Winning Across Global Markets

How Nokia Creates Strategic Advantage in a Fast-Changing World

Dan Steinbock

• Publisher: Jossey-Bass
• Year: 2010
• Print ISBN: 9780470339664
• eBook ISBN: 9780470604038
• Edition: 1
• Topic: Business
• Subtopic: Leadership
• Index: Business

Lessons for attaining global competitiveness, one market at a time, from international business giant Nokia

Winning Across Global Markets examines how 145-year-old Nokia grew from a paper mill in Finland to a multinational telecommunications leader. Why are Nokia's lessons critical for other companies and industries? While multinationals based in large countries benefit from inherent advantages--such as a home base that often accounts for 30 to 50 percent of their revenues--multinationals based in smaller countries such as Nokia, enjoy no such competitive edge. Nokia, in fact, generates less than 1% of its revenues in its home base. To such a company, global competitiveness is a matter of life and death. With unparalleled access to Nokia's leadership, Winning Across Global Markets reveals the remarkable story of Nokia's resilience and endurance. Shows how Nokia's flexibility and focus on its people and local markets drive its distinct global approach.

• Includes exclusive interviews with Nokia's senior executives and key partners
• Provides a roadmap for developing, capturing, and sustaining global advantage

This book provides a roadmap for developing, capturing, and sustaining strategic global advantage in today's ever-changing world.

1

SUCCESS THROUGH LEGACY AND GLOBALIZATION

In the late 1990s, Nokia’s success seemed to come out of the blue in the worldwide markets. In reality, the company is a decade or two older than many leading multinationals, including General Electric (founded in 1876) and Coca-Cola (1886), and almost a century older than such technology giants as Intel (1968) and Microsoft (1975). Nokia’s legacy has evolved through several eras and reincarnations from a forestry company to a diversified conglomerate to a European technology concern and, ultimately, to the globally focused mobile and Internet giant it is today.

It is Nokia’s ability to embrace change and adapt to the future that accounts for its global success since the early 1990s. But Nokia’s organization is shaped by its past, as well as by the external environment. Like other multinational companies, it has been influenced by the path by which it has evolved: its organizational history. This chapter takes a closer look at the company’s fascinating history and evolution, particularly the key forces, legacy, and globalization that have enabled it to embrace change and contributed to its enormous growth and success.

Origins of Nokia

Since Nokia’s history is so embedded in Finland, a small Nordic country, some historical context is vital to understanding the company’s growth and transformations.

A Forestry Foundation

From the late nineteenth century to the twentieth century, forestry was the industrial backbone of Finland’s economy. In this era, most Finnish firms competed primarily on the basis of price in forestry-based or forestry-related industries that required little technology. At the same time, the Finnish economy remained sensitive to world economic cycles and exchange rates. Nokia grew along with the national ambitions of the small country that had been ruled for centuries by neighboring Sweden and Russia. Following the Crimean War (1853-1856), Finland was joined to Russia and made an autonomous state, a grand duchy.

The creation of Nokia, as a small forestry enterprise, coincided with the tremendous boom in the Finnish lumber industry, which put the country on the road to industrialization. But Finland was still a part of Russia.

Fredrik Idestam, Nokia’s founder, came of age in this era of optimism, entrepreneurialism, and new technological opportunities. Born in 1838 to a religious and educated family, the young engineer graduated from Helsinki University in 1863 and traveled to Germany, where Wilhelm Ludwig Lüders had created a new and innovative process to manufacture pulp. In Mägdesprung, Idestam visited the famous factory, only to be thrown out by Lüders for what the German deemed industrial espionage.

But Idestam had seen enough. In May 1865, he received authorization to build his mill in Nokia, a small town about ten miles to the west of Tampere, Finland’s then-industrial center. Over time, the Nokia factory attracted a large workforce and the town grew around it. That became the name and the foundation for the future Nokia Corporation, which is now located in Espoo, a garden city just a fifteen-minute drive from the center of Helsinki and close to the famed university and technology center.¹

While studying in Helsinki, Fredrik Idestam had met Leo Mechelin, who later became Finland’s first parliamentarian and played a crucial role in the struggle for independence. Nokia’s two founding fathers—Idestam, the businessman, and Mechelin, the politician—were among the leading young Turks of a new Finnish generation. Their vision was an innovative company and an independent economy, deeply intertwined with the world economy. Finnish forestry leaders leveraged their dominance at home into foreign markets. In contrast, Nokia built its foothold first in foreign markets, which allowed it later to build a position in the domestic market. As a result, it developed a more international mindset.

Diversification into Electrical Power and Other Industries

In 1917, when Russia was swept by the turmoil of the Bolshevik Revolution, the Finnish parliament approved the declaration of independence. After Lenin’s Bolsheviks recognized the independence of their small neighbor, the Finns drifted into a bitter and devastating civil war between the nationalists and the socialists.² These tumultuous years crushed many Finnish companies. Due to its increasing diversification and internationalization, Nokia was not as vulnerable as most forestry firms. By the 1920s, its paper and pulp mill, the Finnish Cable Works, and the Finnish Rubber Works sought leadership in their respective industries. Meanwhile, Nokia’s corporate name became the joint foundation of all three companies. Indeed, it was only in 1966 that Nokia Ab, Finnish Rubber Works, and Finnish Cable Works were formally merged to create Nokia Corporation (however, Nokia had already been listed in 1915).

As Nokia transitioned from a family business to a public company, much of the correspondence was conducted in German, the business language of the era. Products were exported first to Russia and then to Great Britain and France. In the 1930s, China also became an important trading partner.

During the Second World War, Finland fought against the Soviet Union and, eventually, Nazi Germany.³ Unlike the tiny Baltic states, Finland managed to retain its independence, but with a heavy price. After the devastation (86,000 dead; 57,000 permanently disabled; 24,000 war widows; 50,000 orphans; 400,000 refugees from the ceded Karelia in the East and 100,000 from Lapland in the North; 70,000 children evacuated; and the loss of eastern territories), nothing would remain the same, not even at Nokia.

The devastation reinforced the Finns’ legendary perseverance, but Nokia’s vision had to change. It had to adapt to a new and very different future.

The Rise of the Industrial Conglomerate

After the Peace Treaty of Paris in 1948, Finland assumed a policy of neutrality and nonalignment, dictated by its geopolitical location next to the mighty Soviet Union. Over time, the new realpolitik became known as the “Paasikivi-Kekkonen line,” after the two prominent postwar presidents, Juho K. Paasikivi (who governed from 1946 to 1956) and Urho K. Kekkonen (from 1956 to 1981). For decades, every Finnish schoolchild would learn President Paasikivi’s words: “Acknowledging the facts is the beginning of wisdom.” The subtle maxim highlighted the constraints of the small country in the geopolitics between the West and the East.

The new era began in 1948, when the Finns signed the Treaty of Friendship, Cooperation and Mutual Assistance with the Soviet Union, while agreeing to pay the estimated $300 million war reparations to the Soviet Union. Although Finland preserved its independence, it grew insulated internationally. Fortunately, Nokia thrived in spite (and because) of the country’s overall insularity. As Moscow’s court supplier, Nokia’s cable business became the cash cow of the three-firm concern (i.e., cable, rubber, and paper and pulp). Technology transfer was a different story because technology partnerships were seen as political alliances and thus eyed with suspicion at the Kremlin.

Opening Finland to Western Markets

Starting in the late 1950s, Finland opened its economy to Western Europe, that is, the European Economic Community (EEC) and the European Free Trade Association (EFTA). Whereas the Marshall Plan contributed to Germany’s postwar economic miracle and the Korean War set the stage for the rejuvenation of the Japanese economy,⁴ the Finns missed both the Marshall Plan and the Organization for European Economic Cooperation (later OECD), due to Soviet opposition. As the foundations for bilateral Finno-Soviet trade were laid down, a substantial proportion of the Finnish economy adjusted to Moscow’s command economy. Because of the delicate politico-economic balancing act with the Soviet Union, the first science and technology agreements with the United States were not signed until the late 1980s.

After the years of reparations and reconstruction, Finland’s President Kekkonen called for an extraordinarily high national savings rate and rapid accumulation of capital to speed up industrialization. After 1960, Finnish commercial ties with the Soviet Union and the other members of the Council for Mutual Economic Assistance (Comecon) also deepened. Concurrently, Nokia’s business with Moscow was thriving. Björn Westerlund had been in charge of its cable business since 1956; as Nokia’s CEO, he grew skeptical of Nokia’s ability to sustain growth based solely on these markets. When Soviet revenues amounted to 20 percent of Nokia’s total cable business, Westerlund warned the senior management: “We must be cautious and not allow the proportion of Soviet business to grow too much ... If one day they’ll say nyet in Kremlin, we’ll lose our business overnight.”

When Westerlund left his job in 1977, half of Nokia’s exports were to the Soviet Union and half to the West. His successor retained this balance, thus saving the company from a catastrophe when the Soviet Union collapsed. At the time, only 10 percent of Nokia’s total revenues came across Finland’s eastern border.

Diversification into Electronics

Primarily between 1945 and 1980, Nokia consolidated several critical state-controlled and privately owned units of Finnish electronics, radio phones, and TV. It was not a purposeful strategy, but a complicated series of piecemeal moves in an effort to invest in innovation and growth.

Televa Starting in 1945, the State Electric Works—which had been launched in 1925 as a research laboratory of the Finnish Defense Forces—served as an industry catalyst. In 1981, Televa Oy was taken over by Nokia. This purchase was the final step in Nokia’s consolidation of the nascent electronic and mobile communications industries in Finland.

Mobira In the early 1960s, Salora Oy, a veteran radio and TV set producer, diversified into radio phone manufacturing. Nokia’s marketing activities with Salora resulted in increasing cooperation, which led to a joint venture, Mobira Oy (as in mobile radio), in 1979.

Nokia’s Electronics In 1960, the Finnish Cable Works diversified into electronics. Concurrently, Nokia began importing computer systems by Elliot in the United Kingdom and Siemens in Germany.⁵ The revenue base was tiny. To survive, Nokia had to internationalize.

Nokia’s consolidation of these various different firms was really a “sum of a great many chances.”⁶ At the same time, Nordic cooperation contributed to the expansion of nascent mobile communications.

In 1967, the corporation took its current form as the Nokia Corporation.⁷ The new industrial conglomerate operated in forestry, rubber, and cable, and it was entering electronics. As Finns saw it, the name of the new company, Oy Nokia Ab, came from wood processing, the management from the cable factory, and the money from the rubber industry. Yet in only a quarter of a century, all of these segments would be divested. It was the most insignificant business of all—electronics—that would position Nokia for the future. This meant a U-turn for a company that in the 1960s was still best known for its rubber boots, winter tires, and toilet paper.

At the same time, the parliamentary elections of 1966 marked a major turning point in Finnish politics. The socialist parties gained their first absolute majority in half a century. With a series of center-left governments until the late 1980s, more than 80 percent of Finland’s total workforce was organized into unions.

Motivated by the fear of American multinationals and faith in socialist planning, a generation of “new radicals” began to promote the idea of a state-owned electronics giant, Valco. While Silicon Valley was emerging as the entrepreneurial hotbed in California, the Finns were moving in a diametrically opposite direction. Still, the plan, which required the socialization of Nokia, was in trouble from the beginning. It was driven by political posturing, not market opportunities. As the notion of a high-tech national champion failed, Nokia took over the ruins of Valco as well.⁸

Expansion into a European Technology Concern

In 1977 Kari H. Kairamo took charge of Nokia. Soon change and flexibility became the new catchwords. Born into a wealthy family, Kairamo was energetic, charismatic, hardworking, persistent, independent, entrepreneurial, innovative, and rebellious. For all practical purposes he was Nokia through the 1980s. He renewed and internationalized Nokia’s vision. In the early 1970s, exports and foreign activities accounted for only 20 percent of total sales; by 1980, their proportion increased to more than 50 percent of total sales, while revenues quadrupled.

“Kari Kairamo was an extraordinary visionary, energetic and energizing, but he could be challenging to the organization,” describes Sari Baldauf, one of Nokia’s leading executives in the 1990s boom era. “At times, we had to cope with substantial uncertainty. Still, Kairamo’s era meant bold risk-taking and a clear long-term perspective. Kari was very committed to the devices, joint ventures, and telecom technologies overall.”

Growth Through Bold Mergers and Acquisitions

By the mid-1980s, Nokia had been transformed from a diversified industrial conglomerate into an electronics concern. CEO Kairamo’s prime objective was to transform Nokia into a European technology concern. “European industry, as well as the cost structure of products, has become increasingly knowledge-based,” he said. “To us, internationalization is not an alternative to something else. Finland has only two resources: the people and the trees.” In the past, Finland had been about natural resources and comparative advantage. In the future, it would have to be about human capital and competitive advantage. Export success, however, was predicated on Nokia’s sustained ability to internationalize. “That is the greatest risk facing the Finns,” Kairamo stated; “the small amount of international business experience.”⁹

If the Finns did not yet know much about the world, the world certainly knew little about the Finns. “Wherever you went during those days,” recalls Baldauf, “you always had to spell the name of Nokia: N-O-K-I-A. Nokia. Not Nokaia, not Japanese. We were not internationally relevant yet, except for certain limited market areas.”

At the time, Nokia had few alternatives. Western countries were still dominated by national telecom monopolies. The only opportunities were in Asia and northern Africa. “There was no global strategy yet,” says Matti Alahuhta, who later became Nokia’s executive vice president and president of the infrastructure and mobile device businesses, respectivel...

Table of contents

• Title Page
• Copyright Page
• Introduction
• Chapter 1 - SUCCESS THROUGH LEGACY AND GLOBALIZATION
• Chapter 2 - STRATEGY THROUGH THE EXECUTIVE TEAM
• Chapter 3 - HOW NOKIA ’ S VALUES, CULTURE, AND PEOPLE CONTRIBUTE TO SUCCESS
• Chapter 4 - BUILDING A GLOBALLY NETWORKED MATRIX ORGANIZATION
• Chapter 5 - INNOVATING GLOBALLY VIA R & D NETWORKS
• Chapter 6 - DEVELOPING STRATEGIC CAPABILITIES ACROSS THE WORLD
• Chapter 7 - HOW NOKIA IS GROWING AND TRANSFORMING ITS BUSINESS AREAS
• Chapter 8 - COMPETING IN GLOBAL MARKETS
• Chapter 9 - HOW NOKIA SEEKS TO SUSTAIN LEADERSHIP
• NOKIA’S KEY EXECUTIVES
• NOTES
• Acknowledgements
• ABOUT THE AUTHOR
• INDEX