Searching for the micro multinationals A PwC report on behalf of Microso! and Baltic Development Forum !"#$ Jon Arwidson, Patrik Dreber, Magnus Kolsjö et.al. 2014-05-20 Foreword The countries in the Baltic Sea Region (BSR) have business to new markets. But also to inspire key established themselves as front runners in many policy makers and businesses cross borders to aspects of the ICT sector. Over the last decade join forces and to act on some of the concrete they have succeeded in a!racting huge foreign policy recommendations. direct investments in this highly competitive sector. The BSR is still among the world leading Launched together with this report at the BDF ICT regions with high level competences, talents, Summit in Turku, Finland, June 2014, “Top of start-ups, and track record. However, as we are Digital Europe” welcomes partners within busi- entering a new era with new challenges and ness, politics, academia and other actors with an tougher global competition, how can the BSR interest in ICT as a driver for growth and com- maintain and further develop its leading role? petitiveness in the Baltic Sea Region and beyond. There is a need to focus on joint business-society This report is elaborated by PriceWaterhouseC- opportunities and take action on key areas ooper (PwC) in Sweden, Finland, Estonia and within the digital economy to continue to be Denmark, on behalf of Microso" and BDF. PwC internationally competitive and further growth is responsible for the report, except for foreword the potential. and a"erword. An Advisory Group for “Top of Digital Europe”, key representatives within the On the initiative of BDF and Microso" the digital sector in the region, has contributed with Top of Digital Europe was launched at the 16th Baltic regional ICT think tank “Top of Digital Europe” comments to the policy recommendations. Development Forum Summit in Turku, Finland, 3-4 June has been established to support and promote the 2014. Top of Digital Europe is part of Baltic Development Forum (BDF) that has for years been driving ICT policy Baltic Sea Region as a leader in the ICT sector. The work is conducted by Microso" and BDF. discussions in the Baltic Sea Region. “Top of Digital Europe” is a neutral, non-profit Joakim Lundblad, Chamber of Industry & Com- think-tank. It facilitates dialogue on how the merce in Southern Sweden, has given priceless www.bdforum.org region’s role can be strengthened and provides support and advice to the scope and content to concrete recommendations as to how this role the report. can be pursued and how to further fuel the digi- tal economy. Hans Brask This report is the first delivery from “Top of Director, Baltic Development Forum Digital Europe”, and is a study on the state and ecosystem of ICT-related start-ups and SMEs, the Nanna-Louise Wildfang Linde so-called “Micro-multinationals” in the Baltic Assistant General Counsel WE-N, Microso! Sea Region. It is a first and much needed step towards a be!er understanding of the potential within the fast growing digital market. Our hope with the report is to put a spotlight on some of the growth barriers and opportunities of SMEs in the ICT sector and the challenges they are facing when they want to expand their ICT SME REPORT 4 Executive Summary Contents page 4 page 25 1 6 The global market place has changed dramati- recommendations, there are three initiatives that cally for smaller and mid-sized companies with we would like to highlight below that we believe Introduction to the Study Estonia and Tallinn the evolution of the Internet. Today, almost any will be of greater benefit to help ICT SMEs to company can potentially sell its products and grow within the Baltic Sea Region: 6.1 Key Findings page 5 services anywhere in the world. With Internet as 2 6.2 Characteristics and A!itudes of the Interviewed Companies a channel for sales, marketing and production, “Baltic Sea Region Information 6.3 The General Business Environment small and medium-sized companies can expand Society Business Academy” Brief Description of our Approach 6.4 ICT SMEs their business across the globe and become a so- An academy for SME employees that primarily 6.5 Innovation called “micro multinational”. aims at further developing ICT-related niche 2.1 Definition of the ICT sector 6.6 Public Policy and Support competencies, but also to enable cross border 2.2 The Desktop Studies 6.7 Perceived Obstacles for ICT SMEs and Potential Micro The ICT-sector has a relatively large number of networking within the sector. This academy 2.3 The Interviews Multinationals micro multinationals. The aim of this study was should be a cooperative e"ort between existing 3 page 7 page 31 to learn more about the entrepreneurial envi- universities and private companies, whereby the 7 ronment within the ICT-sector in order to be!er training takes place in di"erent Baltic Sea Region understand how public policies in the Baltic Sea countries, and should include a large number of Sweden and Malmö European Initiatives to Support Region could enable and strengthen the ICT virtual courses. Digitalisation and SMEs related SMEs’ growth. The countries in scope for 3.1 Key Findings this study were Sweden, Finland, Denmark, and Baltic Sea Region crowd 3.2 Characteristics and A!itudes of the Interviewed Companies 7.1 The Digital Agenda for Europe Estonia. funding platform 3.3 The General Business Environment 7.2 The Innovation Union Financing at early stages in the business life 3.4. ICT SMEs 7.3 The Small Business Act for Europe The results of the study indicate that there are cycle, so called “seed financing”, is a perceived 3.5 Innovation 7.4 Networks and Exchange Programmes several cross border obstacles which SMEs in the problem for many SMEs. We, therefore 3.6 Public Policy and Support 7.5 Information and E-services studied countries face on their way to becoming recommend that a Baltic Sea Region crowd 3.7 Percieved Obstacles for ICT SMEs and Potential Micro page 33 international. Some examples of these findings funding platform is implemented, commi!ed to Multinationals 8 are: SMEs in the region. This platform should then 4 page 13 operate on a multinational level to promote Baltic Observations Di!culties in finding competence on Sea Region SMEs. the labour market and securing highly Denmark and Copenhagen 8.1 Introduction specialised skills. Tax reduction for business 8.2 Key Observations support services 4.1 Key Findings 9 page 35 A need for extended understanding of In order to facilitate the access to, and use, of 4.2 Characteristics and A!itudes of the Interviewed Companies and connection with other markets. business support services that SMEs need to 4.3 The General Business Environment grow their business into a micro multinational 4.4 ICT SMEs Cross Border Recommendations Di!culties in obtaining seed financing we recommend a tax reduction for the SME that 4.5 Innovation and financing for the development or uses these services. The idea is inspired by the 4.6 Public Policy and Support 9.1 "Baltic Sea Region Information Society Business Acadamy" realization of new tax reduction currently available, for example, 4.7 Perceived Obstacles for SMEs and Potential Micro 9.2 Lower Requirements for European Blue Card products or ideas. in Finland and Sweden where people who hire Multinationals 9.3 Bring a SME Abroad services for repairs, conversion, and extension 9.4 Peer-to-Peer Coaching Network 5 page 19 A need for a"ordable business or cleaning, maintenance and laundry can have 9.5 Cross Border Business Checks support services within such areas as a tax reduction of a certain percentage on the 9.6 Baltic Sea Region Crowd Funding Platform accounting, legal advice, labour costs, limited to a certain amount. Finland and Helsinki 9.7 Improved Public Services for SMEs and marketing. 9.8 Tax Reduction for Business Support Services 5.1 Key Findings A central cross border finding is also comprised 5.2 Characteristics and A!itudes of the Interviewed Companies of the fact that a number of the interviewed 5.3 The General Business Environment References and Sources SMEs, regardless of the sub-region, do not, at 5.4 ICT SMEs pages 38 - 40 present, have the intention or wish to grow or 5.5 Innovation expand their businesses. This is an important 5.6 Public Policy and Support Apendix A - Methodology finding as public policies in such cases may not 5.7 Perceived Obstacles for SMEs and Potential Micro page 42 have the desired e"ect on the ICT sector. Multinationals Apendix B - Interview Questionnaire Based on our findings, we have suggested eight page 47 cross border recommendations in order to fa- cilitate and stimulate the international growth of SMEs in the ICT-sector. Among the eight 2 ICT SME REPORT ICT SME REPORT 3 Introduction to Brief Description the Study 1 of our Approach 2 A few decades ago the global market places were Our approach in this study has been to conduct In accordance with the Commissioner’s request, PwC has dominated by larger corporations; size ma!ered a country analysis for each of the four regions in conducted this study in two parallel work streams, a desktop study when starting up activities in new countries. A scope, Sweden, Finland, Estonia, and Denmark. per country; Sweden, Denmark, Estonia, and Finland, as well physical presence was o#en needed in order to The individual country analysis is based on a as through 30 interviews with local entrepreneurs in each of the complete sales transactions across borders.