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Honeywell invests in sensor technology center in Finland
GOOD IMAGE ATTRACTS GOOD MONEY

For more than ten years Finland has been developing into one of the world’s most competitive countries. Its good image in the field of technology and networked research infrastructure are particularly attractive to R&D operations and investment in them.

Varkaus is a small town in eastern Finland situated in the region that has the highest density of the country’s numerous lakes. The population there totals 23,000 and, unlike most of the neighbouring municipalities, it is on the rise. An increasing number of jobs are in foreign companies.

In the past the town’s location near a watercourse created the conditions for a growth in transport, trade and industry. A few decades ago the power of the waterfalls was a powerful reason for investing in the area’s industry. Today the most powerful reason is know-how.

The Ahlström Corporation is to a great extent responsible for building Varkaus up into an industrial town. As the industrial traditions are old, stretching way back to the beginning of the nineteenth century, the town is perceived as a centre of smokestack industry. For example, paper is still produced there, and other traditional industry has retained a strong presence, but the companies in the area have not found it difficult to regenerate. New jobs these days are generally to be found in design and product development.

In many cases the ownership of the companies has changed hands. For example, the American Honeywell came to Varkaus in 1992 and acquired Altim Control Oy, an Ahlström company that was developing and producing sensors. Nor was Honeywell the only newcomer: corporate acquisitions led to the arrival of signs with foreign names such as Tellabs, Foster Wheeler, Hartmann and Andritz.

The biggest seller in the area has been Ahlström, which at the end of the 1980s and in the 1990s disposed of much of its business in order to focus on its core activities. Two researchers, Raimo Lovio and Jari Jääskeläinen, summed up the change in the town with the publication of a book that came out in the spring of 2003 and is aptly entitled ‘Globalization comes to Varkaus’.

Vast improvement in competitiveness

When Finland was gripped by the deep recession in the initial years of the 1990s, the country recovered almost as quickly as it had succumbed. Companies that had fallen on hard times instilled new belief into their organizations and operations. The measures were in most instances very harsh, dictated by the situation, but during the ten years or more since then Finland’s competitiveness has improved tremendously.

In recent years Finland has repeatedly come out top of various surveys comparing competitiveness worldwide. For example, the Institute of Management Development’s (IMD) World Competitiveness Yearbook, which was published in May 2003, placed Finland first out of the countries with a population of less than 20 million. The IMD, which is located in Switzerland, is one of the world’s leading business schools, specializing in developing the management skills of international companies.

In 1992 Finland was placed second, with only the United States ahead of it. The difference with 2003 was that in 2002 small and big countries were calculated in the same category.

Direct investment by companies abroad has grown enormously throughout the world in recent decades, but competition for these increasing amounts of cash flow is also extremely fierce.

Finland has become an interesting target for capital investment, partly as a result of the enhanced competitiveness. Most often the first reason mentioned for investing in Finland is the research and development infrastructure developed at companies, i.e. the know-how.

These days more than 200 foreign companies come to Finland annually. Of these, 30 to 40 per cent establish new operations here, while the rest come via acquisitions, according to Invest in Finland, which was set up in 1992 by the Ministry of Trade and Industry to promote the channelling of foreign capital to Finland.

The unit was established because the regulation of foreign investment was abolished at the beginning of 1993. Whereas in 1992 there were about 1,000 companies under foreign ownership operating in Finland, the number today has more than doubled. Now these companies, some 2,500 in number, employ well over ten per cent of the Finnish workforce.

Honeywell trusts in know-how

Foreign companies are not investing so much in production in Finland; rather they are interested in research and development activities and design. Honeywell is a good example.

In January 2002 the company announced that it would be locating a new sensor technology center in Finland. The unit’s task would be to develop the sensor technology of the future that would be used for measuring paper’s properties.

Timo Saarelainen, the head of Honeywell’s Center of Excellence, Finland, says that in no way does the company look on Finland as a production country. “We always try to locate production near the market.”

Honeywell has almost 500 employees in its various units in Finland, and the direction is upwards. The past ten years, however, have not always been a bed of roses.

Lovio and Jääskeläinen say that Honeywell’s original motives in acquiring Altim Control Oy were to purchase competing products, remove them from the market and transfer the technical know-how in customers’ fields of activity to the purchaser. The continuing of operations appeared to be in the balance, and a considerable number of the product development personnel at Varkaus were made redundant soon after the acquisition.

‘The customers’ wish to buy products that had been developed by Altim Control and the commitment of the highly-skilled local staff to the company and to Varkaus saved the unit and ultimately led to growth’, write Lovio and Jääskeläinen.

The significance of R&D has been crucial at other companies in the area. When the American company Foster Wheeler acquired Ahlström’s boiler production at Varkaus in 1995, the Finns were told soon after the transaction that the company’s good R&D operations had been an important reason for the acquisition. At the same time, of course, competing products were taken off the market. Immediately after the transaction, however, additional resources were obtained for R&D, and today the entire Group’s product development is conducted from Finland.

Investment in Varkaus and Kuopio

When Honeywell decided to invest in the sensor technology center, there was no information as to where it would be located. The matter was discussed thoroughly, and finally in the winter of 2003 it was decided to split it into two units in different localities. The research and development laboratories were placed at Kuopio and software and system development at Varkaus.

The towns are situated quite near to each other, and there were already operations in both. At Varkaus Honeywell has a product development unit that now employs about 400 people. “We have a large, very experienced software and hardware development unit, and we wanted the new unit to be able to utilize this know-how as effectively as possible,” says Timo Saarelainen.

Being near the end-customer is also an important factor at Varkaus. Stora Enso produces fine paper and newsprint at one of its flagship plants there. Altim Control’s operations at this plant began in 1979.

The new sensor development unit will be engaging in basic research, and this will not be possible without a university. Kuopio University had been involved in research into sensors in the 1970s, so, as Saarelainen says, the old seed was there, even if the university does concentrate on other matters these days. It has a strong focus not only on natural sciences but also on technical sciences. “It’ll be possible to utilize the material on sensors that’s created in this research for other purposes than machine paper measurement,” Saarelainen says.

The task of the new unit will be to develop sensor technology of the future that will be based on new approaches to paper-web measurement and a unique combination of technologies. The new sensors will measure the various optical properties in the paper web such as colour, gloss, smoothness and formation. The measurement results will form the basis for the automation system to control the machine’s operations so that the paper coming off it will be of more even quality and production will be more economical.

Why Finland?

There were three factors that led to siting the sensor technology center in Finland. Firstly, Saarelainen mentions the good R&D infrastructure, which makes it possible to involve Finland’s and the world’s best brains in the research.

Secondly, Finland has a strong focus on the paper sector, which guarantees that the favourable conditions for the operations will continue. The decision was also naturally affected by the success and references of Honeywell’s own unit in Finland i.e. products have been successfully exported from here for international distribution.

“All these three are big pluses. The center wouldn’t have been sited here if one of the pluses hadn’t been big enough,” Saarelainen says.

The location was not a drawback for the investment because one of Finland’s strengths is the social stability. The location does mean, however, that if investment is carried out in Finland, it is generally in research and development or in similar activities with a high added value.

Finland’s good image in technology

Reputation and image are always background influences in considering investment decisions. Finland’s image in the technology field is good. “When research and product development operations are placed in Finland, it isn’t a risk. It’s also important that others don’t look on it as a risk,” Saarelainen says.

Finnish society is stable and reliable. Finnish engineers are recognized as being honest, responsible people who get on with the job. But images come a very distant second to money in the order of importance. “Cost effectiveness is definitely the number one reason why Finland interests investors. In our case it isn’t the level of Finnish wages, but how you can network here and distribute costs,” Saarelainen emphasizes.

Although wages may not feature as a reason, research shows that wage costs in development work in the United States are three times those in Finland. An increasing number of companies are transferring their R&D operations to cheaper countries.

Strong focus brings credibility

“When a company plans a long-term investment that demands commitment for at least ten years, it has to make sure that the operating environment will support the operations for at least as long,” Saarelainen says.

In Finland the paper industry is strong and the big customers are close by. In addition, Finland’s forest industry cluster includes Metso Paper, which is one of the world’s biggest manufacturers of paper machines. “On this basis we can say that of the European countries Finland has the best focus on the paper industry,” Saarelainen says.

Metso Paper’s present position on the world market shows the importance of concentrating on one aspect and investing in the future. Long-term, heavy investment in R&D has strengthened the company’s position on the world market.

One of the three big paper machine manufacturers, the American Beloit, had to pull out of the sector, to a great extent because the company failed to invest adequately in research; it trusted in the insuperability of its existing technology. Today there are really only two major suppliers on the world paper machine market: the Finnish Metso Paper and the German Voith AG.

Networked and R&D infrastructure

Although Finnish universities’ and research institutes’ close ties with paper technology were important in Honeywell’s decision, the Finnish R&D infrastructure contains some unique comprehensive institutions. “One of these is the Technical Research Centre of Finland (VTT), which specializes in applied research and is a rarity at the European level and really serves industry through its activities,” Saarelainen states.

VTT is an independent research organization that produces technological and research services for the private and public sectors. It employs 3,000 research workers and has more than 5,000 customers annually.

A company’s own ability to network with these other operators is, of course, essential. One organization that has promoted networking in the Finnish innovation system is the National Technology Agency (Tekes).

Saarelainen considers Tekes’s national programmes to be extremely important. As the programmes bring together research institutes and large and small companies in a particular field, networking is created naturally.

“What is sensible in Tekes’ support policy is that big companies that are at the forefront are also supported, because the group of smaller promising companies increases at the same time. It’s more sensible to support activities where resources are already in existence,” Saarelainen says.

The smooth functioning of the Finnish university and educational system is also important to companies, because the right kind of employees will be available in the future. Research shows that the Finnish education system would seem to be in good shape. For example, in a Unicef survey published at the end of 2002 which compared the performance of the education systems in 24 OECD countries, Finland was in the top three in almost all the sub-areas.

A hundred new jobs

Honeywell’s sensor technology center will hire 50 people, and a work input by roughly the same number will be acquired from Kuopio University and VTT. “Altogether, this will mean a hundred new high-tech jobs by the end of 2004,” says Saarelainen, counting the number of employees.

Distributing the work input gives a very good idea of how Honeywell operates today. Networking and allocating responsibility to co-partners are crucial. “ We can’t live without co-partners,” Saarelainen says succinctly.

Altogether Honeywell will be investing six million euros in the laboratory infrastructure. The company is not willing to divulge the cost of the total investment, but a rough calculation based on all the other factors mentioned throws up a not unreasonable figure of some 20 million euros for the core investment in the short term. This sum tells only part of the truth because this is a long-term investment.

Recruiting to Finland

During 2003 Honeywell will be concentrating on setting up the new development unit. Operations will already be under way in the autumn, but it will not be operating at full capacity until the beginning of 2004. When the setting up of the unit was announced at the beginning of 2003, more than 400 job applications came in a short time. “Good employees are to be found in Finland, but some will also come from Honeywell’s other units abroad,” Saarelainen explains.

The much-lamented high taxation rate in Finland has not been an obstacle to obtaining competent staff from abroad. “Each foreign worker has, of course, asked about Finland’s tax percentage. Taxation here is high, but it’s mainly a matter of image. When you draw up a family balance sheet, Finland is competitive compared with, say, the United States. Each applicant has understood this very well after a short explanation,” Saarelainen says.

The other surprise may be the reading on the thermometer in the middle of winter. That should, however, be considered in overall terms i.e. the temperature throughout the year is reasonable thanks to the summer. The unspoilt countryside and wide open spaces make Finland attractive, at least to a migrant from a big city.

Photo: The new unit will develop the sensor technology of the future, the results of which will form the basis for the automation system to control the machine’s operations so that the paper coming off it will be of more even quality and production will be more economical.

Published 2004

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