Finnfund

Stera is a group specialising in serial production of mechanical and electronic units. It was formed in October 2007 by the merger of Levyosa Oy, Elektromet Yhtiöt Oy, Hihra Oy, Aumec Systems Oy and Beertekno Oy, all long-standing producers of mechanics and electronics.

Stera’s CEO, Heikki Ajanko, says that the idea of international expansion came up in the early 2000s even before the merger.

“At that time we reached the conclusion at Hihra that growth in Finland alone was impossible.”

Ajanko recalls that operations in Russia were seriously considered at one stage, but the plans were abandoned because of the large risks involved. Over the years, the prospects for operations in Central Europe, such as Hungary, have also been studied. The pieces just didn’t fall into place.

Options of China or India

The merger four years ago brought new patterns of thinking. It now appeared logical to study opportunities for growth in Asia.

China and India emerged as the leading alternatives. After discussions with customers, Stera opted for India. Among its customers are Kone, Nokia Siemens Networks and ABB, all of which have activities in India.

“Our customers also operate in China but, taking all things into consideration, India emerged in first place.”

Competition in China is distinctly tougher in Stera’s field of business, Ajanko says. It would have been more difficult to start up operations there.

“India is a country of basic honesty with little crime. Personal behaviour is also easier to predict than in China. Admittedly, India is still in a world of its own compared with Nordic culture.”

Setting up operations in India was eased by the fact that English is one of the country’s official languages. An additional advantage, Ajanko says, is that wages and other production costs are distinctly lower than in China.

Comprehensive pre-investment study

The initial study of the prospects for Indian operations was prepared by the internationalisation consultancy Finpro, with the support of the Finnpartnership business partnership programme.

“It concluded that there were opportunities for us in India, although the risks were of a different magnitude from what we were used to at home. India is a bureaucratic country and things aren’t always what they seem.”

Stera already had some operations abroad, in Estonia, but India posed a much higher threshold for a start-up than a Baltic state had.

“The problem set in India is quite different. Estonia has a corporate culture that is rather similar to Finland’s.”

Finnfund finances expansion

Stera decided to begin Indian operations in a series of cautious steps. It established a subsidiary in 2008. Production was begun two years later in a factory hall of some 1000 m².

“The machines and software that we brought from Finland allowed us to get production under way quickly.”

Encouraged by a promising start, Stera decided to expand.

“We got in touch with Finnfund and asked about possible financing for a new factory project.”

Finnfund provided an investment loan. It has also brought other advantages to the partnership, Ajanko says.

“In a country like India, Finnfund as a state-owned institution can handle many matters more easily than the private financial sector.”

Finnfund’s managing director Jaakko Kangasniemi calls Stera’s investment a win-win-win scenario.

“It serves India, Stera and Finland. We believe that other medium-sized enterprises should study this example closely. If Finnish companies want to do well amid tougher international competition, they need to combine their skills with local work and customer service in the new growth markets. This is where an ever-increasing proportion of their customers are.”

High value-added products

In summer 2011, production shifted from the old location to the new factory building. It was officially opened on 20 September.

Stera produces complete mechanical and electromechanical units in India. Sheet metal is cut into strips, bent into shape and powder coated.

The unit is fitted with cables and electronic components. After assembly the products are packed and despatched to customers.

Stera’s business principle is to meet customer needs comprehensively and to make products that have the greatest possible value added. The aim is a long-term partnership, from prototype design to efficient mass production.

Currently its main customers in India are Nokia Siemens Networks; Sanmina-SCI, an electronics contract manufacturer; and Kemppi, a producer of electric welding machines.

Chennai the best location

The choice of site for the new production plant in India was clinched by the location of the plants of Stera’s main customers. Chennai, formerly known as Madras, was a logical choice in this respect, and a growth centre of 8 million people.

It was worth spending time looking for the right site, Ajanko points out.

“For example, taxation practices vary from one part of Chennai to another. The distribution of languages and ethnic groups also needs to be studied. An outsider can’t do this. You have to get the assistance of the company’s own Indian employees or a local consultant.”

Cultural nuances need to be carefully taken into account. Religions and beliefs are very important in India, Ajanko points out.

Some of the most important development impacts of the factory are the jobs it has created. Stera has about 70 employees in India. The factory also supports a large number of people indirectly, in logistics, catering, procurement services, and so on.

Stera has brought more than just modern technology to India. It has introduced new manufacturing and business skills that put heavy emphasis on quality, management, human resources and the environment.

A country of great potential

Ajanko emphasizes that Stera has come to India to stay. In the same breath he adds that setting up operations in a foreign country always turns out to be more difficult than it appeared in the plan. This was true of India, too.

“What surprised us most was the enormous bureaucracy. There have been unexpected delays although we studied the regulations closely, obtained all the necessary permits in advance and observed them to the letter.”

He sees promising long-term prospects in India. Its growth rate has been overshadowed by China but the potential is enormous.

“We believe that India is in the position that China was in 10-15 years ago. It is a good choice for us because, after China, India is the second fastest growth region for our customers’ businesses.”

Operations in India fit well into the Stera group. Its head office is in Kaarina and it has operations in seven localities in Finland and as well as a production plant in Estonia.

Stera has about 550 employees. Group turnover in 2010 was EUR 60 million.

For more details, please contact Ms Helena Arlander, Investment Director, +358 9 3484 3355 or firstname.lastname@finnfund.fi