Twenty years ago, Finnish technology wunderkind Nokia made the strategic decision to shift its company focus from timber, tires, and rubber boots to mobile phones. Today Nokia sells more mobile phones than any other company in the world, and the firm alone makes up half the value of the Helsinki Stock Exchange.

Nokia began in 1865 in the town of the same name near the river Nokia in Finland. It was established by engineer Fredrik Idestam who built a ground wood-mill to manufacture pulp and paper products. The small company became a pioneer within the industry introducing “many new production methods to a country whose only major resource was its vast forests.” The company grew and expanded becoming increasingly energy-intensive, even building its own power plants eventually. Though it was stable within its country’s economy it remained rather stagnant and isolated in a “relatively forgotten corner of northern Europe.”

It was not until several years after World War II that the first major shifts aided the company’s growth. In the 1960’s Nokia began to diversify and look for a stronger base outside of its Finnish borders. The Finnish government, though, favored expansion within the country’s borders. Hoping to rationalize two under-performing basic industries they “encouraged” Nokia to merge with Finnish Rubber Works and Finnish Cable Works. This expanded Nokia into several new industries and help produce the company’s first public share offering in 1966. In 1967 Nokia set up a division that focused on data processing, automation and communication systems.

In 1973 Nokia hit a snag with the rise of the oil crisis. Finland had a balanced trading policy with the Soviet Union in which Finland traded lumber and machinery for Soviet oil. The crisis brought Soviet oil prices up thus reducing purchasing power for Finnish companies like Nokia. Though not a catastrophe for Nokia it did inspire the company to reassess its dependence on Soviet trade. Demand for an alternate trading system was developed when a new CEO, Kari Kairamo was appointed in 1975.

Kairamo recognized the company’s need to expand beyond its Finland’s borders. Kiaramo also saw potential in the company’s electronics division and feared that Nokia’s lower-technology industries might slow down corporate growth. The latter divisions were not sold; rather they were modernized with funds from within each individual division. Thus the corporation retained businesses involved in more stable markets. Modernization meant the machinery sector focussed on robotics and automation, the cable division worked on fiber optics, and the forestry division produced high-grade tissues. However, Nokia’s main emphasis remained in the electronics division and more and more the profits seemed to come from this sector.

Though competition outside Scandinavia was fierce Kairamo decided the best way to enter the international market was by becoming an original equipment manufacturer, or OEM. As an OEM Nokia manufactured products for competitors like Hitachi (France), Ericsson (Sweden), Northern Telecom (Canada) and IBM (Britain). This helped the company achieve stable production capacity, but did little to increase sales because Nokia lacked name recognition. In 1986 the company changed this by finally releasing a cellular phone which had its name on it. The phone was considered its “make it or break it product”. Unfortunately at the same time Asian competitors started to drive down prices in the market.

Though price competition did not help Nokia, it did not break them either. Nokia was a large, expansive corporation but the price of that expansion was beginning to show through. The company’s profits began dropping in 1988 and the corporation seemed to fall into a slump for several years continuously. Nokia remained faithful to its devotion to technological advancement especially in the field of mobile phones. In 1991 Jorma Ollila was promoted to group president and has been credited with turning the company back into a moneymaker. In fact, “Forbes’s Flemming Meeks has credited Ollila with transforming Nokia from a ‘money losing hodgepodge of companies into one of telecommunications’ most profitable companies.”

The company’s primary focus started to go beyond just electronics to telecommunications, primarily mobile phones. In the mid ‘90s Nokia “divested” non-core units including its power corporation, tire division and cable machinery. Shortly after that Nokia was awarded a three-year contract from AT&T to provide mobile phones for AT&T’s wireless division. This contract resulted in recognition needed for Nokia to become the number one mobile phone manufacturer in the world. Its future now seems stable especially with the 1998 introduction of a handheld communicator that combines phone, fax, Internet connectivity, and messaging. Thus Nokia has remained a financial institution for over a hundred years and has always proved to have the proper intuition over the long term.

Tag: Nokia