You only need a brief walk around the glitzy shopping district in central Helsinki to find clues to how an obscure company from the forests of Finland leapt past the world's technological giants to become the global leader in the booming cellular-phone market.
At the Esso station on the corner, there's a stack of snow tires on sale, each one emblazoned with the trademark "Nokia." A couple of blocks away, on the sporting-goods floor of the huge Stockmann's department store, there's a display of fishing boots. The trademark? Nokia. At a computer store across the street, you can buy a color monitor with that same label.
Actually, these products are no longer made by Nokia Oy ("oy" is Finnish for "corporation"). The former conglomerate has spent the 1990s spinning off dozens of its traditional businesses to focus relentlessly on mobile communications. In an age of merger and acquisition, Nokia opted for attrition--and this unfashionable strategy has paid off handsomely.
When research firm Dataquest Inc. tallied global sales of cellular telephones for 1998, the Finnish firm finished first, passing both U.S. leader Motorola Inc. and Swedish neighbor LM Ericsson AB in world market share. By moving faster than Motorola into digital networks and wireless Internet access, Nokia has increased its lead this year. It's selling about a million phones each week--more than a quarter of what the world buys.
The key to Nokia's success, says Jorma Ollila, the company's intense but friendly chief executive, was the "extremely painful" process of shedding well-established, and profitable, business lines.
"Retired Nokia people tell me that I'm unholy, I'm a traitor, for selling off the fishing boots and the pulp and paper and the PCs," he says with a wry smile. "But we are now in one of the fastest-growing and fastest-changing markets in the world. To play that game, you have to be completely focused on what the market wants."
Whatever the retirees may say, Nokia stockholders are not complaining. Sales have been growing at about 35 percent annually for the past three years, and profit growth is even better. In 1993, when Nokia was still selling tires, tissue paper, televisions and the like, its total sales were only slightly more than $2 billion. This year, as a "completely focused" cellular-phone company, Nokia will record sales five times as great.
The company's phenomenal success is a tonic for Finland's national economy, which battled back from a killer recession sparked by the collapse of the Soviet Union at the start of the decade. "We badly needed a third leg, after forest products and metals, to support our economy," says Paavo Lipponen, the country's precise, scholarly prime minister. "And now we have it in communications."
In essence, Nokia's strategy is the formula Lipponen and his coalition government have championed for the nation as a whole. "If you're a country of 5 million on a northern peninsula speaking a language that nobody else understands," the prime minister says, "you'd better focus on doing just a few things and doing them very well."
When Nokia started out, as a one-shack operation on the banks of the Nokia River in Tampere, Finland, in 1865, it focused on timber. Fairly quickly, though, the company branched out: pulp and paper, rubber products--including Finland's favorite fishing boot-- wire, televisions and computers were later added. For Finns, Nokia was a combination Kimberly-Clark, L.L. Bean and General Electric.
In the 1980s, the conglomerate dabbled a little in communications products, including an early "mobile phone" that weighed 20 pounds and was mobile only if you hauled it around in the trunk of your car. In 1984, the company started making telephones for Texas-based Radio Shack, and Fort Worth has been the heart of Nokia's U.S. operations ever since.
The breakup of the neighboring Soviet Union and the ensuing recession in Russia took a devastating toll on Finland's economy. Nokia suffered along with everybody else here. In 1992, when Ollila, then 41, was given the reins, the company was struggling in many of its basic lines.
"We realized that the key to recovery was to find something that took advantage of our know-how and gave us global, not just local, growth opportunities," Ollila recalls. "And the more we moved into mobile phones and the infrastructure for mobile networks, we understood that we had to concentrate almost completely on that business.
"It was very, very hard to sell the pulp and paper business, and the rubber products, because that was what Nokia had been about since the 19th century," Ollila says. "But we had to focus or die."
Because the brand was so strong here, Nokia licensed rights for temporary use of its name on tires, TVs and a few other products. Gradually, though, the trademark will disappear from non-communications products.
A key advantage for a Finnish player in the growing global market for cellular phones was that Europe in general, and Scandinavia in particular, moved faster than any other region to design and develop a single digital standard for mobile phones.
Americans tend to think of their nation as the world leader in technology, but in cellular communications the Europeans have consistently trumped the United States. Because of differing standards, millions of Americans have discovered that their digital cell phones just won't work in another state. In contrast, a Nokia phone configured to the digital "GSM" standard can be used in every European country--and much of Africa, Asia and the Americas.
That made a crucial difference in global competition. While Motorola was slow to move beyond the older analog transmission systems still used in the United States, Nokia went around the world with a full range of digital phones originally designed for the integrated European market.
Finland also moved fast to deregulate the telephone business, and today it has one of the most competitive, and cheapest, telephone markets in the developed world. This has helped Finnish telephone customers embrace the new era of wireless telephony much faster than supposedly high-tech Americans. More than 60 percent of people in Finland have cell phones of their own, a penetration rate twice as high as in the United States. Finland is the first country to have more mobile phones than traditional "land line" units.
And those Finns tend to buy their phones from their home-grown cellular superstar, Nokia. One of the hardest sales jobs in the world these days--the high-tech equivalent of selling refrigerators to Eskimos--belongs to Ari Mikkola, a peppy, funny salesman who happens to be the Finland country manager for Motorola cellular phones.
"Nokia is like a religion in this country," Mikkola says with a rueful grin. "I knock on the door at some shop and the retailer says, 'We only sell Nokia.' And I say, 'Well, why not try Motorola, too?' And the guy says, 'We only sell Nokia.' "
That loyalty provides a useful base for Nokia's continued expansion, but it is only a base. "We expect Finns fairly quickly to get to 100 percent" cell-phone ownership, says Nokia's Ollila.
"But the bigger opportunity is that other countries are going to approach our penetration rate as well," he says. "When the U.S. population gets to 50 percent, or when China gets to 50 percent, you are talking about a massively expanding market. And we will be there."
Nokia in Profile
Business: Develops and manufactures mobile phones, networks and systems for cellular and fixed networks.
Based: Espoo, Finland
Established: 1865, as a paper- manufacturing company.
Employees: 45,000 worldwide
1998 revenue: $15.6 billion
1998 earnings: $2 billion
Friday's stock price : $87.62 1/2, up $3.75, on the NYSE (up 46 percent this year).
SOURCES: Nokia, Bloomberg News, Hoover's