European Commission - Directorate-General for Ente : An analysis to develop public funding/aid instruments for service sector companies in Finland

News

A recent study has provided new valuable information about the use and functionality of public aid as well as public private equity funding in service sector companies. The project, commissioned by the Service Sector Employers PALTA, included an analysis of Statistics Finland's database of public aid, an electronic survey for service sector companies, interviews and international benchmarking.

The key findings include the following:

1. The service sector share of public funding is approximately 23 %, corresponding to €417m. The amount of support per company (at the service sector) is below that of companies on average 

•  Finnvera (a specialised financing company owned by the State of Finland) is the largest funder also in the service sector, but the share of funding received by service sector companies is clearly smaller than businesses on average. The service sector companies receive more funding from the Finnish Funding Agency for Technology and Innovation (Tekes), on the other hand, than businesses in general.

2. The overall availability of funding is good, but there is room for improvement in its functionality. The challenges are the same as elsewhere: bureaucracy, complexity of the field of funding, administrative burden, (lack of) flexibility of funding etc.

• The service sector is faced with a challenge in acquiring guarantees (immaterial property rights, selling of an idea), especially in applying for a loan (it is difficult to be granted a loan without guarantees)

3. Differences were observed within the service sector in needs as well as targets of funding.

• For instance the software industry (comprising 62, 4 % of service sector companies) has received more than 40 % of all Tekes support for the service sector. The industry has also been able to attract significant amounts of venture capital (= funding markets work reasonably well)

• In some fields (e.g. debt collection agencies, social and healthcare services) other means of support seem to be more important, including indirect public support, public procurement in particular as well as other measures supporting the entry to the market (for instance support for testing of services).

• These themes were highlighted in the benchmarking examples from Denmark and Sweden. Public procurement is also present in Finland for instance through a number of Tekes programmes (e.g. Witty City and Smart Procurement).

4. Service sector is a significant target for investments, and the importance is increasing. Currently the service sector accounts for 20% (Finnvera + Industry Investment) of all public venture capital investments. The share of public venture capital investments of all venture capital investments is most significant in the venture phase (early stage risk funding) whereas it is smaller in the buyout phase (acquisition of companies).

5. There are notable differences between industries in the service sector. Investments tend to focus on a few industries (especially software and electronic services that are linked to technology-based scalability)

• It is common that many service companies do not comply with the eligibility criteria of venture capital funding. This is often related to protecting and adding value to immaterial property.

The analysis concluded that in the future the funding should be focus more effectively to specific industries, which support the renewal of industrial structures, are potential growth industries and/or in which the leveraging effect of public funding is significant. It is also important to pay attention to field-specific characteristics (e.g. investment readiness of companies, IPR issues). Recommendable activities include both supply-side activities like research and innovation funding, combination of various forms of funding (syndicate funding), and demand-side activities such as support for public procurement and piloting of service concepts (cf. Denmark and Sweden).