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

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

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

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 Harsh history and natural conditions Sixth happiest nation in the world Most population speaks English 60% had a secondary degree Early adopters (internet) World Economic Forum rank’s Finland’s tertiary education #1 in the world

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 Harsh history and natural conditions Sixth happiest nation in the world Most population speaks English 60% had a secondary degree Early adopters (internet) World Economic Forum rank’s Finland’s tertiary education #1 in the world

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 Harsh history and natural conditions Sixth happiest nation in the world Most population speaks English 60% had a secondary degree Early adopters (internet) World Economic Forum rank’s Finland’s tertiary education #1 in the world

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

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

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, …)

Nokia Current Business Handset is major driver with majority business comes from Europe & Asia Pacific Nokia revenue stream: Nokia market distribution is shown below The fastest growing regions (Q2 07) are Asia Pacific & Middle East/ Africa followed by Europe & China.

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