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Finland and Nokia: Creating the World's Most Competitive Economy

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Yulia Akinfieva

on 14 March 2011

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Transcript of Finland and Nokia: Creating the World's Most Competitive Economy

Finland and Nokia: Creating the World's Most Competitive Economy Finnish Economic Policy in the 1990s
Outline Introduction
Country Background
The Finnish Economy prior to 1990
Finnish Economic Policy in the 1990s
The International Mobile Telecom Sector
The Finnish Mobile Cluster
Nokia in 2001
Finland in 2001
Nokia in 2011
Lessons Learned
During the crisis
the Science and Techology Council made additional resources available for R&D 1. The Center of Expertise Program

2. The Cluster Program Real Economic Crisis
1993-Economy Rebounds The Finnish Economy Cont'd Increasing focus on R&D required from the government skilled workforce
Liberalization of Finnish Capital
Traditionally Tight relations were re-shaped between companies and their banks

Finland joined the EEA in 1993
Finland became a member of EU in 1995
Finland and Nokia
2nd Half of 1990 Finland's average GDP raised by 5% Finnish Telecom Policy in 1990s: subject to competition
In 1987, a new Telecom Service Act separated the rugalatory and operational functions of the PTT The Act Allowed private companies to offer mobile communication services Finland granted the 3rd generation mobile network Country Background Nokia in 2001
Sales: EUR 30.4 billion
Operating Profit: EUR 5.8 billion
Margin: Above Industry Average
Employees: 60,289/24,000 in Finland
Prod. Locations: 10 countries
R&D: 15 countries
Sales: over 130 countries New Ceo-New Nokia in 1992 The "Nokia Way" 4 Fundamental Values Stock Exchange
Diveting business outside of Telecom
Building new organzational culture The Finnish National Character Pragmatic
Non-political built on trust
Nokia Operational Side Defining Mobile Phone as a fashion item and consumer good instead of technology product Nokia Operational Side Cont'd Outsourcing
Contract Manufacturing
Software Development
Long-term Cooperation Agreement Wap Forum
"Smart" Mobile Phones Main Challenge Evolution of Standards Finland in 2001 Decline
Telecom Cluster
Labor Shortage
Growing Gap Innovative Idea-Roaming
Strategy-Acquisition and Alliances
Focus on Innovation-The Cluster Program
The Cluster Model
Organizational Culture
Basic Info
Country's History
Telecom Industry Basic Information Surrounded by Baltic sea in the South and the West
Russia in the East
Sweden and Norway in the Northwest.
Capital: Helsinki
Population: 5.3 million on 130,000 sq miles
76% of the land covered with forests
Homogenous society with few immigrants
6% Swedish
Language: Part of the Finno-Ugrian of Hungary and Inuit of the far north (Finnish-Swedish-English)
Government: In 2000 the new constitution integrated four previous ones to give more control to the parliament. Tarja Halonen, the first female president.

Since 1919, Semi-Presidential, the president is directly elected by the parliament for 6 years and has the right for policy making and foreign relations, appoints ministers. Prime Minister elected by the parliament.

Educational system: traditional or vocational schools are obligatory for children from age 7 to 16 and with high quality education that only 13% of the students need to enter universities.
Country's History Had been part of Sweden for six centuries till 1809

Declared its independence in 1917 after the Bolshevik revolution

After the WWII, remained isolated depending on the economy of the Soviet Union

After the war, there were heavy investments in social welfare and public infrastructure.

The government has large holdings in the Finnish business which influenced the ownership of the key industries

Joining WWII, lost some territory and relocated 15% of the population
Economy Historically, the economy was driven by the natural resources and the wealth of the coast line

By 1970, it was absent from the international market except for the pulp and paper 40%, wood 16% and engineered metal (shipbuilding) 23%

Ferries and icebreakers dominated the domestic market to connect Finland with Sweden and other European countries
By 1950, the economic performance was really low, the GDP was 46% of that of the US
In 1961, joined the European Free Trade Association (EFTA)
After WWII, from 1950s till 1980s, trade was affected by the Soviet Union paying protection indemnities in the form of steel textiles and machinery in return of natural resources like oil
From the 1960s to the 1980s, productivity growth exceeded any other European country and investment rates were high
However, the wage dispersion and the company profitability were low
In early 1980s, exports were primary to Germany, Sweden, US Economy Cont'd In the 1970s-1980s following the Nordic patterns, it had a large public sector with welfare aspirations and government intervention and high taxes law.

Companies and the banks have strong financial ties and restricted credit approvals.

Mergers and acquisitions should be approved by the banks and the government.

Domination of large companies like Valmet (paper and pulp industry) and Nokia (1865-1967)
In 1980s, there was an increase in the inflammatory pressure, lose in the international ground and public sector deficits and increasing tax share of GDP.
They adopted:
R&D expenditure to increase the share of GDP and R&D spending increased by 10% annually.
In 1983, the National Technology Agency was founded for implementation of technology policies and Science and Technology Council to direct research policies and develop strategies in three-years cycles.
Financial markets were liberalized and lending from banks was much easier
Economy Cont'd By 2001, became one of the fastest and competitive economies known for its fiscal stability and introducing the Euro in the first wave as a member of the EU

Telecom Industry The telephone network was never monopolized by the state like other European countries
After the independence, the National Telecommunication Operator (PPT) was founded to operate the network after Russia.
The government didn’t nationalize the poor companies to stimulate private sector to upgrade those industries.
By 1930s, there were about 815 private local telephone company in Finland.
There were three major companies for radiophone and mobile industry:
Salora, 1928: Manufactured TV and radio sets .
Valtion, 1925: Was the radio laboratory for the ministry of defence to strengthen national development and the production of radio technology. Later on it merged with PPT and was called Televa.
Soumen Kaapelitehdas, 1917: produced telecommunication cables. It merged with Nokia in 1967.
By 1970, Televa and Nokia joined their marketing and R&D efforts (Telefenno) for digital exchange technology and became the best after Alcatel and Ericsson.
Cellular Structure 1st, 2nd, and 3rd Mobile Generations
Finland Focus The development of Nordic Mobil Telefon (NMT) standard in the 1970s was a highly valuable outcome of the traditional co-operation of Nordic Telecommunication administrators and industries. On contrary, Comvik, Matra, TACS, were used only in Sweden, France, and U.S.A.
In 1980s, Mobira, a joint venture of Nokia and Salora, supplied first NMT phone
In 1988, the telecommunications authorities of European community published the “Groupe Special Mobile (GSM)” standard (Digitalization of radio transmissions forcing complexities (s/w) on equipment) Nokia-Mobira re-organised its structure developing systems and handsets with AEG and Alcatel and had alliance with AT&T making Nokia leading in the market share of handsets
1st, 2nd, and 3rd Mobile Generations
Finland Focus The market shares in NMT in 1985 as per 83,525 units(Mobira Finalnd 25.7%, Ericsson Sweden 16.9%, Panasonic Japan 8.9%,Strono Us until 1977 then Denmark7.1% Dancall Denmark 7.1%, Mitsubishi, NEC Japan 6.1% & 6.0%, Siemens Germany 5.6% Motorola U.S.A 5.6%, Simonsen Norway 2.3%
When two digital standards emerged, TDMA and CDMA, Nokia decided to develop its own CDMA phone

3rd generation includes GPRS (General Packet Radio Service 2.5 G and Wideband CDMA emerged in Europe and used all over the world
Conclusion The merge of Nokia (originally a wood pulp mill) and Suomen Kaapelitehdas (Finnish Cable works) 1966- 1967 provided the core knowledge base for the new entity. (Core Competence)
The recession in 1990s provided a complete change in the structure: The center of Expertise program focused on strengthening regional competitiveness by increasing innovation (creative destruction)
New kinds of investments arose alongside public sector (Venture Capitalists) In 1993, restrictions on foreign ownership of Finnish firms were removed
In 1994, policy making powers of the regions within Finland strengthened to develop their own economic development activities (Liberalization of the financial markets making lending easier)

Early adaptation of NMT created an opportunity for Finland to have a breakthrough in GSM
R&D expenditure increased throughout 1980s making Finland one of the leading OECD countries in public R&D and education
Emeregnce of the Finnish Telecom Cluster
Characteristics The Finish telephone network was never monopolized by the state.
Deliberately fragmented market structure.
Seeds of the Finnish Radiophone and Mobile Phone Industries Salora:
Established in 1982, regional manufacturer of TV and radio sets.
Valtion Sahkopaja – renamed Televa:
Established in 1925, radio laboratory of the Ministry of Defense
Suomen Kaapelitehdas:
Established in 1917, producer of telecommunications cables
Nordic Telecom Conference Established inn 1969.
A body for formal and informal technical cooperation between the Nordic PTTs in Denmark, Finland, Norway and Sweden.
Initiated a project to develop an automatic Nordic Mobile telephone (NMT) network.
Pioneered the roaming technology.
Made the Nordic region the World’s largest single mobile market at the time.
'Expansion at a Rapid Rate' The market began to attract private operators and manufacturers.
The Association of Telephone Companies formed a joint venture in 1988 , Radiolinja, to operate a private network.
In 1981, demand from the Finish PTT led the domestic equipment industry to develop a base station.
By 1985, the NMT standard held a leading position in a number of foreign markets, with an average annual growth rate of 50%
Several Nordic manufacturers of mobile phones and network infrastructure entered the market.
By late 1980s there were some 15 competitors active in the Nordic mobile phone markets.
Nokia Nokia and Salora created a 50:50 owned joint venture in 1979 named Mobira to market and develop radio technology (new NMT phones).
Nokia expanded its international operations by acquiring companies.
Consolidated the Finish telecommunication equipment industry.
After rapid growth through these acquisitions and alliances, ran into a financial crisis.
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