Finland and Nokia have created one of the most competitive economies in the world through their telecommunications cluster. Nokia in particular has become the global leader in mobile phones, accounting for 31% of the handset market share in 2001. Finland benefits from strong factor conditions including an innovative engineering culture, supportive industries, and demand from early technology adopters. Both the government and private sector have collaborated to strengthen the telecom cluster through initiatives like Tekes. Looking ahead, Nokia is well positioned versus Motorola due to its broader product portfolio and focus on emerging markets.

1. Finland and Nokia: Creating the
World’s Most Competitive Economy
Team 8
Martina Martina, Adrien Monvoisin, Ronen Eckhouse

2. 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

3. 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

4. Porter’s Diamond: Finland/Nokia
• Factor Conditions
– One of the world’s 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

5. Porter’s Diamond: Finland/Nokia
• Demand Conditions
– NMT created the world’s 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

6. Porter’s 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

7. 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

8. 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

9. Nokia’s 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, …)

10. 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
Nokia Handset Unit Growth (Q2 06 vs Q2 07)
The fastest growing regions
40.0% (Q2 07) are Asia Pacific &
30.0%
20.0%
Middle East/ Africa followed
10.0% by Europe & China.
0.0%
-10.0% North Latin America Europe China Asia Pacific Middle East &
Unit Growth (%)
America Africa
-20.0%
-30.0%

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