Nokia, the Finnish pioneer in mobile phones controlled almost 40% of the world’s mobile phone market a little over a decade ago. In no time, it disappeared into oblivion as far as its position as a mobile phone maker is concerned (although its network equipment business continues to thrive). At Marcellus, we look for competitive advantages or moats in a company, but more importantly the sustainability of the same. Nokia is the best demonstration of why competitive advantage is a dynamic concept and failure to strengthen it relentlessly will eventually lead to its downfall. Furthermore, the Nokia example shows why technology is such a weak source of competitive advantage – something that can be replicated if not bettered too soon. But this piece is more about the Scandinavian/Nordic approach to welfare which in turn breeds innovation. It talks about a town in Finland which as one of the key locations for Nokia got severely affected by Nokia’s fall but bounced back quickly as a hub of innovative tech companies, thanks to both the Finnish state’s efforts as well as the culture of corporate responsibility in the Nordics by which Nokia ensured the employees it made redundant were rehabilitated.
“For about a decade, starting in 2005, Nokia suffered setback after setback. Lietsalmi ascribes this slump to a change in the company’s overall approach, from aggressive innovation to something approaching complacency. The company was a world-leader in mobile handsets, he said, when its executive staff decided to adopt a more conservative strategy. “The leadership, including myself, started to think that [success was] not about inventing new things that much, but about managing growth,” he says. Hungry foreign competitors, meanwhile, were innovating at a frantic pace.
“If you stay with that mindset,” he says, wistfully, “then when the growth is over, someone else will come and disrupt the market.” Nokia had grown complacent, he says, under the assumption that the top spot was theirs for good. At the same time, cheaper Chinese exports threatened its more basic models. Though the company attempted to make forays into smartphones with touchscreen devices such as 2004’s 7710 model, its efforts failed to capture the imagination of the public. In 2007, when Apple introduced the iPhone, Nokia simply couldn’t keep up: Despite selling reasonably well initially, its competing N97 model had significant hardware and software problems, and was eventually written off by the company as a “tremendous disappointment.” Within four years, the company had lost 75% of its market value.
By this point, Oulu had been a key Nokia location for decades.…In 2016, with almost 2,000 lost Nokia jobs, Oulu’s unemployment rate rose to more than 16%, about double the national average….It happens all the time—when the biggest employer in town goes down, it takes the town with it.
But Oulu wasn’t like Flint, Michigan, or its Rust Belt brothers. Instead, Ala-Mursula tells me, the Nokia layoffs took two key resources—concentrated talent, and intellectual property—and spread them across the region within Finland, like a child blowing the fluff from a dandelion. According to the city government, in 2017 alone, Oulu became home to 1,175 new companies, many of which were started by or employ the talented engineers previously been at Nokia’s helm.
Nokia itself is, in part, to thank for these efforts. After Microsoft came in, the company instituted a “bridge program” designed to help its workers find jobs in other companies. “The idea was to give social support to the people who are leaving their jobs with Nokia,” regional manager Sankari told me on a tour of Nokia’s present-day factory and 5G facility. “We help them to be employed, help them find a new career as fast as possible.”
Of the thousand or so people who have been a part of Nokia’s bridge program, more than 80% have found their way onto a new path, Sankari says. Some received coaching; others were given Nokia intellectual property, with a view to starting something new.
Such Nordic corporate responsibility isn’t totally unusual, Sankari adds, though Nokia’s commitment is particularly deep-rooted. “Quite often the bridge program is referred in Finnish media, at least, as kind of a best practice,” she says. “It’s kind of a Scandinavian system and heritage that you need to take care of your employees so that they can have a good life, even if you might not be able to provide it for them.””
If you want to read our other published material, please visit https://marcellus.in/blog/
Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
