Sweden: Despite world class innovation and investments in R&D, challenges remain

Stockholm: Braving the October chill, Magnus Bergman cycles 10km to his office in Stockholm’s high-end commercial district of Stureplan. Internet expert Bergman and his colleague telecom entrepreneur Pandelis Eliopoulos run a tiny VOIP start-up and dream of turning it into a profitable mobile communication venture with a global footprint. With a team of just 25 youngsters from 11 different countries, plingm has presence in China, US, India, Japan and Singapore.

Having registered a whopping 5,000 per cent growth since January, plingm is eyeing a sizeable slice of the global mobile VOIP market that is growing at a compound rate of over 63 per cent and is expected touch $29.98 billion by 2016. Unlike market leader Skype that was co-founded by Swedish entrepreneur Niklas Zennström in 2003 and offers VOIP solutions on multiple platforms, plingm focusses only on mobile-to-mobile cheap calls. With over a million downloads, Bergman claims, plingm is among the top three in 14 markets, including 12 in Middle East and North Africa region.

In the nearby high-street shopping hub of Biblioteksgatan, colonies of potentially deadly bacteria are grown in petri dish to test new products that will cut antibiotic-resistant infections in hospitals worldwide. Heading a small team of lab technicians in medical technology firm Bactiguard, Christian Kinch early this month was in the middle of a sales pitch with Iraqi healthcare chiefs to supply gold-coated catheters that, he claims, significantly cut hospital-acquired deadly infections. Dr Hassan Al Kazzaz is Kinch’s potential customer and a deal with the Iraqi public health boss would have been critical for Bactiguard ahead of the product’s formal launch in Abu Dhabi last week. Having secured an order for Chinese government hospitals, Bactiguard is now heading towards emerging markets of Gulf and Middle East.

A short walk from the Bactiguard office, Sweden’s second largest hamburger chain Max is getting ready for a Dubai launch in November. Named after founder Curt Bergfors’ nickname, Max specialises on low-fat burgers and is the only food firm in Sweden with a fully carbon-labelled menu. With low-carb and vegetarian choices, Max seems to be a popular choice of environment conscious customers looking for carbon-smart alternatives. Par Larshans, Max’s full-time chief sustainability officer, believes his company will eventually become carbon-neutral, a distinction that will help drive business in markets in the MENA region.

Spurred by excellent Swedish workmanship, world-class innovations and huge investments in R&D, the country’s robust economy stands apart amidst failing European nations of Greece and Spain. Stockholm’s bustling downtown markets, busy ICT, commercial and industrial clusters, efficient public transport and low inflation indicate that the economy is healthy and vibrant. But dig a little deeper and the narrative begins to change. Beggars in downtown Stockholm, posters warning travellers of pick pockets inside Arlanda airport and Swedes rummaging garbage bins outside five-star hotels are possible indicators of the challenges this wealthy nation of nine million people may face in future.

Sweden is one of the most export dependent economies in the world and a few large companies make up for country’s 80 per cent of exports. Policy-makers in Sweden, one of the poorest European nation 100 years ago, are well aware that this is a recipe for disaster and they are hoping that small and medium enterprises like Max, plingm and Bactiguard will drive Swedish exports that make up for half of the Nordic country’s GDP of $538,13 billion.

So far, Swedish companies have successfully applied a time-tested formula to expand their business - — invent, develop, produce and distribute. But this formula is increasingly coming under close scrutiny.

“Swedish trade shares are declining and we must rely on SMEs to stop this,” economist Professor Pontus Braunerhjelm of Royal Institute of Technology told Gulf News. “We are paying too much attention to macro issues and ignoring micro issues, this is the reason of my pessimism,” he said, adding that, “when Roman Empire fell we found out only after 500 years.” Another word of caution comes from Swedish Trade Council, a joint venture of Swedish government and business. “Almost 80 per cent of our exports are going to markets that are not growing,” says Mat Paulson, the council’s vice-president, Middle East, Africa, Central Asia and Balkan. “We want more SMEs to be export oriented and that’s what preoccupies us,” Paulson says adding that Gulf and the Mena region are priority regions for Swedish trade.

Professor Braunerhjelm is not sure whether huge investments in new technology will continue to translate into bigger profits. Large investments in research and development increase production cost, making Swedish products unattractive in many markets. Bactigaurd’s Kinch admits that catheters made by his company are two-times expensive than those made in China and India. He is aware of the challenges Bactiguard will face when it begins supplying gold-plated catheters to Chinese hospitals. It is anybody’s guess how long it will take the Chinese manufacturers to come up with cheap copies of this Swedish product.

The signs of cut-throat competition from the Chinese are clearly visible in the Swedish capital. Chinese goods and hand-made Swedish Viking souvenirs jostle for shelf space in shops dotting downtown Stockholm. Inside Swedish Academy’s Nobel Museum, cheap Chinese products are displayed alongside expensive toys and stationary made by the Swedes. “This is not made by us, it came from China or some such place,” quipped a salesgirl inside the Nobel Museum.

Competition from China is not limited to Viking souvenirs. Sweden’s telecom and electrical sector that accounts for 14 per cent of Swedish exports is also facing challenges of globalisation. A 20-minute drive towards north-west of Stockholm leads to the telecom and information technology hub of Kista where more than 20,000 workers are employed in dozens of companies. The centerpiece of this ICT hub is telecom giant Ericsson, Sweden’s largest exporter and, many believe, source of world’s current and future inventions in telecom and information technology. After ending their mobile phone venture with Japanese giant Sony early this year, Sweden’s telecom major Ericsson is focusing on telecom infrastructure and back-end operations. A cluster of large buildings make up the headquarters and research facilities of Ericsson that proudly claims it has deployed 20 per cent of its workforce in R&D. They are busy developing digital highways, highly-efficient telecom infrastructure, smart mobile masts and much more.

At Ericsson Studio, the company has proudly displayed its history since 1876 when Lars Magnus Ericsson founded Ericsson as a telegraph equipment repair shop in central Stockholm. A dumbbell-shaped telephone and bulky wireless telephone equipment displayed on the reception table tell the glorious history of Ericsson, the world’s largest manufacturer of telecom equipment with a market share of 38 per cent. Another section of the studio showcases future technologies: a talking tree, voice and picture data transfer through human bodies, smart and efficient mobile masts and many more. With a planned R&D investment of $5 billion in the coming years, Ericsson is focusing on setting industry standards in GSM and WCDMA. Today, more than 40 per cent of the world’s mobile traffic goes through Ericsson networks covering 2.5 billion mobile subscribers.

In the Middle East, Ericsson is working with 36 telecom operators including, Etisalat, du, OmanTel, Turkcell in developing mobile networks. In Saudi Arabia, it is developing 4G services with STC or Saudi Telecom Company. With a history of 120 years, Ericsson has 6,000 employees in 20 countries in the Middle East and gets 17 per cent of its business from the region. But the company is aware that all this might change in view of stiff competition from Chinese and Indian companies who are eager to supply telecom platforms and equipment at a cheaper price. “The politicians must take the present situation seriously,” says Professor Braunerhjelm.