Finland’s Nokia

The wireless phone market is one of the great growth stories of the last decade. Starting from a very low base in 1990, annual global sales of wireless phones surged to reach 825 million units in 2005. By the end of 2005, there were over 1.7 billion wireless subscribers worldwide, up from less than 10 million in 1990. Nokia is one of the dominant players in the world market for mobile phones. Nokia’s roots are in Finland, not normally a country that comes to mind when one talks about leading-edge technology companies. In the 1980s, Nokia was a rambling Finnish conglomerate with activities that embraced tire manufacturing, paper production, consumer electronics, and telecommunications equipment. By 2006, it had transformed itself into a focused telecommunications equipment manufacturer with a global reach, sales of over $40 billion, earnings of more than $5 billion, and a 34% share of the global market for wireless phones. How has this former conglomerate emerged to take a global leadership position in wireless telecommunications equipment? Much of the answer lies in the history, geography, and political economy of Finland and its Nordic neighbors. In 1981, the Nordic nations cooperated to create the world’s first international wireless telephone network. They had good reason to become pioneers: it cost far too much to lay down a traditional wire line telephone service in those sparsely populated and inhospitably cold countries. The same features made telecommunications all the more valuable: people driving through the Arctic winter and owners of remote northern houses needed a telephone to summon help if something went wrong. As a result, Sweden, Norway, and Finland became the first nations in the world to take wireless telecommunications seriously. They found, for example, that although it cost up to $800 per subscriber to bring a traditional wire line service to remote locations, the same locations could be linked by wireless cellular for only $500 per person. As a consequence, 12% of the people in Scandinavia owned cellular phones by 1994, compared with less than 6% in the United States, the world’s second most developed market. This lead continued over the next decade. By the end of 2005, 90% of the population in Finland owned a wireless phone, compared with 70% in the United States. Nokia, a long-time telecommunications equipment supplier, was well positioned to take advantage of this development from the start, but there were other forces at work that helped Nokia develop its competitive edge. Unlike almost every other developed nation, Finland has never had a national telephone monopoly. Instead, the country’s telephone services have long been provided by about fifty or so autonomous local telephone companies whose elected boards set prices by referendum (which naturally means low prices). This army of independent and cost-conscious telephone service providers prevented Nokia from taking anything for granted in its home country. With typical Finnish pragmatism, its customers were willing to buy from the lowest-cost supplier, whether that was Nokia, Ericsson, Motorola, or some other company. This situation contrasted sharply with that prevailing in most developed nations until the late 1980s and early 1990s, where domestic telephone monopolies typically purchased equipment from a dominant local supplier or made it themselves. Nokia responded to this competitive pressure by doing everything possible to drive down its manufacturing costs while staying at the leading edge of wireless technology. The consequences of these forces are clear. Nokia is now a leader in digital wireless technology. Many now regard Finland as the lead market for wireless telephone services. If you want to see the future of wireless, you don’t go to New York or San Francisco; you go to Helsinki, where Finns use their wireless handsets not just to talk to each other but also to browse the Web, execute e-commerce transactions, control household heating and lighting systems, or purchase Coke from a wireless-enabled vending machine. Nokia has gained this lead because Scandinavia started switching to digital technology five years before the rest of the world.