Finland and Nokia: Creating the Worlds Most Competitive Economy

Team 8
Martina Martina, Adrien Monvoisin, Ronen Eckhouse

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
Traditional expertise (army) and traditionally not monopolized NMT and the Nordic Region (Finland was always too small a market) Finnish characters Telecommunication cluster

The emergence of Finland as a telecom powerhouse

Cluster Program
Historically: pulp/paper, wood, engineering metal

Cluster goal: Strengthen Finnish competitiveness

World-wide competitive advantage through privatepublic 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:
Nokia's Business (Q2 07)
Nokia Siemens Networks, 27% Mobile Phones, 47%

Handset is major driver with majority business comes from Europe & Asia Pacific
Nokia's Handset Business (Q2 07)
Latin America, 8% North America, 4% Europe, 38% Asia-Pacific, 25%

Enterprise Solutions, 4% Multimedia , 21%

China, 12%

Middle-East & Africa, 13%

Nokia market distribution is shown below

Nokia Handset Unit Growth (Q2 06 vs Q2 07)
40.0%
Unit Growth (%)

30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% North America Latin America Europe China Asia Pacific Middle East & Africa

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 longterm growth Strong presence but not market leader in smart phone Weak presence in North America, which prefers to clamshell phones Step up in multimedia-rich user experience via acquisition Falling average selling price Fierce competition

Motorola
High-end phone (RAZR) But RAZR is backfired as it is commoditized

Weakness

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

Opportunity Threat

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