Kuva: Patrik Rastenberger

Published December 23, 2012

Keys to sustainable competitive advantage

Writer
Leading Specialist, Strategic Research, Sitra

Finland has a strong tradition of macroeconomic policies. Monetary, financial and income policies have dominated economic discourse for years. When the current financial crisis hit, answers were first looked for in macroeconomic recovery of demand, while the real causes of the crisis were structural. These attempts only served to increase public debt and postpone the necessary structural changes. At the same time, the competitiveness of the Finnish national economy has deteriorated and current accounts are negative.

Public discussion of the competitiveness of the Finnish national economy traditionally emphasises production costs, investments and macroeconomic stability. The current competitive advantage crisis is no exception. Public economy deficit, employment rates, interests, taxes, pay levels and the price of energy still hoard the main attention in the statements of Finnish decision-makers and experts.

These are important factors, but Finnish companies cannot build sustainable long-term competitive advantages on them alone. Long-term success cannot be based on low costs, if we wish to maintain our high standard of living. Finland’s competitive advantage must be based on the production of goods and services with superior added value. Political and economic discourse should focus on the creation of added value – and not ignore cost discipline either.

Business, innovation and science politics hold the key to the development of Finland’s competitive advantage. The most important competitive factors of a national economy are information and competence, new technologies, innovative organisations, highly evolved demand and competition factors, international business operations, a functional regulatory environment, and a reliable public administration with the ability to change and adapt.

Business and innovation politics that focused on traditional industrial clusters and the general operating environment of businesses worked well until the current financial crisis and changes in economic structures. Strong export clusters received the necessary support to develop their operations and maintain their competitive advantage. Globalisation of the key companies within these clusters has, however, led to the deterioration of their domestic networks, as operations have been moved closer to the market or to countries with lower cost levels. Rapid changes in economic structures create new challenges for business and innovation politics.

Radical changes in the global economy emphasise the importance of agile economic structures. Finland needs a strong and versatile commercial and industrial life to avoid being left out as the relative competitive advantages of global regions continue to change. New competitive operations and fields should be created to replace lost business. This is not possible without the support of the public sector, as the competitiveness of companies also depends on the quality of their operating environment. Strategic decisions to support new business opportunities are required. Finnish decision-makers have long been hesitant to make such decisions, fearing making the wrong choices. New opportunities have also lacked the strong advocates that the traditional industrial clusters have had.

The time is now ripe for shifting the emphasis of the economic discussion towards the prerequisites for value creation and economic restructuring, instead of solely focusing on cost factors. In an uncertain world, this requires an increasing number of bold experiments, in which the private and public sectors join in the search for new business opportunities in the international market, using Finnish strengths and entrepreneurial attitudes as a stepping stone, and making strategic investments to further exploit the most promising opportunities.

The experiments should be chosen based on detailed analysis and the best possible understanding of international business. They should also be given up quickly if they fail to show adequate promise of success. This would help minimise unnecessary risks even when some conscious risks were taken in order to develop new areas of growth. Lessons for new experiments could also be found abroad, for example in Asia or South America, where several countries have engaged in determined politics to create a new foundation for the economy.

In Finland, the public sector is probably the area with the greatest abundance of unused top competence and resources, since the creation of new business has not been a traditional objective. In this respect, the Finnish welfare state and its high quality of skills in particular are an interesting example of new opportunities. The popular belief is that well-being and economic competition are conflicting interests; this is not, however, necessarily the case.

The value of products and services is ultimately created by their impact on the user’s well-being. Finland has top quality service competence, public administration operations, technology, business, and research on the well-being of individuals and communities. Through the further strengthening of these competencies Finnish companies can achieve the best possible prerequisites for the development of products and services with high degrees of added value.

The potential market for the well-being business is huge. All the seven billion inhabitants of the world are interested in improving their well-being. World class competence in our well-being would also help political decision-makers develop even better living environments for Finns. Good life, top well-being competence and an innovative operating environment would also attract investments and experts from international companies to Finland. The business opportunities in the field of well-being business can also be ecologically sustainable, as they mainly concern people’s immaterial needs in developed countries.

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