Fewer large Finnish firms to expand operation this year

Finnish large companies have sound finances, but growing numbers are becoming cautious due to the uncertain business environment, according to a Survey of Large Corporations conducted by OP financial group.

Only a tenth of big firms intend to expand and develop their operations this year, which is a major change compared to the one third of large companies aiming for growth two years ago, said OP in a press release referring to the survey published on Tuesday.

For almost half, the main focus is on improving operational efficiency and increasing productivity.

The economy and uncertain business environment are impacting on the growth expectations of Finnish large corporations.

According to the survey, respondents are focused on increasing productivity and efficiency, rather than growth. They expect most new growth to come from outside Finland.

“An economic downturn has undeniably begun, but Finnish large companies have adapted and their earning power is still relatively high. Many large companies are lifting their eyes towards the horizon and preparing for the next upturn. Big firms have entered a phase of active waiting,” said Katja Keitaanniemi, Chief Executive Officer of OP Corporate Bank.

Low growth expectations are also impacting on investments: 52 per cent of tangible and 40 per cent of intangible investments are earmarked to ensure business continuity. The share of respondents focusing investments in this way is at its highest in five years.

Most large corporations are now looking beyond Finland’s borders. They expect subcontracting, employee numbers, and demand in their main industries to grow faster abroad than here.

“Finland may be the corporations’ home country, but the respondents have an international orientation. Year-on-year growth in production will mainly occur in the euro area, according to a third of large companies. Sales and customer relationships are also expected to increase most in the euro area,” Keitaanniemi added.

Business is now vulnerable to inflation, higher borrowing costs and labour supply problems in particular.

Around 67 of respondents expect unpredictable interest rates to cause problems in the coming years. Highly leveraged firms, and those whose customer demand is lowered by borrowing costs, are hardest hit by rising interest rates. However, rate rises also impact on the profitability of investment projects in moderately indebted companies.

These clouds of uncertainty have a silver lining – the crises of recent years have increased large companies’ speed of reaction. At times of crisis, big firms feel strongest in their core production activities. They also draw strength from their financial resources.

“In addition, geopolitical tensions and growing responsibility obligations have prompted companies to become more active in solving social problems. Almost 80 per cent of big firms feel that their tasks include solving social problems, such as environmental and economic issues. This is the highest level ever recorded by the survey,” Keitaanniemi added.