Box 2: Nokia: From wood pulp to connecting people

The history of Nokia dates back to 1865 with the establishment of a wood pulp mill on the river Nokia in Southern Finland. Nokia evolved into a conglomerate, active in paper, chemicals and rubber. Mobile communications research dates back to the 1960s with the company developing its first telecommunication products in the late 1970s. The transformation of the company from a raw-material producer to an electronics manufacturer took place in the 1980s. In the beginning of 1999s, its paper and chemical activities were divested and the company focused on telecommunications. The strategy paid off with Nokia emerging as the world’s top vendor of mobile handsets in 1998.

Nokia’s strength has been design innovations, giving it a couple of years lead over competitors. Another advantage has been clever market segmentation through the introduction of lifestyle models fulfilling the needs of different users. Sleek models and a range of coloured handset coverings are examples. Nokia has also benefited from its geographical location. The Nordic region was among the first to establish a cellular standard (the Nordic Mobile Telephone system, NMT) creating a market for regional equipment manufacturers. Even though NMT never became a dominant standard globally, it provided Nokia with experience in producing mobilephones. The fact that Finland was the first country to introduce a digital GSM network also helped Nokia gain a head start in that technology. With the world’s highest density of mobilephone users and the highest penetration of Internet host computers, Finland has been called the model for the information society—thus an excellent test market for Nokia. Contact with end users in the highly evolved consumer markets in the Nordic region has allowed Nokia (and Sweden’s Ericsson) to receive feedback directly and respond quickly by offering cellular phones with user-friendly features and attractive designs.

To some, Nokia has become better known than Finland, and actually Finland depends a lot on Nokia. The company’s net sales are equivalent to almost 12 per cent of the country’s GDP while its foreign sales equate to a third of Finland’s exports. While 50 per cent of the workforce are Finns, only 4 per cent of the company’s sales are domestic. If Nokia’s growth continues at the same pace, its revenues will exceed the budget of Finland some time early next decade.

In 1998, Nokia’s workforce increased by almost 30 per cent, sales rose 51 per cent and operating profits increased 75 per cent. Managing rapid growth has been one of the greatest challenges for the company. Behind the success are many factors, including competent management and a distinctive corporate culture. Hierarchies are discouraged, and key managers are rotated from one business unit to another at frequent intervals in order to prevent complacency. New strategies and policies are discussed by teams that include employees from different parts and ranks within the company.

Nokia became the winner in second-generation cellular phones. But its next challenge is only beginning. With third-generation mobile technology expecting to result in a fusion of wireless and multimedia, Nokia envisages transforming itself from a cellular phone firm into a software company. According to its President: "This company is not about producing basic consumer products. We are looking for software solutions in wireless communication."