Jouko Huju of GMBA Finland: do governments have a role to play in the joint internationalization projects of SMEs?

I would venture to estimate that Finnish export promotion turned 100 last year. The Finnish Foreign Trade Association, founded by a handful of companies hoping to jointly promote their internationalization, was established as far back as 1919. Without wading too deep into history, we can probably trace the existence of government-backed export promotion to the 1970s.

Yours truly was first involved in a joint export promotional project produced in this manner in 1978. The last such venture for me took place in 2018. In these four decades, I have personally been involved in planning and producing about 250 different events aimed at internationalizing Finnish SMEs. Not that the exact figure matters greatly, but it can perhaps give a sense of just how familiar I am with this realm of business.

The first 20 – 30 years of Finnish export promotion were defined by close sector-wise collaboration. There were groups for mining, forest and agricultural machinery, a separate group for the maritime industry, and tens of others. Together, these companies would plan up to one year ahead on joint projects. The sgovernment would then usually bear 50% of the costs. In this way, it was viable for companies to commit themselves to projects, not least because their financing occurred on a predictable basis. In some years, over 3,000 companies participated in a variety of events. Since they took place worldwide, Finnish companies also benefited from increased and sustained visibility, leading to growing international brand recognition. Thus, when we assess the importance and efficacy of export promotion, it is worth doing so from a long-term perspective which considers decades worth of experience, and asks the counterfactual question: what might the degree of internationalization among Finnish industries be today, had it not been for these forms of support and subsidy?

Thus, two basic points are worth emphasising. Firstly, the purpose of export subsidies is to encourage entrepreneurs to take their business international. Risk-sharing empowers entrepreneurs to take this step. Secondly, each participating SME gains visibility for themselves which they could never have achieved on their own.

The current state of public finances is tight and joint projects are receiving less and less support. At one point, a few years ago, the government even considered abolishing export subsidies altogether. In my opinion, it is financially more viable for governments to maintain levels of employment and product development in the form of export promotional subsidies to the SME sector than to cut such subsidies and be faced with growing unemployment. One thinks, for example, of the question of unemployment, and the role that export subsidies might play in alleviating it.

Export subsidies have always met with unfailing support among the Finnish business community. When one reads the prefaces to research articles done on the matter, what is also striking is the prevalent belief inside Finnish state bureaucracy that such activities are, from the perspective of the state, a well-founded and cost-effective means of pursuing Finnish economic policy. The responsible ministry itself has stated that the future prosperity of the country is entirely dependent on the levels of general knowledge, innovation, and adequately rapid internationalization in its private sector. Nothing has changed in this regard. Therefore, there also continues to be a well-founded role for the state as a strong player in the internalization of the SME sector in particular.

And yet the predictability of export subsidies has suffered under government cuts. There have been years in which export schemes were cut by up to five million euros halfway through the funding period. The changing provisions, resulting from the grants being cut, have also scared away potential participants in various internationalization schemes, and hampered the successful completion of existing schemes.

The internationalization grants awarded for joint ventures are a very effective form of subsidy, in that firms will already have needed to employ their own resources to develop their product or service before receiving such a grant. In the last two decades, considerable resources have been allocated to research, development and innovation in Finland, but there has been no commensurate investment in the sales and marketing of the resulting products and innovations.

For the health of the Finnish economy, supporting and financing the internationalization efforts of SMEs is just as vital as investments in research, development, and innovation. Internationalization grants which underwrite the joint projects of Finnish companies answer this need. In order to align industry needs and resources, it is imperative to get subsidy-granting organizations and SMEs around the same table.

Thus, to answer the question posed in the headline: it is my professional opinion that the state does, indeed, have a vital role to play in supporting the SMEs of our small national economy, as they seek to join global markets.

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