The Hindu Business Line : One road…and it led to India

When a company born and nurtured in Finland sells out to an Indian entity, it could feel like selling a part of oneself. Sasken Finland recounts the experience and details future goals too.

“We wanted to still be able to walk on the roads here after the sale with heads held high.”

Bijoy Ghosh

Clinching the deal.

K. Bharat Kumar
Recently in Finland

When you have owned and run a company for a couple of decades, how do you get around to selling it? Is it like giving away a daughter in marriage to a stranger? Or is it just the money you look at, at the end of the transaction?

If you happen to be in the Western part of the world and India had never really entered your consciousness in your two decades as entrepreneur, what does selling out to an Indian buyer mean? Would you lose sleep over jobs going away or would you pray for a buyer who is committed to keeping, if not increasing the headcount in your hometown?

On a recent visit to Kaustinen in Finland, sponsored by Sasken, Chairman Maati Paasila and CEO Hannu Timmerbacka of Botnia Hightech, (which, by virtue of the sale to Sasken Technologies in August 2006 is now Sasken Finland) shared with eWorld the emotions they felt and the goals they set for the merged entity, as they sold off their brainchild to Sasken.

Ask Paasila why Botnia chose Sasken, and the first thing he tells you is: “It was very clear that we wanted to still be able to walk on the roads here after the sale with heads held high.”

That wakes you up a bit. Why was that a concern? Explains Paasila: A couple of large, contract manufacturing companies have come here, taken over companies, completely dismantled factories and shipped jobs away to China. “It was important for us that jobs continued to grow as long as our Finnish company remained profitable.”

Paasila’s concern is justified. None of the four promoters of Botnia: himself; Hannu Timmerbacka; and two others; were dependent on this entity for a livelihood. They came together to set it up because the Kaustinen town authorities invited them to do something for the community they grew up in.

Says Paasila, “We have been developing this for 20 years. When we started Botnia, we all had different jobs. We started this because we wanted to give back to the community.”

Early days

‘Get employee, get business’, seems to have been the mantra in the eighties. Botnia’s early days had nothing to do with mobile phones. CEO Hannu Timmerbacka recounts, “We decided to start a small automation engineering company. It needed almost no capital.” Its first business came from ABB in the country, in the area of electronics, thanks to Botnia’s new managing director who came from ABB.

And when a new employee came from Nokia, business from Nokia followed, as if on tap. Hannu Jyrrka, earlier CEO and now business development manager at Botnia, came from Nokia and changed the course of Botnia’s history.

And it wasn’t as if Nokia had looked for some special skill sets right at the very beginning. “Nokia gave us our first job in the mobile arena due to lack of resources in that segment. They were investigating all possibilities. They knew Hanna Jyrkka, who was with us after he worked at Nokia, knew the job. They were getting after guys who had left them.”That was 1992. Once that segment started to grow fast, Botnia realised it had to focus on one thing and decided to spin off the process automation and engineering division that it had started out with.

And Nokia persisted with them because of their radio frequency and design work, says Timmerbacka, “We had a few specialists from Nokia. These people were able to train others and we became a sort of hub of knowhow. We were training Nokia’s own people.”

Gentle push

So, where from did the pressure to look towards India come? For this, Timmerbacka gives us a bit of background.

Originally, the promoters did not get into active operations. Then, says Timmerbacka, “We were guiding the senior management in the company as to how to run it. But the operations team did not have time to look beyond their work.” Between 2001 and 2002, Botnia lost some acquisition opportunities that its Finnish competition made the best of. Then, the promoters asked Timmerbacka to become CEO of the company so that he could focus on strategy, while the others intensified focus on operations.

When he took over, Timmerbacka’s brief was to see how he could take the company forward. He also laid out a plan to expand beyond work in the area of radio frequency and electronics design into mechanical design. He also wanted to get and offer better software solutions. Though Botnia had a small team in software in the town of Kokkola, it needed more skills.

So it bought over a small mechanical design team near the town of Turku and then majority stake in Ionific, which was good at software for mobiles. With these, Botnia was able to offer the complete range of products for handsets, while continuing to expand its RF solutions and mechanical testing.

Hannu Timmerbacka

Says Timmerbacka, “The key behind this is that we knew plenty of design work is moving from countries such as Finland to China and India. We did not want to face direct price competition between the others and us. If we made those investments and had the ability to design complete products, then all of our competitors would have to make those same investments. So then it would not be between man and man or cost versus cost.

Background over, here’s how Sasken came into the picture: Botnia’s dependence on Nokia was, and is, high. Nokia contributes as much as 85 per cent of Botnia’s annual revenues. Timmerbacka says, “We had some teams working outside Finland. To be successful and to be viable in the future, we needed to expand customer base and go outside Finland.”

Paasila adds perspective here: “Our focus was to globalise ourselves, but with reasonable risk. That was the only way to grow and secure our business.” Interestingly, Nokia had already asked Botnia to go to India, China or the US. Paasila quotes Nokia, “If you want to be our best partner in R&D you have to establish yourselves in one of those places.”

So, why didn’t Botnia come on its own to India? Paasila says, “We simply didn’t have critical mass. We had sent people to Nokia’s sites in Copenhagen and Germany and then to the US last year.” But the challenges in India and China are of a different magnitude.” In China, Nokia had already established support in, what Paasila calls, the late development phase. “When Nokia moved to India, there was no natural support to the customer.”

If Botnia wanted to be something in India, either it had to invest a lot of money for organic presence or acquire a company. Both were too much financially and could have threatened stability back home. “But since we wanted to please the customer, we decided on the merger option.”

Five bidders were in the final picture before Sasken was chosen.

What impressed Hammerbacka and his team was that Sasken was smaller in size compared to other bidders and it shared Botnia’s values.

One of those bidders was a large Indian IT services company. And since, on the way to Botnia’s office, you saw a Wipro logo indicating Wipro’s Finnish presence, you can’t help asking if Wipro Technologies was one of the bidders. Timmerbacka would only say, “No comments. I will let you make your inferences.”

Timmerbacka says, “We wanted a small-sized bidder since we did not want to be a dot in a 60,000-strong company.” Paasila adds, “Other bidders offered a higher price. It might have been good but we would have had no control whatsoever.”

The match turned out to be truly complementary: “We had hardware design skills that Sasken did not. And we were interested in Sasken’s semiconductor clients,” says Timmberbacka. “We felt that it would be difficult to be a reasonable-sized player in the field either in China or in India. We felt that the Chinese train had gone on a bit, but that India was still ‘in the station’.”

Paasila was also impressed with Sasken’s global presence. “Sasken is established in many parts of the world. It was a nearly perfect fit. It never is absolute. But we were happy.”

Lessons learnt

If he had to do this all over again, how would Timmerbacka do it? “ It’s difficult to say. Perhaps, it would be good to visit Bangalore, before we start a dialogue. That kind of practical thing is necessary. We have visited Bangalore now, but not before we started serious discussions. It is important to know what kind of culture they work, the business environment.”

Probe further and ask if the deal would have turned out differently, he takes a mischievous jibe at Sasken, “Perhaps, we could have squeezed a little bit more than we did, (on the price front).” He admits, though, “Actually, nothing major would have changed. The process of acquisition was okay.”

Not without challenges

“Mostly, we have met milestones we had set for ourselves in the last 10 months. We were (pleasantly) surprised at how smoothly Sasken has handled the differences.”

The culture differences that we only hear about second-hand seem to have been an obstacle that the merged entity has managed to surmount. Says Timmerbacka, “We have different cultures. India is one of the world’s giants, we are a small country in the North. It affects different things.”

One of those things is the difference in effectiveness. Timmerbacka’s view is “Traditionally, we have learnt to be effective. We don’t have buffers in our system. We now learn that in India, you have buffers. You can have more resources and people to do things.” But is that good or bad? Timmerbacka lobs that back diplomatically, “I can’t say what it is. But, at the moment, it is possible to have buffers. In the future, that may not be possible. Indian companies would have to learn to be much more effective than they are today. Of course, you, the country, have your own bureaucracy…”

Ask him for an example of any difference he noticed, and he cites his team’s immense surprise when a lawyer representing Sasken India wanted to see receipts for taxes the Finnish entity had paid in the past. “For us, it is very difficult to not pay taxes. Our authorities can find out very quickly. We found we had to learn new angles to such practical things. In that sense, Finland is very precise and under control.”

Manpower issues, too, are handled very differently in India compared to Finland. Timmerbacka says, “Employee unions are very strong here.

The rules are very strict as to how we communicate to them. Here, we make those unions negotiate together and then we raise salaries based on the commonly agreed contracts. And, individual salaries rise only sometimes, every third or fourth year. Those kinds of differences...” Compare that with India and you have a wage inflation of about 15 per cent annually across the board.

One point of interest that came out was that manpower attrition in Finland is less than 2 per cent. It is not uncommon for people, in the software industry, to stay for 10 or even 20 years in their jobs, he says.

Giant as a client

Isn’t over-dependence on Nokia risky for Sasken Finland? Timmerbacka says that now, as a subsidiary, his mandate is to manage and look after Nokia as a client. Nevertheless, “We are very happy to see plenty of enquiries from Nokia’s competitors as well.”

Job additions?

About 14 engineers from Sasken India have moved over and are now on the payroll of the Finnish company. For every job that is added in Finland, would many more, say, five jobs, be created back in India? No clear figures are available, but Timmerbacka says there certainly would be a ripple effect in offshore strength.

Recently, Sasken Finland invested in a frequency testing facility at about $1.2 million in Kaustinen. For each model of every brand, the unit would have to undergo frequency testing.

For each of those models, without the automated facility, it would take about half-an-hour to test the frequency transmission. Now, it is real time. Says Timmerbacka, “Till recently, mobile phone majors would not allow such a facility to go out of their premises. Now, they have agreed to outsource it.” These are functions that would take some time to move offshore.

bharatk@thehindu.co.in

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