When Flagships Falter: How Finland and Waterloo Adapted to Anchor Firm Collapse

Abstract

Why are some communities more resilient to flagship decline than others? This paper compares how Finland and Waterloo, Ontario adapted to the failure of their flagship, high-technology enterprises, Nokia and Research in Motion (RIM). While both regions exhibited a degree of resilience, Nokia’s decline proved more disruptive, causing technology employment to decline by 10% between 2008 and 2016. By contrast, technology employment in Waterloo was roughly stable as RIM shrank and, by some measures, even increased. The Waterloo’s region’s resilience is particularly striking given that RIM employed a higher share of the local labor force. After eliminating several alternative explanations, the paper identifies a tradeoff in the way communities embed flagship firms. In Finland, Nokia’s ties to policymakers and local industry ensured that the benefits of its growth were widely distributed, but this increased regional vulnerability to the firm’s decline. By contrast, RIM’s relatively aloof position within the Waterloo ecosystem limited positive spillovers as it grew, but this permitted the construction of an independent ecosystem which could absorb the resources released by RIM’s collapse. In Finland, this creative reallocation of resources was more painful and protracted.