1. Exploring Corporate Strategy
CLASSIC CASE STUDIES
Nokia: The Consumer Electronics
Martin Lindell and Leif Melin
The case describes the entry of the Finnish company, Nokia, into the consumer electronics market –
resulting in a signiﬁcant reorientation of the company. It describes the internationalisation of the Nokia
Group from a Finnish company, to a Nordic company, to a European company and ﬁnally to a global
player in world markets. The case raises three main questions. Why and how did Nokia acquire con-
sumer electronics businesses? Why was the integration process of acquisitions so difﬁcult? And why,
after a decade of investment, did Nokia divest its consumer electronics businesses in 1996? The case
can be used to explore the difﬁculties of integration in terms of management, culture and strategy.
l l l
Nokia, the large Finnish industrial group, was founded in 1966 through a merger of three companies.
The main business units at that time were pulp and paper, tyres and cables, with paper manufacturing
as the oldest business, established 130 years ago. During the 1970s Nokia started to diversify through
expansion in different electronic product areas. In 1995, after twenty years of acquisitions, divestments,
internationalisation and rapid growth, 99 per cent of the turnover (FIM36,810 million)1 was repres-
ented by three business units in electronics: mobile phones, telecommunications and consumer elec-
tronics. The three original businesses had been divested and 91 per cent of the turnover was derived
from exports. Nokia had become one of the leading global producers of mobile phones and tele-
communication systems, and the third biggest in Europe in consumer electronics, with 34,000 employees,
14,000 of them working outside Finland in 45 different countries.
The Nokia case is a remarkable corporate transformation, achieved through focusing the company’s
strategic activities in the consumer electronics industry, where Nokia attained its position after a series
of rapid acquisitions of ﬁve different European companies between 1983 and 1992 (Exhibit 1). Colour
The exchange rates in June 1996:
1 British pound (£) = 7.27 FIM
1 Swedish krona (SEK) = 0.70 FIM
1 German mark (DM) = 3.07 FIM
1 US dollar ($) = 4.70 FIM
This case study was prepared by M. Lindell of the Swedish School of Economics and Business Administration and L. Melin
of Jønkøping University in Sweden. It is intended as a basis for class discussion and not as an illustration of good or bad
management practice. © M. Lindell and L. Melin, 1996.
Exploring Corporate Strategy by Johnson, Scholes & Whittington 1
2. Nokia: The Consumer Electronics Business
Exhibit 1 The acquisitions made by Nokia in consumer electronics
1983 Salora (Finland), Luxor (Sweden)
1987 Oceanic (France)
1988 Standard Electric Lorenz (Germany)
Main plants: Bochum (Germany) and Ibervisao (Portugal), with six other plants supporting
the manufacturing of TV sets
1992 Finlux (Finland)
Exhibit 2 Nokia’s turnover by business groups (%)
1972 1983 1988 1995
Paper industry 19.9 22.7 10.0 0
Tyres fabric 24.5 11.1 6.0 0
Electronics 8.0 19.1 60.0 99.0
Mobile phones 43.0
Consumer electronics 29.0
Cable fabric 47.6 22.0 9.0 –
Others – 25.1 15.0 1.0
TV was the dominant product group in the consumer electronics business, with audio systems and satel-
lite receivers as other product groups.
The radical changes in Nokia can be seen from the division of the turnover into various business
areas for four ﬁscal years (Exhibit 2). The main products in these different business areas have been as
l Paper industry – soft tissues, consumer products, power.
l Tyres fabric – tyres, industrial rubber, footwear.
l Telecommunications – telecommunication systems used in mobile and ﬁxed networks.
l Mobile phones – products for all major digital and analogue systems.
l Consumer electronics – colour TV sets, satellite receivers, VCRs and audio equipment.
l Cable – cables, accessories and systems for use in the construction industry, and the
telecommunications and power-transmission sectors.
Furthermore, for more than a decade from the mid-1970s, computers/information systems also formed
a business area within electronics.
FORMULATION OF A NEW LONG-TERM VISION FOR NOKIA
During the mid-1970s, after the oil crisis in 1973, Nokia experienced strategic problems. The original
core businesses, representing the main part of the corporation, were expected to have limited growth in
the future. Top management felt that the company could get into serious trouble if no strategic changes
were initiated. The change process began with the formulation of a growth vision, which implied new
strategic directions for Nokia. The ambition was to enter industrial sectors with growth potential, so as
to increase the share of products with growth potential in Nokia’s product portfolio. The top manage-
ment set out the following strategic goals for future development:
Exploring Corporate Strategy by Johnson, Scholes & Whittington 2
3. Nokia: The Consumer Electronics Business
l Increased share of high-tech produts.
l Maintain the competitiveness of the original businesses (paper, tyres and cables).
The chief executive ofﬁcer of Nokia at that time, Kari Kairamo, was the strategist behind the vision.
His belief was that growth could not be achieved by remaining in Finland. Nokia had been too depend-
ent on its domestic market. He also made a strong point of the need for strategic ﬂexibility and a readiness
to take opportunities.
In order to increase the share of high-tech products, Nokia soon started to diversify. Entering the
consumer electronics market was one of the main moves towards the vision of diversiﬁcation and inter-
nationalisation. All in all, ﬁve major acquisitions created the bridge into consumer electronics. The
manufacture of televisions was to prove an important element in this.
At the beginning of the 1980s, the total annual sales of TV sets in Europe were almost 20 million,
about the same as in both the USA and Japan. However, the European market was much more frag-
mented, with several technical standards and local protectionism. The consequence was more local pro-
ducers in Europe, each with a rather small production volume. The two biggest European competitors
were Philips and Thompson (France), but even these ﬁrms had fairly local strategies. Large production
volume was at this time not regarded as a major critical factor for success. Instead, the ﬂexibility to
change production rapidly from one type of TV set to another brand, model or size was a critical factor
for competitiveness. Eventually, the non-European competition from the Japanese and other Far East
companies led to an increased focus on price competition in Europe. With more focus on price, the
small-scale orientation created vulnerability for several European companies.
NOKIA ENTERS THE CONSUMER ELECTRONICS INDUSTRY:
THE ACQUISITIONS OF SALORA AND LUXOR
In the mid-1970s Nokia moved into computers, with the importation and distribution of Honeywell Bull
computers, following which the then small electronic business area was divided into professional elec-
tronics and computers. At the same time, another opportunity to expand in electronics appeared when
the Finnish army wanted a new type of portable radio telephone. It invited most domestic ﬁrms in the
electronics industry to develop them, and nearly all Finnish electronics ﬁrms started to construct mobile
radio telephones. The military order was eventually placed with three different companies, Salora,
Televa and Nokia. The top management in Nokia thought that three domestic companies in this area
were too many. As Salora was regarded as slightly ahead in its R&D activities, Nokia made an initial
contact with that company. A co-operation agreement was soon signed between Nokia and Salora
regarding their radio telephone businesses, and in 1980 the co-operation was extended. A joint venture
on a ﬁfty-ﬁfty basis was formed – Mobira, a mobile telephone business unit.
Exhibit 3 Turnover and proﬁt of Luxor, 1975–82 (in millions of SEK)
Year 1975/6 1976/7 1977/8 1978/9 1979/80 1980/1 1982
Turnover 484 523 611 700 745 1,010 730
Proﬁt/loss 12 15 –104 –69 –50 –117 –45
Source: Affärsuärlden, 1983, no. 48, p. 33.
Salora was also the biggest manufacturer of TV sets in Finland, but in the late 1970s it had problems
with its TV business because of a decline in the Scandinavian market. At the same time, the company’s
owners were accused of selling on the black market and were forced to relinquish their ownership. The
Exploring Corporate Strategy by Johnson, Scholes & Whittington 3
4. Nokia: The Consumer Electronics Business
Union bank looked for new owners and Nokia was invited to acquire Salora. But the head of Nokia’s
electronics division, Kurt Wikstedt, was only interested in Salora’s mobile telephone business and not
at all in consumer electronics, which were not seen as high-tech products. He saw no competitive
advantages for Nokia in the consumer electronics sector:
In Finland we cannot produce on such a scale in this product area that we could be successful.
The production scale of Salora is too small. We should concentrate on products where the
production costs are high, as in professional electronics.
Nokia’s group chief executive ofﬁcer and his corporate planner were in favour of an acquisition, as they
regarded consumer electronics as a growth industry. But Wikstedt’s arguments were stronger, and
instead Salora was taken over by the shipbuilding company Hollming.
The difﬁculties in Salora continued and the company made huge losses: FIM18 million in 1980 and
FIM25 million in 1981. The president of Salora was forced to resign after only a few years in ofﬁce and
Salora was put up for sale again. But Nokia did not show any interest in the consumer electronics part
of Salora. It just wanted Mobira. In this situation the owners of Salora, the Hollming Group, linked the
possible sale of their share of Mobira to the sale of the rest of Salora. The result was a compromise –
Nokia acquired 18 per cent of the shares in Salora in order to be allowed to acquire the remaining
50 per cent of Mobira from Salora. In 1982 Mobira became a subsidiary of Nokia, and Nokia became
represented in the Salora board. Nokia later acquired Televa as well and eventually became a global
leader in mobile phones.
The new president of Salora, Antti Lagerroos, succeeded in improving the company’s performance
in consumer electronics: 1982 was a good year and 1983 was expected to be even more successful.
Markets were growing rapidly. Salora obtained two big orders for colour TV sets which gave rise to
capacity problems. Lagerroos looked for more production capacity and became interested in Luxor, a
Swedish competitor, which itself had survival problems in the late 1970s (Exhibit 3). In 1979 the
Swedish state saved Luxor from bankruptcy, acquiring it from the family owners for the symbolic sum
of one Swedish krona, and put fresh capital into the company in an attempt to improve its fortunes. In
1983 the Swedish Minister of Industry wanted a new solution for Luxor, after having subsidised a ﬁnan-
cial reconstruction of the company. The minister looked for a large corporation as a partner, but held
the opinion that Salora was not large or strong enough. Other ﬁrms showed an interest in acquiring
Luxor, but none found favour with the Swedish governmental ofﬁcials.
In this situation, Antti Lagerroos introduced a new idea to Nokia’s top managers. Although Nokia’s
previous interest in Salora was lukewarm, a Salora–Luxor combination put the matter in a quite differ-
ent light; after all, internationalisation was an important ingredient in the Nokia corporate vision and
Finnish ﬁrms had traditionally made their initial foreign expansion in the Swedish market. Nokia had
also become more interested in know-how in mass production and marketing. The production know-
ledge in consumer electronics was quite different from that in the production of computers, for instance.
At the beginning of the 1980s, computers were still mostly tailor-made. Marketing too was different.
Brands and distribution channels were important success factors in consumer electronics, where a good
product was not enough in order to obtain a large market share. An acquisition of both Salora and Luxor
could give Nokia the possibility of supplementing the competences in R&D and small-scale production
with mass production and market orientation.
Relations between the group chief executive ofﬁcer of Nokia, Kari Kairamo, and ministers in the
Swedish government were good, and Sweden was motivated to accept the successful Nokia Group as
the acquiring company. The production capacity of a combined Salora and Luxor was expected to make
it a strong unit. The acquisition took place in January 1984 and Kari Kairamo stated:
Nokia’s acquisition of Salora and Luxor means that the company’s position in Sweden is now
much stronger. The Luxor, Salora and Nokia venture means that Scandinavian co-operation in
this important area has improved.
Exploring Corporate Strategy by Johnson, Scholes & Whittington 4
5. Nokia: The Consumer Electronics Business
Kairamo saw Luxor as a ﬁrst step in further international co-operation, and expected that the clear
boundary between consumer electronics and professional electronics would disappear in the future.
Kurt Wikstedt strongly stressed the international side of the acquisition:
Now we enter Europe. We begin with Scandinavia. We try with Luxor to see if we can be
successful in this business, and then continue with Europe. That is the strategy.
After many twists and turns, Nokia had entered the consumer electronics business and taken a serious
step into the international market. The initial result of the acquisitions was that Nokia got 58 per cent
of the shares in Salora and 51 per cent of the shares in Luxor. Later in 1984, Nokia increased its share
to 70 per cent of the capital stock in Luxor. In 1983 the turnover for Luxor was FIM590 million and
for Salora FIM737 million. The staff of Luxor was 1,500 and of Salora 1,700. All in all, Nokia now
had 8,000 employees in its electronics businesses. Nokia’s acquired market share in the TV sector was
36 per cent in the Finnish market and over 20 per cent in the Swedish market.
THE INTEGRATION OF SALORA AND LUXOR
The new consumer electronics business was organised as a separate division in Nokia, partly because
of the doubt over consumer electronics expressed by the head of the electronics division, Kurt Wikstedt.
The president of Salora, Antti Lagerroos, was selected as the new president for consumer electronics
(Salora–Luxor), and Kurt Wikstedt stayed as president for the remaining businesses in electronics,
relabelled ‘industrial electronics’.
The integration of Luxor and Salora was arduous, and made no real progress until the Swedish
president of Luxor was forced to leave the company in May 1985. Besides the declining consumer
electronics business, Luxor also had a successful personal computer division. Nokia closed this
computer division, which of course aroused a lot of criticism. Several managers in Nokia were of the
opinion that the co-ordination of activities in Salora and Luxor was not sufﬁcient and that the potential
synergy advantages had not been fully realised. In 1985 Salora–Luxor got a new president, Heikki
Koskinen, when Antti Lagerroos was appointed director in charge of consumer electronics in the
top management team of the Nokia Group. Koskinen was a spokesman for decentralisation and local
autonomy. Salora and Luxor kept their own sales subsidiaries; only logistics and R&D were integrated.
Still, the development of Salora–Luxor was very favourable and quite proﬁtable in the mid-1980s. The
production of TV sets in Luxor increased rapidly, although small (14-inch) TV sets represented almost
50 per cent of all production (see Exhibit 4).
In 1987, the Salora–Luxor TV brands had a market share of 35 per cent in the Nordic markets.
In Finland the market share was about 45 per cent. According to Heikki Koskinen, Salora–Luxor
was the only proﬁtable signiﬁcant consumer electronics producer in Europe in 1987. Gradually, Nokia
increased its ownership share in both Luxor and Salora to 100 per cent. The aim of the continued
integration was to arrange production in a more optimal way, and to utilise more effectively all the
possibilities of synergy, including integrating production plants in a total product planning and produc-
tion system, in order to decide more efﬁciently which products should be produced where and in what
Exhibit 4 Production of TV sets in Luxor
Exploring Corporate Strategy by Johnson, Scholes & Whittington 5
6. Nokia: The Consumer Electronics Business
NOKIA ENTERS MAJOR EUROPEAN MARKETS
In 1986, when the Luxor–Salora integration was considered to be under control, Nokia began to think
of the future. Market share was already about 40 per cent in the Nordic markets, which implied that fur-
ther expansion for Salora–Luxor in Scandinavia was not possible. An alternative growth and product
brand strategy, to turn to western Europe, was decided during the strategic planning process in spring
1986. Heikki Koskinen explained the plans:
We had plans to acquire two major brands in Europe, of which we intended to build a local net
of brands. One of the brands was going to be more extensive to be sold in all European countries
where Nokia was active in consumer electronics.
There were several reasons for entering the western European markets. It was thought to be important
to be in the home markets of major competitors, in order to prevent them from dumping their products
on Nokia’s domestic markets. European co-operation might also prevent the Japanese and American
ﬁrms taking over the European TV markets. The major European competitors Philips and Thompson
started to co-operate within the Eureka framework (European Research Co-ordinating Agency)2 in
order to develop the European HDTV (high-deﬁnition TV) concept. This joint development was a threat
to smaller European producers, which were afraid of not getting the key technology when needed. In
order to become a partner in the development process of the HDTV concept, the opinion was that Nokia
had to grow bigger.
At this time the situation in consumer electronics in Europe had also changed. Competition had
become more intensive. Philips, the biggest TV manufacturer in Europe, with a market share of 25 per
cent, acquired an American ﬁrm and began to think more globally. Thompson, the second biggest TV
manufacturer in Europe, with a market share of 20 per cent, acquired two main competitors in the USA
and England. Economies of scale through mass production were now considered as very important. The
Salora and Luxor factories had a capacity of only 400,000 TV sets each. Nokia was number three in
Europe, but still had only 5 per cent market share. The opinion within Nokia was that a volume of
2 million TV sets per year was needed to be competitive with both Philips and Thompson, and the
Japanese and Korean competitors. In the late 1980s, the price competition became tougher in the
European consumer electronics markets because of a more aggressive penetration from Far Eastern
competitors. It was also expected that the ﬁxed R&D costs would rise, which implied that there was
going to be a volume advantage regarding R&D too.
THE ACQUISITION OF OCEANIC
Nokia’s proﬁtability in consumer electronics was good, especially in 1987, and it had passed Philips in
market shares in all Nordic markets. In April 1987 the Nokia board of directors approved the strategic
plan to acquire European TV brands. The plan was to acquire a French and a German brand, and a fac-
tory in either of these two countries. There were negotiations with different sellers, including the French
company Oceanic which was for sale. Personal relationships between Nokia top management and the
owner of Oceanic, the Swedish Electrolux Group, resulted in a rapid acquisition of Oceanic. Electrolux
wanted to divest this business, which had no synergy with its core know-how. Through the acquisition
of Oceanic, Nokia got inside the EC with the production of TV sets. Furthermore, Nokia acquired a
signiﬁcant market share in the French market, which was rather closed and difﬁcult for an outsider to
Originally, the Eureka programme was launched to serve as a European complement to the Strategic Defense Initiative
launched by the Reagan administration in the United States. Another reason was that previously launched European tech-
nology development programmes were considered too bureaucratic, too slow or too narrowly deﬁned.
Exploring Corporate Strategy by Johnson, Scholes & Whittington 6
7. Nokia: The Consumer Electronics Business
The pre-acquisition phase took less than three months and only four meetings were needed. Immedi-
ately after the acquisition, the integration process between Salora, Luxor and Oceanic was started.
Oceanic had a turnover of 600 million FIM, mainly in colour TVs, and 800 employees. Oceanic’s mar-
ket share of consumer electronics in France was just below 10 per cent, with the Oceanic and Sonolor
brands. The strategy was to keep the French production unit apart from the other factories because of
differences in standards, while accounting systems, logistics and marketing should be integrated. The
French local managers were trusted by the Finnish management and retained.
The next step in the conquest of European markets was to look for other brands. Nokia was inter-
ested in Thompson’s German brands Saba, Nordwede and Telefunken. According to Heikki Koskinen,
who headed the negotiations, an agreement was close for one of the brands, when the Standard Electric
Lorenz possibility emerged.
NOKIA DOUBLES ITS TV PRODUCTION: THE ACQUISITION OF STANDARD
At this time, an internal struggle for power was going on between future candidates for the top position in
the Nokia corporation. Top managers were traditionally recruited internally, and in 1985 a new manager
for industrial electronics was appointed, Timo Koski, after close internal competition. He was seen as the
probable next chief executive ofﬁcer of Nokia. However, the earlier successful president of Salora, Antti
Lagerroos, now heading the consumer electronics businesses in Nokia, had strong personal ambitions to
advance to the very top of Nokia. This thirst for power became a driving force behind the next acquisition.
Parallel to Heikki Koskinen’s negotiations with Thompson, Antti Lagerroos made the initial analysis
that resulted in his suggestion to acquire a very big competitor, Standard Electric Lorenz (SEL) in the
former West Germany. Lagerroos then used the freedom of action given to him by Kari Kairamo, and
started to negotiate with SEL and its owners on his own, partly assisted by the director of technology
in Nokia. Almost at the same time, Timo Koski acquired the whole personal computer and information
systems business of the Ericsson Group in Sweden – an acquisition of the same size as SEL. Nokia
became the largest information technology company in Scandinavia. Ericsson’s large-scale production
of terminal systems and established position in systems for commercial, industrial and banking sectors,
together with Nokia’s intelligent workstations and retail systems, were expected to enhance the Nokia
Group’s competitiveness in the information technology sector. The signiﬁcantly enlarged division led
by Timo Koski was named Nokia Data. Both Antti Lagerroos and Timo Koski had now extended their
internal domains signiﬁcantly in the struggle for further power in Nokia. However, in 1987 Timo Koski
suddenly died of a heart attack.
The acquisition of SEL from the US conglomerate ITT was made early in 1988, just a couple
of months after the Oceanic acquisition. The product on capacity increased from 1 million TV sets
annually to almost 2.5 million. The chief executive ofﬁcer, Kari Kairamo, attached great importance to
this acquisition. The opinion was that SEL completed Nokia’s consumer electronics business both tech-
nically and regionally. SEL was ahead of Nokia in digital TV technology. And regionally Nokia now
became strong not only in France, but also in German-speaking Europe (15 per cent market share) and
even in southern Europe as SEL exported to Italy, France, Spain and Portugal. The net sales of SEL
were FIM4.9 billion in 1988, with an annual production of 1.2 million colour TVs, 1.7 million picture
tubes and 350,000 video recorders. The main production facilities for SEL’s colour TV sets and video
recorders were located near Bochum in the Ruhr region. The picture tube factory was located near
Stuttgart, and the loudspeaker factory was in Bavaria. SEL also had four other smaller production facil-
ities in West Germany. The SEL acquisition included assembly plants in Spain and Portugal as well, and
shares in joint ventures in Hungary, Malaysia and Italy.
With the incorporation of SEL, Nokia’s position as Europe’s third largest colour TV manufacturer
was strengthened. Nokia was now the ninth largest colour TV manufacturer in the world, and the
Exploring Corporate Strategy by Johnson, Scholes & Whittington 7
8. Nokia: The Consumer Electronics Business
market share in Europe was estimated to be about 15 per cent, with the new brand names ITT,
Schaub–Lorenz and Graetz.
In 1992 Nokia acquired the only remaining Finnish competitor, Finlux, which was in good shape and
proﬁtable. The production capacity of Finlux was just over 200,000 TV sets. The turnover was about
FIM600 million and the personnel 770.
POST-ACQUISITION INTEGRATION BECOMES PROBLEMATIC
In January 1988, Simo Vuorilehto, the chief operations ofﬁcer of Nokia, was of the opinion that all
Nokia’s consumer electronics units should be consolidated within a wholly new division with its head-
quarters in Continental Europe. Signiﬁcant investments in upgrading and modernisation of production
technology and logistics were needed in the new division that was formed, which was named Nokia
Consumer Electronics. The integration and co-ordination of Salora–Luxor, Oceanic and SEL started in
February 1988 with the appointment of an integration group led by Antti Lagerroos. The group was
working hard during spring 1988 with the aim of integrating administration and production in all four
acquired consumer electronic units, a total of ten factories, within six months. The purpose was to be
able to present an integrated structure for the new division in the summer of 1988. But the timetable
could not be met entirely.
The chief executive ofﬁcer, Kari Kairamo, was worried that Nokia did not have enough inter-
nationally experienced personnel, and believed that many new managers were needed, especially in
the consumer electronics business. This opinion was further strengthened by some analysis carried out
by external consultants in early 1988. Furthermore, Antti Lagerroos could not implement the necessary
changes fast enough and lost Kari Kairamo’s conﬁdence to lead Nokia Consumer Electronics into
Europe. Instead, he was appointed president of Nokia’s Mobile Phones (previously Mobira). He soon
wanted to merge Nokia Consumer Electronics and Nokia Mobile Phones, but did not get any support
for that. Antti Lagerroos eventually left the Nokia Group in February 1990.
In June 1988 a new president, Jacques Noels, was appointed for Nokia Consumer Electronics. Head
hunters found him in France at Thompson – one of Nokia’s large competitors in consumer electronics.
Before that he had been working for many years in European units of large US companies in the elec-
tronics industry. Jacques Noels had to start to organise the consumer electronics division from scratch,
and at least half a year of integration was totally lost. Furthermore, ten senior managers in SEL had left
the company. Initially, Noels rented an ofﬁce in Paris for three months and brought his secretary with him
from Thompson. The ﬁrst task was to build a new management team with the right mixture of compet-
ence. A new head ofﬁce for Nokia Consumer Electronics was established in Geneva (regarded as ‘neutral
ground’) in order to facilitate further recruitment and the establishment of a truly international division.
In 1989, Jacques Noels presented a new organisation structure for Nokia Consumer Electronics, more
than one year after the latest acquisition. During that time Nokia’s market share of TV sets had declined
from 14 to 11 per cent in the European markets. Not only the consumer electronics business but the
whole group showed weak results. The relations between the chairman of the Nokia board and the chief
executive ofﬁcer, Kari Kairamo, became more and more strained. The external directors were expected
to suggest some changes in the top management structure of Nokia. In this situation, Kari Kairamo
suddenly died (suicide, according to the media) in December 1989.
After Kari Kairamo’s tragic death, Simo Vuorilehto became the new chief executive ofﬁcer. According
to him, the key factors in the consumer electronics strategy were marketing, design and production:
We are not at all the kind of company that could develop semiconductors or picture tubes in
the future. But we can be competitive and ahead of other competitors in marketing, design and
production. In production we perhaps cannot be superior to our competitors, but we can at least
be at the same level. We cannot develop everything ourselves, which was a mistake in the ﬁrst
Exploring Corporate Strategy by Johnson, Scholes & Whittington 8
9. Nokia: The Consumer Electronics Business
Heikki Koskinen, responsible for strategic planning in Jacques Noels’ new management team, emphas-
ised similar competitive advantages of Nokia Consumer Electronics:
Our strength is in rapid application of new technology. When technologies shift you have to
forecast the trends and minimise the investment costs. Our competitive advantage is in the brain
of the engineers. That is especially true in application issues.
He had never fully understood the volume thinking behind the acquisition of SEL:
The only advantage you reach by large-scale production is that you can control the material
costs. On the other hand, you have less ﬂexibility and you have to be global. In 1987 we
manufactured 900,000 TV sets in Salora–Luxor, and we were very proﬁtable. In Europe
there are other proﬁtable but small companies. It is a question of the overall strategy. A small
company making half a million TV sets can be proﬁtable. That ﬁrm has to co-operate with
manufacturers of components and in that way reduce the cost for necessary R&D activities. With
small R&D costs, a clear market focus and a strong product range there are good possibilities to
The manager in charge of export sales also held the opinion that too much emphasis had been put on
I cannot understand that acquisitions are made based on production advantages. In our
acquisitions there were no synergies between the brands. When you combine factories and
brands you take away a large part of the turnover. I am astonished that Nokia had not made
clear the future brand policy before the acquisitions. That was the greatest problem.
Jacques Noels’ strategy was to become big in some niches, not in the whole market. Nokia should
concentrate in high-quality and high-technology TV sets, with good proﬁt margins. According to him,
the market share of the total market was therefore not as important. Still, the most proﬁtable markets
were the Nordic ones, with a total demand of 1.5 million TV sets, and in these markets Nokia was
Jacques Noels saw Nokia’s portfolio of different electronics businesses as a future strength. The group
had telecommunication, mobile phones, information systems, computers and consumer electronics, and
more and more synergies were expected to emerge between these different business areas. The border
between professional and consumer electronics was expected to disappear. According to Jacques Noels,
Nokia already had a strong technological capacity and good management resources. But he saw some
disadvantages compared with the main competitors:
I think they have a different position, because they have very strong brands. Telefunken is a
much stronger brand than, for example, Graetz [an SEL brand]. They have also much stronger
corporate brands, e.g. Philips compared to Nokia. Their strategy can be very different; they
can let almost every brand have its own life. Grundig can have its own strategy, nobody has
to know that it is owned by Philips. But at the same time Philips is not putting the same efforts
in Grundig as in the Philips brand. Their positioning is very different from ours.
The magnitude of the integration task is illustrated by Exhibit 5, which shows the turnover of the
acquired Nokia Consumer Electronics units in ﬁve European countries. A FIM6,000 million division
had to be integrated. In order to integrate the acquisitions, Jacques Noels had two possibilities. The ﬁrst
was to continue as before and integrate the different units over a long period. The second was to try to
merge the different units into one organisation more rapidly. The latter alternative was chosen despite
the fact that the president thought that, in the short run, this approach would lead to bigger difﬁculties
because the units were used to working on their own. In the long term, after a few hard years of integra-
tion, the proﬁts were expected to be considerable.
Exploring Corporate Strategy by Johnson, Scholes & Whittington 9
10. Nokia: The Consumer Electronics Business
Exhibit 5 Turnover in the production units of Nokia Consumer Electronics, 1988
Production Unit Turnover (in Millions of FIM)
Finland, Salora 1,500
Sweden, Luxor 900
France, Oceanic 500
Portugal, Ibervisao 100
A NEW ORGANISATION STRUCTURE AND CULTURE
Jacques Noels wanted strong functional centralisation and stressed the importance of a competent and
powerful management team. This was the ﬁrst priority because the management team was seen as the
motor of the organisation. But it took time to put together the new team. Both old and new managers
were tested by external consultants. Eventually, about 35 people were working at the head ofﬁce in
Geneva. All decisions concerning production, R&D and marketing were made there. Finance and stra-
tegic planning were centralised as well. All acquired companies became pure production plants, separated
from the sales and marketing activities, but with some R&D activities decentralised to these plants.
Jacques Noels especially emphasised the connection and co-operation between R&D and marketing:
We have regrouped the marketing and R&D centres so that the head of marketing and the head
of R&D work side by side in Geneva, because we believe that they have to work closely
together on new models. Production is only how to manufacture as cheap as possible, when the
products have been developed.
He highlighted the cultural difﬁculties in integrating the different units and nationalities. A new integ-
rated culture for Nokia Consumer Electronics needed to be built on new management principles, but
it had to emerge over several years. The tools for cultural integration were an international management
group, circulation of leaders between countries, and a ‘Euro-manager’ programme. Young and recently
employed graduates from all countries involved were taken into this Euro-manager programme, devel-
oped in 1989–90. The creation of this new pan-European culture was planned to continue after 1990
for another three to ﬁve years. But Jacques Noels did not have an easy task in seeking to create a
‘Europeanised’ business unit out of Nokia Consumer Electronics:
If you make two major acquisitions in three months, you get many problems regarding product
strategy; sales channels; general management, etc. There is nothing that works by itself. You
have to struggle and that is what we did. First we worked out a product strategy in order to
concentrate our R&D efforts. Then, from the middle of 1989, we put a lot of efforts in new
brand, sales and marketing policies.
MARKETING AND PRODUCTION STRATEGIES WITHIN NOKIA CONSUMER
In 1989 Nokia Consumer Electronics launched a universal brand, ITT–Nokia, that would be positioned
as a middle-range product. The ITT–Nokia brand would then be combined with one or two other and
more local Nokia brands in each local market, including a ‘high-end’ brand representing higher quality
and/or more exclusive design. For the integration of product development and manufacturing, a ‘Euro-
line-concept’ was launched. Nokia Consumer Electronics reduced the number of chassis from 25 to 10,
and the goal was to come down to three or four product chassis. All R&D centres were supporting this
product concept, but it was modiﬁed in accordance with the country and the brand characteristics. The
Exploring Corporate Strategy by Johnson, Scholes & Whittington 10
11. Nokia: The Consumer Electronics Business
different centres were concentrated on different levels in the product range, from low-end to high-end
The marketing strategy was to be achieved through an integrated sales, product and distribution strat-
egy. Marketing of the brands was the most important part. All acquired brands were local brands, and
Nokia as a brand was unknown within the distribution channels. The problem after the acquisition of
SEL was to convince the distribution channels that the brand ITT–Nokia had a future. The solution was
to combine the innovation image of ITT and resource image of Nokia3 in this new brand ITT–Nokia,
with the intention of later dropping ITT. There were many discussions and different opinions about the
wisdom of using the Nokia name. Many managers were sceptical about the possibilities of transferring
the ITT image to the Nokia name. However, ITT–Nokia was introduced as the pan-European brand in
the medium range; a modern brand with modern technology, which was going to compete with Philips.
Salora was marketed as high-range brand, while the other brands were used as local brands. Jacques
Our strategy is to have three brands per country. The major brand, in the beginning, has to be the
established local brand. But this is short term. Gradually we are introducing Nokia as the major
European brand. But we want to do that gradually, not brutally. In all countries we are also
supporting the original brand. That is why we support Luxor in Sweden, Salora in Finland,
ITT–Nokia in Germany and Oceanic in France, and then gradually introduce Nokia as a
A brand strategy with three brands means three different channels. The specialised
independent retailers are very important. They want to have their local brands. Then we have the
large specialised channels that are only selling electronics. Finally we have the supermarkets, big
stores, they want to have one brand, one styling, easy to recognise.
Some managers were critical of using acquisition as a means of growth and also sceptical of the possib-
ility of transferring the image of one brand to another. The brand Salora had a quite good image.
Investigations by Nokia showed that Salora had some recognition in England, Italy, France,
Netherlands, Belgium, Austria and Switzerland, and much more recognition than the new brand Nokia.
Finally, Jacques Noels distinguished between three different production strategies:
Today we have two or three complementary strategies. One is volume; it is clear that the volume
in TV assembling is important. We are working with that in Germany, where our Bochum plant
is one of the largest in Europe; one million TV sets. The second strategy is to specialise, when a
plant only produces one product and we can extend that product line. We are doing that in Salo
where we are producing our high-end chassis. In Luxor we are producing all our decoders and
satellites, and there we also have the technical expertise for these products. In those products
the technical expertise is what makes the cost, not so much the production volume, but also how
well and quickly we can introduce our products. We have a factory in Portugal, where labour
cost is an important factor. We are trying to rationalise our production by stage of the product
life, labour cost, volume and engineering. Those are the four criteria and they give different
answers for different products.
THE DIVESTMENT OF CONSUMER ELECTRONICS
However, the integration of the units in Nokia Consumer Electronics proved to be much more difﬁcult
than expected and the proﬁtability much lower than predicted. The development of Nokia Consumer
Electronics was problematic after the acquisition of SEL. In 1990, the director of corporate ﬁnance,
The Nokia Group had a very strong ﬁnancial position in 1987. The use of Nokia as a brand name indicated that the top
management of the group was serious about the business and also acted as a signal to the distribution channels.
Exploring Corporate Strategy by Johnson, Scholes & Whittington 11
12. Nokia: The Consumer Electronics Business
Jorma Ollila, described the German acquisition as a big disappointment. The chief executive ofﬁcer,
Simo Vuorilehto, stressed the importance of a new strategy so that the company could take control of
the situation. The ﬁrst step in this turnround of Nokia Consumer Electronics was to close down both the
Oceanic plant in France and the plant in Portugal.
A NEW CHIEF EXECUTIVE OFFICER MAKES RADICAL CHANGES
Simo Vuorilehto (chief executive ofﬁcer) and Kalle Isokallio (chief operations ofﬁcer) did not agree on
many issues and did not work well together. Competing proposals were often brought to the board.
Early in 1992 the board of the Nokia Group made the radical decision to replace both men. Simo
Vuorilehto retired earlier than originally planned and Kalle Isokallio was asked to look for a new job
Jorma Ollila became the new chief executive ofﬁcer for Nokia in 1992, after two very successful
years as the president of Nokia Mobile Phones. He started to reconstruct the group immediately. Only
two weeks after Ollila’s arrival, Jacques Noels had to leave Nokia Consumer Electronics. The group
controller of Nokia, Hannu Bergholm, was appointed the new president for Consumer Electronics and
Heikki Koskinen re-entered the top management team of Consumer Electronics after having left the
Noels team in 1990. Later in 1992, production of TV sets in Sweden at the Luxor plant was ceased. All
production of TV sets was concentrated on Bochum in Germany and Turku in Finland (at the recently
acquired Finlux plant). The aim was to decrease the costs of logistics and to make production more
efﬁcient in the remaining two plants.
The basic goals for the Nokia Group in 1992 were still the same as two decades previously: that is,
growth through products with growth potential and internationalisation. But there were additions.
Central values were formulated in a slogan, ‘the Nokia way’. The values common to all businesses were
customer satisfaction, respect for the individual, achievement and continuous learning. New key words
were telecommunications, global, focus and value added. It was decided that telecommunications
(including mobile phones) should be the future core business area. Jorma Ollila stated in the annual
report of 1992 that the fastest growth, the most productive investments and the best results were in
Nokia’s telecommunication sector. Europe remained Nokia’s largest market, but growth was concen-
trated outside Europe: in North America and the Far East. The strategic focus on telecommunications
was conﬁrmed in a statement by the board of directors:
Nokia’s strategy is to invest in telecommunications and closely associated business operations.
It focuses on industry segments and geographic regions that have good opportunities for growth
But what was to be done with the still unproﬁtable Nokia Consumer Electronics? One internally dis-
cussed possibility was to develop an alliance with another company in the industry. A corporate analyst
at Morgan Stanley in London was of the same opinion: ‘Nokia has to co-operate with another European
or a Japanese ﬁrm in order to be competitive.’ However, the Nokia Group acted more radically. A deci-
sion was made to concentrate more and more on telecommunications. Digital signal processing became
the key concept in most of Nokia’s operations and in the group’s future strategy. This direction was
further strengthened in 1993 when part of the cables and machinery businesses was divested. Tele-
communications increased its share of net sales to 52 per cent. By this time Nokia had become a global
leader in the manufacture and supply of telecommunication systems and mobile phones.
The divestments continued. In 1995 Nokia divested all its remaining tyres and cable businesses.
Finally, in February 1996 Nokia announced its total withdrawal from the consumer electronics business
and its main product, colour TV sets. In April 1996 Nokia made a provision of FIM 2,000 million in
order to close the consumer electronics plants in Germany. The only TV plant left after that was the
Finnish Finlux. But in June 1996 Nokia announced that the Hong Kong-based group Semi-Tech Ltd had
Exploring Corporate Strategy by Johnson, Scholes & Whittington 12
13. Nokia: The Consumer Electronics Business
acquired the remaining TV business. After these moves Nokia has almost 100 per cent of its operations
in the telecommunications and mobile phones industry. Jorma Ollila stressed in the annual report:
This is an important milestone since we shall now have the structure in place to concentrate on
the growth segments of the telecommunications industry, thereby improving our shareholder
return. This strategy has already helped us to grow faster than the overall market during the
past few years. With operations in 120 countries, manufacturing on four continents and with
improved brandrecognition worldwide, we are now a truly global player.
The internally much debated journey of Nokia into consumer electronics had come to an end.
Turnover and personnel of the Nokia Group, 1990–5
Turnover (FIM Millions) Personnel
1990 22,130 37,336
1991 15,500 29,100
1992 18,168 26,700
1993 23,697 25,800
1994 30,177 28,000
1995 36,810 31,900
Net sales as a percentage of total sales and number of personnel in each business
1991 1992 1993 1994 1995
% No. % No. % No. % No. % No.
CE 33 10,854 31 9,386 29 8,268 22 6,611 29 9,937
CM 20 7,766 25 6,307 20 5,070 16 4,560
MP 12 3,545 20 3,164 26 4,223 35 7,554 44 11,821
NT 16 4,474 17 5,219 19 6,365 22 8,082 28 11,297
OO 9 1,874 7 1,606 6 1,597 5 1,786 1 729
CE = Nokia Consumer Electronics
MP = Nokia Mobile Phones
NT = Nokia Telecommunications
CM = Cables and Machinery
OO = Other Operations
Net sales by market area of the Nokia Group (%)
1990 1991 1992 1993
1. Scandinavia 45 38 32 25
2. Other western European countries 39 44 44 47
3. Other countries 16 18 24 28
1. Finland 11 9
2. Other EU countries 50 48
3. Other European countries 9 8
4. Other countries 30 35
Exploring Corporate Strategy by Johnson, Scholes & Whittington 13
14. Nokia: The Consumer Electronics Business
Nokia 1992–5 according to International Accounting Standards (IAS)
1992 1993 1994 1995
Proﬁt and loss account (in millions of FIM)
Net sales 18,168 23,697 30,177 36,810
Cost of sales (17,880) (22,232) (20,808) (25,518)
Operating proﬁts 288 1,465 3,596 5,012
Share of results of associated companies (5) 28 22 85
Net interest and other ﬁnancial expenses (441) (347) 384 (164)
Proﬁt before tax and minority interests (158) 1,146 4,933 4,002
Tax (167) (299) (932) (769)
Minority interests (88) (80) (75) (77)
Proﬁt before extraordinary items (413) 767 2,995 2,232
Extraordinary items (310) (1,917) 944 –
Net proﬁt (723) (1,159) 3,939 2,232
Balance sheet items (in millions of FIM)
Fixed assets and other non-current assets 7,630 7,930 7,943 9,047
Current assets 13,608 14,653 19,906 23,714
Inventories and work in progress 3,840 5,129 6,803 9,982
Accounts receivable and pre-paid expenses 6,650 6,227 7,835 9,518
Liquid funds 3,118 3,297 5,268 4,214
Current liabilities 10,111 11,520 11,319 15,955
Accounts payable and accrued liabilities 4,314 5,976 8,086 9,388
Restructuring provision 342 1,436 – 1,652
Advance payments 399 534 502 396
Current portion of long-term loans 1,221 139 278 187
Bank overdrafts and short-term loans 3,835 3,435 2,453 4,332
Net current assets 3,497 3,133 19,906 23,714
Shareholders’ funds 6,727 6,511 12,418 13,806
Minority shareholders’ interests 695 536 555 422
Long-term liabilities 3,705 4,080 3,557 2,578
Long-term loans 3,124 3,397 3,071 2,121
Other long-term liabilities 581 683 486 457
Total assets 21,238 22,647 27,849 32,761
Earnings per share (FIM) neg. 13.7 10.97 14.36
Dividend per share (FIM) 2.00 3.2 2.50 3.00
Shareholders’ fund per share 113 43.65 48.55
Return on capital employed (%) 5.9 12.5 25.4 29.1
Return on shareholders’ funds (%) neg. 12.4 31.6 31.2
Exploring Corporate Strategy by Johnson, Scholes & Whittington 14
15. Nokia: The Consumer Electronics Business
Key managers: approximate periods at top positions
Kari Kairamo Chief executive ofﬁcer 1976–88
Simo Vuorilehto Chief operations ofﬁcer 1986–8
Chief executive ofﬁcer 1989–91
Kalle Isokallio President of Cable Machinery 1983–5
Head of Nokia Information Systems 1986–7
President of Nokia Data 1988–9
Chief operations ofﬁcer 1990–1
Jorma Ollila Corporate ﬁnance 1986–9
President of Mobile Phones 1986–9
Chief executive ofﬁcer 1992–
Kurt Wikstedt Head of professional electronics
(industrial electronics) –1986
Antti Lagerroos President of Salora 1982–3
President of Salora–Luxor 1984
Executive board member 1985–8
(in charge of consumer electronics)
President of Mobile Phones 1989
Heikki Koskinen President of Salora–Luxor 1985–7
Nokia Consumer Electronics, strategic planning 1988–9
Technology manager in Nokia 1990–1
General manager, Nokia Consumer Electronics 1992
Head Ofﬁce positions 1993–6
Timo Koski President of Nokia Data 1985–7
Jacques Noels President of Nokia Consumer Electronics 1988–91
Hannu Bergholm Controller of Nokia 1987–91
President of Nokia Consumer Electronics 1992–5
Exploring Corporate Strategy by Johnson, Scholes & Whittington 15