Finland and Nokia: Creating the

Worlds Most Competitive Economy

 Summary of Situation in 2001:
Finland
Finland is still a leading competitive nation
GDP growth is declining
Increased unemployment among the low skilled labors
Telecommunications cluster accounts for 6.9% of GDP
Shortage of skilled Finnish workers
Finland is the first to grant licenses to all 3G systems
National Tech. Agency facilitates the emerging digital
media industry
The Finnish Venture Capital Association has been formed
First Nordic country introducing the Euro
 Summary of Situation in 2001:

Nokia
Nokia was the leader of the Telecom industry
Market share: handsets 31%, Infrastructure 10%
Motorola lost mobile phone leadership to Nokia
Market share: handsets 15%, Infrastructure 13%
Severe downturn in the Telecom.
Slow/Delayed transition to 3G system
Nokia stock fell 38% during 2001 (MOT fell 30%)
Revenue grew by 9% in 2001 (compared to 43% in 2000)
Shortage of skilled Finnish workers
Nokia foreign employment grew 4 times faster than Finnish employment
Finnish suppliers produce highly customized inputs
 Porters Diamond: Finland/Nokia
Factor Conditions
One of the worlds most homogenous, united and stable societies
National competitive strategy
Tradition of innovative engineering and telecom industry
Sophisticated education and university system

Related and supportive industries

Local supply for highly customized inputs
Telecom cluster with more than 4,000 specialized firms
Highest public R&D spending in Europe
Many R&D centers of global companies
Venture capital forum
Tekes facilitates stake holders in the emerging digital media industry
 Porters Diamond: Finland/Nokia
Demand Conditions
NMT created the worlds largest single mobile market
First to have severe competition
Finland is a member of the European common market since 1995
A market of early adopters with very high standards
Mobile phone is a national symbol
Finland amongst the world leaders in mobile penetration

Firm Strategy, Structure and Rivalry

Finnish telephone network is never monopolized by state
Traditionally, operators engage actively with equipment manufactures
A national industrial message for national competitiveness
Open market
No restrictions for foreign ownership
Serve distinct customer needs with out constraints on standards
 Porters Diamond: Finland/Nokia
Government
Very stable (6 year terms) with a long-term view
Initiatives to improve national innovative capacity
Assurance of technological neutrality
Open socialist economy
A policy of minimum interference

What else should the government do?

Remove centralized wage settings mechanisms
Encourage young and low-skilled to join the work force
Encourage more global firms to open R&D centers in Finland
 Economic Transformation in Finland
Early 1990s Crisis
Berlin wall fell -> dried up Finnish exports overnight
Severe economic crisis (GDP fell, high unemployment)
Finland was forced to float its currency
Mid 1990s turn-around
Lowered taxes
Government expenditures cut-back
High interest rates
Devoted resources to R&D, competitiveness and innovations
Expanded the capacity of higher education
Liberalized and opened local markets
The emergence of Finland as a telecom powerhouse
Traditional expertise (army) and traditionally not monopolized
NMT and the Nordic Region (Finland was always too small a market)
Finnish characters
Telecommunication cluster
Cluster Program

Historically: pulp/paper, wood, engineering metal

Cluster goal: Strengthen Finnish competitiveness
World-wide competitive advantage through private-
public partnerships
83,000 employees, >4,000 firms, 6.9% of GDP
Operators, content providers and equipment
manufacturers
Equity capital: new important source of funding
R&D focused on technology and telecommunications
Nokias worldwide leadership
International operations in various field
Worldwide joint ventures
Highly skilled work-force
Nordic identity through the Nokia way
Low production cost and short product development cycle
Broad market: serves distinct customer segments with
different needs
Focus on R&D (15 countries, 9% of its revenue)
Nokia is always ahead of its competitors (design, internet,
software, )
 Nokia Current Business
Nokia revenue stream: Handset is major driver with majority
Nokia's Business (Q2 07)
business comes from Europe & Asia Pacific
Nokia's Handset Business (Q2 07)
Nokia
Latin America,
Siemens
Networks, 8%
27% North America,
Mobile 4%
Phones, Europe, 38%
47% Asia-Pacific,
Enterprise
25%
Solutions,
4%

Multimedia
, 21% China, 12% Middle-East &
Africa, 13%

Nokia market distribution is shown below

The fastest growing regions

(Q2 07) are Asia Pacific &
Middle East/ Africa followed
by Europe & China.
 Nokia vs. Motorola
Nokia
Strength Low-cost phone
Focus on emerging market with
big investment in Infrastructure
Broad product line to sustain long-
term growth
Weakness Strong presence but not market
leader in smart phone
Weak presence in North America,
which prefers to clamshell phones
Opportunity Step up in multimedia-rich user
experience via acquisition
Threat Falling average selling price
Fierce competition
Motorola
High-end phone (RAZR)
But RAZR is backfired as it is
commoditized
Single smash hit is not
sustainable
Smart phone continues losing
market share
Step up in multimedia-rich user
experience via acquisition
Falling average selling price
Fierce competition

Overall, Nokia has grown faster and is positioned to grow faster than Motorola thanks
to its broad portfolio and strong global presence especially in emerging countries