HOW NOKIA AND ERICSSON HAVE RUNG
RINGS AROUND THE WORLD
ONE DAY soon you will be able to read this on
your mobile phone, while at the same time checking
the latest football scores and receiving a digital
postcard from a far-away friend. The design and
precise technical details of the device that will usher
in the new era of mobile communications are still
unknown, but one of its features is almost certain: in
many instances it will have the name Nokia inscribed
on the front of its case. According to the vast
majority of telecommunications experts, the Finnish
company is ahead of its competitors in the
development of "third generation" equipment - a new
breed of phones capable of surfing the Internet,
receiving video images and storing huge amounts of
data. If these promises are fulfilled, Nokia - which
topped the market by selling 41 million of the 163
million mobile phones sold around the world last
year - should be able to launch the first series of
these "total communicators" within three years,
opening a new market for telecommunications and
information technology products.
And if the mobile phone of the future in your hand
does not say Nokia, there is a good chance that it
will be made instead by that other Nordic telecoms
giant, Ericsson, manufacturer last year of 25 million
mobile handsets, and the world leader in the
network systems technology that underpins mobile
communications. Nokia and Ericsson are also
partners in the Symbian joint venture to establish the
technology developed by the UK group Psion as the
new global standard for wireless communications.
Finland and Sweden's dominance of in the mobile
communications market is no accident. Throughout
the 1980s, Nordic countries had been working on a
common technical standard for mobile phones which
would enable customers to use their handsets
anywhere in the region. The 1981 launch of the
Nordic Mobile Telephone service (NMT) gave local
mobile makers an important competitive advantage.
While the UK and other European countries were
still debating the merits of privatising their
state-owned fixed line companies, Nokia, Ericsson
and a swathe of smaller firms stole a march on their
rivals by acquiring the technical and marketing
expertise to sell mobile phones to a mass market.
The Scandinavians' headstart meant that they were
the quickest to exploit the development in the mid
1980s of GSM, the pan-European standard for
mobile telecommunications. As demand for mobile
phones throughout Europe mushroomed, Nokia and
others were ideally placed to feed a public hungry
for high-quality devices at relatively low prices.
Sven-Christer Nilsson, Ericsson's chief executive,
states an important truth, equally applicable to
Silicon Valley's success in the US, about how
companies from two small Nordic countries have
come to dominate the mobile communications
industry. "I believe we have been very lucky to have
the competition," he says of Nokia. "It's benefited
both companies by sparking innovation".
Nokia's desire to continue its winning run is nowhere
more evident than in its factory and research centre
in Salo, a small town 80 miles northwest of Helsinki.
This community of around 20,000 inhabitants
revolves around Nokia's operations, with more than
5,600 employees living in and around the town. The
mobile phone factory on the outskirts of the town is
one of the company's most technically sophisticated
plants. As the workers on the silent production lines
put together the handsets - the average phone takes
two hours to make - the middle managers and senior
engineers sit alongside them, ready to intervene if
anything goes wrong. There are no physical barriers
between skilled and unskilled staff.
The Ericsson experience is to be found at Kista
Research Park, a dormitory town 10 miles north of
Stockholm. Ericsson executives have nicknamed
Kista "the heart of mobile valley", and Swedes like
to boast that it is the fifth biggest technology business
cluster in the world with more than 10,000
employees. Though architecturally unremarkable,
Kista is reminiscent of the low-rise business parks
scattered around Mountainview or Santa Clara in
California's Silicon Valley.
Recently, the Swedish company has been caught out
by the lightening-fast growth - and the blazing pace
of its Finnish competitor - in the mobile handset
market. (Nokia, whose mobile phones are termed
"the N-phone" by tight-lipped Ericsson executives, is
a sensitive subject in Stockholm.) But, with 40 per
cent of the world's mobile phone network systems
sales, Kista is now the base for work on refining the
technology known as wide-band code division
multiple access, or WCDMA, that will bring
Internet, video, and an array of interactive services
to the next generation of mobile phones - including
Nokia's - beginning in 2001.
It is the story, however, of Nokia's extraordinary
corporate metamorphosis, which transformed a
nondescript forestry conglomerate into the world's
largest maker of mobile phones in less than a
decade, that best illustrates the full impact of the
mobile communications revolution.
Founded in 1865 in the tiny Finnish town that gave it
its name, Nokia spent the first 120 years of its
history amassing a wide array of business around its
core paper-making operations. Through a series of
mainly domestic acquisitions, the company became a
manufacturing conglomerate with interests ranging
from toilet paper to rubber boots and tyres.
During this quest to expand, Nokia acquired a
couple of telecommunications and electronics
companies in the late 1970s. Under the leadership of
the then chief executive Kari Kairamo, the
businesses started working on cellular phones, and
in 1982 the company launched its first "portable"
product, the Nokia Senator, a handset attached to a
bulky suitcase weighing nearly 22lbs. But despite the
early breakthrough, the phones subsidiary was seen
simply as a means of diversifying the group's
earnings stream and for years it was confined to the
outer reaches of the Nokia empire. This situation
was to change dramatically in the late 1980s when a
series of internal and external shocks forced a
U-turn in Nokia's corporate strategy. On the internal
front, the company was rocked by the suicide of Mr
Kairamo and the death of Timo Koski, its chief
strategist.
The leadership gap opened just as the unraveling of
the Soviet Union, Finland's powerful neighbour and
main trading partner, was plunging the Finnish
economy into a severe recession that threatened to
destroy its industrial backbone. As one Nokia
executive recalls: "The effects of the USSR collapse
were almost immediate. We lost a huge chunk of
business overnight."
The economic troubles made the power vacuum in
Nokia's boardroom all the more evident and
triggered a complete shake-up of its top
management. In 1992, Jorma Ollila, the 42-year-old
head of the mobile phone division, was appointed
group chief executive in a move that was to have
profound repercussions for the company.
Mr Ollila, a former Citibank executive with a
masters degree from the London School of
Economics, refocused the company on mobile
telecommunications. The new chief executive, a tall,
forceful man, described by former colleagues as a
tough boss driven by a fierce determination to
succeed, overhauled Nokia, selling off its
non-telecom businesses and investing heavily in the
research and marketing of mobile phones.
Seven years later, Nokia is a pure telecoms
company quoted in Helsinki, London and New
York, with 1998 sales of more than 79bn Finnish
markkas (#8.7bn ), pretax profits of #1.5bn and
margins consistently higher than its main rivals. Its
shares have had a spectacular run, showing a near
200-fold rise over the past seven years as earnings
grew at a yearly rate of around 25-30 per cent.
More importantly, it has overtaken the industry
giants Motorola of the US and Ericsson as the
world's largest maker of mobile phones.
Matti Alahuhta, the current head of Nokia mobile
phones and one of Mr Ollila's most trusted
lieutenants, said the break with the company's
century-long past was key to its success. "We were
a Nordic diversified conglomerate and we were not
a truly global business in any of our operations. We
had to decide which businesses to focus on and start
to expand both in sales and geographical terms as
fast as we could."
Europe is now Nokia's largest market, accounting
for more than half of group sales, and is expected to
grow strongly over the next few years on the back
of a exponential rise in mobile phone use. But
despite its undisputed global reach, Nokia' success
is inextricably linked to Finland. Mr Ollila's mantra,
often repeated by his employees, is: "No matter how
international we become, our roots are Finnish."
Finland accounts for just 5 per cent of Nokia's sales,
and yet around half of its 44,000 workforce is
Finnish, including the bulk of its senior management.
Nokia is easily Finland's biggest company,
accounting for around 10 per cent of the country's
GDP and its shares make up nearly half of the
Helsinki stock exchange
What the numbers and buildings do not tell is how
important Finland has been in shaping Nokia's
destiny. This country of just five million people has a
passion for mobile phones unmatched anywhere in
the world. Around 60 per cent of the population
owns a mobile, compared with just 26 per cent in
the UK. This love of the mobile has been attributed
to a variety of causes, including the need to keep in
touch in the country's vast open spaces and its
excellent education system. But the real reason might
have more to do with Finnish people's attitudes
towards technology. As one Nokia employee put it:
"The Finns are technology freaks. They are
practical, pragmatic people who are open to change.
Flexibility is something you grow with in Finland."
Nokia sees Finland as a laboratory where trends in
the mobile phone market can be previewed. A
typical example is the explosion in portable phone
use by teenagers.
Both Ericsson and Nokia forecast that the number
of global mobile phone subscribers will increase
from the current 300 million to a billion by 2003,
driven by a huge rise in the number of young users.
In central Helsinki, the ring of mobile phones is a
constant soundtrack for the hundreds of youngsters
basking in the midnight sun.
As one Finnish parent said: "In my youth, wearing
jeans was required to be accepted by your friends.
Now the prerequisite for being cool is to have a
mobile phone. It is totally uncool not to have one or
to have the wrong brand." But personalised ringing
tones - anything from the Rolling Stones to Nessun
Dorma - are only part of the story. Finnish teenagers
use their handsets for a lot more than chatter. The
latest fashion is to use phones to send messages, a
practice which accounts for half of young users'
mobile phone bills.
According Nokia's senior marketing manager Simon
Bennett, the key to marketing success lies in
segmentation of the market. Nokia tailors its
products to perceived customer types, offering
"high-flyers" its Communicator - a phone that opens
up into a palmtop computer capable of receiving
e-mails, sending faxes and storing numbers; while
the "posers" - fashion-conscious individuals keen to
get their hands on the latest fad - should be attracted
to the Nokia 8110, also known as the
"Zippophone", a tiny handset with a sleek,
silvered-coloured case.
Nokia is two months away from launching the first
"media phone" which uses wireless technology to
issue weather reports, send picture messages and
calculate biorhythms.
But for all its marketing prowess, Nokia's years of
success could be destroyed by the latest health fears
over mobile phones. Recent studies suggesting a link
between mobile phone use and brain tumours are a
sensitive issue among Nokia's top echelon. During
an interview, a question on the cancer issue caused a
rare loss of cool in the unflappable Mr Alahuhta.
After a tense silence, he replied: "So far, no scientific
evidence has proved that there is any kind of risk
associated with the use of mobile phones." Any
other attempt to elicit a comment on the findings of
the more recent studies met with a stern refusal to
comment.
Health issues aside, the future of both Nokia and
Ericsson will hinge on technological changes.
Throughout its recent history, Nokia has been able
to outpace its competitors by being first with the
latest handsets. Now that the "third generation" that
will bridge the gap between mobiles and the Internet
is beckoning, Nokia will have to contend with a
swathe of high-technology companies with an
interest in the Net, such as Bill Gates's Microsoft, as
well as with its traditional telecoms rivals. Mr Ollila
is acutely aware of the challenge. "The telecom
industry is in the midst of turbulent change. The
opening of markets, the digital convergence and
wireless (technology) are opening the door to vast
opportunities, especially for those who possess the
industry's top expertise. Nokia wants to be one of
those experts," he said.
Analysts believe that the battle to find the third
generation "killer product" will determine the
industry's winners and losers after the millennium.
Nokia's 44 research and development centres spend
more than 8 per cent of group sales - around #400m
- every year on R&D.
At Kista Research Park, Ericsson's Mr Nilsson sat
in a moving van to show off the test high-speed
wireless transmission system, which accesses the
web at 300-plus kbs - about 10 times faster than a
regular phone line. "I think I could do this all night,"
he said, downloading a Beastie Boys single from the
Internet.
While Ericsson is still targeting its traditional
European telecoms clients who are spending billions
upgrading old fixed-line networks, it is also trying
hard to build up a presence providing infrastructure
for Internet data routing and web access through the
wireless technology.
Nokia's vice-president for the Salo research and
development centre, Arto Kiema, said: "Research is
like kissing frogs. One out of 10 will be a prince. To
find him out we have to keep kissing and that is why
we work like dogs.
"If we get it right we are alive and kicking, if we
don't we are dead." |
