CHAPTER 1 INTRODUCTION

1.1 BACKGROUND Finland is a country of about 5.4 million people where 2.4 million are women and 2.8 are males. It is located in Northern Europe, between Sweden and Russia and just north of the Baltics. Although it is generally assumed to be part of Scandinavia, Finland is actually considered one of the Nordic countries, which includes Scandinavia, Iceland, and Finland. It has the lowest population density in Europe, and is renowned for its vast forests (covering two thirds of the country) and nearly 200,000 lakes. The official languages are Finnish and Swedish, with Finnish being spoken natively by more than 90% of the population. However, a large proportion of the country speaks English, with 90% of people under 30 fluent in English. Finland is a highly developed nation, with a per-capita GDP of almost $266 billion. It is the only Nordic country to use the Euro as its national currency, and as such is able to take advantage of the economic integration of the Euro zone. While taxation is quite high, Finland has one of the best-educated populations in the world, and routinely places at the top of the PISA education rankings. Finland has a highly industrialized, largely free-market economy, with per capita output roughly that of the UK, France, Germany and Italy. Its key economic sector is manufacturing principally the wood, metals, engineering, and telecommunications and electronics industries. Finland excels in high tech exports. E.g. mobile-phones. Except for timber and several minerals, it depends on imports of raw materials, energy and some components of manufactured goods. Because of the climate, agricultural development is limited to maintaining self sufficiency in basic products .Forestry, an important export earner, provides a secondary occupation for the rural population. Finland was one of the 12 countries joining the European Economic and Monetary Union (EMU).Finland ranks in 49 in ease of doing business. Finland stands at 24in the ranking of 185 economies on the ease of registering property. 1.2 Literature review: International reports

Finland has a free-market economy with a highly industrialised manufacturing sector. Finland has a strong environmental image. In international comparisons of sustainability Finland has been ranked among the best in world. Finland has recently ranked as one of the worlds most peaceful, competitive, and liveable countries. The Finnish private M&A market has gradually become an integrated part of the international private market. US companies will find the

Finnish M&A process familiar, because it has to a large extent been inspired by AngloAmerican practices. The usual form of doing business in Finland is a limited liability company. Sometimes foreign enterprises start their activities in Finland with mere branches. Both branches and limited liability companies are treated as separate tax subject. Limited partnerships are also used, especially for private equity fund activities. Limited partnerships are flow-through entities, i.e. profits of limited partnerships are taxed in the hands of their partners. It is advisable to consider and plan carefully the best suitable company form and structure already prior to entering into the Finnish market. When starting a business in Finland, the necessary tax registrations can conveniently be applied for in connection with the start-up notification with the Trade Register. Corporate profits are subject to national corporate income tax (CIT), which is currently 26% calculated on the net profits. Finland was the 11th easiest country to do business in for 2012; which is an increase of three spots from Finlands 14th place ranking for 2011. Finland was ranked 6th for trading across borders and 11th for enforcing contracts. However, Finland was ranked 65th for protecting investors. The rank of freedom from corruption is 66.9.

CHAPTER 2 INTERNATIONAL BUSINESS ENVIRONMENT

2.1

Cultural: Language, religion, cultural beliefs, values etc In the business world, culture guides decision-making, behaviour, thinking patterns

and values. Each country has distinguishing national and regional cultural characteristics. The success of any prospective foreign business partnership hinges on awareness of and respect for those distinctions. The culture of Finland combines indigenous heritage, Finnish culture may be seen to build upon the relatively ascetic environmental realities, traditional livelihoods and a heritage of egalitarianism and the traditionally widespread ideal of self-sufficiency. The people of the country are notoriously limited communicators but very proficient in foreign languages. Many Finns are emotionally connected to the countryside and nature, as large scale urbanisation is a relatively recent phenomenon. The two national languages of Finland are Finnish and Swedish. The official minority languages are three Sami

languages, Romani, Finnish Sign Language and the Karelian language .In 2012 the resident of Finland by native language is Finnish is 4866848 i.e. 89.68% and Swedish is 290977 i.e. 5.36% and other languages spoken are English , Russian, Thai ,etc. Small talk is not valued. Accordingly, words and verbal promises are likely to be taken seriously. Music is one of the most popular forms of art in Finland.The rapid spread of mobile phones, computers, and other communications technology is creating a society that is highly interconnected, regardless of the nature of interpersonal interactions and demeanour. Finland has the highest per capita use of the Internet (nearly 25 percent of the population) and cellular phones (28 percent) in the world. Finns value educational degrees and other qualifications and may expect to be addressed with the appropriate title in professional or work settings The customary greeting involves a firm handshake, direct eye contact, and perhaps a slight nod of the head but rarely embracing or kissing. As a result of women's involvement in politics and public life, relations between men and women are relatively equitable. Some of the cultures followed while doing business are: Most Finns introduce themselves officially and state their first name and last name as they shake hands. Business meetings and negotiations are usually to the point, on time, small talk, mainly held in offices, not restaurants. Visitors and guests

should arrive at the time stated, whether formal or informal situation. Finns prefer modesty without sacrificing credibility .Seniority is held in high esteem in conservative business branches and governmental positions. Being silent in Finland means being polite and interested in what the speaker is saying. Although Finns are not always smooth in small talk, safe small talk topics are weather, sports, travelling and hobbies. We should avoid speaking about very personal matters or asking direct questions on salaries, taxes, and religion. 2.2 Political: Existing Political system, political stability

Power in Finland is vested in the people, who are represented by the parliament.All parliaments plenary sessions are open to the public. At the local level, Finland is divided into municipalities which elect local councils. Every citizen who has reached the age of 18 by Election Day has a right to vote and to stand for election. Parliament enacts Finnish law, approves the state budget, raties international treaties and oversees the government. Parliament is also responsible for choosing the prime minister and approving the government programme. The government programme is a plan of action agreed by the parties participating in the government and it sets out the main tasks facing the incoming administration. Stability and consensus are the hallmarks of the finnis multiparty system. Finlands political system has proven to be stable with respect to its ideologies and party structures as well in terms of support for other parties. When Finland joined European Union ,the framework how they worked and see the state of the world today changed. The effects of the European Union membership extend into every sector of society. Finland has a lot to gain in this development. Both immediate geographical region and more broadly Europe are in a dynamic phase of development. Foreign and security policy is based on good bilateral and international relations, a strong role in the EU's Common Foreign and Security Policy (CFSP) of the EU, effective multilateral cooperation and credible national defence. Individuals and corporations with unlimited tax liability in Finland are liable to pay tax on all their worldwide profits. Minimum tolerance for corruption is institutionalized in an efficient legal framework that strongly sustains the rule of law. The judicial system, independent of political influence, ensures effective and transparent enforcement of commercial contracts.

2.3

Legal: legal provisions related to international business

Finland belongs to one of the most organized countries in Europe .The Republic of Finland joined the European Union on 1st January 1995. Finnish law is statutory law and is based on a constitution. Its legislation and jurisprudence has been influenced by Swedish land German law . Finnish law provides for an equal treatment of Finnish and foreign nationals. The law does not impose any general restrictions on foreign businesses and investments except for certain areas and types of activities that are subject to permits or authorisations by reason of special national or public interest. Capital may be transferred to and from Finland with practically no restrictions subject to the provisions on money laundering being obeyed. Except for provisions relating to money laundering exchange control or currency regulations are not imposed on investments and payments. Finnish and foreign parties are free to enter into agreements and business relation at their own discretion. The EC Directive on product liability has been implemented by the law of product liability. The Finnish law on sales representatives and salesmen contains certain mandatory provisions on the termination of agency agreements, compensation, competition restrictions and information rights of the part. There are no statutory laws or regulations on re-sellers. Various laws and regulation have an impact on franchise arrangements, such as laws and regulations on licensing, leasing, competition. Internet and e-commerce is regulated by the law on information services and on electronic signatures contain regulations on the conduct of business by electronic means. Other law are the protection of personal data ,protection of telecommunication contain regulations relevant for internet and distance selling and marketing. Both the private or public limited liability company of business entities are registered with the National Board of Patents and Registration and basic data are available free of charge also in English . Establishing a private business entity requires only few formalities, including but not limited to the memorandum of association and the articles of association which must be drawn up. Once a firm has become registered to conduct business in Finland, then it can sell investment products to the Finnish investors The labour and employment matters are thoroughly regulated by various laws, collective agreements and ministerial decrees, national policies and practices providing for a wide scope of protection to employees and are applicable upon all employers. Mandatory provisions are likely to exist related to salary, holidays, over-time, safety of and health at work and termination. Finnish law is applied on all national and foreign employees (permanently) working in Finland, in certain cases foreign law may be applied. Finnish companies hiring labour from abroad are obliged to ensure that the

mandatory provisions of the applicable laws and collective agreements are obeyed by the foreign employer.

2.4 Economical: Finland has a highly industrialized; largely free-market economy with per capita output equal to that of Austria, Belgium, the Netherlands, and Sweden. With respect to foreign trade, the key economic sector is manufacturing. The largest industries are electronics ,machinery, vehicles and other engineered metal products, forest industry ,and chemicals. Finland has timber and several mineral, freshwater resources,Forestry, paper factories, and the agricultural sector. Greater Helsinki area generates around a third of GDP. Finland had been one of the best performing economies within the EU in recent years and its banks and financial markets avoided the worst of global financial crisis. Finlands economic freedom score is 74, making its economy the 16th freest in the 2013 Index. Its score is 1.7 points better than last year, with improvements in half of the 10 economic freedoms including the management of public finance, investment freedom, and labor freedom. Finland is ranked 7th out of 43 countries in the Europe region, and its overall score is well above the world average. The Finnish economy continues to be one of the 20 freest in the Index. Well-secured property rights, including for intellectual property, promote entrepreneurship, productivity growth, and economic resilience. Finlands openness to foreign trade and investment provides real stimulus for a dynamic and resilient economy. However, with government spending over 50 percent of GDP and public debt growing in recent years, fiscal policy (balance in government budgeting) is a serious concern. Export Volume of All Items Including Goods and Services (Percent Change) for Finland in year 2013 is -0.381 %. Export Volumes of Goods Only (Percent Change) for Finland in year 2013 is 0.2 .Total Government Net Lending/ Borrowing (National Currency) for Finland in year 2013 is EUR -4.073 Billions. Current Account Balance (US Dollars) for Finland in year 2013 is US$ -4.514 Billion.

Economic Indicators GDP Growth Inflation (%) Govt Per

2008

2009 -0.9

2010 2.9

2011 2.3

Capita -0.2

4.1

0.0 25

1.2 22

3.4 24

consumption 22

Exp(% of GDP) Govt Dept BOP($) Total Reserves Export of G & D (% of GDP) 33.4 2109192731 8353578001 47 43.3 1336206759 1142834019 37 49.2 47.8

13311103010 1355767152 957420312 40 10276064354 41

CHAPTER 3 Current Status of International Business

3.1

Affiliation to world trade institutions and status of RTA, FTA

The Central Organisation of Finnish Trade Unions, usually referred to by the acronym SAK is the largest trade union confederation ii Finland. Its member organisations have a total of more than one million members, which makes up about one fifth of the country's population. The other two Finnish trade unions confederations are the Finnish Confederation of Salaried Employees (STTK) and the Confederation of Unions for Academic Professionals in Finland (AKAVA). The World Bank is a vital source of financial and technical assistance to developing countries around the world. They help governments in developing countries reduce poverty by providing them with money and technical expertise they need for a wide range of projects such as education, health, infrastructure, communications, government reforms, and for many other purposes. Finland became member of the International Bank for Reconstruction and Development (IBRD) on January 14, 1948. It was among the first countries to get a loan to help rebuild the economy after the war. Today, Finland is a member of the five institutions that form the World Bank Group. Finland and the World Bank work together with other member governments to finance projects, design policies and deliver programs to eradicate poverty in the developing world. Finland and the World Bank work together with other member governments to finance projects, design policies and deliver programs to combat poverty in the developing world and also undertake a number of activities with parliamentarians, journalists, the private sector, academics and civil society in Finland. 3.2 FDI flows

After Finland joined the Euro zone in 1995, FDI flows were increasing steadily. However, in the context of the international financial crisis of 2008 and the following Euro zone crisis, FDI inflow to Finland decreased dramatically. They should again start growing slowly in 2013.

The countrys strengths include: its reputation as having the least amount of corruption in the world, its competitiveness, its strategic position at the centre of a dynamic zone formed by Russia, Scandinavia and the Baltic countries, and its economic orientation towards high technology, research and development. Foreign direct investment are the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other longterm capital, and short-term capital as shown in the balance of payments. This series shows net outflows of investment from the reporting economy to the rest of the world and is divided by GDP.

Foreign

direct 2008

2009

2010

2011

investment Net inflows (% 11.1 of GDP) Net outflows -0.84 0.21 2.91 -0.01 -1.6 6.4 -1.4

(% of GDP)

12 10 8 6 4 2 0 -2 -4 2008 2009 2010 2011 Net Inflow NetOutflow

 Foreign direct investment, net (BOP, current US$) This series shows net inflows (new investment inflows less disinvestment) in the reporting economy from foreign investors. Data are in current U.S. dollars.

Foreign Investment

Direct 2008

2009

2010

2011

Net Inflows (BOP, 19,403,251,043 Current US$) -8,826,571,048 11,370,664,419 5,757,996,714

Net outflow (BOP, 10,727,480,000 Current US$)

4,487,568,000.00 3,575,311,000.00

3.3 Modes of International Business Used: The Reason for internalization by any country to the international area can be due to following two reasons: 1) Pull factors: - The opportunities offered by the wideness of foreign markets - The possibility to strengthen ones competitive position - The possibility to compensate seasonal variation - Demand for products from abroad - The possibility of gaining funding and contributions - Aim to improve company image

2) Push factors: - Smallness of home markets

- Weak demand at home markets - Openness for international competition - Internationalisation of competitors - Aim to secure production input -Aim to avoid home countrys bureaucracy and limitations

There are three types of entry modes usually practiced in Finland and they are Export entry modes, Contractual entry modes, Investment entry modes. 1) Export entry modes: It deals with importing and exporting physical products from a country to another. Export entry modes are different from contractual entry modes and investment entry modes in a way that they are directly related to manufacturing. If a companys product is actually a service, then the company must find a way to practise the service in the target country as services can not be produced in one country and be exported to another. In order to do exporting or importing the company is required to have physical products.

2) Contractual entry modes are long-term non-equity alliances between the company that wants to internationalise and the company in the target country. Some of Contractual entry firms are: Project Exporting Management Contract Licensing Franchising Contract Manufacturing Company Cooperation Counter purchase

3) Investment entry modes are about acquiring ownership in a company that is located in the target country. Some of the forms under investment entry modes are : Joint Venture Foreign Unit Portfolio Investment

CHAPTER 4 Prospects and Challenges in the Economy

Finland has strong fundamentals and a track record of good policies, the near-term economic outlook is highly vulnerable to external developments. In the past few decades, Finland has transformed from an agrarian economy to a service-based social market economy. The Finnish economy has benefited greatly from globalization. The country is one of the wealthiest in the world as measured in GDP per capita. Economic activity rebounded in 2010 with GDP growth of 3.7%, but dipped to 2.9% in 2011 and is expected to grow just 0.8% in 2012. Finland is also facing a deteriorating a trade. Finlands success has been largely based on its high quality educational system, long term investments in research, long-term investments in expertise and technological research and development, successful science and technology policy, the quality of its business operating environment and well-functioning cooperation between trade and industry. This provides a sound platform for building the future. Moreover, the international financial crisis is heavily transforming current lines of business, changing the international division of duties, and accelerating structural change. In effect, many of our current competitive advantages are being challenged. Major drivers of change, such as globalisation, ageing and climate change are reshaping the world, creating new needs and transforming many of the current operating methods and lines of business and industry. Likewise, the market revival after the economic recession will open up opportunities for entirely new business operations and a significant redistribution of market shares. All of this requires a solid knowledge base in key sectors for the renewal of trade and industry and the development of Finnish society. Hence, Finlands success in international comparisons evaluating competitive ability and the development of the information society has been on the decline. The current challenges of European cities are related to the economy, employment and the sustainability gap. However, we can not only concentrate on stabilising the existing imbalance. We must also look to the future and create new innovations. Balancing and improving these issues is very important agenda for betterment. Some challenges: 1) The high dependency on exports, especially in capital goods, combined with the slump in global demand made Finland one of the countries hit hardest by the recent financial and economic crisis. After a long period of robust growth, GDP collapsed

nearly 8 percent in 2009However, the challenges presented by growth and competitiveness can no longer be tackled solely by means of a sector-based, technology-oriented strategy. 2) While the short- to medium-term policy goals will include a credible return to fiscal sustainability, the government is also committed to addressing challenges such as the aging population and labor market reforms. 3) One of Finlands main policy challenges is the loss in competitiveness over the course of the last decade, during which its current account went from a surplus into a deficit. Over the past five years it lost 23% of its share in world exports. In April 2013 the Commission's in-depth review of Finland found that the country was experiencing macroeconomic imbalances. 4) In the short term, the main challenge is to attract new investments to the Finnish economy, in order to improve employment and productivity and to replace the industries that have declined over recent years. Finland's public finances are currently strong, but their longer term sustainability is threatened by demographic change. The recession affected general government finances and the debt ratio, turning previously strong budget surpluses into deficits, but Finland has taken action to ensure it will meet EU deficit targets by 2013 and retains its triple-A credit rating. Finland's main challenge is to stimulate growth in the face of weak demand in EU export markets and government austerity measures meant to reduce its budget deficit. Longer-term, Finland must address a rapidly aging population and decreasing productivity that threaten competitiveness, fiscal sustainability, and economic growth.

CHAPTER 5 Summary and Conclusion

Finland is a country of about 5.4 million people. Finland has a highly industrialized, largely free-market economy with per capita output roughly that of the UK, France ,Germany and Italy. Its key economic sector is manufacturing the wood, metals, engineering, telecommunications and electronics industries, mobiles. Except for timber and several minerals, it depends on imports of raw materials, energy and some components of manufactured goods. . The culture of Finland combines indigenous heritage. The two national languages of Finland are Finnish and Swedish. For doing business in any country they need to understand the culture of that country for establishing good relation ship. Some of the business cultures followed by them are Business meetings and negotiations are usually to the point, on time, small talk, mainly held in offices, not restaurants. The Finland has Political stability, strategic geographic location between Scandinavia, Russia and the Northern European expanding markets, multilingual population and one of the least corrupt countries in the world. Finland was the 11th easiest country to do business in for 2012. The modes of entry for Finland are three types and they are export, contractual entry and investment entry modes. This are all the strong points in Finland and the weak points are limited domestic market and high taxation rates. In the past years, Finland has made considerable progress in eliminating discriminatory regulations against foreign investors. The government's clear intention is to promote the country's integration into the European economic zone. Finland's strategic geographic location, situated between its European Community partners and the newly independent Eastern European states, gives it a definite advantage. The solid purchasing power in Finlands most important export markets, the low unemployment rates, the good state of the economy and the AAA credit rating are some good points of Finland. Challenges include the uncertain outlook for the global economy, which means that industries are hesitating to invest and consumer confidence is low A longer term challenge is presented by Finland's ageing population. To address this it will be important to improve labour market and the sustainability of pension and healthcare systems. In the case of healthcare systems, efficiency could be strengthened by continuing to pursue the restructuring of the municipal system.

To remain globally competitive Finnish businesses must focus on strengthening their innovation capacity, ensuring that wages do not rise out of line with productivity and moving towards less energy intensive sectors. Although the level of investment in research and development in Finland is high this is not being effectively translated into new innovative products and services, which would help to boost the economy. To improve this, the Government should implement measures to improve the innovation environment. Wages are a significant cost for businesses and it is therefore important that the social partners in Finland reach a new labour market agreement that balances wage growth with productivity. The high energy intensity of Finnish industries also represents a considerable cost, which could be reduced if the economy diversified towards less energy intensive sectors.With virtually no corporate corruption along with an economic surplus, Finland is an ideal market for any business looking to expand globally. However, doing business in Finland presents a number of cultural challenges that must be addressed in order to have a successful experience. An awareness of Finnish etiquette and cultural norms is critical for anyone doing business in Finland

REFERENCES
Finland, Demographic statistics http://www.travelblog.org/World/fi-info.html http://solved.fi/sites/default/files/Cleantech%20Finland%20%20improving%20the%20environment%20through%20business.pdf http://www.amcham.fi/wp-content/uploads/2012/04/Legal_Guide_2011.pdf http://www.doingbusiness.org/~/media/giawb/doing%20business/documents/profiles/country /FIN.pdf http://www.communicaid.com http://contactfinland.fi/editorial/business-culture-in-brief/ http://www.everyculture.com/Cr-Ga/Finland.html#b#ixzz2UhCQCPZv http://www.united-legal-network.com/finland http://www.amcham.fi/wp-content/uploads/2012/04/Legal_Guide_2011.pdf http://en.wikipedia.org/wiki/Economy_of_Finland
http://www.euro-challenge.org/doc/Finland.pdf

http://www.indexmundi.com http://www.heritage.org/index/country/finland www.worldbank.org Failed States Index, 2009 Legatum Prosperity Index, and a report by Newsweek. formin.finland Bloom berg Trading economics IMF Credit Agricole

Establishing a Fund and/or an Investment Firm in Finland can position its owners to capitalize upon various sectors that are very competitive from an international per spective.