially for metro regions which typically host a relatively large proportion of research based, knowledge intensive businesses. On other measures such as percentage of workers with a tertiary education or percentage of private employment of highly skilled workers Helsinki performs well, although Helsinki obtain fewer patents compared to Copenhagen and Stockholm See main paper on human capital and knowledge creation paper for more on this. 4,5 4 3,5 3 2,5 2 1,5 1 0,5 0 Figure 1: Private R&D expenditures in percent of GDP 2007 Copenhagen Region Source: Eurostat Stockholm Helsinki Berlin Hamburg Metro region Country Note: If a more narrow definition of the Helsinki Metroregion (Uusimaa and Itä-Uusimaa) is applied the private R&D as percent of GDP is 2,9 percent in 2007. 6
Human Capital and Knowledge Creation 1.2. Regional framework conditions (Public R&D expenditures) Helsinki s public R&D expenditure is at the same level as Stockholm and Copenhagen, and well above EU-15 average. Public expenditures on R&D is also an important regional framework condition for knowledge creation and innovation in regional businesses especially within high-tech sectors like biopharmaceuticals, ICT etc. Publicly funded research institutes, universities etc. help to attract and retain highly skilled people to the region and often serve as valuable collaborators for innovative businesses in the region. 2,5 2 1,5 1 0,5 Figure 2: Public R&D expenditure in percent of GDP 2007 On other measures, as students enrolled in tertiary education, number of PhD students, outgoing exchange students, net migration of young and restless, public sector R&D expenditure and international ranking of universities Helsinki also performs roughly at the same level as Stockholm and Copenhagen. See main paper on human capital and knowledge creation for more on this. 0 Berlin Stockholm Copenhagen Region Soruce: Eurostat Metro region Country Helsinki Hamburg Note: If a more narrow definition of the Helsinki Metroregion (Uusimaa and Itä-Uusimaa) is applied the public R&D as percent of GDP is 1,3 percent in 2007. 7
Human resources and knowledge creacon 1.3. Universities interaction with businesses (knowledge creation and sharing) The universities in the metro-region of Helsinki seem to lack interaction with the wider private community on various dimensions, in particular when compared to Stockholm. The survey shows that all three Nordic regions faces a challenge in establishing an infrastructure that facilitates knowledge transfer between universities and companies. This is a huge challenge for universities and regions all over the world. And it seems to be an obvious area for the three Nordic metro regions to do a joint analysis of best practise in order to develop recommendations for new policies and new initiatives. Not only when it comes to knowledge creation and sharing Helsinki lacks interaction, but also when measuring human resources Helsinki s HEI (higher education institutions) lacks interaction with the private community. See main paper on human capital and knowledge creation paper for more on this. Figure 3: UniversiCes interaccon with the business community on knowledge creacon and sharing Stockholm, Helsinki, Copenhagen Infrastructure that facilitate knowledge transfer between university and companies, public organisagons etc. Collaborate with other regional knowledge insgtugons to strengthen the communicagon of Engaged in a congnous formalized dialogue with companies or private and public organisagons on 100 90 80 70 60 50 40 30 20 10 0 Research acgviges in cooperagon with companies, private or public organisagons Commissioned research for companies or private and public organisagons Helsinki Copenhagen Region Stockholm Note: Index 100 indicates that all universities obtained the highest possible score. 8
2. Entreprenuership Regional prosperity Competitive clusters Human capital Knowledge creation Entrepreneurship 9
Entreprenuership 2.1. Performance Finland s enterprise birth rate was approx 2 pct. below EU average (10-11 pct.) in the years from 2002-2006, depicted by a snapshot of the birth rate in 2006 (see figure 4). Although the enterprise birth rate were low in 2006, Finland achieved a high rate of Gazelles in 2006, higher than other OECD countries, including Sweden and Denmark. 16% 14% 12% 10% 8% 6% 4% 2% 0% Figure 4: Birth Rate of Enterprises Percentage of firms established as a share of the total company base (2006) Source: OECD-Eurostat Entrepreneurship Indicators Programme. See Iværksætterindeks (2009) for data before 2006. The metro-region of Helsinki constitute a huge share of the total base of newly established firms (36 pct.), an image that holds true also when correcting for economical active persons (see figure 5). The pattern between the whole country and metro-region in their ability to establish firms is merely the same in the three regions, although Sweden experience a significantly larger gap between country and metro-region compared to Finland and Denmark. 18,0 16,0 14,0 12,0 10,0 8,0 6,0 4,0 2,0 0,0 Figure 5: Newly started firms per 1000 economically active persons (15+), 2007 15,4 13,2 14,2 16,6 12,6 12,1 Finland Denmark Sweden Metropol region Country Source: Statistics Denmark; Statistics Finland; Statistics Sweden, Nyföretagandet i Sverige 2008. 10
Entreprenuership 2.2. Entreprenuership Education in the metro-region of Helsinki In order to improve the entrepreneurship performance, e.g. establishing more enterprises and Gazelles, an area of interest should be the promotion of entrepreneurial higher educational Institutions (HEIs). Figure 6: Entrepreneurial HEI 4 dimensions The HEIs in Helsinki yet have to realise their full entrepreneurial potential at all dimensions. This becomes particularly evident when Helsinki is compared with EU-top 3 institutions. The four dimensions of concern are: The strategy dimension is based on where in the HEI the strategy for entrepreneurial activities is developed. In order to realize the full potential, the strategy has to be developed at top level by the headmaster or principal. The education dimension is based on two questions covering teachers and teaching methods. In order to realise the full potential, teachers should be experienced entrepreneurs or should have received continuous training in entrepreneurship, and the institutions must leverage teaching methods supporting entrepreneurial education. Outreach is based on questions assessing how much contact the HEI's in the regions have with stakeholders outside the institution. Institutional infrastructure is based on two questions dealing with the accreditation of entrepreneurial courses across the HEI's and facilities connected to the school, supporting entrepreneurial behaviour. In particular the HEIs in Helsinki are challenged when it comes to collaborating with the broader community in order to improve the HEIs entrepreneurship activities. See the main paper for more in-debt information concerning Helsinki s performance on the 4 dimensions. 11
Entreprenuership 2.3. Helsinki s venture market, metro-regions share of total venture capital Another important framework condition encouraging entrepreneurs establishing new businesses is the venture capital market and access to risk capital. The metro-region of Helsinki performs very well in attracting venture capital to the region as the Helsinki region attract 81 pct. of the total venture capital in Finland, including private equity, see figure 7. 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Figure 7: Metro-region's share of total venture capital investments 51% 58% Copenhagen (2008) Stockholm (2008) Source: Vækstfonden, SVCA and FVCA 81% Helsinki (2007) Note: Finnish data includes all private equity investments, and is therfore not directly comparable to the Swedish and Danish data. Although the metro-region of Helsinki attract a huge part of the venture capital funds relative to the rest of Finland, the venture capital invested relative to GDP is rather small compared to Stockholm and Copenhagen (see figure 8). This indicate that, if we consider the regional GDP-size, the metro-region of Helsinki should increase its venture capital investments to diminish the gap to Copenhagen and Stockholm, thus achieving a level that correspond to their GDP-level. Share of regional GDP Figure 8: Venture capital investments as a share of regional GDP, 2007 0,25% 0,20% 0,15% 0,10% 0,05% 0,00% 0,22% 0,18% 0,12% 0,09% 0,04% 0,00% Source: Mätmodellen, Länsstyrelsen i Stockholms län 2009 12
Entreprenuership 2.3. Helsinki s venture market, venture capital stages In total the venture market in Finland, viewing the three venture capital stages, has in absolute terms decreased slightly from 2005-2008. 100% Figure 9: Finland, venture investments by stage Since Southern Finland (Helsinki) attracts 81% of all venture capital investments including private venture fund in Finland, it is assumed that the numbers represent Helsinki fairly well. The average share of seed investments from 2005 to 2008 was 9 percent ( 16 M) of the total venture investments in Finland. From 2005 to 2008 the average share of start-up investments was 36 percent ( 61 M) of the total venture investments in Finland. Finland s share of start-up investments increased from 22 percent ( 53 M) in 2007 to 46 percent ( 63 M) in 2008. The average share of expansion investments was 55 percent ( 104 M), from 2005 to 2008, of the total venture investments in Finland. The share of expansion investments declined from 70 percent ( 168 M) in 2007 to 46 percent ( 62 M) in 2008 (see figure 9). Finland (i.e. Helsinki) performs slightly above EUaverage and Stockholm in share of seed capital, maintaining a constant level of seed capital since 2006 relatively to other venture capital stages (see figure 10). However the absolute level of seed capital has halved from 23 M to 11 M from 2005 to 2008. 80% 60% 40% 20% 0% 2005 2006 2007 2008 Source: FVCA Note: In 2008 Expansion were devided into Later stage Venture and Growth. Later stage venture has replaced Expansion in 2008. 20% 15% 10% 5% 0% Figure 10: Share of Seed investment of total VC investments Expansion Start up Seed 2005 2006 2007 2008 Copenhagen Stockholm Finland Europe Source: Vækstfonden, SVCA, FVCA and EVCA 13
3. Clusters Regional prosperity Competitive clusters Human capital Knowledge creation Entrepreneurship 14
Clusters Key indicators of cluster performance and competitiveness 1. Employment specialization Competitive clusters reap benefits of agglomeration economies in regions that offer a unique business environment for the cluster. Competitive clusters are large in terms of employment within their region relative to their competitors in other regions. Employment specialization is calculated as the proportion of employment within a cluster in Stockholm, Helsinki or Copenhagen relative to the proportion of employment for that cluster in all European metro-regions. If the proportion is equal to the average proportion for all regions, the employment specialization or the localization quotient (LQ) is equal to 1. 2. Human capital Knowledge is the key asset of competitive clusters in metroregions. Clusters that wish to stay competitive need to invest heavily in new knowledge and innovation. Competitive clusters demand for highly skilled employees is therefore high and rising. Human capital is measured as the proportion of employees within a cluster with a tertiary education. 3. Advanced knowledge Competitive clusters develop products and services with a very high knowledge content. To stay at the technological and entrepreneurial frontier clusters need to have access to and the capability to absorb the most advanced knowledge within their field. Advanced knowledge in clusters is measured as the proportion of employees with a PhD degree (or similar). 4. Productivity Competitive clusters are more productive than their competitors. They are able to pay higher wages and thereby contribute significantly to higher standards of living in their region. Average personnel costs, which add up the total remuneration payable by an employer to an employee, are used as a proxy for cluster productivity. 5. Exports Competitive clusters offer unique products and services which give them a strong standing on the global market. Competitive clusters have a high share of their world market. Exports and world market shares are measured at the country level for each cluster. 6. Foreign Direct Investments Competitive clusters make metro-regions attractive to foreign investors. As companies are increasingly sourcing knowledge from around the world, they look for ways to tap into the hidden knowledge of competitive clusters. Setting up operations within the regional cluster is one effective way of doing that. FDI is measured by the number of foreign direct investments made in each region. These six areas will be dealt with on the following slides. 15
Clusters The metro-regional economies Helsinki has a slightly higher employment ratio in traded industries and a slightly lower ratio in public services compared to Stockholm and Copenhagen (see table 1). The metro-regional economies display the same overall composition in traded industries, local industries and public administration & services with roughly a third of employment in each sector. Clusters only exist within traded industries if they sell their products and services on a global market. When a cluster serves a global market, its size as measured by employment and number of companies - can grow substantially within a region. Contrary to this, local industries are more constrained by the regional market that they serve. Table 1: Employment distribution in the metro-regions, 2006 Stockholm Helsinki Copenhagen Traded industries 338,000 275,000 295,000 Local industries 344,000 256,000 331,000 Public Service 305,000 205,000 299,000 Total 1,000,000 752,000 930,000 Traded industries 34% 37% 32% Local industries 35% 35% 36% Public Service 31% 28% 32% Source: Register-based labor force statistics and own calculations Helsinki has a higher share of employment in traded industries than Stockholm and Copenhagen, while the latter two have a relatively high share of employment in public services The share of employment in traded industries is, however, a very coarse measure of metro-regional advantages. A closer look at clustering in the traded industries provides a more comprehensive picture of regional specializations and advantages (see also main cluster paper for more in this regard). 16
Clusters 3.1. Employment gains of specialized clusters 2000-2006 Helsinki hosts by far the most specialized Communication cluster in Europe, with Nokia as the spearhead of the cluster. Table 2: Helsinki s specialized clusters, 2005 Employment Specialization Communication equipment 13,100 4.4 Information technology 18,900 1.9 Medical devices 3,200 1.9 Power generation & transmission 3,300 1.7 Source: European Cluster Observatory and own calculations Helsinki also holds a leading European position within IT. IT is the largest specialized cluster in Helsinki, and considered jointly with communications, ICT remains very strong in Helsinki. Besides these well-known cluster strengths in Helsinki, the benchmark shows that Helsinki has two smaller specialized clusters; Medical devices, and Power generation & transmission. The Transportation & Logistics, and in particular the Communications, Power Generation & Transmission clusters have gained significant employment shares since year 2000 (see figure 11). Biopharmaceuticals and especially the entertainment cluster have decreased its employment shares since 2000. Figure 11: Dynamics of cluster employment in Helsinki in relation to Stockholm and Copenhagen Helsinki s share of cluster employment in the three Nordic metroregions (31%) Change in Helsinki s share of cluster employment in the three Nordic metro-regions (1%) Source: Register-based labor force statistics and own calculations 17
Clusters 3.2. Skill level of clusters Human capital The specialized clusters in Helsinki are more knowledge intensive than in both Stockholm and particularly Copenhagen and way more knowledge intensive in general compared to other sectors in Finland (see table 3). As they are located in some of the wealthiest regions in Europe, one of the main drivers of cluster competitiveness in Helsinki, Stockholm and Copenhagen must be human capital. To stay ahead in the global market place, clusters have to constantly upgrade their skill levels to commercialize advanced knowledge. Table 3: Share of highly skilled workers, 2006 Stockholm Copenhagen Helsinki Specialized clusters 37.2% 31.7% 42.8% Non-specialized clusters 23.1% 26.9% 24.9% Local industries 16.2% 14.9% 16.3% Public Services 40.5% 47.7% 39.8% Total 28.0% 29.9% 27.2% Note: Highly skilled workers are defined as workers with an education classified as ISCED 5A or 6. 5 Generally this means that highly skilled workers has a post-secondary degree of at least three years. Source: Register-based labor forces statistics and own calculation Advanced knowledge The competitiveness of the specialized clusters is closely tied to the creation and exploitation of knowledge. This drives up the clusters demand for advanced knowledge. The share of PhD s is an indicator of clusters exploitation of advanced knowledge. Although the share of highly skilled workers in specialized clusters is high the percentage of PhD in Helsinki (2000 PhDs) is lower than both Copenhagen (2,400 PhDs) and Stockholm (3,800 PhDs). Further it seems that Helsinki should train more PhD s in areas that are in demand from the industry as the stock is high but the penetration rate in the private sector is quite low (see table 4). There are 15,500 PhD s employed in Stockholm, 11,500 in Helsinki and 7,000 in Copenhagen. Generally most PhD s find a job at a university or at other public service institutions. The majority of PhD s that find a job in the private sector, find it in a cluster. The specialized clusters have by far the highest share of PhD s in the private sector. Table 4: Share of PhD s, 2006 Stockholm Copenhagen Helsinki Specialized clusters 1.6% 1.4% 1.3% Non-specialized clusters 0.8% 0.6% 0.6% Local industries 0.3% 0.1% 0.3% Public services 3.4% 1.5% 4.1% Total 1.6% 0.8% 1.5% 18 Source: Register-based labor force statistics and own calculations
Clusters 3.3. Highly skilled workers in specialized clusters Helsinki has the highest share of highly skilled workers in most specialized clusters, Copenhagen and Stockholm only having a larger share of highly skilled workers in the Biopharmaceuticals and Business Services cluster (see table 5). A recent study has shown that when companies increase the share of highly skilled employees with 1%, their productivity increases with 1%. This is a welcome reminder of the importance of highly skilled workers for the economic performance of clusters. Stockholm, Helsinki, and Copenhagen are generally specialized in knowledge-intensive clusters. The share of highly skilled workers in ICT, Life sciences and Business services is high, cf. table 5. Table 5: Share of highly skilled workers in specialized clusters, 2006 Stockholm Copenhagen Helsinki Communications 50,7% 27,7% 56,8% equipment Information technology 38,1% 36,9% 40,5% Biopharmaceuticals 37,9% 42,8% 35,1% Medical devices 28,9% 28,3% 32,4% Business services 37,3% 37,1% 29,9% Entertainment 16,8% 22,4% 22,5% Transportation & logistics 14,4% 13,0% 17,3% Power generation & transmission 31,2% 26,3% 32,6% Source: Register-based labor force statistics and own calculations 19
Clusters 3.4. Wage levels and growth in specialized clusters Helsinki pays a significant wage premium in communications and IT, higher than both Copenhagen and Stockholm. This indicate that these clusters are more competitive than the two other metro-regions (see table 6). Generally Helsinki have had an annual average growth in wages considering all industries of 3,7 pct. from 2000-2006, higher than both Copenhagen (3.0 pct) and Stockholm (1,2 pct). Thus the personnel costs growth in Helsinki s specialized clusters has naturally also been affected (see table 7). Table 6: Average personnel costs in specialized clusters as a percentage of average personnel costs in all clusters, 2000-2006 Stockholm Copenhagen Helsinki Communications 123% 96% 131% equipment Information technology 117% 117% 120% Biopharmaceuticals 139% 111% 109% Medical devices 99% 91% 94% Business services 93% 107% 91% Entertainment 79% 99% 78% Transportation & logistics 96% 99% 101% Power generation & transmission 119% 104% 115% Note: Data for Communications equipment in Stockholm are from 2004. Source: Structural Business Statistics and own calculations Communications, IT, and Power generation & transmission register significantly higher real wage growth rates than their Nordic peers. Only medical devices a small cluster in Helsinki - registers moderate growth rates of 2.7 pct. compared to 4.1 pct. in Copenhagen (see table 7). In total Helsinki had a wage growth of 5.5 pct. in specialized clusters. In comparison Copenhagen experienced a moderate increase (3,0 pct) and Stockholm a constant development (0,0 pct). Table 7: Annual average growth in personnel costs in specialized clusters, 2000-2006 Stockholm Copenhagen Helsinki Communications -1.5% 2.9% 6.2% equipment Information technology 0.7% 3.1% 4.6% Biopharmaceuticals 2.4% 3.7% 3.7% Medical devices -0.4% 4.1% 2.7% Business services -2.3% 3.1% 2.6% Entertainment 1.6% 3.2% 2.9% Transportation & logistics 1.0% 2.9% 4.3% Power generation & transmission 2.2% 4.3% 5.4% Note: Data for Communications equipment only for the time period 2000-2004 in Stockholm. The Swedish Krona devalued 8.6% between 2000 and 2006, equivalent to 1.4% per year. Source: Structural Business Statistics and own calculations 20
Clusters 3.5. Finnish cluster exports and 3.6. FDI The change in the clusters world market share from 1997-2007 is unaffected, only business services realizes an increase. The communications cluster and the business service cluster constitute by far the largest export value. Figure 12: Finnish cluster exports in selected clusters The Finnish clusters do not show the same dynamism as the Swedish clusters. The global market position of most clusters have remained the same over the last decade. Only business services has experienced increasing world market shares, cf. figure 12. The data suggest that of Helsinki s specialized clusters, only communications equipment has a strong standing in the global market as it constitute a large export value and has been taking up a significantly larger world market share since 1997. Finland s share of world market (0.7%) Helsinki s ability to attract FDI seems weak, as Copenhagen and Stockholm from 2006-2008 respectively attracted 155 and 137 investments whilst Helsinki only attracted 51 investments indicating that Helsinki might be less attractive than their Nordic peers. Change in Finland s share of world market (0.0%) Figure 13: Incoming foreign direct investments, 2006-2008 Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School 21