Tuesday, June 14, 2011

Finland and Nokia- Creating the world’s most competitive Economy


Finland has come a long way from being a sleepy economy in mid nineties to one of the most vibrant economies in late nineties. It has outpaced its counterparts in Europe by far and established itself as global leader in innovation. Finland is the sixth happiest nation in the world.
In late 1950s Finland was highly dependent on Russian economy and followed the policy of government intervention in major industries. It is highly dependent on natural resources for growth of major manufacturing industries such as pulp industry. However even during these times, the education system in Finland is better and part of GDP spend on the education is much higher than any other of European country. This very factor along with serious policy changes by the government in 1980s brought a revolution in IT and telecom industry. Organizations such as NTA with Prime Minister as its chairman are established to improve R&D in technology and cluster programs (purpose is to ensure strong R&D within certain companies) are introduced to increase the competitiveness of domestic firms.
The real growth in the economy is manifested by telecom giant Nokia (which contributes 1% to overall GDP) through its innovation and competitive edge over its competitors. Some of the factors behind Nokia success:-
1. There is a tradition of telecom industry in Finland as Finnish people were the first to make use of mobile handsets.
2. There are more than 20 higher universities in Finland and no. of universities to no. of student’s ratio is highest in European countries. In addendum, more emphasis is given on IT and telecom. This is substantiated by the fact that major corporations such as Intel, Hp and Microsoft already have their R&D in Finland.
3. There are various smaller firms operating in Finland that supplies high end material to Nokia e.g. Televa, Salora, Finnish Cable Works.
4. Nokia has successfully outsourced its manufacturing to some of the cheaper manufacturing destinations such as China and Malaysia.
5. Nokia is early adopters of any standards that are introduced worldwide ( WAP, Symbian and Bluetooth) and has very well adapted to problem of short product life cycle by introducing new products.
6. Nokia has a competitive edge on marketing and promotions and has already created a brand name in major emerging countries such as India, china.
7. Diversification with respect to operations: - Networks (25%), Cell phones (72%) and Ventures (3%)
8. Finland is one of the pioneers in introducing internet services .In fact Finland University introduced web browser much before than Netscape and Internet Explorer.
9. No restriction on the foreigner’s investment and venture capital.
10. No monopoly on any part of value chain and healthy competition.

Challenges
1. Fierce competition from Apple, Samsung, Motorola,
2. Shortage of skilled labors and increasing unemployment among youth.
3. Shorter product life cycle of mobile phone and decrease in selling prices of mobile handsets
4. Exports are declining.
5. Standards for new generation
6. Affected by the entry of Chinese players in the market such as ZTC, Huwaei.
Recommendations
1. Spend more on R&D
2. Create a brand within Nokia to target specific segments such as Business phones, PDA
3. Invest more in 3G technology and satellite phones.
4. Joint ventures with new companies to boost innovations.
5. Outsource their support function to cost effective countries such as India, Brazil.
For more check out!! www.ashish-badyal.com