Impact study: Many export trade deals would be lost without export credit guarantees and buyer financing

Finnvera’s export credit guarantees and financing are often decisive factors in enabling Finnish enterprises to win export contracts. This is revealed by a study on the largest export companies in Finland and a group of SMEs involved in exports. The large corporates in the study were Andritz, Outotec, Valmet, Wärtsilä, Meyer Turku, and Nokia. Enterprises report that foreign buyers more frequently demand that the exporter not only deliver a competitive product but also provide a buyer financing offer from a public provider of export financing, like export companies in competitor countries do. A financing offer may even be a prerequisite for getting a chance to participate in competitive bidding. In certain sectors, individual deals would not be closed or the entire business would not exist without Finnvera’s contribution.

Finnvera is a specialised financing company owned by the State of Finland and has official Export Credit Agency (ECA) status. The largest export companies use Finnvera’s services regularly in their trade. Enterprises see Finnvera as a key strategic partner in international growth and competitiveness.

“On the basis of the material collected from large corporates, it was surprising to see the major changes in their global business environment after the 2008 financial crisis, especially with regard to large turn-key deliveries. The competitive conditions of Finnish high tech enterprises have become more complex, and the significance of public providers of export financing has increased in international trade in recent years. For instance, large corporates’ participation in competitive bidding is often tied to the availability of public financing. Indeed, the availability of equal financing options when compared to international competitors was considered crucial for maintaining competitiveness,” note the impact study researchers Peter Zettinig and Johanna Raitis from the University of Turku.  

In SMEs, the volumes of Finnvera’s financing are smaller than in large corporates, but loans and guarantees have a more direct impact on the enterprises’ possibilities of establishing themselves and promoting their business in the international arena.

The research results for SMEs emphasised diverse needs for financing and the significance of financing at various stages of business. The interviewees highlighted the importance of public financing especially in the “initial survival” in product development intensive sectors, for instance, and at different phases of growth and internationalisation.

“When compared to venture capital investments, public financing made it possible to keep the strategic and operational control in the enterprise, to apply an entrepreneurial approach, to carry out long-term development and to decrease the exit risk, i.e. the selling of the enterprise abroad. One surprising finding related to enterprises’ credibility is the good image of the Finnish export financing institution on the international markets, especially in Asia,” the researchers say.

The researcher group of the University of Turku and the University of Lorraine studied the role and impact of Finnvera’s financing in their “Insights on Impact” study that was completed in late 2018. The study was commissioned by Finnvera, and its starting point was the increase in Finnvera’s export financing authorisations and total exposures. Due to increased demand, the Finnish Parliament raised the authorisations in 2016 and 2017: to EUR 27 billion for export credit guarantees and to EUR 22 billion for export credits and interest equalisation.

Finnvera has defined the impact of financing as an important indicator. The goal is that financing enables enterprises to achieve something that would not be possible otherwise. The positive cascade effects of financing extend clearly beyond individual export trade transactions through subcontracting chains and jobs created.

“The increase in the exposure for export credit guarantees results from bank regulation changes, which have transferred long-term financing, previously arranged by commercial banks, partly to national export credit agencies. In addition, the structure of the Finnish export industry is such that in many sectors, more export credit guarantees are needed than when exporting consumer goods, for instance. As a rule, export credit guarantee activities must be self-sustainable, i.e. expenses must be covered with the income from clients, but the rapid increase in the guarantee volumes has raised concern about the State’s responsibilities. As a result, the impact study on the significance of export credit guarantees was necessary,” says Finnvera’s CEO Pauli Heikkilä.

In the study, Finnvera’s impact on large corporates was assessed from the point of view of business models, strategic partnership, Finnish content and the realisation of Finnish interest, among other things. Impact on SMEs was mainly assessed from the point of view of enabling the different phases of business internationalisation. New light was shed by enterprise-specific examples of Finnvera’s role as an enabler of export trade and internationalisation. On the other hand, the data did not indicate how export trade transactions or internationalisation would have come into being if Finnvera’s services had not been available. 

Further information:

DSc. Peter Zettinig, Adjunct Professor, University Research Fellow, University of Turku, tel. +358 50 313 3588

PhD Johanna Raitis, University Teacher, University of Turku, tel. +358 40 701 1551

Pauli Heikkilä, CEO, Finnvera, tel. +358 29 460 2400

You can find the research report here.

The members of the research group were DSc. Peter Zettinig, University Research Fellow in International Business and Adjunct Professor, and PhD Johanna Raitis, University Teacher, both from the University of Turku, and Dr. Stephane Lhuillery, Professor of Industrial Economics and Innovation from the University of Lorraine (Université de Lorraine). Zettinig researches the development of international enterprises in a complex global environment. Raitis’s areas of expertise include international mergers and acquisitions and the identity and values of international enterprises. Lhuillery’s research areas include high tech, bioeconomy and innovations.