From Cleantech to Cleanweb – The Finnish Cleantech Space in Transition

Now that the worst of the growing pains have been subdued, cleantech has made a respectable comeback onto the global agenda of firms, investors and economic developers alike. One might say it is bigger than ever, with a constantly proliferating range of cleantech companies and business models. In the midst of the resurgence, Finnish cleantech has been recognized globally. Recent rankings by Cleantech Group and the WWF and  placed Finland in the top-3 of global leaders in cleantech, along with Israel and the US.

Together with Etla (Research Institute of the Finnish Economy) and University of Michigan’s Ross School of Business, Demos Helsinki took a closer look at the Finnish commercial cleantech space and scrutinized it in light of select indicators such as degree of specialization into cleantech, type of industrial activity, generation of value added and financial performance.

The results are thought-provoking. Of the many discoveries made in the report, three strike as critical:

1. The Finnish cleantech space is dominated by manufacturing-driven businesses.
2. Consumer-oriented technical innovations are rare, yet a number of promising startups operate in that space.
3. The engine of industrial renewal – the layer of small and medium –sized firms – seems to struggle with financial sustainability.

The ability to shift gears from manufacturing- to service-driven businesses may be compromised if the low financial viability of small and medium –sized companies turns out to be more than a statistical fluke. These firms have been known to possess the rare capability to mock conventional industry boundaries to develop novel business models and open new markets. Poor commercial performance would indeed be bad news for the long-term development of the cleantech space in Finland.

In the gold rush era of digitalization, our findings beg the question whether the seemingly dominant focus on manufacturing, engineering and technology could become the ball-and-chain to the growth of Finnish cleantech. Digitalization is currently revolutionizing service businesses and providing opportunities to harness vast consumer markets for rapid, scalable growth – particularly in the area of smart use of natural resources. In recent years these opportunities have been widely discussed in several contexts including cleanweb, smartups, smart city, internet of things and consumer cleantech.

With this background it’s not surprising that adopting service-based business models have allowed a number of countries, and notably the US, to leap forward by linking technological knowhow with the other mentioned emerging trends and change the ways natural resources are consumed. To leverage the potential, a growing number of smartups (our name for consumer cleantech startups) and a couple local smartups ecosystems have appeared globally, few of them in the Nordics.

To ride the cleantech wave as a global forerunner necessitates catching and harnessing the riptide of change in the consumer domain. In a best possible scenario, it will be an integral part of a Finnish cleantech ecosystem that complements the already existing skeleton of manufacturing- and engineering-driven company base. What the sector needs now is open-mindedness on part of economic developers for a broader view of cleantech, adventurous courage on part of the existing industry and the government for opening its current technology platforms as well as databases for new service-based business models, and more growth-oriented businesses which pioneer consumer markets with service-based smart solutions.

To do so means that the industry needs to learn to closely test prototypes with their customers throughout the entire product or service development process in continuous and iterative validation cycles. Nothing drives concept development forward more effectively than time spent with actual customers. The best founders, CEOs and senior managers spend significant amounts of time with the clients. It is not an activity they delegate. Most importantly, however, what is dearly needed, is the creation of new types of cross-industry partnerships that form a solid base for green innovation ecosystems. The state, municipalities and companies, big and small, with a wide range of backgrounds from manufacturing to digital services, need to learn ways and practices to collaborate. This is an absolute prerequisite for the industry’s mid‐ and long‐term development.

That being said, a more hands-on and urgent challenge that needs to be tended to immediately is the poor financial viability of small and medium sized businesses in the cleantech space. Our results are merely descriptive and do not provide information on the reasons behind the lackluster performance of the most crucial drivers of industrial renewal. In-depth research is needed to unveil whether the result is a purely statistical fluke related to sampling, for instance, or whether there should be real concern about the long-term survival of Finnish cleantech SMEs. Is the problem traceable to the current European-wide economic downturn, perhaps? Are investors overly cautious because of it? Or are cleantech SMEs in Finland either too young to or still in the process of defining their business models to become profitable? We cannot tell.

One thing is certain: a cleantech ecosystem is unfathomable without a healthy base of SMEs which, many times, are the only trailblazing force across incumbent, locked-in industry structures.Given the central role of digitalization, there is a clear opportunity to leverage the innovative capacity of the Finnish ICT industry to: (a) accelerate the adoption of green solutions, (b) drive economic growth, and (c) render cleantech companies not only profitable, but also attractive investments.

From Cleantech to Cleanweb – The Finnish Cleantech Space in Transition report by Annu Kotiranta, Antti-Jussi Tahvanainen, Peter Adriaens and Maria Ritola available at ETLA web site.

This is writing in the series of Demos Helsinki briefings on Smartups, consumer cleantech startups. Read our report on Smartups here.