Did you know that the Finnish mobile phone company Nokia started out as a wood pulp company? It is unlikely that it would have grown to have been one of the world leaders if it had remained so. Today, Nokia represents 2/3 of the Information and Communications Technology (ICT) sector in Finland, a fifth of all exports and an incredible 3-4% of Gross Domestic Product. The company funds almost half of business sector research and development and a third of national R&D.
It is odd, to say the least. A country in Northern Europe replete with natural resources, in particular lots of trees, should become a global leader in ICT (present economic climate and the advent of iPhones and Android aside). However, political scientist Anil Hira of the Simon Fraser University, in Canada, has undertaken a detailed case study of Nokia and determined that success came from deliberate and coordinated efforts by the state and private sector towards a national goal. And, what was that national goal? Essentially, back in the 1970s, Finland decided that it would become “the Japan of Europe” – an agile exporter able to introduce new products and improve productivity, leading to a major improvement in its standard of living.
“With a small domestic population of 5.2 million, a relatively remote location, and a traditional economy based on natural resources (lumber, pulp, and paper), [Finland] is probably one of the last places one would expect to see the emergence of one of the leading high tech companies in the world,” says Hira. However, there was a precedent.
From rags to insulators
Finlayson, a high-end textile manufacturer, began in 1820 and a branch plant of the Swedish Rörstrand works became an independent Finnish manufacturer of ‘Arabia’ porcelain. This latter company diversified into manufacturing industrial porcelain and electrical insulators, in 1922 it established a research laboratory and began developing new technology. Likewise, Nuutajärvi glassware design merged with the porcelain people into the Wärtislä group, itself founded on a sawmill in the 19th century. The company is now a leader in marine engines and power plants as well as engineering services.
In other words, Finland already had a tradition of mergers, diversification and verticalization on which to model the transition of Nokia’s arboreal ancestry into ICT. Fundamentally, the shift was instigated by the fall of the Soviet Union in 1989 and the need to shift its economic dependence to Western customers, says Hira.
State secret of Nokia success
“Nokia’s success clearly is related to timing and the initial favorable factors,” adds Hira, but “Nokia’s success is by no means permanent as it was initially based in part on favorable timing and first mover advantages in technology and marketing.” Indeed, the emergence of smart phones (and a failure so far to innovate in that direction) together with a significant lowering of tech manufacturing and labor costs, particularly by the Far East has meant that Nokia has lost much of its momentum. That said, their mobile phones are still sold in vast numbers and even underpin rural economies across the developing world, not least because of their robustness and long-lasting batteries.
Nevertheless, there was what Hira calls a “miraculous transformation” of the Finnish economy in just ten years, which was almost entirely due to the evolutionary and adaptable nature of the private-public partnership. It is unlikely that Finnish economic history and the case of Nokia will be replicated, although South Korea comes close. However, what seems obvious is that a high level of informal as well as formal cooperation between public and private sectors can take rapid advantage when technological windows are opened.
By the way, Nokia is pronounced “noh-kya” (rhymes with rockier) not “No-Kee-Ah” it is the name of the Rapids on the banks of which Knut Fredrik Idestam established his water-powered pulp mill in 1865.
What is next for Nokia? Well almost a year ago the company fell into the arms of Microsoft and abandoned its age-old Symbian mobile operating platform in favor of Windows Phone 7. It was almost a stealth takeover, The Economist claims. However, there are troubles with sales although neither company dares reveal figures. If you do have a Nokia smart-ish phone you can expect an update to the OS in early February (the 8th in rumored fact) as the latest update to Nokia Belle makes its debut. Just ahead of that Nokia has appointed Marko Ahtisaari as Executive Vice President, Design, and a member of the Nokia Leadership Team, effective as of 1st February 2012. He will be reporting directly to President and CEO Stephen Elop.
Anil Hira (2012). Secrets behind the Finnish miracle: the rise of Nokia Int. J. Technology and Globalisation, 6 (1/2), 38-64
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