Finland has long punched above its weight. While its population of about 5.6 million people1 makes it the 118th largest country in the world, its GDP per capita ranks it 21st.2 It has produced leading companies in everything from advanced industries to telecommunications and pulp and paper. And earlier this year, Finland claimed the title of the world’s happiest country for the eighth straight year.3
Behind the headlines, though, challenges are emerging. Economic development has been slow since the 2008 financial crisis, with flat productivity and modest GDP growth sparking debate regarding how to strengthen Finland’s long-term competitiveness and ability to generate growth.4 The start-up sector is growing, but its combined €10 billion scale5 is still too small to significantly accelerate economic growth. Only the country’s largest corporations have the scale to make a needle-moving contribution.
Yet our research finds the growth of large-cap companies in Finland has failed to keep pace with global peers (for more, see sidebar “About our research”). Companies headquartered in the country would be, on average, 65 percent larger today had they grown at the average global pace for the past decade. Lower share price appreciation and TSR is a consequence of a growth rate below that of Finland’s peer group.
This article seeks to increase awareness of the factors that could be addressed at Finland’s large-cap companies. Our research found their slower growth may be driven by a lack of aspiration, investment, and cultural dynamics—but there is an opportunity for Finnish companies to build on their considerable strengths.
A decade of underperformance
A small number of large corporations typically drive a significant share of productivity growth in economies and, in turn, economic growth.6 These companies tend to account for a large share of private sector employment, capital investment, and talent development, and their influence extends beyond their own operations. Even a few large companies growing faster could lift an economy the size of Finland’s.
Yet not a single large-cap company in Finland met the global growth average between 2013 and 2023. Finnish large caps grew by 3 percent annually, on average, during the past decade, compared with 8 percent for the world’s 5,000 largest listed companies. Sector exposure does not appear to explain the variance—the global sample follows a largely normal growth distribution—and taking inflation into account only widens the growth gap (Exhibit 1). In addition, large companies in other Nordic countries have grown strongly, while the European average is close to the global average.
When we look at TSR, a metric combining total payouts (such as dividends and share buybacks) and share price appreciation, the growth ceiling is also apparent. While large caps headquartered in Finland have paid significantly above-average dividends, the appreciation in their share prices has been more three percentage points lower than their peers on an annualized basis (Exhibit 2). In total, the average annual TSR of Finnish companies has been 1.6 percentage points below global benchmarks, driven by lower topline growth.
The lack of growth among large-cap companies headquartered in Finland has two major implications for the state of the nation.
First, the sluggish growth of the country’s top 20 companies reduces activity, returns, and the number of high-productivity jobs for the whole economy, despite the fact a significant share of revenue comes from outside Finland. Had these companies grown at the global average pace for the past decade, their total revenue would have been roughly €80 billion higher by the end of 2023, corresponding to a missed increase of around 15 percent in the total revenue of Finnish corporations.7
Second, while the annual difference in TSR of 1.6 percentage points between Finnish companies and global peers may seem small, it sums to around 20 percentage points for the ten-year period. Given these large-cap companies represent more than half of the market value of the Helsinki Stock Exchange, this lack of growth negatively affects the wealth generation of Finnish investors, taxpayers, and pension funds.
Three factors driving the growth gap
We found several factors that contribute to the slower growth of Finnish large-cap companies. While the full set of drivers is complex, three elements consistently stand out: growth ambition, capital allocation, and culture.
Modest growth targets
Many Finnish companies do not set sufficiently high growth targets. Few state revenue growth goals of more than 5 percent per year, and a large number choose not to publish targets at all (Exhibit 3). In the absence of a clear growth aspiration, it becomes difficult to align leadership focus, allocate resources effectively, or build momentum over time.
Conservative capital allocation
This slower growth both contributes to and is the result of how capital is invested. Capital is often directed toward dividends, share buybacks, and paying off debt, with Finnish large-cap companies allocating a smaller share of revenue to R&D, capital expenditure, and M&A compared with their international peers (Exhibit 4).
Total payouts of Finnish large caps have averaged around 70 percent of net earnings for the past decade, compared with a payout average of about 55 percent among global peers. This difference amounts to the equivalent of 1.5 times average annual net income for the decade, which could have instead been reinvested to fuel business growth. In addition, Finnish large caps in that period devoted an average of about 65 percent of total payouts to dividends, compared with 35 percent among their global peers.8 In our experience, local dividend-payout practices are to pay dividends consistently every year irrespective of business needs, while global peers pay dividends or execute on share buybacks more flexibly. Through-cycle payouts would give more flexibility to continue investing into growth with a long-term value creation mindset.
Besides high total payouts as dividends, Finnish large caps have been reducing their net debt much more than their peers have. This is understandable, given that the balance sheets of these companies were relatively debt-heavy a decade ago, following the 2008 financial crisis.9 Today, on average, Finnish large caps have stronger balance sheets than the global average, which can be seen as a position of strength when turning the focus back on profitable growth.
While Finland’s overall R&D spending appears comparable with global peers, it is heavily concentrated: Nokia accounts for approximately 70 percent of the private R&D investment of large Finnish companies.10 When Nokia is excluded, the average R&D intensity among Finnish large caps drops to 1.5 percent, compared with 4.5 percent globally.
This difference becomes clearer when comparing a specific sector such as advanced industries (for instance, machinery) with the same sector in a neighboring country. For example, the six companies with highest R&D spending in this sector reported a combined R&D investment of €0.8 billion in Finland and €2.7 billion in Sweden. On average, Swedish advanced-industrial firms invest 4 percent of revenue on R&D, while comparable Finnish companies invest only around 2 percent.11
The same trend is evident in both capital expenditure and M&A activity. Finnish companies invest 1.2 percent of revenue in capital expenditures, compared with a global benchmark of 1.9 percent. In some sectors, such as advanced industries, depreciation is even larger than new fixed asset investments. With regard to M&A, Finnish companies invest 2.3 percent annually, while the global benchmark is 7.1 percent. The challenge is also about not only the level of investment but also how it is executed. Many Finnish companies rely on one-off transactions rather than programmatic approaches that build long-term advantage. Sustained growth often requires a repeatable model, with clear integration plans and a consistent view of portfolio fit. With low growth, Finnish large-cap company valuation multiples are also lower than those of their peers, and it becomes challenging to justify acquisitions or win in competitive M&A situations.
Cultural and organizational gaps
Culture and organizational structures appear to further reinforce slower growth patterns observed among large-cap companies in Finland. When we examined insights from more than ten years of surveys from McKinsey’s Organizational Health Index across Finnish companies, involving more than 12,000 individual responses, we identified several cultural factors affecting growth and performance (for more, see sidebar “About the Organizational Health Index”).
While leadership in Finnish companies is generally perceived positively, with a key strength being consultative leadership (that is, gathering employee input and including employees in decision making), many leaders are seen as lacking boldness and a clear, inspirational direction. This suggests a shortage of visionary leadership: individuals who not only engage their teams but also set a compelling growth agenda and mobilize the organization to pursue new opportunities.
Innovation is another area where there is a gap between perception and practice (Exhibit 5). While Finnish organizations are often viewed as innovative, few have strong top-down mechanisms in place to systematically drive innovation. In particular, there seems to be a lack of senior-level sponsorship: leaders who identify promising initiatives, commit resources, and take ownership for scaling them. The challenge is not necessarily in generating ideas but in prioritizing and executing with conviction. The least emphasized practice relative to our global organizational health database is capturing external ideas or bringing in best practices from outside the organization.
Motivational practices are also limited. Finnish companies tend to rely less on incentive structures that reward growth and development. For example, practices focused on developing talent as well as rewarding and recognizing high performers were among the least emphasized in Finland. Commission-based sales models are rare, and the share of performance-linked compensation for executives is significantly lower than in markets such as the United States.12 This can reduce the alignment between individual performance and company goals, especially in commercial functions.
Beyond culture, organizational structure emerges as another factor affecting the agility and growth of large-cap companies in Finland. Organizations tend to have a higher share of middle management than global peers—about three percentage points more on average, equating to roughly 300 additional managers in a company with 10,000 employees, according to McKinsey analysis. Instead, there are fewer engineers and frontline sales people.
This pattern of emphasizing managerial roles is also reflected in sales organizations, where there is a greater focus on sales management over frontline salespeople. One hypothesis is that in Finnish companies, there are fewer opportunities for career and salary progression as specialists or experts, as compared with global peers. At global peer companies, it is common for the highest-performing specialists to earn more than their superiors, providing an incentive for them to continue doing what they do best.
Together, these cultural and structural characteristics may limit the ability of Finnish large-cap companies to scale efficiently, respond to market shifts, and capture new growth opportunities. Addressing these barriers could be critical to improving long-term performance.
Overcoming the growth challenge
While Finnish large-cap companies have grown more slowly than their global peers, they are in a strong position to change course. Most have spent the past decade improving operational efficiency and strengthening their balance sheets. As a result, they now have low debt levels, stable cash flows, and significant capacity to reinvest in future growth.
In addition to strong financial fundamentals, these companies operate in an environment that supports long-term competitiveness. Finland offers a stable and transparent business climate, a highly educated workforce, and strong institutions. It also provides favorable structural conditions for energy-intensive industries based on its highly cost-competitive, reliable, and clean electricity grid on a global scale, positioning it well to support growth at multiples of today’s power consumption. These advantages are especially relevant as industries across Europe decarbonize with clean energy and strengthen regional supply security of value chains.
There is also a clear track record of Finnish companies achieving strong growth. In previous decades, firms in sectors such as information and communications technology in the 1990s and video games in the 2010s grew significantly faster than global industry averages, at times becoming global leaders in their fields. More recently, several nonlisted companies have shown strong momentum in sectors such as healthcare and advanced technologies, reinforcing the notion that the potential for innovation, scale, and global competitiveness remains strong in Finland.
To close the gap between the growth of the country’s largest companies and its global peers, the factors at play must be identified and understood, and all stakeholders must think differently:
- Owners can set higher growth targets, consider the overall level and stability of paybacks such as dividends, and create the financial headroom to invest in R&D, capital expenditure, and M&A.
- Boards can seek to create company cultures of challenge and aspiration, placing greater demands on CEOs and management teams to set clear growth strategies backed by the allocation of resources—and then to monitor performance. Incentives should also reinforce the importance of growth.
- CEOs and management teams can craft growth plans that also significantly overshoot their targets, can boldly reallocate monetary and people resources against larger growth opportunities, and can drive cultural transformations that stimulate growth by building on strengths and removing impediments.
- The business ecosystem can more broadly recognize Finland’s cultural impediments to growth and tackle those in collaboration with other companies. Examples include setting clear career paths, driving motivators, and adopting a greater external orientation.
- Society more generally can push for increased R&D spending and the creation of talent factories around larger companies, understanding the role Finland’s large-cap corporations play in driving the country’s economic well-being.
Renewing Finnish growth is possible, but the country’s large companies must play a significant role by setting more-ambitious targets, increasing investment in future growth, and strengthening capabilities in innovation, international expansion, and leadership. Even a handful of large companies achieving growth above global averages could lift the entire economy. After a decade of lost growth, the opportunity is there to be seized.
