Not many of Stockholm’s near neighbours would support its claim of being 'the capital of Scandinavia' – and even those who coined the phrase admit there was an air of intentional provocation about it. “The Danes say that they would have said it too, if they’d thought of it”, says one Stockholmer with a smile. However, regardless of how many sensitivities have been offended among Stockholm's Scandinavian brethren, there is plenty of evidence to back this bold claim.

Stockholm is winning a lot of prizes; among the titles it has had bestowed upon it recently are Europe’s greenest city and Europe’s most intelligent city. Also – especially when the sun is shining – Stockholm is an extremely attractive place. Largely made up of myriad islands on an inlet of the Baltic Sea, the city has an industrial feel to it, though greenery – and indeed some spectacular landscape – is always close to hand. Lifestyle is certainly a part of the Stockholm proposition but by no means the only one.

In many respects, the Swedes have long enjoyed and deserved a reputation for being at the cutting edge in terms of liberal social and political values, design and technology, and it is these last two fields in which the country is standing out on a global scale. Sweden has a remarkable industrial heritage but it is also true that historically, Swedes have been able to rely on a combination of big business – and big government – for their jobs and economic security.

To a large extent, that remains the case. The Swedish standard of living is, in common with that elsewhere in Scandinavia, remarkably high and the provision of social welfare generous. But there is an understanding that if the country is to maintain its high standard of living, it will have to continue to encourage and stimulate innovation, even if that means taking risks.

Big, strong and growing

Few would contest that Stockholm is the dominant city of Sweden, not only because the government is seated in the city but also by dint of its economic importance. In fact, the area known as the Stockholm Business Region (SBR) is substantially larger than the city itself – and includes some 50 municipalities within commuting distance of the city centre.

The SBR is the fastest growing region in Sweden by a large margin. It generates about 42% of the nation’s GDP, and is a net contributor to the budgets of other Swedish regions. Just under half of all multinationals with operations in Scandinavia and the Nordic countries have their headquarters located in Stockholm, while the population of about 3.4 million (30% of the Swedish total), is increasing by some 30,000 a year – migrants both from abroad, and also from elsewhere in Sweden, notably traditionally industrial areas where opportunities are starting to diminish.

Immigration is a big political issue in Sweden, but the authorities are unrelenting in their assertion that migrant workers are beneficial to the country. While the country's authorities accept that migrants do put pressure on housing provision and services, they insist that “Stockholm needs people” – particularly if they are talented, and bring with them the skills that can add value to the city's innovation economy in areas such as life sciences, information and communications technology (ICT) and computer engineering, which are supplanting the more traditional heavy industries as drivers of the Swedish economy, as well as attracting investors.

'Ecosystem' is an oft-used term in Sweden, often in conjunction with the networks, clusters and interactivity that takes place between large and small companies, and between the corporate, academic and public sectors – which in theory can provide each other with the institutional nourishment and through-flow of ideas that both Sweden and Stockholm's knowledge economy needs to thrive.

Embracing technology

Sweden is a technically minded nation; engineers have always been held in high esteem and have traditionally commanded large salaries. But whereas traditionally employment opportunities have been with corporate giants such as Volvo, Saab or ABB, young technical talents are now more likely to be working for smaller companies at the cutting edge of new industries.

There are some 8000 companies in the Stockholm region, employing just under 90,000 people. "We can’t compete with Silicon Valley in terms of general ICT development, but in our niches we’re very strong indeed,”  says Torbjörn Bengtsson, business development manager for the body responsible for attracting investment to the Stockholm Business Region. It is Mr Bengtsson's role to promote and encourage these niches within Stockholm's 'innovation economy' – a broad umbrella; and within it there are a number of speciality areas in which Stockholm sees itself as not only possessing unique strengths but as being a world beater.

Perhaps the most obvious of these is the city's track record in developing smart phone technology. While Volvo and Saab are probably the brands most instantly recognised as Swedish, Eriksson is a close third (and given that much of both Volvo and Saab are under foreign ownership, Eriksson achieving the status of being the 'most Swedish' brand can only be a matter of time). Smart phone development has a 13-year history in Sweden – a long time for such a young industry. Swedish researchers can make a justifiable claim to the authorship of smart phone technology standards such as GSM, Edge and WCDMA. Kistas, a burgeoning 'science city' on the outskirts of Stockholm, is the focal point for most of this activity.

Similarly, the neighbourhood of Västerås is home to Sweden’s growing expertise in the area of robotics and automation – so much so that it has acquired the name 'Robotdalen', meaning 'Robot Valley'. The main player in this area is multinational company ABB, but there other companies, many smaller and newer, pushing the boundaries in fields such as power generation control and transport automation.

In total there are about 500 companies active in industrial automation in Stockholm, employing about 8000 people. Proving the value of the city's ecosystem, these companies work closely with nearby research institutes such as the Royal Institute of Technology, Mälardalens Högskola and Uppsala University.

Another area where Stockholm sees itself as a global leader (or at least in joint first place, with Tel Aviv) is in the world of e-gaming. Companies active in this field include OnGame, which was acquired by the Austrian company Bwin in 2006 but still employs more than 400 people in Stockholm; Unibet, which develops online casino, poker, bingo and betting platforms; and companies such as Bettson, Entraction, and Netenternainment. There is a reason for such a profusion of companies in the games (and increasingly vigorous ‘moneytainment’ sector): Sweden was one of the first countries to deregulate its stock exchange, and much of the technology that went into the development of trading platforms is now being appropriated by the entertainment sector. 

Life sciences also represent a valuable part of the Swedish economy. There are about 460 companies located in a cluster between Stockholm and the nearby city of Uppsala; the cluster includes world-leading drugs companies such as AstraZeneca, Q-Med and Pfizer, as well as some of the highest globally ranked research institutes: among them Uppsala University, the Karolinska Institute and the Nobel Institute.

Asa Bergstrom, director of inward investment promotion at SBR Development, says that this abundance of world-class names is why foreign companies come to Sweden: “They want access to exciting technologies and talents. They see a need for certain developments, or solutions or capacities, and realise that by collaborating with or acquiring Swedish companies – or simply by being in the ecosystem – they can meet those needs.”

Acquisitions in the past few yearswhich, she says, illustrate the point include Google’s acquisitions of video conferencing company Marratech and statistics viewing company Gapminder (now Trendalyzer) and Yahoo!’s purchase of Kenet Works, which manufactures community software for mobile phones, to name but a few.

Cashflow concerns

One trait of the high-tech sector – be it in Sweden or anywhere else in the world – is its precariousness, particularly in a business's early stages when cashflow is often a problem. The director of one fund that specialises in biotech development says: "Financial institutions are traditionally very risk-averse in Sweden," adding that there simply isn't enough private equity or venture capital to go round, meaning that wealthy individuals – or 'angels' as they are commonly known – must pick up the slack.

But lack of liquidity means more opportunities for those prepared to take the risks. Saeid Esmaeilzadeh set up with incubator Serendipity with less than Skr100,000 ($14,000) and is now incubating a portfolio of exciting young companies developing products that include the world’s hardest glass (Diamorph), hydrophobic paper (Organoclick), and a new protein production platform.

Mr Esmaeilzadeh says that like other incubators he was able to take advantage of what is called “the professors’ exemption”: an understanding in Sweden that intellectual property belongs to the researcher that makes the breakthrough, and not the academic institution in which he works, simplifying any arrangement with investors, and also incentivising researchers to look for commercial applications for their technology. 

Serendipity is remarkable both for its profitability the fact that it was established on a shoe-string. It is also a textbook example of how much progress can be made through sheer entrepreneurial spirit. Along with Serendipity, there are 21 incubators in Stockholm. One of the largest and best supported is Stockholm Innovation and Growth (Sting) owned by the Electrum Foundation, itself backed by the City of Stockholm, KTH (the Royal Institute of Technology), Ericsson and ABB. A non-profit making company, its creation in 2002 was in response to the dot-com crisis of 2000, which hit Stockholm hard.

Sting network manager Maria Nilsson acknowledges that the current climate is also difficult and that both the numbers of investors for 2010, and the volumes invested, are significantly down on 2009. But, she adds, the quality of the ideas being nurtured by Sting is undiminished – and despite difficulties accessing investment, she sees an increasing appetite for entrepreneurialism. 

Green and pleasant land

When Stockholm was awarded the title of European Green Capital for 2010 by the European Commission, it was not only as a result of the environment that the city has managed to create and maintain for its population (it is the policy of the city government to ensure that Stockholmers are never more than 350 metres away from a green space); it was also because Stockholm invests heavily in environmental innovation in areas such as housing, waste water treatment, and energy.  “In fact,” says the city’s vice-mayor Ulla Hamilton, “the prize was a recognition of our entire environmental portfolio.”

Given how highly Swedes value the beauty of their capital, it is inevitable that the response to the city's growing population has come in the shape of increasing the density of its developments, and not expanding the city’s physical footprint. The development of the former Royal Seaport area in the north-east of the city is intended as a showcase of that philosophy.

The Stockholm-based Swedish Environmental Research Institute (IVL) is very much a part of that portfolio. Jointly funded and founded by business and government in 1966, IVL is a regional leader in research into areas including climate and energy, air and transport, water, sustainable building, and resource-efficient waste technologies. Östen Ekengren, who sits on the board of IVL, says that one of the greatest roles the institute can play is in helping environmental companies develop their business ideas “and then we look for further funding and clients to develop the products”.

These kinds of technologies – producing biogas from sewage sludge and kitchen waste, for example, or recovering waste water – not only help Stockholm maintain its green credentials but are also exportable technologies with, potentially, large markets in other countries. Mr Ekengren is under no illusion as to the competitiveness of the environmental technology space – the institute has maintained a presence in and research co-operation with China since 1986. But, he says, in many respects Sweden still takes the lead.

Exceeding expectations

Stockholm is a cheaper place to invest than some might think; there is greater compression between blue-collar and professional salaries than in comparable economies, with the upshot that the price of talent is very reasonable.  In fact, a recent survey by the Lisbon Review Index found Sweden overall to be the most competitive country in the EU, while a 2008 survey conducted by the Centre for International Competitiveness found Stockholm to be the world's sixth most competitive business region.

But in addition to the scorecards and tables, Stockholm embodies the Swedish characteristics of civility, security, and political stability. In combination with its commitment to environmental values and innovation, these are capital values.