Software Industry Survey 2011 blogs

Is Windows Phone Development a Passing Trend?

Juhana Peltonen — Mon, 14 May 2012 15:04:59 +0000

The success of any software platform rests upon available apps, and if Windows Phone (WP) wants to establish itself as a part of the “third ecosystem”, it needs to close its app gap compared to iOS and Android. If we look at the interest of software developers toward WP, things are looking quite positive: The quarterly Appcelerator / IDC Mobile Developer Report -one of the best known surveys on developer interest- suggests that WP has reached third place in the hearts of software developers, while iOS (iPhone and iPad) enjoys a persistent lead followed by the slightly fading Android. While the respondents are clearly not random developers, they represent both US and European perspectives.

Meanwhile in Finland

In the last year’s survey we found that Windows Phone (WP) development in Finnish software SMEs would explode by 500% the end of 2012 – at least if we take companies’ plans to “significantly develop” for the platform seriously. Taken, the reference point was low in 2010 (4% of firms), but on the other hand, the projected 2012 level (24%) was the same as for Android, a mature and leading platform. Can these results be nothing more than an expectation bubble?

Our first explanation for the results was a disproportionate knee-jerk reaction to Nokia’s move to dump Symbian and focus on Windows Phone. However, when we compared Windows Phone numbers to the firms that developed for Symbian in 2011, it seemed unlikely that the popularity of Windows Phone was only about jumping off a burning platform. In fact, we found that 76% of firms that developed software for desktop Windows in 2010 (about half of the respondents) had plans for Windows Phone in 2012. Taken together, the popularity of Windows Phone seemed to be driven by the industry’s overall shift toward mobile platforms, synergies between MS desktop and mobile development, and a Nokia-driven Finland effect, which is more about perceived opportunity than unavoidable necessity.

Is there a bubble?

Looking at our preliminary 2012 data (130 responses out of an expected 500), is there any sign of the Windows Phone euphoria fading? The following figure looks at how realized platform adoption for development purposes changed when comparing companies in 2010 and 2011. As Mikko wrote in his previous blog, the share of companies developing for Windows Phone has more than doubled (from 4.1% to 8.5%) making it the clear number 3 behind Android and iOS – in line with the Appcelerator developer interest survey. This indicates robust growth for the platform, but similar growth can also be seen for Android and iPad applications. Only iOS development for the iPhone shows signs of leveling out, and the margin compared WP is narrow. Slightly surprisingly, Symbian and Meego are still hovering at 2010 levels. We believe that this is largely due to maintenance of existing software (in the last figure, they are expected to collapse).

But can we expect that almost quarter of Finnish Software companies will have significant development for WP by the end of 2012, as our 2010 survey indicated? Looking back at the outcomes of 2011, this would require a three-fold increase within a year and having twice as many firms developing for WP than Android had in 2011 – the platform with the largest installed base in the world. So is there a WP expectation bubble in the Finnish Software Industry? – Our answer is a clear “yes”: there is simply no way that Nokia would create a pull that would offset the competitive situation between mobile platforms – even considering that supply leads demand in new platforms.

A bubble - so what?

Provided that expectations are probably overshot, does this make WP an insignificant development platform? Should companies start to scrap plans for adopting it? To provide a different perspective, let us consider the revenue forecasts of software firms: even though our surveys show that companies systematically and significantly overshoot their revenue forecasts one year after the other, the Finnish software industry has still been growing at a faster pace than the overall economy. Hence, while the industry is stuck in a perpetual bubble, its growth is still far from insignificant. (It is even likely that the same holds for all entrepreneurial activity irrespective of industry.) What we perhaps should be looking at is changes in expectations, regardless if the expectations are realistic or not.

To do this, the following figure presents plans to develop software for different mobile platforms - The 2012 plans were surveyed in 2011, and the 2013 numbers are fresh from this month. These numbers point out that WP development plans are going even further up from 2010. Looking at the stagnating iOS numbers, WP is strongly headed for second place. And even if its adoption rate falls short of expectations, it has already reached a position near Android and iOS – far from insignificant.

What happened for the Finnish software industry in 2011 - some early results

Mikko Rönkkö — Sun, 13 May 2012 19:42:51 +0000

We have now around 200 responses to the survey, although a third of these are still in paper form and need to be entered into our database. Nevertheless, this is plenty of data to restart our research blog.

In this first post of this year, I will be looking at what happened in the Finnish software industry in 2011. Looking back, the single most important event in 2011 was Nokia’s decision to discontinue Symbian and adopt Windows phone as the primary smartphone operating system. As covered in our last year’s report, this lead to layoffs by the subcontractors and by Nokia. But the cloud had a silver lining in two different forms: First, many Finnish software companies were having difficulties in recruiting new people and saw this as an opportunity. Second, many companies saw Windows Phone a new big opportunity. In fact, last year equally many companies predicted that they would develop for Windows Phone as for Android. The data this far shows that the number of firms targeting Windows Phone this year is almost double that from the last year, but it is still clearly the third platform. We will be covering mobile platform soon in more detail in another post.

Another important issue about 2011 is that where as 2010 was clearly the first year of recovery after the difficult year 2009, last year was the first normal year for the software industry, at least if we look at the data presented in the figure below. The figure is a percentile plot, which is our favorite for visualizing data over time. Each line represents a percentile of the firms. The 50% line is the median, or the most typical company. And the 95% line shows where the top 5% of companies are. Comparing the years 2010 and 2011, we see that most of the lines point upward, signifying that on average companies grew more (or lost less) in 2011 than 2011. Nevertheless, the challenging economic situation of particularly late 2011 shows still in the graph and the growth rates remain slightly below the pre-recession levels. We will update these figures in another post when we have more data available.

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Publishing the final report is just around the corner

Mikko Rönkkö — Wed, 22 Jun 2011 10:38:16 +0000

I wanted to write a small blog post to celebrate two key milestones in the project: Today the length of our report draft exceeded 100 pages and we also finally agreed on the cover background for the report.

The main results of the Finnish survey were published on June 16th at Aalto Venture Garage. Although we were sending out the invitations on a short notice, the event attracted a nice audience. The presentation slides and the press release are available on our publications page.

The main results that we presented were that the industry is again on a growth path, but the estimated 5% growth in 2010 is still a bit behind the pre-recession levels. Moreover, we addressed Nokia's strategy change and companies willigness to sell their business. Both topcis have been covered in previous blog posts.

We are currenctly finalizing the report and will publish it in a few days. The work that remains is adding the final figures and texts as well as proof reading and polishing the report.

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The Software and IT Services industry in Austria

Timo Leimbach — Wed, 22 Jun 2011 09:53:04 +0000

Normally Austria is known as a destination for holidays or for its cultural heritage, but Austria is also a country that experienced a fast development in the last 20 years. This development also includes high technology areas like software and IT services. Moreover Austria is an example for a country with very progressive attitude towards eGovernment services. This development also led to a constant growth of the industry, which nearly tripled its share of the private GDP since 1990. Although the share of 1,81% is only around the EU average, this is still an impressive growth. Due to the fact that Austria is a smaller country the total number of employees (~50.000 in 2008) and the total value added (3,3 bio. €) is limited. The industry also mainly consists of a mix of subsidiaries of foreign multinational firms and a number of small, mostly IT services companies. All this makes Austria to an interesting case for researching the development of the Austrian software and IT services industry. Sponsored by Computerwelt, an Austrian IT publisher, Fraunhofer ISI performed an online firm survey with 107 responses in order to analyse the industry. This survey was supplemented by an analysis of further statistical data, for example on exports or value added.

Main results of this analysis were, that:

Most of the companies see themselves as IT services companies (~75%). However the distribution of revenues indicates that the development of customer-specific solutions is the main focus, but that the sales of own or of third party software as well as implementation services also play an important role.
They expect a positive development of their revenues (growth of 8% in average in 2011) and their number of employees (~11% in 2011)
The companies have a strong focus on international activities, because round about 74% have international revenues, of which are 35,6% regular and important. As expected the regional distribution has a clear focus on the other German speaking countries, but also to other middle and east European countries.
They also take up new developments like Cloud or Mobile Computing.
The Austrian software and IT services companies are highly innovative: 74,5% of the responding companies introduced service or product innovations in the recent years. This confirms other data from statistical sources that indicate a good performance of Austrian companies.

All this underlines the preliminary assesment that the Austrian software and IT service industry experienced a good growth in the last years. Even the financial crisis of 2008/2009 had no deeper impact on their positive expectation towards the future. One reason might be that mostly smaller and service oriented companies are more resilient towards this due to their close relations to their customers. Another one might be the fact of the innovatiness that makes them important to their customers. However these theses have to e further proven with more data in the years to come.

Who will hire former Nokia employees: Will the demand meet the supply?

Juhana Peltonen — Sun, 22 May 2011 15:17:39 +0000

This blog post probes deeper into the Finnish software sector’s ability to employ the people whose jobs Nokia and its subcontractors will be shedding in the near future. Though Nokia has guaranteed the continuation of work until the end of 2011, many employees particularly from its software suppliers will be on the market much before this time is up. The question then becomes, where will these engineers and managers be headed?

Current numbers put the recently announced direct net (non-outsourced) job cuts of Nokia at about 1,400 in Finland whereas the ripple-down effects on its Finnish subcontractors has been estimated to be around 2,000 jobs. Considering the Nokia-dominance of ICT sector in the country, this is indeed a very significant industry restructuring. On the other hand, having a software SME sector that has been craving for more labor for quite some time creates a very interesting polarity. Hence, will the needs of the SME sector match the skills coming to the market, or in other words, will the demand meet the supply?

The absorbing role of the Finnish software SMEs

The largest software firms in Finland are predominantly service firms, many of which serve Nokia. The net decrease will mostly take part in these firms, though the Finnish branch of Accenture will grab many Symbian developers as part of Nokia's outsourcing deal. Other large multinationals are also moving in to grab their share of the workforce entering the market. For instance Intel has announced it will set up a 200 person Meego development site in Tampere.

Looking beyond large firms, what about Finnish software SMEs? Discussion about their chronic shortage of skilled labor is not a very recent topic. The financial crisis quieted down this talk only briefly, as software SMEs escaped the recession almost without a scratch. Now these companies are hiring on a broad scale. Therefore unsurprisingly, many now believe that this injection of engineers and managers into the job market will be like soothing rain to them.

According to preliminary data in our survey, 164 (53%) of 304 responding firms say that they expect to employ more people by the end of 2011 than at the beginning of the year. Out of these 164 firms, 41% say that they are likely or very likely to hire employees that are freed up from Nokia and its subcontractors.

What makes this 41% different from the rest of the firms that are hiring is the topic of the following analysis. By analyzing almost 200 data points per response from our latest questionnaire, a number of preliminary findings came up (p<.05).

No secret master plan

One could imagine that firms that wish to grow fast through developing new products and have the resources to do so might be more interested in hiring former employees of Nokia and its subcontractors’. Or perhaps Nokia employees have sales and marketing experience in particularly international consumer markets that might be valuable to Finnish software SMEs?

The data show that there are no systematic relationships of this nature as there are no significant differences in growth willingness, sales, firm age, international sales (except a negative with the tiniest firms), and profitability between firms that are interested in hiring ex-Nokians. This does not rule out that some companies are taking this approach, but there does not seem to be any noticeable trend.

However, these firms more often report that a lack of qualified personnel is limiting their growth. This suggests that the willingness to hire ex-Nokians is mainly driven by the need to patch up certain competence areas. Firms that sell development projects faintly seem more interested than other types of firms.

Knowing how large companies work

Apparently the process and legal experience of Nokia employees comes respected, as the small fraction of firms that plan to IPO in 5 years also were more likely to consider hiring them. Firms interested in Nokia employees generally seem more “professional” than average other company that is recruiting. They more often focus on well-profitable customer segments instead of trying to serve every customer and hack up solutions from miscellaneous components (thanks to the respondents who made it through the last page). Seeing companies seek employees that match their own culture is not surprising.

Also the knowledge of how a large company works seems appreciated: Companies, despite their size, are more interested in Nokia employees if the typical buyer of their offering has over 250 employees, the deal is over 10k€ or it involves customer-specific development and integration work. For smaller customers and deal sizes, the relationship is negative. This also surprisingly includes consumers though Nokia is a consumer electronics company.

In search for technical expertise

Looking at the type of technology firms are developing brings out more differences. In the 2011 questionnaire, we asked firms if they are developing software for 20 different platforms now or during next year. When these data are punched through statistical software, the following characteristics about companies with intentions to hire ex-Nokians pop through:

• Firms that develop any embedded software

• Almost every company that does or plans to do Meego development (unfortunately only 3% of respondents)

• 65% of companies that develop or plan to develop on Oracle server software

The first two bullets are hardly surprising. The third one is probably explained by interest toward Nokia’s server side Java developers. Another explanation may be ERP experience on the manufacturing side.

Harder places to look

Nokia’s near absence from the social media scene is perhaps to blame for Facebook development companies being significantly less interested in Nokia employees. The same systematic effect comes through for companies with on-demand (Software-as-a-Service) offerings. Apparently having Java back-end experience is less valuable in this environment. Or perhaps Nokia’s UI and UX design skills are not valued due to the many difficulties the now rebranded Ovi has faced?

Also what stands out is that firms involved or planning iOS and Android development place no special premium on a Nokia job history despite these platforms are exploding in popularity. This begs the question that is “mobile experience” as a skill as easily transferrable as many think? Perhaps firms see equal value in recruiting young employees and mentoring them to develop for these platforms and in having more mature (and expensive) employees learn these skills?

The outcome is difficult to predict – no matter what experts say

To conclude this analysis with our preliminary data, it is fair to say that Finnish software SMEs interested in grabbing people leaving Nokia and its subcontractors have very diverse intentions. What seems common to all is that they are after specific technical competences, are more “organized”, and have general experience in serving larger companies. If these characteristics do not match, being a former Nokia employee does not make you stand out from the crowd. Indeed, there even seems to be some Nokia prejudice within the social media and on-demand scene.

How reality will play out is always a different story; Especially among SMEs, which compose the majority of the Finnish software industry, there is a general trend to be overly optimistic about personnel changes. As we wrote in Kauppalehti a few years back (August 20, 2009), from year to year, about 35% of software SMEs in Finland forecasted that they would increase personnel by the end of the reporting year, but in fact, their personnel count ended up staying the same or even reduced. In a very dramatic way, this means that positive intentions do not always lead to action, which could be bad news compared to the optimistic tone in the media.

Exit stage left - The ultimate goal of an average Finnish software company?

Dani Pärnänen — Thu, 05 May 2011 10:40:13 +0000

We already have enough data to start doing some preliminary analysis, though responses to this year's survey are still being collected. As a thesis worker, I have a personal stake in figuring out how Finnish software companies view exits - Which exit avenues they consider most plausible? Do the companies include M&A in their strategy, e.g. for boosting growth? How exit-oriented are the Finnish software companies overall? My questions are not limited to these three, but this is where I'll start my data crunching.

Note that the figures, statistics, and graphs presented here are based on preliminary data from an ongoing survey. The final results may vary from the current snapshot, as more data becomes available. As Rönkkö pointed out in his previous post, the early respondents are generally not representative of the entire population.

We had a three-part question set covering these aspects of a company's strategy and orientation. Regarding different exit avenues, acquisition by other company was a clear favourite among the respondents as 26.1% of them had chosen it as a possible means of exit. Interestingly, employee buyout seems to be running for the second place with 6.9%. The graph below shows quite clearly that all the other choises are not valued too much.

We also included a question set concerning M&A strategy and orientation. Current distribution of the responses are depicted in the graph below:

From these answers we can derive that roughly 40% of the respondents are what we call "exit oriented". 35% stated that they have an existing exit strategy. From another perspective, 25% of the responding companies include mergers and acquisitions in their growth strategy.

When plotting the distribution of companies that have an exit strategy per age, we find that half of the companies that have operated for five to ten years have an exit strategy. From the youngest batch of companies under 2 years of age, only 20% have created an exit strategy. One can argue that if a company doesn't have an exit strategy, it is less likely to make a positive, lucrative exit. It seems that the youngest of firms haven't yet quite figured out their exit plans.

We can also see some indication of the company's size (by revenue) affecting the likeliness of having an exit strategy. In the 3 - 10 MEur range, 60% of companies have an exit strategy while only a third of the small, under one MEur companies have their exit strategies laid down.

Overall, the results of these early statistics are very welcome. I am personally confident that based on the high percentage of exit oriented companies, it will be possible to go deeper with analyzing different aspects that may affect exit orientation. Further analysis will hopefully reveal some common characteristics of exit-oriented companies.

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First results from the 2011 survey: Nokia and mobile platforms

Mikko Rönkkö — Fri, 29 Apr 2011 07:51:47 +0000

The 2011 survey has been going on for approximately a week now. The first invitation letters arrived at the companies in last Thursday, the day before easter vacations. We sent out the email invitations on this week's Tuesday and Wednesday. The total number of firms that were sent the postal mail was 5 490 and we have a working email address for estimated 3 169 firms. Compared to last year, these numbers are slightly smaller because we eliminated all sole proprietors from the mailing list and generally have improved the screening process for firms when creating the address list.

Now at Friday noon we have 144 completed responses in our online survey system and 47 returned paper questionnaires. In all, this compares favorably to last year and we expect a slightly better response rate than last year.

First look at the results

Before going into the results, there are two caveats that need to be pointed out. First, the early respondents are generally not representative of the entire population. This means that when we get more data, the results will likely change. Second, the survey covers the entire software industry. Although the high-growth firms and large firms receive most visibility, a typical software firm is relatively small and does not necessarily grow that fast. The data for these analyses are the online responses that we had at the end of office hours on Thursday. These consist of 127 firms that had a median revenue of less than 300 000 euros.

People have been particularly interested in results relating to Nokia's decision to adopt Microsoft's Windows Phone as their primary smart phone operating system, as I explained in my previous blog post. Hence I decided to start analysing the two question set that were newly included in this year's survey and address Nokia and mobile platforms.

The figure below shows the responses to a question where we presented eight statements about the Nokia's strategy change. The respondents rated these statements on a five-point scale from "Completely disagree" to "Completely agree". The bars show the shares of the five possible responses blue being the "Completely disagree" option, yellow the "Completely agree" option, and the other colors the options between these two extremes. The N below the figure shows how many companies provided data for all these questions.

Since these are just early results, I will not analyze this figure indepth at this point. However, there are a few points that I would like to make:

The firms are evenly divided on whether the Nokia's strategy change has a positive impact on the software industry. The firms considering this as a negative event probably think more about the layoffs while the firms that consider this as a positive event probably think more on the lines that this increases the number of talented people available for the independent software vendors in Finland.
More than half of the companies chose "Completely disagree" to the staments about negative effects on their business. What this means is that although a large share of the largest software companies in Finland (e.g. Tieto, Ixonos, Digia) do depend on Nokia, this does not seem to be the case for smaller companies.
Firms are divided on their stance on hiring ex-Nokia employees. This is probably more related to the overall hiring situation of the firms rather than layoffs by Nokia.

In all, it seems that the software companies in Finland are not terribly worried about the changes that Nokia is currently undergoing. On the other hand, these companies do not seem to see the availability of Nokia employees in the job market as a great opportunity either. Howerever, these are just early results from the first responses. Once we have more data, we will publish more indepth analysis of these questions if not as a blog post, then at least in our final report that will be published in June.

The second issue that has received attention is on which platforms companies develop on. In the figure below, I have included descriptive statistics on the responses to a question where we asked the firms to indicate for which platforms they have developed software for in 2010 and are planning to develop software for in 2012. These dates were chosen since Nokia did their announcement after 2010 and we expect most companies that react to the announcement to do this by the end of 2012. The bars indicate the share of firms that chose a particular option in the multiple choice question.

The results in this figure are interesting. Although I do not personally believe that in 2012 a fourth of the Finnish software companies would develop software for Android and a third for Windows Mobile, it is clear that these platforms will increase their popularity. At least two reasons come to mind to explain the high frequencies that these platforms were chosen. First, it is very likely that the early respondents to the survey are younger and more dynamic and when the more stable firms respond later, the figures will go down. Second, firms in the software industry tend to be overly optimistic in their predictions. Again, there are a few observations that I can make relatively confidently:

Symbian and iOS are currently the two most popular mobile platforms in Finland.
Software firms see Android and Windows Mobile as the platforms with the most potential and I expect these to be the most popular development platforms in 2012.
A large share of firms that currently develop for Symbian will discontinue this in the near future.

We will be posting more results in this blog as they are available. Now that we have a good number of early responses in our use, we will probably publish blog post more frequently than what we did prior to launching the survey.

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How Important is Nokia for the Finnish Software Industry?

Mikko Rönkkö — Mon, 28 Mar 2011 14:19:53 +0000

Since Nokia announced the change in their software strategy and decided to partner with Microsoft instead of continuing to rely on Symbian, we have been approached several times by media with the question:

"How important is software development that is done for cell phones for the Finnish Software Industry?"

Unfortunately, we currently have no definite answer to this question. However, the question is indeed on our radar for the soon-to-be-launched 2011 Software Industry Survey. Before the new data is in, we can still search our old data for some clues on the subject. In 2010 we focused more on the question of "who is your customer", which e.g. revealed the large portion of B2B and the dismal portion of consumer software. However, we did not go as far as to look into specific technological platforms in connection with the customers' industries.

Looking back a bit futhrer, the survey did include a question about customer industry in 2006 and 2007. At that time so-called "vertical software" was a hot topic in Finland. The idea was that instead of focusing on general application software, firms should specialize in serving a particular industry. The question was later dropped because the classification contained overlapping categories, some of the categories were of different size than others, and the question generally was not very reliable. Nevertheless, this is the best data that we have at the moment about the industry focus of Finnish software companies.

The figure below show the frequencies how four different mobile phone related industries were chosen from the list that totaled 29 named industries. Based on this figure, a fourth of the software companies in 2006 and 2007 that responded to the software industry survey developed their software for the telecom sector. Although the reliability of this figure has room for improvement, it still shows that the Finnish software industry at the time was very telecom focused.

The next question is how these companies have developed over time. I used a three-year compound average growth rate as a measure for success and have listed the mean for this statistic grouped by customer industry in the table below.

Customer industry	3 year revenue growth (CAGR)	Number of firms
Electronics and high tech.	14.1%	10
Information and com. tech.	8.3%	47
Telecom industry	10.6%	11
Mobile industry	2.6%	12
Other industries	3.2%	146
No particular industry	11.0%	82

These figures show that generally the companies focusing on telecom related industries have grown faster than companies focusing on other verticals. What is more interesting is that the firms that were not focusing on any particular industry seem to have grown faster than other companies. Among several possible explanations, being too focused on a vertical might not have been the best strategy for those companies.

For the 2011 survey, we will focus on mobile software development from two different perspectives. First, we will ask the companies to indicate on which platforms they develop software for. Second, we will ask the companies to rate how well several statements related to Nokia match the situation that the company is facing currently. I have included the current working version of these two questions below for commenting. Changes can still be incorporated during the next two weeks, so comments on making the survey better would be welcome.

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M&A Trends During the "00s"

Dani Pärnänen — Wed, 16 Mar 2011 12:23:59 +0000

We still have to wait a couple of months before this year's Software Industry Survey data is collected, so I decided to do a warm-up exercise using data from the Zephyr mergers and acquisitions database.

In last year’s Software Industry Survey report we highlighted consolidation through mergers and acquisitions as on of the main trends in the software industry. Now that the first decade of the 2000s is behind us, we can have a look at how the trends of mergers and acquisitions have changed during that era.

I identified 629 deals related to the Finnish software industry using the following criteria:

Either the target or the acquirer is a Finnish company
Either the target or the acquirer is a software company
The deal is either a merger or an acquisition, excluding other types of deals such as IPOs
The deal was made between 2000 - 2010

The main graph created from the data shows the number of M&A deals divided into three categories: 1) deals between two Finnish companies; 2) deals where only the acquirer is Finnish; 3) deals where only the target is Finnish.

Interestingly, this plot suggest that the number of M&A deals from abroad to Finland has been greater than from Finland to abroad, except in 2009. Considering the recent discussion on acquisitions in the industry and a recently published Talouselämä article (Suomi kutistuu ideariiheksi) arguing that a large share of the best IT ventures are sold to foreign byers too early, this figure paints a very different picture. According to this dataset, Finnish firms have been more active in acquiring foreign firms than foreign firms acquiring Finnish companies.

A quick comparison of domestic and international M&A deals shows that while the number of international deals has been quite stable, more variation can be seen in the number of domestic deals, which peaked in 2005 and were at the lowest level during 2008.

Next I focused on what Finnish companies are the most active acquirers. These were naturally the largest companies operating in the IT sector: Tieto and Nokia were by far the dominant buyers of software companies. When I eliminated these and other publicly traded Finnish companies in the dataset (225 records), the picture is a bit different:

Here, the net flow of acquisitions seems to be clearly out of the country during 2005 - 2009, but into the country again in 2010. We should not hasten to conclude that the year 2010 is a change in the trend. The change in the balance of international deals in 2010 can be due to natural variation or incomplete data, as the Zephyr database will have some missing information for the latest years.

In all, the potential threat of “idea bleeding” raised by the Talouselämä article cited earlier is probably true to some extent. The article outlined a rising problem of the IT sector where new and promising but immature IT ventures are sold abroad. If a venture with a lot of unrealized potential is sold abroad, then a large share of the value that the company can create is actually lost from the Finnish society. However, there is also another side of the coin: Many young firms need more resources to grow to a sustainable size than what they can get as independent companies. If a company is not one of the largest players when a market starts to consolidate, “selling out” can be the only viable strategy.

This quick analysis raises some questions about the near future:

Will the number of M&A deals keep increasing after the financial downturn of the late "00s"?
Are we going to see more or less international acquisitions by Finnish companies?
Is the number of international deals going to remain on its stable level?
How do Finnish software companies assess the international M&A or exit opportunities?

In this year’s Software Industry Survey, we will have a special section of focusing on M&A activities, hopefully answering some of these questions.

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Where do international growth intentions come from? (Part I)

Juhana Peltonen — Tue, 08 Mar 2011 14:35:33 +0000

Growth entrepreneurship is very much on policy makers' minds and everyone wants us to have more of them. Therefore the first post of this blog looks at Finnish software firms' intentions to internationalize from day one. Armed with our surveys and statistical software, we have been chasing this issue for some time now.

Some of the known growth factors we have examined thus far are not too complex. One of them is growth motivation; firms that simply have decided to grow also have more success in doing so. So in order to get an idea which firms will become rapidly growing international players, we just need to ask them if that is what they are trying to accomplish - simple as that.

To examine this issue, we asked CEOs of Finnish software firms about their agreement to the following statement: "Our firm has targeted international markets from its founding" on a five-point scale. We then plotted the questionnaire results with the ages of the companies' CEOs in the year the companies were founded. With a little leap of faith, the founding teams are probably about as old as the CEO, at least on average. This plot therefore gives an idea of the typical age of the people who decide to go into international business by starting their own company. Voilà, the image below (N=75):

The red line represents and average "do not agree or disagree" level, i.e. neutrality toward the statement. Everything above it thus means internationalization from day one was to some degree pursued. (The scale is cropped, but "2" would mean "disagree" and "4" would mean "agree.)

Overall, it seems that it is less common to start companies with global markets in mind than aiming to be local players. The camels back curve shows that people most likely to do so are in their early thirties. Interest drops steadily until about age 45, and then starts to surge again.

The local orientation of those under 30 seems worrying since the process of becoming the next Bill Gates or Mark Zuckerberg statrts at an early age. Not jumping into too heavy conclusions, the curve might be pushed more to the right by the typically old age of Finnish university graduates.

Therefore my two cents to the debate on the apparently low levels of growth entrepreneurship in Finland are that free university education and benefits to some extent discourage high tech entrepreneurship and lead potential serial entrepreneurs off their optimal learning curve. Since the serial entrepreneurs we are growing start off later, they will have less time to create firms and create less jobs. Even the willingness to take over the world in the Harley Davidson age would not shake this conclusion.

I end this post with the typical words of a researcher: "More studies on this topic are called upon."

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