R A HUL AGR AWA L A K A N K S H A B H AT N A G A R RAJ SHEKHAR K U N TA L PA N J A SUNNY GARG RACHIT SHUKLA

CASE SUMMARY
1980s, a process started of transforming an investment-driven economy into an innovation-driven one. Collapse of the Soviet Union around 1990, dragged Finland into crisis. Finland became the member of the European Union with fiscal stability. Finnish constitution had the semi-presidential form of government that plays a significant role in forming the good foreign relations. Nokia accounting for some 70% to 80% of the cluster exports and the world leader in mobile phones. Finnish government plays an important role in the leading companies of the Finland industry. Positive influence of Finnish exports, R&D expenditures and market capitalization.

ISSUES & PROBLEMS

Slowdown of global telecommunication. Overall growth rates were also on the way out with the major export markets weakening. The telecommunication cluster was at its peak and was also facing severe downturn. Demand for skilled labor was increasing whereas Nokia had shortage of skilled labor engineers and scientists. Unemployment was also increasing in Finnish society among young and unskilled.

ECONOMIC CONDITIONS
Background of the crisis: financial market deregulation Until the 1980s the Finnish banking sector and international capital flows heavely regulated low risks, no credit losses Financial deregulation in the 1980s, following international pattern After gates were opened, a flow of foreign credit increased rapidly domestic liquidity 1986-89 Credit expansion fuelled an investment boom and asset price bubble in 1987-89

ECONOMIC CONDITIONS
Strong growth led quickly to overheating and indebtedness Rapid growth of output, consumption and investment Consumer price and asset price inflation Widening current account deficit (to 5 % of GDP), increasing foreign debt but stable debt/GDP-ratio (25 %) Full employment and good fiscal balance, very low public debt Inflation & currency appreciation increased the Finnish price level so that finally it was 40 percent higher than OECD average (in 1990)

PRIVATE SECTOR DEBT WAS DOUBLED WITHIN 4 YEARS

Private sector debt
450 400 350 300 250 200 150 100 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

billions of markka

FOREIGN DEBT BECAME A PROBLEM ONLY AFTER CURRENCY DEPRECIATION AND OUTPUT FALL IN For ig

t of GD p r

PERIOD OF HIGH INTEREST RATES

3-month interbank rate
16 1

12 10 8 6

1989

1990

1991

1992

1993

199

 
2 0 1988 1995 1996 1997 1998

YEAR SLUMP IN GDP VOLUME

GDP volume
130 12

120 11

110 10

100 9

90 8

1988

1989

1990

1991

1992

1993

199

199

80 1987

    
1996 1997 1998

EMPLOYMENT WAS REDUCED BY PERCENT

Em loyment
 
6 5 1000 henke 1987 1988 1989 199 1991 199 1993 199

    
3

  
1


19 18 17

  
1995 1996 1997 1998

UNEMPLOYMENT RATE CLIMBED FROM TO PERCENT WITHIN FOUR YEARS

Unemployment r te

per ent

! ""

! #""

! ""

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THE WAY OUT OF CRISIS

The Bank of Finland was forced to abandon the policy of fixed exchange rate in September 1992 during the European currency crisis after losing its currency reserves and the Finnish markka was allowed to float the Finnish markka depreciated by 40 percent, but started to appreciater later domestic interest rates were decreased rapidly from 15 to 5 percent

CURRENCY DEPRECIATION WAS PARTLY TEMPORARY AND PARTLY PERMANENT

Effective exchange rate
140

130

120 index

110

100

90

80 1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

INDUSTRIAL PRODUCTION BENEFITED FROM DEVALUATION AND RECOVERED RAPIDLY

Industrial production
140 130 120 110 1990=100 100 90 80 70 60 1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

FACTORS HELPING TO OVERCOME CRISIS

Finlands overall economy was consistent in innovation in telecommunication and IT industry. New universities were opened Huge investments in R&D Acquisitions for latest technology and market developments Government was monitoring mergers and acquisitions in private sectors to harmonize and reinforce overall R&D efforts.  A telecommunication cluster was emerged in Finland in which smaller companies merged in large conglomerates like Nokia.  The best combination for innovation in telecommunication was formed in Finland.     

MAJOR BUSINESS
The 3 largest clusters in Finnish economy were;  Pulp & paper (accounted for 40% of exports)  Wood products (accounted for 16% of exports)  Engineered metal (accounted for 23% of exports)

TELECOM SECTOR
In 2001, over 200 million mobile phones were sold worldwide.

Telecom industry was divided into two parts:  Mobile communication infrastructure  Mobile handsets

SWOT
Strength
Early movers High mobile penetration Government involvment in leading companies A high literacy rate

Weakness
Unskilled employees and scientists Difficulties in relation to attractiveness; small domestic market area, limited number of inhabitants, a small language area Venture capital

Opportunities
Going beyond EU, looking for best competence globally Open minded and sufficient support for creativity and innovation

Threat
Intense competition Unemployment (2001) Decreasing sales

OPERATING SYSTEM FOCUS

1. 2. 3. 4. 5. 6. Flexibility Quality Innovation Delivery speed Service Cost

SWOT

Strengths
Innovation Market leader Increasing sales Acquisitions and JVs for new technology Backward integration Captured markets of different standards

Weakness
Could not create monopoly as government forbade doing so.

Opportunities
Emerging telecommunication sector in third world countries

Threats
Motorolas first mover advantage in mobile infrastructure and analog phones Joint venture of Sony and Ericsson Downturn in telecommunication sector

PORTERS FIVE FORCES MODEL

Low Bargaining power of customers

High Threats of new entrants

Intensive Competitive rivalry within Industry

High Threats of substitute Technologies

Low Bargaining power of Suppliers

BCG MATRIX

CHANGE IN TOP MANAGEMENT

Nokia suffered a crisis situation in late 1980s. New CEO introduced four fundamentals values of Nokia named them Nokia Way.
    Customer satisfaction Respect for the individual Achievement Continuous learning

MUTUAL GROWTH In 1979, Nokia and Salora created a 50-50 owned joint venture named as Mobira Mobira expanded in Korea and US. Include contract manufacturers and contracted software development and R&D. Acquisition of electronics companies including PC and office electronics business of Ericsson Information Systems.

DIVERSIFICATION Diversification and investment in making mobile handsets. Nokia was active in both, infrastructure and handsets in 2001. (Other two were Ericsson and Motorola)

GLOBAL GROWTH Nokia Manufacturing Plants:

5 plants in Finland 5 in China 1 in Malaysia.

PORTERS DIAMOND MODEL

CHRONOLOGICAL DEVELOPMENT
Nokia Networks, and Redback Networks Inc. announced strategic agreement to increase broadband solution. 2002 Nokia built Eizel's foundation to make wireless Internet access interactive and highly satisfying for business users. 2003 Nokia and Metrowerks completed transaction on transfer of application development technology to Nokia 2004 Nokia Corporation sold all of the approximately 3.2 million Nextrom holding shares it owned. 2005 Nokia acquired Intellisync, a leader in platform-independent wireless messaging and applications for mobile devices. 2006

CONT...
2007 2008 2009 2010
Nokia acquired Twango to offer a comprehensive media sharing experience:Share photos, video and other media through virtually any connected device. Nokia acquired Symbian Limited .

Nokia completed its acquisition of Trolltech, a recognized software provider with world-class software development platforms and frameworks.

Microsoft and Nokia formed global alliance to design, develop and market mobile productivity solutions.

Nokia completes acquisition of Novarra to enhance internet experience in Nokia series 40 mobile phones.