Finnish IT sector demand increases after months of decline
IT sector in Finland sees small signs of recovery as demand increases after months of Covid-19-related decline
Fears that the economic impact of the Covid-19 pandemic could trigger a significant weakening of Finland’s IT sector are subsiding thanks to more government support and an increase in orders.
Finnish technology sector optimism represents a seismic shift from mid-year 2020, when IT company chiefs were sounding dire warnings regarding a potential long-term slump that could lead to 10,000 Covid-related job losses.
The alarm bells signalling a possible sustained slump in orders and investment were rung loud by the Federation of Finnish Technology Industries (FFTI/Teknologiateollisuus), the country’s main lobbying organisation for IT companies, during the second quarter of 2020. The FFTI’s 1,600 member firms were becoming increasingly agitated in the face of shrinking orders in key European and world markets as the impact of the pandemic on the global economy intensified.
The anxiety felt by Finnish IT companies over the delayed recovery in demand and orders was amplified as the third quarter of last year approached. Many firms started to look at ways to trim their payrolls as the pandemic caused order levels to drop.
A survey conducted by the FFTI in October 2020, which examined business performance by technology companies in September, revealed that 47% of the industry organisation’s IT members, some 579 companies, reported that they had yet to experience the worst in the fall-off in orders due to the Covid-19 pandemic. By contrast, 33% of IT firms expressed the same fear a few months earlier, in August.
Around 28% of IT companies in the FFTI October 2020 survey attributed the prevailing slow demand directly to Covid. IT sector CEOs identified the pandemic as a serious factor that was hampering their business development. The comparable figure for August was 24%.
At the end of September, some 40,000 employees were affected by lay-off procedures in the IT and technology sectors. The value of order books by the end of the third quarter was 1% below the previous quarter, and 4% lower than in the corresponding period in 2019.
Finland’s technology enterprises had 308,000 workers on their payroll at year-end 2020. This was 7,000 fewer than at the industry’s peak in 2019.
Accelerating trajectory curve
Of particular concern for Finnish IT companies was the possibility that the pandemic’s trajectory curve might accelerate to undermine economic recovery in Europe in 2021, said Petteri Rautaporras, chief economist at the FFTI.
“The September 2020 survey was an indicator that demand had not recovered in Finland,” said Rautaporras.
“It was important to ensure that self-supporting export companies, essential for Finland’s well-being, were not left behind by the pandemic. The cost support for companies needed to be expanded, and the criteria for support revised to also cover export companies. Measures from both the government and the labour market were also needed to strengthen competitiveness.”
By year-end 2020, industry data collated by the FFTI indicated that the coping mechanisms implemented by Finnish IT firms after March 2020 were working successfully to stem the tide in the loss of talent and need to prune payrolls.
As a result, the mood among technology firms delivered an upswing in confidence as large companies and SMEs responded to emerging signs of recovery and the promise of increased orders and recruitment in 2021.
Read more about Finland’s IT sector
- Finland’s IT sector has rebounded strongly in the aftershock of Microsoft’s takeover of Nokia’s mobile phones and smart devices business units in 2014.
- Finland is moving ahead with an ambitious plan to create a nationwide network of digital innovation hubs in partnership with the European Union (EU).
- Regional development organisations in Finland describe how despite massive job cuts Nokia and Microsoft have provided the foundations for IT industry development.
Despite elevated prospects, the FFTI remained worried over the capacity of some IT firms, especially in the SME sector, to exit the Covid-19 generated business slump in good shape.
In a bid to bolster business confidence and the financial stamina of struggling SME IT suppliers, the FFTI’s CEO, Jaakko Hirvola, opened a collaborative dialogue with the Finnish government to back the accelerated roll-out of an enhanced capital support programme in the first quarter of 2021.
The Finnish economy, said Hirvola, could not afford a situation where fundamentally healthy IT and tech businesses were either allowed to fail or be forced to cut their production capacity. “It is important to build faith into the future across the board,” he said.
The first clear indicator that Finland’s technology sector was turning a corner in the pandemic setback came in the form of a healthier new order intake over the fourth quarter of 2020. Moreover, IT firms were also seeing a rise in the number of contract tender requests.
A business confidence survey conducted by the FFTI in January found that the pace of recovery in Finland’s technology sector, and in manufacturing globally, was ahead of expectations. Although the long-term outlook remained clouded in uncertainty, the survey revealed that fewer Finnish IT firms were experiencing weak demand.
Projected turnover
Reflecting the degree of continuing uncertainty among Finnish IT- enterprises, the FFTI survey found that just 40% of companies in the technology sector expect their turnover in 2021 to rise above that in 2020.
“The overall situation is similar to that of twelve months ago. Based on preliminary data, the turnover of companies in the Finland’s technology sector was around €83bn in 2020. This represents year-on-year increase of almost 2%. Considering the difficulties faced in 2020, this is very welcome news,” said Rautaporras.
The magnitude of the Finnish IT- sector’s turnaround in the fourth quarter of 2020 is underscored by a higher value of orders during the months of October, November and December. The increase was up to 60% higher than in the preceding quarter for some IT- companies, and up to 21% above the corresponding last quarter period in 2019.
The improved order intake in October-December benefitted companies of all sizes and in all of the key technology industry areas in Finland. The unanticipated rate of recovery was partly driven by a number of large contracts in the fourth quarter. At the end of December, the value of order books for Finnish technology companies was 10% higher than at the end of September 2020, and 4% above the level that prevailed in December 2019.
The Finnish technology sector must keep a “cool head” despite the welcome pick-up in demand, said Hirvola:
“The global economy is recovering, and we will face intense international competition. To be able to hold our own, the EU stimulus funds should be allocated boldly to effective initiatives that promote renewal and drive green transition, digitisation and export activities. We need to draw on our strengths in the areas of digitalisation and sustainable development, and increase the level of research, development and innovation funding to the target levels set by the government without delay.”
