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Building a global telecommunications business


A Nokia case study



Introduction

The twentieth century will be looked back on as the period when telecommunications revolutionised people’s daily lives - from the first telephone call and short wave radio transmission, to the modern era of mass instant global telecommunications patterns. Telecommunication is the science of communication by telephony, radio, television and computer networks.

One of the most significant changes in recent times is the agreement, signed in February 1997, which liberalised the world telecommunications market. It is estimated this will lead to international phone charges falling by 80%. This will, of course, have a dramatic impact on the world economy. Customers will be able to contact suppliers all over the world for almost the same price as ringing their local supplier.

The telecommunications revolution is leading the trend towards increasingly global lifestyles. Any organisation involved in telecommunications must therefore think beyond its domestic market. Global businesses are seeking global telecommunications suppliers.

The need for telecommunications has no limits. More and more users will want a thousand times more data (bits) than is being transmitted on today’s networks. The increased number of bits, however, does not only mean that a single person will require and receive larger amounts of information. It means that quality will be vastly enhanced, resulting in clearer images and sounds at the chosen destination. Telecommunications will eliminate distance related problems. Global telecommunications organisations are therefore required to meet growing consumer demand for rapid, competitively priced methods of communication.

This case study focuses on one such organisation, Nokia, a Finnish company which has become a key global player in the telecommunications industry. Nokia's main markets were in both Eastern and Western Europe until the transformation of the Soviet bloc of countries in the late 1980s and early 1990s. The liberalisation of trade with the former Soviet bloc led to increased competition for Finnish companies who had previously considered the Eastern European market their own. Nokia therefore looked to expand globally - concentrating on its strengths and cutting out its least effective lines.

The business writer Tom Peters has described this process as one of 'sticking to the knitting'. It is something that some of the most successful companies like Coca-Cola did in the 1990s. They concentrated on their best lines and cut out what they were not so good at. They also decided to look to future markets rather than past successes. Telecommunications will, of course, be the major growth industry of the post millennium era.

Nokia 4 Diagram 2Nokia is a leading international telecommunications company. The roots of Nokia go back to 1865 and the establishment of a forest industry enterprise in south-western Finland by mining engineer Fredrik Idestam. The year 1898 witnessed the foundation of Finnish Rubber Works Ltd and in 1912, Finnish Cable Works began operations.

In 1966, the three companies were merged to form Nokia Corporation. At the beginning of the 1980s, Nokia started to strengthen its position in the telecommunications and consumer electronics market. Today, Nokia is a leading international telecommunications group with net sales of FIM 52.6 billion in 1997. Headquartered in Helsinki, the Nokia Group employed in 1997 over 36,000 people in 45 countries where it is strongly positioned as a global telecommunications business.


 

Business focus

Nokia concentrates on the key growth areas of wireline/wireless telecommunications. The Group runs global R&D programs on audiovisual signal/data processing and communications, third-generation wireless systems as well as integrated, multi-service network solutions. A pioneer in mobile telephony, Nokia is the world’s second largest manufacturer of mobile phones and a leading supplier of digital cellular networks. The Group is also a significant supplier of advanced transmission systems and access networks, multimedia equipment, satellite and cable receivers and other telecommunications related products. Nokia’s shares were first listed in Helsinki in 1915. Today, they are also traded in Stockholm, London, Paris, Frankfurt and New York.

Today, Nokia is a focused telecommunications company, but this has not always been the case. A successful company is one which can adapt to changes in its environment. The secret is to anticipate future changes and adapt appropriately in order to make the transition successfully. This process can be illustrated by highlighting some examples of company’s evolution.

1865 Nokia was established as a forest-industry enterprise.
1898 Foundation of the Finnish Rubber Works.
1912 Establishment of Finnish Cable Works.
1967 Nokia, Finnish Rubber Works and Finnish Cable Works merge to form Nokia Corporation.
1979 Nokia Mobile Phones, owned jointly by Nokia and Televa, was founded.
1982 Nokia introduced the first fully digitalised local exchange in Europe.
1991 The world’s first genuine Global System for Mobile Communications (GSM) call was made in Finland with equipment supplied by Nokia. Core skills in rubber and cable became the foundation of a cable lead telecommunications business. Once in this market, it was a natural process to become involved in building telephone exchanges and, with the global development of mobile phones, to be at the leading edge of hand-held communications.

In the early 1990s, Nokia made a major shift in its activities by becoming a focused telecommunications company, as illustrated in the following chart. Nokia had effectively decided that the future lay in:

  • Telecommunications products ('sticking to the knitting').
  • The global rather than simply the national market (manufacturing in 11 countries to sell in 130).
    In 1997, Nokia Mobile Phones accounted for 51% of Nokia’s sales and Nokia Telecommunications for 35%. Other operations, (14% of sales) included Nokia Multimedia Network Terminals and Nokia Industrial Electronics. Nokia Mobile Phones, a pioneer in the development of cellular phone products, manufactures a complete range of cellular phones for all digital and major analogue cellular phone systems. Nokia Mobile Phones are used in all 130 countries that the Group’s products are sold.


 

Developing a global business

As the mobile telephone networks opened, Nokia faced competition from well-known international rivals jumping into the Nordic market in Nokia’s own backyard. With this directly challenging situation, the company soon learned what it would need to succeed in a global telecommunications industry.

Whereas in some industries organisations focus upon domestic markets within limited geographical boundaries, Nokia made a key decision in 1991 to increase its research and development and global marketing. This was a critical decision which set a pathway for the whole organisation, so that Nokia was prepared when the cellular boom hit world markets. The development of global strategies offered Nokia the ability to respond and meet customer needs quickly as they developed, with the added benefits of cost reduction, improved quality and competitive leverage.

Digitalisation has ushered in a completely new telecommunications age. People’s ideas of the nature of telecommunications will change fundamentally in the next decade. Networks will become more customer focused and offer a wider range of services. In simple terms, 'going digital' means that radio or television signals are turned into strings of numbers (bits). These numbers occupy a much narrower part of the network than conventional signals and do not corrupt so easily in the transmission. Therefore, it is possible to:

  • create more radio or television channels
  • transmit clear, sharp 'phone pictures' on digital phone lines
  • transmit much greater quantities of information at a faster rate.


Increasingly, data and graphics are transmitted over the phone in addition to speech. Therefore, new technologies are being developed to enhance the capacities of access networks. By the year 2000, it will be possible to transmit approximately one hundred times more information, cost-effectively, over access networks than was possible in 1986. These and the home multimedia terminals of the future will allow integrated use of telecommunications, computer applications and media technologies.

Nokia identified the opportunity for digital developments before anyone else, introducing its first digital transmissions systems in 1969. Following ongoing research and development in this field, Nokia was able to deliver the first GSM network in 1991.

The third-generation telecommunications systems, UMTS (Universal Mobile Telephone System) and FPLMTS (Future Public Land Mobile Telecommunications System), will be standardised during the next few years prior to launch at the beginning of the next millennium. Future solutions will include new platforms on which operators will build their service ranges.

Third-generation wireless telecommunications will support versatile broadband services largely based on various combinations of image, voice and data. The investments required for the new systems are so great that the networks must be developed in stages.


 

Competitive advantage

As broadband systems become more popular, the share of data in all network traffic will increase. New product possibilities include the Internet whose rapid expansion is stunning the world. The Internet will generate a new demand for broadband services, thereby offering new challenges, as well as business potential, to Nokia.

The highly entangled Internet web-sites provide neither sure access to the data required nor guarantees as to their accuracy. In the future, there will be many opportunities for companies who can offer a professionally managed Internet network to operators. Nokia is currently developing circuit switched and packet switched data traffic which will vastly speed up the transfer of large volumes of data in a quickly and easily accessed way through the Internet.

The telecommunications market is highly competitive. In the future, telecommunications and information technology, as well as different media technology applications, will often merge. In order to keep ahead of the field, Nokia is seeking differentiation strategies which build on its current strengths and include its high frequency technology expertise. Nokia’s extensive R & D investment has been channelled into a number of key areas where it knows it can create a competitive edge over its rivals. Staff training and development is targeted at these areas known as core competencies.

By focusing on consumer requirements, Nokia has become a symbol of user-friendliness, simplicity and style, combined with high technology and broad choice of features. The emphasis placed on meeting consumer requirements is likely to maintain Nokia’s competitive edge in the future.

Nokia’s ability to keep ahead of the competition is illustrated by one of its most recent state-of-the-art products, the Nokia 9000 Communicator, launched in 1996. It is a GSM phone with fax, e-mail, short message service, address-book, calendar and Internet connections and created an entirely new category of digital all-in-one communications device. The Nokia 9000i Communicator was introduced in 1997 with enhanced software features.


 

Using values to drive business

At the heart of any successful organisation is a value system that drives the organisation forward. As an international company, Nokia needs to recognise and value the diversity of its individual employees and its operating units. However, it also needs to generate a shared vision within the Group.

The Nokia values, common to all its divisions whatever the country, are those of:

  • Customer satisfaction - Nokia is a market driven company which sets out to identify, anticipate and satisfy customer requirements.
  • Respect for the individual - This is based on open and honest communications between members of the organisation, fair treatment at all times, mutual trust, the ability to depend on each other and accept diversity. Nokia employees are expected to be able to make decisions for themselves and work together as a team. In 1997, Nokia employed more than 36,000 people from all nationalities, ethnic groups, ages, sexes and backgrounds. Nokia continues to cherish this diversity and views it as a core strength in helping to generate a variety of local and global solutions.
  • Achievement - Nokia places a strong emphasis on the achievements of the organisation and the individuals within it. This emphasis is based on creating a shared vision of how the organisation can become the global leader in telecommunications. By empowering its employees - encouraging them to take responsibility for their own actions - Nokia has created a workforce that fights to win rather than sitting back and letting others do the work.
  • Continuous learning - Rapid decision-making and flexible use of resources are critical in the dynamic field of telecommunications. Nokia sees itself as a learning organisation - it does not rest on its existing strengths but seeks to add to them, encouraging employees to take on more responsibilities and acquire new knowledge and skills. This world-wide network of knowledge and expertise is at the disposal of all the members of the Nokia team and is ultimately available to provide complete customer satisfaction.

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    Conclusion

    Nokia has created a set of values which enables the organisation to adapt to the rapidly changing environment of telecommunications.

    Although the future of telecommunications cannot be predicted accurately, an organisation which clearly understands its market and its product, with a confident and flexible work force, will be in a very strong position to change with its environment and shape the future of telecommunications.

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