Entries

International Directory of Company Histories International Directory of Company HistoriesInternational Directory of Company HistoriesInternational Directory of Company Histories Further reading

NON JS

Nokia Corporation

Nokia Corporation

Keilalahdentie 4 FIN-02150
Espoo,
Finland
Telephone: (358) 7180-08000
Fax: (358) 7180-38226
Web site: http://www.nokia.com

Public Company
Incorporated:
1865
Employees: 55,505
Sales: EUR 29.26 billion (2004)
Stock Exchanges: New York Helsinki Stockholm Frankfurt
Ticker Symbol: NOK
NAIC: 334210 Telephone Apparatus Manufacturing; 334220 Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing; 334310 Audio and Video Equipment Manufacturing; 334419 Other Electronic Component Manufacturing; 517212 Cellular and Other Wireless Telecommunications; 517910 Other Telecommunications; 551112 Offices of Other Holding Companies

Nokia Corporation is the world's largest manufacturer of mobile phones, serving customers in 130 countries. Nokia is divided into four business groups: Mobile Phones, Multimedia, Enterprise Solutions, and Networks. The Mobile Phones group markets wireless voice and data products in consumer and corporate markets. The Multimedia segment sells mobile gaming devices, home satellite systems, and cable television set-top boxes. The Enterprise Solutions group develops wireless systems for use in the corporate sector. Wireless switching and transmission equipment is sold through the company's Networks division. Nokia operates 15 manufacturing facilities in nine countries and maintains research and development facilities in 12 countries.

19TH-CENTURY ORIGINS

Originally a manufacturer of pulp and paper, Nokia was founded as Nokia Company in 1865 in a small town of the same name in central Finland. Nokia was a pioneer in the industry and introduced many new production methods to a country with only one major natural resource, its vast forests. As the industry became increasingly energy-intensive, the company even constructed its own power plants. But for many years, Nokia remained an important yet static firm in a relatively forgotten corner of northern Europe. Nokia shares were first listed on the Helsinki exchange in 1915.

The first major changes in Nokia occurred several years after World War II. Despite its proximity to the Soviet Union, Finland has always remained economically connected with Scandinavian and other Western countries, and as Finnish trade expanded Nokia became a leading exporter.

During the early 1960s Nokia began to diversify in an attempt to transform the company into a regional conglomerate with interests beyond Finnish borders. Unable to initiate strong internal growth, Nokia turned its attention to acquisitions. The government, however, hoping to rationalize two underperforming basic industries, favored Nokia's expansion within the country and encouraged its eventual merger with Finnish Rubber Works, which was founded in 1898, and Finnish Cable Works, which was formed in 1912, to form Nokia Corporation. When the amalgamation was completed in 1966, Nokia was involved in several new industries, including integrated cable operations, electronics, tires, and rubber footwear, and had made its first public share offering.

In 1967 Nokia set up a division to develop design and manufacturing capabilities in data processing, industrial automation, and communications systems. The division was later expanded and made into several divisions, which then concentrated on developing information systems, including personal computers and workstations, digital communications systems, and mobile phones. Nokia also gained a strong position in modems and automatic banking systems in Scandinavia.

OIL CRISIS, CORPORATE CHANGES: 1970S

Nokia continued to operate in a stable but parochial manner until 1973, when it was affected in a unique way by the oil crisis. Years of political accommodation between Finland and the Soviet Union ensured Finnish neutrality in exchange for lucrative trade agreements with the Soviets, mainly Finnish lumber products and machinery in exchange for Soviet oil. By agreement, this trade was kept strictly in balance. But when world oil prices began to rise, the market price for Soviet oil rose with it. Balanced trade began to mean greatly reduced purchasing power for Finnish companies such as Nokia.

Although the effects were not catastrophic, the oil crisis did force Nokia to reassess its reliance on Soviet trade (about 12 percent of sales) as well as its international growth strategies. Several contingency plans were drawn up, but the greatest changes came after the company appointed a new CEO, Kari Kairamo, in 1975.

Kairamo noted the obvious: Nokia was too big for Finland. The company had to expand abroad. He studied the expansion of other Scandinavian companies (particularly Sweden's Electrolux) and, following their example, formulated a strategy of first consolidating the company's business in Finland, Sweden, Norway, and Denmark, and then moving gradually into the rest of Europe. After the company had improved its product line, established a reputation for quality, and adjusted its production capacity, it would enter the world market.

Meanwhile, Nokia's traditional, heavy industries were looking increasingly burdensome. It was feared that trying to become a leader in electronics while maintaining these basic industries would create an unmanageably unfocused company. Kairamo thought briefly about selling off the company's weaker divisions, but decided to retain and modernize them.

He reasoned that, although the modernization of these low-growth industries would be very expensive, it would guarantee Nokia's position in several stable markets, including paper, chemical, and machinery productions, and electrical generation. For the scheme to be practical, each division's modernization would have to be gradual and individually financed. This would prevent the bleeding of funds away from the all-important effort in electronics while preventing the heavy industries from becoming any less profitable.

With each division financing its own modernization, there was little or no drain on capital from other divisions, and Nokia could still sell any group that did not succeed under the new plan. In the end, the plan prompted the machinery division to begin development in robotics and automation, the cables division to begin work on fiber optics, and the forestry division to move into high-grade tissues.

RISE OF ELECTRONICS: 1980S

Nokia's most important focus was development of the electronics sector. Over the course of the 1980s, the firm acquired nearly 20 companies, focusing especially on three segments of the electronics industry: consumer, workstations, and mobile communications. Electronics grew from 10 percent of annual sales to 60 percent of revenues from 1980 to 1988.

COMPANY PERSPECTIVES

By connecting people, we help fulfill a fundamental human need for social connections and contact. Nokia builds bridges between peopleboth when they are far apart and face-to-faceand also bridges the gap between people and the information they need.

In late 1984 Nokia acquired Salora, the largest color television manufacturer in Scandinavia, and Luxor, the Swedish state-owned electronics and computer firm. Nokia combined Salora and Luxor into a single division and concentrated on stylish consumer electronic products, since style was a crucial factor in Scandinavian markets. The Salora-Luxor division was also very successful in satellite and digital television technology. Nokia purchased the consumer electronics operations of Standard Elektrik Lorenz A.G. from Alcatel in 1987, further bolstering the company's position in the television market to the third largest manufacturer in Europe.

In early 1988 Nokia acquired the data systems division of the Swedish Ericsson Group, making Nokia the largest Scandinavian information technology business.

Although a market leader in Scandinavia, Nokia still lacked a degree of competitiveness in the European market, which was dominated by much larger Japanese and German companies. Kairamo decided, therefore, to follow the example of many Japanese companies during the 1960s (and Korean manufacturers a decade later) and negotiate to become an original equipment manufacturer, or OEM, to manufacture products for competitors as a subcontractor.

Nokia manufactured items for Hitachi in France, Ericsson in Sweden, Northern Telecom in Canada, and Granada and IBM in Britain. In doing so it was able to increase its production capacity stability. There were, however, several risks involved, those inherent in any OEM arrangement. Nokia's sales margins were naturally reduced, but of greater concern, production capacity was built up without a commensurate expansion in the sales network. With little brand identification, Nokia feared it might have a difficult time selling under its own name and become trapped as an OEM.

In 1986 Nokia reorganized its management structure to simplify reporting efforts and improve control by central management. The company's 11 divisions were grouped into four industry segments: electronics; cables and machinery; paper, power, and chemicals; and rubber and flooring. In addition, Nokia won a concession from the Finnish government to allow greater foreign participation in ownership. This substantially reduced Nokia's dependence on the comparatively expensive Finnish lending market. Although there was growth throughout the company, Nokia's greatest success was in telecommunications.

Having dabbled in telecommunications in the 1960s, Nokia cut its teeth in the industry by selling switching systems under license from a French company, Alcatel. The Finnish firm got in on the cellular industry's ground floor in the late 1970s, when it helped design the world's first international cellular system. Named the Nordic Mobile Telephone (NMT) network, the system linked Sweden, Denmark, Norway, and Finland. A year after the network came on line in 1981, Nokia gained 100 percent control of Mobira, the Finnish mobile phone company that would later become its key business interest as the Nokia Mobile Phones division. Mobira's regional sales were vastly improved, but Nokia was still limited to OEM production on the international market; Nokia and Tandy Corporation, of the United States, built a factory in Masan, South Korea, to manufacture mobile telephones. These were sold under the Tandy name in that company's 6,000 Radio Shack stores throughout the United States.

In 1986, eager to test its ability to compete openly, Nokia chose the mobile telephone to be the first product marketed internationally under the Nokia name; it became Nokia's "make or break" product. Unfortunately, Asian competitors began to drive prices down just as Nokia entered the market. Other Nokia products gaining recognition were Salora televisions and Luxor satellite dishes, which suffered briefly when subscription programming introduced broadcast scrambling.

KEY DATES

1865:
Nokia is founded as a maker of pulp and paper.
1898:
Finnish Rubber Works is founded.
1912:
Finnish Cable Works is formed.
1915:
Nokia shares are first listed on the Helsinki exchange.
1967:
Nokia merges with Finnish Rubber Works and Finnish Cable Works to form Nokia Corporation.
1979:
Mobira Oy is formed as a mobile phone company.
1981:
The first international cellular system, the Nordic Mobile Telephone network, comes on line, having been developed with the help of Nokia.
1982:
Nokia acquires Mobira, which later becomes the Nokia Mobile Phones division.
1986:
Company markets internationally the first Nokia mobile telephone.
1993:
The first Nokia digital cellular phone hits the market.
1998:
Nokia surpasses Motorola as the world's number one maker of mobile phones.
2002:
Nokia introduces the first third-generation compliant mobile phone.
2005:
Jorma Ollila announces he will step down as chief executive officer in 2006.

The company's expansion, achieved almost exclusively by acquisition, had been expensive. Few Finnish investors other than institutions had the patience to see Nokia through its long-term plans. Indeed, more than half of the new shares issued by Nokia in 1987 went to foreign investors. Nokia moved boldly into Western markets; it gained a listing on the London exchange in 1987 and was subsequently listed on the New York exchange.

CRISES OF LEADERSHIP, PROFITABILITY IN THE LATE 1980S AND EARLY 1990S

Nokia's rapid growth was not without a price. In 1988, as revenues soared, the company's profits, under pressure from severe price competition in the consumer electronics markets, dropped. Chairman Kari Kairamo committed suicide in December of that year; not surprisingly, friends said it was brought on by stress. Simo S. Vuorileto took over the company's reins and began streamlining operations in the spring of 1988. Nokia was divided into six business groups: consumer electronics, data, mobile phones, telecommunications, cables and machinery, and basic industries. Vuorileto continued Kairamo's focus on high-tech divisions, divesting Nokia's flooring, paper, rubber, and ventilation systems businesses and entering into joint ventures with companies such as Tandy Corporation and Matra of France (two separate agreements to produce mobile phones for the U.S. and French markets).

In spite of these efforts, Nokia's pretax profits continued to decline in 1989 and 1990, culminating in a loss of $102 million in 1991. Industry observers blamed cutthroat European competition, the breakdown of the Finnish banking system, and the collapse of the Soviet Union. But, notwithstanding these difficulties, Nokia remained committed to its high-tech orientation. Late in 1991, the company strengthened that dedication by promoting Jorma Ollila from president of Nokia-Mobira Inc. (renamed Nokia Mobile Phones Ltd. the following year) to group president.

LEADING THE TELECOMMUNICATIONS REVOLUTION: MID-1990S AND BEYOND

Forbes 's Fleming Meeks credited Ollila with transforming Nokia from "a moneylosing hodgepodge of companies into one of telecommunications' most profitable companies." Unable to find a buyer for Nokia's consumer electronics business, which had lost nearly $1 billion from 1988 to 1993, Ollila cut that segment's workforce by 45 percent, shuttered plants, and centralized operations. Having divested Nokia Data in 1991, Nokia focused further on its telecommunications core by selling off its power unit in 1994 and its television and tire and cable units the following year.

The new leader achieved success in the cellular phone segment by bringing innovative products to market quickly with a particular focus on ever smaller and easier-to-use phones featuring sleek Finnish design. Nokia gained a leg up in cellphone research and development with the 1991 acquisition of the United Kingdom's Technophone Ltd. for $57 million. The company began selling digital cellular phones in 1993.

Ollila's tenure brought Nokia success and with it global recognition. The company's sales more than doubled, from FIM 15.5 billion in 1991 to FIM 36.8 billion in 1995, and its bottom line rebounded from a net loss of FIM 723 million in 1992 to a FIM 2.2 billion profit in 1995. Securities investors did not miss the turnaround: Nokia's market capitalization multiplied ten times from 1991 to 1994.

In late 1995 and early 1996, Nokia suffered a temporary setback stemming from a shortage of chips for its digital cellular phones and a resultant disruption of its logistics chain. The company's production costs rose and profits fell. Nokia was also slightly ahead of the market, particularly in North America, in regard to the shift from analog to digital phones. As a result, it was saddled with a great number of digital phones it could not sell and an insufficient number of analog devices. Nevertheless, Nokia had positioned itself well for the long haul, and within just a year or two it was arch-rival Motorola, Inc. that was burdened with an abundance of phones it could not sell, analog ones, as Motorola was slow to convert to digital. As a result, by late 1998, Nokia had surpassed Motorola and claimed the top position in cellular phones worldwide.

Aiding this surge was the November 1997 introduction of the 6100 series of digital phones. This line proved immensely popular because of the phones' small size (similar to a slim pack of cigarettes), light weight (4.5 ounces), and superior battery life. First introduced in the burgeoning mobile phone market in China, the 6100 soon became a worldwide phenomenon. Including the 6100 and other models, Nokia sold nearly 41 million cellular phones in 1998. Net sales increased more than 50 percent over the previous year, jumping from FIM 52.61 billion ($9.83 billion) to FIM 79.23 billion ($15.69 billion). Operating profits increased by 75 percent, while the company's skyrocketing stock price shot up more than 220 percent, pushing Nokia's market capitalization from FIM 110.01 billion ($20.57 billion) to FIM 355.53 billion ($70.39 billion).

Not content with conquering the mobile phone market, Nokia began aggressively pursuing the mobile Internet sector in the late 1990s. Already on the market was the Nokia 9000 Communicator, a personal all-in-one communication device that included phone, data, Internet, e-mail, and fax retrieval services. The Nokia 8110 mobile phone included the capability to access the Internet. In addition, Nokia was the first company to introduce a cellular phone that could be connected to a laptop computer to transmit data over a mobile network. To help develop further products, Nokia began acquiring Internet technology companies, starting with the December 1997, $120 million purchase of Ipsilon Networks Inc., a Silicon Valley firm specializing in Internet routing. One year later, Nokia spent FIM 429 million ($85 million) for Vienna Systems Corporation, a Canadian firm focusing on Internet Protocol telephony.

Acquisitions continued in 1999, when a further seven deals were completed, four of which were Internet-related. Meanwhile, net sales increased a further 48 percent in 1999, while operating profits grew by 57 percent; riding the late 1990s high-tech stock boom, the market capitalization of Nokia took another huge leap, ending the year at EUR 209.37 billion ($211.05 billion). Nokia's share of the global cellular phone market increased from 22.5 percent in 1998 to 26.9 percent in 1999, as the company sold 76.3 million phones in 1999.

Nokia's ascendance to the top of the wireless world by the end of the 1990s could be traced to the company being able to consistently, over and over again, come out with high-margin products superior to those of its competitors and in tune with market demands. The continuation of this trend into the 21st century was by no means certain as the increasing convergence of wireless and Internet technologies and the development of the third generation (3G) of wireless technology (which followed the analog and digital generations and which was slated to feature sophisticated multimedia capability) were predicted to open Nokia up to new and formidable competitors.

Perhaps the greatest threat was that chipmakers such as Intel would turn mobile phones into commodities just as they had previously done with personal computers; the days of the $500 Nokia phone were potentially numbered. Nevertheless, Nokia's 25 percent profit margins were enabling it to spend a massive $2 billion a year on research and development and continue to churn out innovative new products, concentrating on the various standards being developed for 3G wireless networks.

A TWO-PRONGED APPROACH IN THE 21ST CENTURY

Mobile communications developed along two broad fronts during the first years of the century, both of which played to Nokia's advantage, ensuring that the company remained the leader of its industry. The evolution of handsets into multimedia devices ushered in by 3G technology meant that Nokia could continue to rely on marketing expensive, sophisticated handsets. The days of the $500 Nokia phone gave way to the days of increasingly more expensive phones, such as the Nokia N90, a unit featuring a camera with Carl Zeiss optics, video-recording capabilities, and Internet access. Nokia could count on a substantial share of the high end of the market, a segment that continued to thrive midway through the decade, but the company's greatest strength was in the lower end of the market. In countries such as China, Brazil, and India there was a tremendous demand for inexpensive mobile phones, with analysts expecting 50 percent of the one billion handsets sold between 2005 and 2010 to be sold in developing economies. Industry observers believed there were only two companies in the world that could seriously compete for the estimated 800-million-unit-per year market for inexpensive handsets: Motorola and Nokia. Rivals such as Samsung, Sony Ericsson, and LG Electronics preferred to confine their activities to the high end of the market, while emerging low-cost producers lacked the manufacturing efficiencies enjoyed by Nokia and Motorola.

Against the backdrop of favorable market trends supporting Nokia's entrenched position, the company experienced a rare event in its modern history: a change in leadership. After a decade-and-a-half at the helm, CEO Ollila announced his retirement, effective June 2006. His replacement was a 25-year Nokia veteran named Olli-Pekka Kallasvuo, a lawyer by training whom Fortune, in that magazine's October 31, 2005 issue, described as so taciturn that "he can seem like an extra from an Ingmar Bergman movie."

Kallasvuo, who was promoted from his position as the head of the handset division, inherited an impressively capable company whose greatest challenge was contending with Motorola for the low end of the market and beating back competitors for control of the high end of the market. "Nokia is a dynamic company in a fast-changing and fluid environment," Kallasvuo said in a November 29, 2005 interview with the South China Morning Post. "I look forward to working together with our team to help Nokia shape the future of mobile communications at a pivotal time for the industry."

PRINCIPAL SUBSIDIARIES

Nokia Holding Inc.; Nokia Products Limited (Canada); Nokia IP Telephony Corporation (Canada); Nokia Telecommunications Inc.; Nokia Inc.; Nokia (China) Investment Co. Ltd.; Nokia (H.K.) Limited (Hong Kong); Nokia (Ireland) Ltd.; Nokia Australia Pty Limited; Nokia Asset Management Oy; Nokia Austria GmbH; Nokia Danmark A/S (Denmark); Nokia Do Brasil Ltda. (Brazil); Nokia Do Brasil Tecnologia Ltda. (Brazil); Nokia Finance International B.V. (Netherlands); Nokia France; Nokia GmbH (Germany); Nokia India Private Limited; Nokia Italia Spa (Italy); Nokia Korea Ltd.; Nokia Mobile Phones; Nokia Networks; Nokia Norge AS (Norway); Nokia Oyj; Nokia Pte Ltd. (Singapore); Nokia Spain, S.A.; Nokia Svenska AB (Sweden); Nokia U.K. Ltd.; Nokia Ventures Organization; Bave Tartum (U.K.); Beijing Nokia Hangxing Telecommunications Systems Co., Ltd. (China); DoctortelAssistencia De Telecomunicaes S.A. (Portugal); Funda Ao Nokia De Ensino (Brazil); Instituto Nokia De Tecnologia (Brazil); Nokia (M) Sdn Bhd (Malaysia); Nokia Argentina S.A.; Nokia Belgium NV; Nokia Capitel Telecommunications Ltd. (China); Nokia Ecuador S.A.; Nokia Hellas Communications S.A.; Nokia Hungary Kommunikacios Korlatolt Felelossegu Tarsasag (Hungary); Nokia Israel Ltd.; Nokia Middle East (United Arab Emirates; Nokia Nederland B.V. (Netherlands); Nokia Poland Sp Z.O.O.; Nokia Portugal S.A.; Nokia Private Joint Stock Company (Russia); Nokia Research Center; Nokia River Golf Ry; Nokia S.A. (Columbia); Nokia Servicios, S.A. de C.V. (Mexico); Nokia Technology GmbH (Germany); Nokianvirta Oy; Oy Scaninter Nokia Ltd.; Pointo Nokia Oy.

               Updated, April D. Gasbarre; David E. Salamie;
                                             Jeffrey L. Covell

PRINCIPAL COMPETITORS

Telefonaktiebolaget LM Ericsson; Motorola, Inc.; Siemens AG; Sony Corporation.

FURTHER READING

Angell, Mike, "Nokia Banking on New Phone Features, Cameras, E-Mail Access," Investor's Business Daily, December 3, 2002, p. A7.

Baker, Stephen, and Kerry Capell, "The Race to Rule Mobile," Business Week, February 21, 2000, pp. 58-60.

Baker, Stephen, Roger O. Crockett, and Neil Gross, "Nokia: Can CEO Ollila Keep the Cellular Superstar Flying High?," Business Week, August 10, 1998, pp. 54-60.

"Bellaby, Mara D., "Nokia Acquires Intellisynch," America's Intelligence Wire, November 17, 2005.

Bensinger, Ari, "The Call on Nokia," Business Week Online, January 7, 2003.

Berkman, Barbara N., "Brainstorming in the Sauna," Electronic Business, November 18, 1991, pp. 71-74.

, "Sagging Profits Spark Identity Crisis at Nokia," Electronic Business, March 4, 1991, pp. 57-59.

Burt, Tim, and Greg McIvor, "Land of Midnight Mobiles: A Former Toilet-Paper Maker from Finland Has Become the World's Largest Manufacturer of Mobile Phones," Financial Times, October 30, 1998, p. 18.

Edmondson, Gail, Peter Elstrom, and Peter Burrows, "At Nokia, a Comebackand Then Some," Business Week, December 2, 1996, p. 106.

Fox, Justin, "Nokia's Secret Code," Fortune, May 1, 2000, pp. 161-64+.

Furchgott, Roy, "Nokia Signals Desire for Higher Profile," ADWEEK Eastern Edition, June 12, 1995, p. 2.

Guth, Robert A., "Nokia Fights for Toehold in Japan's Cell-Phone Market," Wall Street Journal, June 26, 2000, p. A26.

Heard, Joyce, and Keller, John J., "Nokia Skates into High Tech's Big Leagues," Business Week, April 4, 1988, pp. 102-03.

Jacob, Rahul, "Nokia Fumbles, But Don't Count It Out," Fortune, February 19, 1996, pp. 86-88.

Kharif, Olga, "Will New Phones Boost Nokia's Signal?," Business Week Online, December 11, 2002.

La Rossa, James, Jr., "Nokia Knocks on U.S. Door," HFDThe Weekly Home Furnishings Newspaper, February 10, 1992, pp. 66-67.

Lemola, Tarmo, and Raimo Lovio, Miksi Nokia, Finland, Porvoo, Sweden: W. Sööderströöm, 1996, 211 p.

Lineback, J. Robert, "Nokia's Mobile Phone Unit Is Ringing Bells," Electronic Business Buyer, June 1994, pp. 60-62.

Meeks, Fleming, "Watch Out, Motorola," Forbes, September 12, 1994, pp. 192-94.

"Nokia and CommTel Expand Broadband in the Pacific," PR Newswire, December 28, 2005.

"Nokia Expands Production in China," TelecomWeb News Digest, December 1, 2005.

"Nokia Launches New 3G Phones," eWeek, December 1, 2005.

"Not Finnished Yet," Economist, February 9, 1991, p. 73.

Perez, Bien, "Nokia Adapts to Swift Changes," South China Morning Post, November 29, 2005.

Reinhardt, Andy, "Cell Phones for the People," Business Week, November 7, 2005, p. 26.

, "A Whole New Wireless Order," Business Week, October 31, 2005, p. MTL2.

Salameh, Asad, "Nokia Repositions for a Major Cellular Marketing Initiative," Telecommunications, June 1992, p. 43.

Schwartz, Nelson D., "The Man Behind Nokia's Comeback," Fortune, October 31, 2005, p. 39.

Seyfer, Jessie, "Nokia to Acquire Intellisync," San Jose Mercury News, November 17, 2005.

Silberg, Lurie, "A Brand Apart," HFDThe Weekly Home Furnishings Newspaper, September 5, 1994, pp. 54-55.

"These Sexy Gadgets Will Rock Next Year," Economic Times of India, December 20, 2005.

Williams, Elaine, "100-Year-Old Nokia Experiences Fast-Growth Pains," Electronic Business, June 26, 1989, pp. 111-14.

Cite this article
Pick a style below, and copy the text for your bibliography.

  • MLA
  • Chicago
  • APA

Gasbarre, April; Salamie, David; Covell, Jeffrey. "Nokia Corporation." International Directory of Company Histories. 2006. Encyclopedia.com. 27 Jul. 2016 <http://www.encyclopedia.com>.

Gasbarre, April; Salamie, David; Covell, Jeffrey. "Nokia Corporation." International Directory of Company Histories. 2006. Encyclopedia.com. (July 27, 2016). http://www.encyclopedia.com/doc/1G2-3483500072.html

Gasbarre, April; Salamie, David; Covell, Jeffrey. "Nokia Corporation." International Directory of Company Histories. 2006. Retrieved July 27, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3483500072.html

Nokia Corporation

Nokia Corporation

Keilalahdentie 4
FIN-02150 Espoo
Finland
Telephone: (358) 9 18 071
Fax: (358) 9 656 388
Web site: http://www.nokia.com

Public Company
Incorporated:
1865
Employees: 55,000
Sales: EUR 19.77 billion (US$19.93 billion) (1999)
Stock Exchanges: Helsinki Stockholm London Frankfurt Paris New York
Ticker Symbol: NOK
NAIC: 334210 Telephone Apparatus Mfg.; 334220 Radio and Television Broadcasting and Wireless Communications Equipment Mfg.; 334290 Other Communications Equipment Mfg.; 334419 Other Electronic Component Mfg.

Nokia Corporation is the worlds largest manufacturer of mobile phones, with a worldwide market share of about 27 percent, far surpassing the number two player, Ericsson, which has about 17 percent. About two-thirds of the companys net sales are generated by the Nokia Mobile Phones business group. Nokias other main business group is Nokia Networks, which is responsible for about 30 percent of net sales. Nokia Networks is a leading global supplier of infrastructure for mobile, fixed, broadband, and Internet Protocol (IP) networks. With a sales network that spans 130 nations, Nokia Corporation generated more than half of its sales in Europe, a quarter in the Americas, and about 22 percent in the Asia-Pacific region. Over the course of its more than 135 years in business, the company has evolved from a concentration in pulp, paper, and other basic industries to a focus on telecommunications.

19th-century Origins

Originally a manufacturer of pulp and paper, Nokia was founded as Nokia Company in 1865 in a small town of the same name in central Finland. Nokia was a pioneer in the industry and introduced many new production methods to a country with only one major natural resource, its vast forests. As the industry became increasingly energy-intensive, the company even constructed its own power plants. But for many years, Nokia remained an important yet static firm in a relatively forgotten corner of northern Europe. Nokia shares were first listed on the Helsinki exchange in 1915.

The first major changes in Nokia occurred several years after World War II. Despite its proximity to the Soviet Union, Finland has always remained economically connected with Scandinavian and other Western countries, and as Finnish trade expanded Nokia became a leading exporter.

During the early 1960s Nokia began to diversify in an attempt to transform the company into a regional conglomerate with interests beyond Finnish borders. Unable to initiate strong internal growth, Nokia turned its attention to acquisitions. The government, however, hoping to rationalize two underperform-ing basic industries, favored Nokias expansion within the country and encouraged its eventual merger with Finnish Rubber Works, which was founded in 1898, and Finnish Cable Works, which was formed in 1912, to form Nokia Corporation. When the amalgamation was completed in 1966, Nokia was involved in several new industries, including integrated cable operations, electronics, tires, and rubber footwear, and had made its first public share offering.

In 1967 Nokia set up a division to develop design and manufacturing capabilities in data processing, industrial automation, and communications systems. The division was later expanded and made into several divisions, which then concentrated on developing information systems, including personal computers and workstations, digital communications systems, and mobile phones. Nokia also gained a strong position in modems and automatic banking systems in Scandinavia.

Oil Crisis, Corporate Changes: 1970s

Nokia continued to operate in a stable but parochial manner until 1973, when it was affected in a unique way by the oil crisis. Years of political accommodation between Finland and the Soviet Union ensured Finnish neutrality in exchange for lucrative trade agreements with the Sovietsmainly Finnish lumber products and machinery in exchange for Soviet oil. By agreement, this trade was kept strictly in balance. But when world oil prices began to rise, the market price for Soviet oil rose with it. Balanced trade began to mean greatly reduced purchasing power for Finnish companies such as Nokia.

Although the effects were not catastrophic, the oil crisis did force Nokia to reassess its reliance on Soviet trade (about 12 percent of sales) as well as its international growth strategies. Several contingency plans were drawn up, but the greatest changes came after the company appointed a new CEO, Kari Kairamo, in 1975.

Kairamo noted the obvious: Nokia was too big for Finland. The company had to expand abroad. He studied the expansion of other Scandinavian companies (particularly Swedens Elec-trolux) and, following their example, formulated a strategy of first consolidating the companys business in Finland, Sweden, Norway, and Denmark, and then moving gradually into the rest of Europe. After the company had improved its product line, established a reputation for quality, and adjusted its production capacity, it would enter the world market.

Meanwhile, Nokias traditional, heavy industries were looking increasingly burdensome. It was feared that trying to become a leader in electronics while maintaining these basic industries would create an unmanageably unfocused company. Kairamo thought briefly about selling off the companys weaker divisions, but decided to retain and modernize them.

He reasoned that, although the modernization of these low-growth industries would be very expensive, it would guarantee Nokias position in several stable markets, including paper, chemical, and machinery productions, and electrical generation. For the scheme to be practical, each divisions modernization would have to be gradual and individually financed. This would prevent the bleeding of funds away from the all-important effort in electronics while preventing the heavy industries from becoming any less profitable.

With each division financing its own modernization, there was little or no drain on capital from other divisions, and Nokia could still sell any group that did not succeed under the new plan. In the end, the plan prompted the machinery division to begin development in robotics and automation, the cables division to begin work on fiber optics, and the forestry division to move into high-grade tissues.

Rise of Electronics: 1980s

Nokias most important focus was development of the electronics sector. Over the course of the 1980s, the firm acquired nearly 20 companies, focusing especially on three segments of the electronics industry: consumer, workstations, and mobile communications. Electronics grew from ten percent of annual sales to 60 percent of revenues from 1980 to 1988. In late 1984 Nokia acquired Salora, the largest color television manufacturer in Scandinavia, and Luxor, the Swedish state-owned electronics and computer firm. Nokia combined Salora and Luxor into a single division and concentrated on stylish consumer electronic products, since style was a crucial factor in Scandinavian markets. The Salora-Luxor division was also very successful in satellite and digital television technology. Nokia purchased the consumer electronics operations of Standard Elektrik Lorenz A.G. from Alcatel in 1987, further bolstering the companys position in the television market to the third largest manufacturer in Europe. In early 1988 Nokia acquired the data systems division of the Swedish Ericsson Group, making Nokia the largest Scandinavian information technology business.

Although a market leader in Scandinavia, Nokia still lacked a degree of competitiveness in the European market, which was dominated by much larger Japanese and German companies. Kairamo decided, therefore, to follow the example of many Japanese companies during the 1960s (and Korean manufacturers a decade later) and negotiate to become an original equipment manufacturer, or OEM, to manufacture products for competitors as a subcontractor.

Nokia manufactured items for Hitachi in France, Ericsson in Sweden, Northern Telecom in Canada, and Granada and IBM in Britain. In doing so it was able to increase its production capacity stability. There were, however, several risks involved, those inherent in any OEM arrangement. Nokias sales margins were naturally reduced, but of greater concern, production capacity was built up without a commensurate expansion in the sales network. With little brand identification, Nokia feared it might have a difficult time selling under its own name and become trapped as an OEM.

In 1986 Nokia reorganized its management structure to simplify reporting efforts and improve control by central management. The companys 11 divisions were grouped into four industry segments: electronics; cables and machinery; paper, power, and chemicals; and rubber and flooring. In addition, Nokia won a concession from the Finnish government to allow greater foreign participation in ownership. This substantially reduced Nokias dependence on the comparatively expensive Finnish lending market. Although there was growth throughout the company, Nokias greatest success was in telecommunications.

Company Perspectives:

Nokia is a leading international communications company, focused on the key growth areas of wireline and wireless telecommunications. Nokia is a pioneer in digital technology and wireless data communications, continuously bringing innovations to the highly competitive and growing telecommunications markets. Nokia is also actively involved in international R&D cooperation, including the development of the standards for third generation mobile telephony.

Having dabbled in telecommunications in the 1960s, Nokia cut its teeth in the industry by selling switching systems under license from a French company, Alcatel. The Finnish firm got in on the cellular industrys ground floor in the late 1970s, when it helped design the worlds first international cellular system. Named the Nordic Mobile Telephone (NMT) network, the system linked Sweden, Denmark, Norway, and Finland. A year after the network came on line in 1981, Nokia gained 100 percent control of Mobira, the Finnish mobile phone company that would later become its key business interest as the Nokia Mobile Phones division. Mobiras regional sales were vastly improved, but Nokia was still limited to OEM production on the international market; Nokia and Tandy Corporation, of the United States, built a factory in Masan, South Korea, to manufacture mobile telephones. These were sold under the Tandy name in that companys 6,000 Radio Shack stores throughout the United States.

In 1986, eager to test its ability to compete openly, Nokia chose the mobile telephone to be the first product marketed internationally under the Nokia name; it became Nokias make or break product. Unfortunately, Asian competitors began to drive prices down just as Nokia entered the market. Other Nokia products gaining recognition were Salora televisions and Luxor satellite dishes, which suffered briefly when subscription programming introduced broadcast scrambling.

The companys expansion, achieved almost exclusively by acquisition, had been expensive. Few Finnish investors other than institutions had the patience to see Nokia through its long-term plans. Indeed, more than half of the new shares issued by Nokia in 1987 went to foreign investors. Nokia moved boldly into Western markets; it gained a listing on the London exchange in 1987 and was subsequently listed on the New York exchange.

Crises of Leadership, Profitability in the Late 1980s and Early 1990s

Nokias rapid growth was not without a price. In 1988, as revenues soared, the companys profits, under pressure from severe price competition in the consumer electronics markets, dropped. Chairman Kari Kairamo committed suicide in December of that year; not surprisingly, friends said it was brought on by stress. Simo S. Vuorileto took over the companys reins and began streamlining operations in the spring of 1988. Nokia was divided into six business groups: consumer electronics, data, mobile phones, telecommunications, cables and machinery, and basic industries. Vuorileto continued Kairamos focus on high-tech divisions, divesting Nokias flooring, paper, rubber, and ventilation systems businesses and entering into joint ventures with companies such as Tandy Corporation and Matra of France (two separate agreements to produce mobile phones for the U.S. and French markets).

In spite of these efforts, Nokias pretax profits continued to decline in 1989 and 1990, culminating in a loss of US$102 million in 1991. Industry observers blamed cutthroat European competition, the breakdown of the Finnish banking system, and the collapse of the Soviet Union. But, notwithstanding these difficulties, Nokia remained committed to its high-tech orientation. Late in 1991, the company strengthened that dedication by promoting Jorma Ollila from president of Nokia-Mobira Inc. (renamed Nokia Mobile Phones Ltd. the following year) to group president.

Leading the Telecommunications Revolution: Mid-1990s and Beyond

Forbes s Fleming Meeks credited Ollila with transforming Nokia from a money losing hodgepodge of companies into one of telecommunications most profitable companies. Unable to find a buyer for Nokias consumer electronics business, which had lost nearly US$1 billion from 1988 to 1993, Ollila cut that segments workforce by 45 percent, shuttered plants, and centralized operations. Having divested Nokia Data in 1991, Nokia focused further on its telecommunications core by selling off its power unit in 1994 and its television and tire and cable units the following year.

The new leader achieved success in the cellular phone segment by bringing innovative products to market quickly with a particular focus on ever-smaller and easier-to-use phones featuring sleek Finnish design. Nokia gained a leg up in cellphone research and development with the 1991 acquisition of the United Kingdoms Technophone Ltd. for US$57 million. The company began selling digital cellular phones in 1993.

Ollilas tenure brought Nokia success and with it global recognition. The companys sales more than doubled, from Fmk 15.5 billion in 1991 to Fmk 36.8 billion in 1995, and its bottom line rebounded from a net loss of Fmk 723 million in 1992 to a Fmk 2.2 billion profit in 1995. Securities investors did not miss the turnaround: Nokias market capitalization multiplied ten times from 1991 to 1994.

In late 1995 and early 1996, Nokia suffered a temporary setback stemming from a shortage of chips for its digital cellular phones and a resultant disruption of its logistics chain. The companys production costs rose and profits fell. Nokia was also slightly ahead of the market, particularly in North America, in regard to the shift from analog to digital phones. As a result, it was saddled with a great number of digital phones it could not sell and an insufficient number of analog devices. Nevertheless, Nokia had positioned itself well for the long haul, and within just a year or two it was arch-rival Motorola, Inc. that was burdened with an abundance of phones it could not sellanalog onesas Motorola was slow to convert to digital. As a result, by late 1998, Nokia had surpassed Motorola and claimed the top position in cellular phones worldwide.

Key Dates:

1865:
Nokia Company is founded as a maker of pulp and paper.
1898:
Finnish Rubber Works is founded.
1912:
Finnish Cable Works is formed.
1915:
Nokia shares are first listed on the Helsinki exchange.
1967:
Nokia merges with Finnish Rubber Works and Finnish Cable Works to form Nokia Corporation.
1979:
Mobira Oy is formed as a mobile phone company.
1981:
The first international cellular system, the Nordic Mobile Telephone network, comes on line, having been developed with the help of Nokia.
1982:
Nokia acquires Mobira, which later becomes the Nokia Mobile Phones division.
1986:
Company markets internationally the first Nokia mobile telephone.
1993:
The first Nokia digital cellular phone hits the market.
1998:
Nokia surpasses Motorola as the worlds number one maker of mobile phones.

Aiding this surge was the November 1997 introduction of the 6100 series of digital phones. This line proved immensely popular because of the phones small size (similar to a slim pack of cigarettes), light weight (4.5 ounces), and superior battery life. First introduced in the burgeoning mobile phone market in China, the 6100 soon became a worldwide phenomenon. Including the 6100 and other models, Nokia sold nearly 41 million cellular phones in 1998. Net sales increased more than 50 percent over the previous year, jumping from Fmk 52.61 billion (US$9.83 billion) to Fmk 79.23 billion (US$15.69 billion). Operating profits increased by 75 percent, while the companys skyrocketing stock price shot up more than 220 percent, pushing Nokias market capitalization from Fmk 110.01 billion (US$20.57 billion) to Fmk 355.53 billion (US$70.39 billion).

Not content with conquering the mobile phone market, Nokia began aggressively pursuing the mobile Internet sector in the late 1990s. Already on the market was the Nokia 9000 Communicator, a personal all-in-one communication device that included phone, data, Internet, e-mail, and fax retrieval services. The Nokia 8110 mobile phone included the capability to access the Internet. In addition, Nokia was the first company to introduce a cellular phone that could be connected to a laptop computer to transmit data over a mobile network. To help develop further products, Nokia began acquiring Internet technology companies, starting with the December 1997, US$120 million purchase of Ipsilon Networks Inc., a Silicon Valley firm specializing in Internet routing. One year later, Nokia spent Fmk 429 million (US$85 million) for Vienna Systems Corporation, a Canadian firm focusing on Internet Protocol telephony. Acquisitions continued in 1999, when a further seven deals were completed, four of which were Internet-related. Meanwhile, net sales increased a further 48 percent in 1999, while operating profits grew by 57 percent; riding the late 1990s high tech stock boom, the market capitalization of Nokia took another huge leap, ending the year at EUR 209.37 billion (US$211.05 billion). Nokias share of the global cellular phone market increased from 22.5 percent in 1998 to 26.9 percent in 1999, as the company sold 76.3 million phones in 1999.

Nokias ascendance to the top of the wireless world by the end of the 1990s could be traced to the company being able to consistently, over and over again, come out with high-margin products superior to those of its competitors and in tune with market demands. The continuation of this trend into the 21st century was by no means certain as the increasing convergence of wireless and Internet technologies and the development of the third generation of wireless technology (which followed the analog and digital generations and which was slated to feature sophisticated multimedia capability) were predicted to open Nokia up to new and formidable competitors. Perhaps the greatest threat was that chipmakers such as Intel would turn mobile phones into commodities just as they had previously done with personal computers; the days of the $500 Nokia phone were potentially numbered. Nevertheless, Nokias 25 percent profit margins were enabling it to spend a massive US$2 billion a year on research and development and continue to churn out innovative new products, concentrating on the various standards being developed for the third generation wireless networks.

Principal Subsidiaries

Nokia Matkapuhelimet Oy; Nokia Mobile Phones Inc. (U.S.A.); Nokia Networks Oy; Nokia GmbH (Germany); Nokia UK Limited; Nokia TMC Limited (South Korea); Beijing Nokia Mobile Telecommunications Ltd. (China); Nokia Finance International B.V. (Netherlands).

Principal Operating Units

Nokia Networks; Nokia Mobile Phones; Nokia Venture Organization; Nokia Research Center.

Principal Competitors

Alcatel; Telefonaktiebolaget LM Ericsson; Harris Corporation; Kyocera Corporation; Lucent Technologies Inc.; Matsushita Communication Industrial Co., Ltd.; Mitsubishi Electric Corporation; Motorola, Inc.; NEC Corporation; Nortel Networks Corporation; Oki Electric Industry Company, Limited; Koninklijke Philips Electronics N.V.; Pioneer Corporation; Qualcomm Incorporated; Robert Bosch GmbH; Samsung Group; Sanyo Electric Co., Ltd.; Siemens AG; Sony Corporation; Tellabs, Inc.; Toshiba Corporation.

Further Reading

Baker, Stephen, and Kerry Capell, The Race to Rule Mobile, Business Week, February 21, 2000, pp. 58-60.

Baker, Stephen, Roger O. Crockett, and Neil Gross, Nokia: Can CEO Ollila Keep the Cellular Superstar Flying High?, Business Week, August 10, 1998, pp. 54-60.

Berkman, Barbara N., Brainstorming in the Sauna, Electronic Business, November 18, 1991, pp. 71-74.

, Sagging Profits Spark Identity Crisis at Nokia, Electronic Business, March 4, 1991, pp. 57-59.

Burt, Tim, and Greg Mclvor, Land of Midnight Mobiles: A Former Toilet-Paper Maker from Finland Has Become the Worlds Largest Manufacturer of Mobile Phones, Financial Times, October 30, 1998, p. 18.

Edmondson, Gail, Peter Elstrom, and Peter Burrows, At Nokia, a Comebackand Then Some, Business Week, December 2, 1996, p. 106.

Fox, Justin, Nokias Secret Code, Fortune, May 1, 2000, pp. 161-64+.

Furchgott, Roy, Nokia Signals Desire for Higher Profile, ADWEEK Eastern Edition, June 12, 1995, p. 2.

Guth, Robert A., Nokia Fights for Toehold in Japans Cell-Phone Market, Wall Street Journal, June 26, 2000, p. A26.

Heard, Joyce, and Keller, John J., Nokia Skates into High Techs Big Leagues, Business Week, April 4, 1988, pp. 102-103.

Jacob, Rahul, Nokia Fumbles, But Dont Count It Out, Fortune, February 19, 1996, pp. 86-88.

La Rossa, James, Jr., Nokia Knocks on U.S. Door, HFD The Weekly Home Furnishings Newspaper, February 10, 1992, pp. 66-67.

Lemola, Tarmo, and Raimo Lovio, Miksi Nokia, Finland, Porvoo, Sweden: W. Sööderströöm, 1996, 211 p.

Lineback, J. Robert, Nokias Mobile Phone Unit Is Ringing Bells, Electronic Business Buyer, June 1994, pp. 60-62.

Meeks, Fleming, Watch Out, Motorola, Forbes, September 12, 1994, pp. 192-94.

Not Finnished Yet, Economist, February 9, 1991, p. 73.

Salameh, Asad, Nokia Repositions for a Major Cellular Marketing Initiative, Telecommunications, June 1992, p. 43.

Silberg, Lurie, A Brand Apart, HFDThe Weekly Home Furnishings Newspaper, September 5, 1994, pp. 54-55.

Williams, Elaine, 100-Year-Old Nokia Experiences Fast-Growth Pains, Electronic Business, June 26, 1989, pp. 111-14.

April D. Gasbarre

updated by David E. Salamie

Cite this article
Pick a style below, and copy the text for your bibliography.

  • MLA
  • Chicago
  • APA

"Nokia Corporation." International Directory of Company Histories. 2001. Encyclopedia.com. 27 Jul. 2016 <http://www.encyclopedia.com>.

"Nokia Corporation." International Directory of Company Histories. 2001. Encyclopedia.com. (July 27, 2016). http://www.encyclopedia.com/doc/1G2-2844200085.html

"Nokia Corporation." International Directory of Company Histories. 2001. Retrieved July 27, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-2844200085.html

Nokia Corporation

Nokia Corporation

Etelesplanadi 12
P.O. Box 226
Helsinki 358018071
Finland
(358) 1 18071
Fax: (358) 1 656388
Internet: http://www.nokia.com/

Public Company
Incorporated: 1865
Employees: 34,000
Sales: FIM 36.81 billion (US $8.4 billion)
Stock Exchanges: Helsinki Stockholm London Paris
Frankfurt New York
SICs:
3630 Household Appliances

With a stock market value that equals more than one-third of Finlands gross domestic product, Nokia Corporation is that countrys largest company. The firms tens of thousands of employees make it one of Scandinavias largest employers. Over the course of its more than 130 years in business, the company has evolved from a concentration in pulp, paper, and other basic industries to a focus on electronics, especially telecommunications. In the mid-1990s, the company had three business groups. The most important of these was Nokia Mobile Phones. With about 20 percent of the global cellular phone market, this division ranked as the continents largest and the worlds second largest producer of mobile phones. Nokia Telecommunications was a highly profitable supplier of digital phone exchanges and other cellular network equipment, ranking second among manufacturers adhering to the GSM (Global System for Mobile Communication) digital standard. The General Communications Products group was created through the mid-1995 combination of the companys Consumer Electronics division with its Cables and Machinery group.

19th Century Origins

Originally a manufacturer of pulp and paper, Nokia was founded in 1865 in a small town of the same name in central Finland. Nokia was a pioneer in the industry and introduced many new production methods to a country with only one major natural resource, its vast forests. As the industry became increasingly energy-intensive, the company even constructed its own power plants. But for many years, Nokia remained an important yet static firm in a relatively forgotten corner of northern Europe.

The first major changes in Nokia occurred several years after World War II. Despite its proximity to the Soviet Union, Finland has always remained economically connected with Scandinavian and other Western countries, and as Finnish trade expanded Nokia became a leading exporter.

During the early 1960s Nokia began to diversify in an attempt to transform the company into a regional conglomerate with interests beyond Finnish borders. Unable to initiate strong internal growth, Nokia turned its attention to acquisitions. The government, however, hoping to rationalize two underperforming basic industries, favored Nokias expansion within the country and encouraged its eventual merger with Finnish Rubber Works and Finnish Cable Works, When the amalgamation was completed in 1966, Nokia was involved in several new industries, including integrated cable operations, electronics, tires, and rubber footwear, and had made its first public share offering.

In 1967 Nokia set up a division to develop design and manufacturing capabilities in data processing, industrial automation, and communications systems. The division was later expanded and made into several divisions, which then concentrated on developing information systems, including personal computers and workstations, digital communications systems, and mobile phones. Nokia also gained a strong position in modems and automatic banking systems in Scandinavia.

Oil Crisis in the 1970s Triggers Corporate Change

Nokia continued to operate in a stable but parochial manner until 1973, when it was affected in a unique way by the oil crisis. Years of political accommodation between Finland and the Soviet Union ensured Finnish neutrality in exchange for lucrative trade agreements with the Sovietsmainly Finnish lumber products and machinery in exchange for Soviet oil. By agreement, this trade was kept strictly in balance. But when world oil prices began to rise, the market price for Soviet oil rose with it. Balanced trade began to mean greatly reduced purchasing power for Finnish companies such as Nokia.

Although the effects were not catastrophic, the oil crisis did force Nokia to reassess its reliance on Soviet trade (about 12 percent of sales) as well as its international growth strategies. Several contingency plans were drawn up, but the greatest changes came after the company appointed a new CEO, Kari Kairamo, in 1975.

Kairamo noted the obvious: Nokia was too big for Finland. The company had to expand abroad. He studied the expansion of other Scandinavian companies (particularly Swedens Electrolux) and, following their example, formulated a strategy of first consolidating the companys business in Finland, Sweden, Norway, and Denmark, and then moving gradually into the rest of Europe. After the company had improved its product line, established a reputation for quality, and adjusted its production capacity, it would enter the world market.

Meanwhile, Nokias traditional, lower-technology heavy industries were looking increasingly burdensome. It was feared that trying to become a leader in electronics while maintaining these basic industries would create an unmanageably unfocused company. Kairamo thought briefly about selling off the companys weaker divisions, but decided to retain and modernize them.

He reasoned that, although the modernization of these low-growth industries would be very expensive, it would guarantee Nokias position in several stable markets, including paper, chemical, and machinery productions, and electrical generation. For the scheme to be practical, each divisions modernization would have to be gradual and individually financed. This would prevent the bleeding of funds away from the all-important effort in electronics while preventing the heavy industries from becoming any less profitable.

With each division financing its own modernization, there was little or no drain on capital from other divisions, and Nokia could still sell any group that did not succeed under the new plan. In the end, the plan prompted the machinery division to begin development in robotics and automation, the cables division to begin work on fiber optics, and the forestry division to move into high-grade tissues.

Electronics Come to the Fore in the 1980s

Nokias most important focus was development of the electronics sector. Over the course of the decade, the firm acquired nearly 20 companies, focusing especially on three segments of the electronics industry: consumer, workstations, and mobile communications. Electronics grew from ten percent of annual sales to 60 percent of revenues from 1980 to 1988. In late 1984 Nokia acquired Salora, the largest color television manufacturer in Scandinavia, and Luxor, the Swedish state-owned electronics and computer firm. Nokia combined Salora and Luxor into a single division and concentrated on stylish consumer electronic product, since style is a crucial factor in Scandinavian markets. The Salora-Luxor division was also very successful in satellite and digital television technology. Nokia purchased the consumer electronics operations of Standard Elektrik Lorenz A.G. from Alcatel in 1987, further bolstering the companys position in the television market to the third largest manufacturer in Europe. In early 1988 Nokia acquired the data systems division of the Swedish Ericsson Group, making Nokia the largest Scandinavian information technology business.

Although a market leader in Scandinavia, Nokia still lacked a degree of competitiveness in the European market, which was dominated by much larger Japanese and German companies. Kairamo decided, therefore, to follow the example of many Japanese companies during the 1960s (and Korean manufacturers a decade later) and negotiate to become an original equipment manufacturer, or OEM, to manufacture products for competitors as a subcontractor.

Nokia manufactured items for Hitachi in France, Ericsson in Sweden, Northern Telecom in Canada, and Granada and IBM in Britain. In doing so it was able to increase its production capacity stability. There were, however, several risks involved, those inherent in any OEM arrangement. Nokias sales margins were naturally reduced, but of greater concern, production capacity was built up without a commensurate expansion in the sales network. With little brand identification, Nokia feared it might have a difficult time selling under its own name and become trapped as an OEM.

In 1986 Nokia reorganized its management structure to simplify reporting efforts and improve control by central management. The companys 11 divisions were grouped into four industry segments: electronics; cables and machinery; paper, power, and chemicals; and rubber and flooring. In addition, Nokia won a concession from the Finnish government to allow greater foreign participation in ownership. This substantially reduced Nokias dependence on the comparatively expensive Finnish lending market. Although there was growth throughout the company, Nokias greatest success was Mobira.

Having dabbled in telecommunications in the 1960s, Nokia cut its teeth in the industry by selling switching systems under license from a French company, Alcatel. The Finnish firm got in on the cellular industrys ground floor in the late 1970s, when it helped design the worlds first international cellular system. Named the Nordic Mobile Telephone (NMT) network, the system linked Sweden, Denmark, Norway, and Finland. A year after the network came on line in 1981, Nokia gained 100 percent control of Mobira, the Finnish mobile phone company that would later become its key business interest. Mobiras regional sales were vastly improved, but Nokia was still limited to OEM production on the international market; Nokia and Tandy Corporation, of the United States, built a factory in Masan, South Korea to manufacture mobile telephones. These were sold under the Tandy name in that companys 6,000 Radio Shack stores throughout the United States.

In 1986, eager to test its ability to compete openly, Nokia chose the mobile telephone to be the first product marketed internationally under the Nokia name; it became Nokias make or break product. Unfortunately, Asian competitors began to drive prices down just as Nokia entered the market. Other Nokia products gaining recognition were Salora televisions and Luxor satellite dishes, which suffered briefly when subscription programming introduced broadcast scrambling.

The companys expansion, achieved almost exclusively by acquisition, had been expensive. Few Finnish investors other than institutions had the patience to see Nokia through its long-term plans. Indeed, more than half of the new shares issued by Nokia in 1987 went to foreign investors. Nokia moved boldly into Western markets; it gained a listing on the London exchange in 1987 and was subsequently listed on the New York exchange.

Crises of Leadership, Profitability in the Late 1980s

Nokias rapid growth was not without a price. In 1988, as revenues soared, the companys profits, under pressure from severe price competition in the consumer electronics markets, dropped. Chairman Kari Kairamo committed suicide in December of that year; not surprisingly, friends said it was brought on by stress. Simo S. Vuorileto took over the companys reins and began streamlining operations in the spring of 1988. Nokia was divided into six business groups: consumer electronics, data, mobile phones, telecommunications, cables and machinery, and basic industries. Vuorileto continued Kairamos focus on high-tech divisions, divesting Nokias flooring, paper, rubber, and ventilation systems businesses and entering into joint ventures with companies like Tandy Corporation and Matra of France (two separate agreements to produce mobile phones for the U.S. and French markets).

In spite of these efforts, Nokias pretax profits continued to decline in 1989 and 1990, culminating in a loss of US $102 million in 1991. Industry observers blamed cutthroat European competition, the breakdown of the Finnish banking system, and the collapse of the Soviet Union. But, notwithstanding these difficulties, Nokia remained committed to its high-tech orientation. Late in 1991, the company strengthened that dedication by promoting Jorma Ollila from president of Nokia-Mobira Inc. (renamed Nokia Mobile Phones Ltd. the following year) to group president.

Forbess Fleming Meeks has credited Ollila with transforming Nokia from a moneylosing hodgepodge of companies into one of telecommunications most profitable companies. Unable to find a buyer for Nokias consumer electronics business, which had lost nearly US $1 billion from 1988 to 1993, Ollila cut that segments work force by 45 percent, shuttered plants, and centralized operations.

The new leader achieved success in the cellular phone segment by bringing innovative products to market quickly with a particular focus on ever-smaller and easier-to-use phones featuring sleek Finnish design. Nokia gained a leg up in cellphone research and development with the 1991 acquisition of the United Kingdoms Technophone Ltd. for US $57 million.

Ollilas tenure brought Nokia success and with it global recognition. The companys sales more than doubled, from FIM 15.5 billion in 1991 to FIM 36.8 billion in 1995, and its bottom line rebounded from a net loss of FIM 723 million in 1992 to a FIM 2.2 billion profit in 1995. Securities investors have not missed the turnaround: Nokias market capitalization multiplied ten times from 1991 to 1994. There is no reason to believe that this leader will not guide his company to even greater profitability in the waning years of the 20th century.

Principal Subsidiaries

Nokia Cellular Systems Oy; Nokia Data Systems Oy; Nokia Cable Machinery Oy (61%); Nokia Kaapeli Oy; Nokia Matkapuhelimet Oy; Nokia Renkaat Oy (80%); Nokian Paperi Oy; Salora Myynti Oy; Shkliikkeiden Oy (65.6%); Telenokia Oy; British Tissues Ltd (UK); Graetz Strahlungsmesstechnik GmbH (West Germany; 99.7%); Horda AB (Sweden; 91.1%); Ibervisao-Audiovisao Iberica S.A. (Portugal; 99.7%); Kabmatik AB (Sweden; 61%); Luxor AB (Sweden; 90%); Maillefer S.A. (Switzerland; 61%); Monette Kabel-ud Elektro-werk GmbH (West Germany); Nokia A/S (Norway); Nokia Audio Electronics GmbH (West Germany; 99.7%); Nokia Consumer Electronics GmbH (West Germany; 99.7%); Nokia Consumer Electronics Ltd (UK; 99.7%); Nokia Consumer Electronics Italia S.r.l. (Italy; 99.7%); Nokia Data AB (Sweden); Nokia Data A/S (Denmark); Nokia Data A/S (Norway); Nokia Data BV (Netherlands); Nokia Data GmbH (West Germany); Nokia Data Ltd (UK); Nokia Data S.A. (France); Nokia Data S.A. (Spain); Nokia Data Systems AB (Sweden); Noki Graetz Holzwerke GmbH (West Germany; 99.7%); Nokia Kunststof-ftechnik GmbH (West Germany; 99.7%); Nokia Ltd (Ireland); Nokia Mobira AB (Sweden); Nokia-Mobira A/S (Denmark); Nokia Mobira A/S (Norway); Nokia-Mobira Inc. (USA); Nokia-Mobira UK Ltd; Nokia Interhaltungselektronik (West Germany; 99.7%); Novelectric AG (Switzerland; 99.7%); Oceanic S.A. (France; 99.9%); Salora AB (Sweden); Sodipan-Nokia S.A. (France); Trkkablo A.O. (Turkey; 51%).

Further Reading

Berkman, Barbara N., Brainstorming in the Sauna, Electronic Business, November 18, 1991, pp. 71-74.

, Sagging Profits Spark Identity Crisis at Nokia, Electronic Business, March 4, 1991, pp. 57-59.

Furchgott, Roy, Nokia Signals Desire for Higher Profile, ADWEEK Eastern Edition, June 12, 1995, p. 2.

Heard, Joyce, and Keller, John J., Nokia Skates into High Techs Big Leagues, Business Week, April 4, 1988, pp. 102-103.

La Rossa, James Jr., Nokia Knocks on U.S. Door, HFDThe Weekly Home Furnishings Newspaper, February 10, 1992, pp. 66-67.

Lineback, J. Robert, Nokias Mobile Phone Unit Is Ringing Bells, Electronic Business Buyer, June 1994, pp. 60-62.

Meeks, Fleming, Watch Out, Motorola, Forbes, September 12, 1994, pp. 192-194.

Not Finnished Yet, The Economist, February 9, 1991, p. 73.

Salameh, Asad, Nokia Repositions for a Major Cellular Marketing Initiative, Telecommunications, June 1992, p. 43.

Silberg, Lurie, A Brand Apart, HFDThe Weekly Home Furnishings Newspaper, September 5, 1994, pp. 54-55.

Williams, Elaine, 100-Year-Old Nokia Experiences Fast-Growth Pains, Electronic Business, June 26, 1989, pp. 111-114.

updated by April D. Gasbarre

Cite this article
Pick a style below, and copy the text for your bibliography.

  • MLA
  • Chicago
  • APA

"Nokia Corporation." International Directory of Company Histories. 1997. Encyclopedia.com. 27 Jul. 2016 <http://www.encyclopedia.com>.

"Nokia Corporation." International Directory of Company Histories. 1997. Encyclopedia.com. (July 27, 2016). http://www.encyclopedia.com/doc/1G2-2842100111.html

"Nokia Corporation." International Directory of Company Histories. 1997. Retrieved July 27, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-2842100111.html

Nokia Corporation

Nokia Corporation

Eteläesplanadi 12
P.O. Box 226
SF-00101 Helsinki
Finland
(0) 18-071

Public Company
Incorporated: 1865
Employees: 28,500 1987
Sales: FIM21.82 billion (US$5.25 billion)
Stock Index: Helsinki Stockholm London París Frankfurt

Nokia is one of the largest industrial enterprises in Scandinavia and the most important company in its native Finland, as Finlands only multinational and its leading industrial standard bearer.

For many years a diversified conglomerate, Nokia has recently bet its future on success in the high-technology electronics market. In addition, the company has elected to undertake a costly modernization of its marginally-performing forestry, chemicals, and manufacturing units. While this strategy disappoints some investors, it clearly demonstrates Nokias commitment to long-term growtha concept which should not be foreign to a 125-year-old company.

Originally a manufacturer of pulp and paper, Nokia was founded in 1865 in a small town of the same name in central Finland. Nokia was a pioneer in the industry, and introduced many new production methods to a country whose only major natural resource was its vast forests. As the industry became increasingly energy-intensive, the company even constructed its own power plants. But for many years, Nokia remained an important yet static firm in a relatively forgotten corner of northern Europe.

The first major changes in Nokia occurred several years after World War II. Despite its proximity to the Soviet Union, Finland has always remained economically connected with Scandinavian and other Western countries, and as Finnish trade expanded Nokia became a leading exporter.

During the early 1960s Nokia began to diversify in an attempt to transform the company into a regional conglomerate with interests beyond Finnish borders. Unable to initiate strong internal growth, Nokia turned its attention to acquisitions. The government, however, hoping to rationalize two under-performing basic industries, favored Nokias expansion within the country, and encouraged its eventual merger with Finnish Rubber Works and Finnish Cable Works. When the amalgamation was completed in 1966, Nokia was involved in several new industries, including integrated cable operations, electronics, tires, and rubber footwear and had made its first public share offering.

In 1967 Nokia set up a division to develop design and manufacturing capabilities in data processing, industrial automation, and communications systems. The division was later expanded and made into several divisions, which then concentrated on developing information systems, including personal computers and workstations, digital communications systems, and mobile phones. Nokia also gained a strong position in modems and automatic banking systems in Scandinavia.

Nokia continued to operate in a stable but parochial manner until 1973, when it was affected in a unique way by the oil crisis. Years of political accommodation between Finland and the Soviet Union ensured Finnish neutrality in exchange for lucrative trade agreements with the Sovietsmainly Finnish lumber products and machinery in exchange for Soviet oil. By agreement, this trade was kept strictly in balance. But when world oil prices began to rise, the market price for Soviet oil rose with it. Balanced trade began to mean greatly reduced purchasing power for Finnish companies such as Nokia.

While the effects were not catastrophic, the oil crisis did force Nokia to reassess its reliance on Soviet trade (about 12% of sales) as well as its international growth strategies. Several contingency plans were drawn up, but the greatest changes came after the company appointed a new CEO, Kari Kairamo, in 1975.

Kairamo noted the obvious: Nokia was too big for Finland. The company had to expand abroad. He studied the expansion of other Scandinavian companiesparticularly Swedens Electroluxand, following their example, formulated a strategy of first consolidating its business in Finland, Sweden, Norway, and Denmark, and then moving gradually into the rest of Europe. After the company had improved its product line, established a reputation for quality, and adjusted its production capacity, it would enter the world market.

The most promising market for Nokia was consumer and business electronics. Already a world leader in mobile telephone technologies, the company hoped that further development along this line would contribute to the development of related products as well as new systems.

Meanwhile, Nokias traditional, lower-technology heavy industries were looking increasingly burdensome. It was feared that trying to become a leader in electronics while maintaining these basic industries would create an unmanageably unfocused company. Kairamo thought briefly about selling off the companys weaker divisions, but decided to retain and modernize them.

He reasoned that, while the modernization of these low-growth industries would be very expensive, it would guarantee Nokias position in several stable markets, including paper, chemical and machinery production, and electrical generation. In order for the scheme to be practical, each divisions modernization would have to be gradual and individually financed. This would prevent the bleeding of funds away from the all-important effort in electronics while preventing the heavy industries from becoming any less profitable.

With each division financing its own modernization, there was little or no drain on capital from other divisions, and Nokia could still sell any group which did not succeed under the new plan. In the end, the plan prompted the machinery division to begin development in robotics and automation, the cables division to begin work on fiber optics, and the forestry division to move into high-grade tissues.

But Nokias most important focus was development of the electronics sector. The company became the Finnish agent for the French computer firm Bull in 1962. Similarly, Nokia built its expertise in telecommunications by selling switching systems under license from another French company, Alcatel. It then custom designed a digital switching system especially for Finnish telephone companies. Installed in 1982, it was the first digital system in Europe. That same year, Nokia gained 100% control of Mobira, a Finnish mobile phone company.

In late 1984 Nokia acquired Salora, the largest color television manufacturer in Scandinavia, and Luxor, the Swedish state-owned electronics and computer firm. Nokia combined Salora and Luxor into a single division and concentrated on stylish consumer electronic products, since style is a crucial factor in Scandinavian markets. The Salora-Luxor division has also been very successful in satellite and digital television technology.

Nokia, however, although a market leader in Scandinavia, still lacked a degree of competitiveness in the European market, which was dominated by much larger Japanese and German companies. Kairamo therefore decided to follow the example of many Japanese companies during the 1960s (and Korean manufacturers a decade later) and negotiate to become original equipment manufacturer, or OEM, to manufacture products for competitors as a subcontractor.

Nokia manufactured items for Hitachi in France, Ericsson in Sweden, Northern Telecom in Canada, and Granada and IBM in Britain. In doing so it was able to increase its production capacity stably. There were, however, several risks involved, ones inherent in any OEM arrangement. Nokias sales margins were naturally reduced, but of greater concern, production capacity was built up without a commensurate expansion in the sales network. With little brand identification, Nokia feared it might have a difficult time selling under its own name and become trapped as an OEM.

In 1986 Nokia reorganized its management structure to simplify reporting efforts and improve control by central management. The companys 11 divisions were grouped into four industry segments: electronics; cables and machinery; paper, power, and chemicals; and rubber and flooring. In addition, Nokia won a concession from the Finnish government to allow greater foreign participation in ownership. This substantially reduced Nokias dependence on the comparatively expensive Finnish lending market. While there was growth throughout the company, Nokias greatest success was Mobira.

The mobile telephone group received a tremendous boost in the early 1980s when the Scandinavian countries created the Nordic Mobile Telephone (NMT) network. Mobiras regional sales were vastly improved, but Nokia was still limited to OEM production on the international marketNokia and Tandy Corporation, of the U.S., built a factory in Masan, South Korea to manufacture mobile telephones for sale in the United States.

In 1986, eager to test its ability to compete openly, Nokia chose the mobile telephone to be the first product marketed internationally under the Nokia name; it became Nokias make or break product. The effort, with only a short record so far, has proven moderately successful. Asian competitors began to drive prices down just as Nokia entered the market. Other Nokia products gaining recognition are Mikko computers, Salora televisions, and Luxor satellite dishes, which suffered briefly when subscription programming introduced broadcast scrambling.

Nokia purchased the consumer electronics operations of Standard Elektrik Lorenz A.G. from Alcatel in 1987, further bolstering the companys position in the television marketit is now the third largest manufacturer in Europe. However, the companys expansion, achieved almost exclusively by acquisition, has been expensive. Few Finnish investors other than institutions have had the patience to see Nokia through its long-term plans. Indeed, over half of the new shares issued by Nokia in 1987 went to foreign investors. In early 1988 Nokia acquired the data systems division of the Swedish Ericsson Group, making Nokia the largest Scandinavian information technology business.

Trade with the Soviet Union required neither competitiveness nor a need for innovation; it had been a stagnating influence. As Nokias dependence on Soviet and East Bloc trade has waned (from 50% of exports to about 6%) the company has gained an improved sense of market trends. Nokia has moved boldly into Western markets, and in 1987 gained a listing on the London exchange.

Nokias rapid growth was not without a price. In 1988, as revenues soared, the companys profits, under pressure from severe price competition in the consumer electronics markets, tumbled. Chairman Kari Kairamo committed suicide; friends said it was brought on by stress. Simo S. Vuorilehto took over the companys reins and, in spring, 1988 began streamlining operations. Nokia was divided into six business groups: consumer electronics, data, mobile phones, telecommunications, cables and machinery, and basic industries. Vuorilehto continued Kairamos focus on high-tech divisions, divesting Nokias $60 million flooring business and entering into joint ventures with companies like Tandy Corporation and Matra of France (two separate agreements to produce mobile phones for the U.S. and French markets). Despite the cut-throat competition in consumer electronics throughout Europe, Nokia remained committed to its high-tech orientation. Vuorilehto emphasized that this area would provide the most growth over the long term. The company is banking on its strength in Scandinavia to anchor its continued thrust into the turbulent world markets. Still, as research and development costs escalate, it remains to be seen whether a company of Nokias size can survive the changes in high-tech industries.

Principal Subsidiaries:

Nokia Cellular Systems Oy; Nokia Data Systems Oy; Nokia Cable Machinery Oy (61%); Nokia Kaapeli Oy; Nokia Matkapuhelimet Oy; Nokia Renkaat Oy (80%); Nokian Paperi Oy; Salora Myynti Oy; Sähköliikkeiden Oy (65.6%); Telenokia Oy; British Tissues Ltd (UK); Graetz Strahlungsmesstechnik GmbH (99.7%) (West Germany); Horda AB (Sweden) (91.1%); Ibervisao-Audiovisao Iberica S.A. (Portugal) (99.7%); Kabmatik AB (Sweden) (61%); Luxor AB (Sweden) (90%); Maillefer S.A. (Switzerland) (61%); Monette Kabel-und Elektrowerk GmbH (West Germany); Nokia A/S (Norway); Nokia Audio Electronics GmbH (West Germany) (99.7%); Nokia Consumer Electronics GmbH (West Germany) (99.7%); Nokia Consumer Electronics Ltd (UK) (99.7%); Nokia Consumer Electronics Italia S.r.l. (Italy) (99.7%); Nokia Data AB (Sweden); Nokia Data A/S (Denmark); Nokia Data A/S (Norway); Nokia Data BV (Netherlands); Nokia Data GmbH (West Germany); Nokia Data Ltd (UK); Nokia Data S.A. (France); Nokia Data S.A. (Spain); Nokia Data Systems AB (Sweden); Nokia Graetz Holzwerke GmbH (West Germany) (99.7%); Nokia Kunststofftechnik GmbH (West Germany) (99.7%); Nokia Ltd (Ireland); Nokia-Mobira AB (Sweden); Nokia-Mobira A/S (Denmark); Nokia Mobira A/S (Norway); Nokia-Mobira Inc. (USA); Nokia-Mobira UK Ltd; Nokia Unterhaltungselektronik (West Germany) (99.7%); Novelectric AG (Switzerland) (99.7%); Oceanic S.A. (France) (99.9%); Salora AB (Sweden); Sodipan-Nokia S.A. (France); Türkkablo A.O. (Turkey) (51%).

Cite this article
Pick a style below, and copy the text for your bibliography.

  • MLA
  • Chicago
  • APA

"Nokia Corporation." International Directory of Company Histories. 1990. Encyclopedia.com. 27 Jul. 2016 <http://www.encyclopedia.com>.

"Nokia Corporation." International Directory of Company Histories. 1990. Encyclopedia.com. (July 27, 2016). http://www.encyclopedia.com/doc/1G2-2840600034.html

"Nokia Corporation." International Directory of Company Histories. 1990. Retrieved July 27, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-2840600034.html

Facts and information from other sites