Corporate Strategy

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Exploring Corporate Strategy
CLASSIC CASE STUDIES

Nokia: The Consumer Electronics Business
Martin Lindell and Leif Melin
The case describes the entry of the Finnish company, Nokia, into the consumer electronics market – resulting in a significant reorientation of the company. It describes the internationalisation of the Nokia Group from a Finnish company, to a Nordic company, to a European company and finally to a global player in world markets. The case raises three main questions. Why and how did Nokia acquire consumer electronics businesses? Why was the integration process of acquisitions so difficult? And why, after a decade of investment, did Nokia divest its consumer electronics businesses in 1996? The case can be used to explore the difficulties of integration in terms of management, culture and strategy. l l l

INTRODUCTION
Nokia, the large Finnish industrial group, was founded in 1966 through a merger of three companies. The main business units at that time were pulp and paper, tyres and cables, with paper manufacturing as the oldest business, established 130 years ago. During the 1970s Nokia started to diversify through expansion in different electronic product areas. In 1995, after twenty years of acquisitions, divestments, internationalisation and rapid growth, 99 per cent of the turnover (FIM36,810 million)1 was represented by three business units in electronics: mobile phones, telecommunications and consumer electronics. The three original businesses had been divested and 91 per cent of the turnover was derived from exports. Nokia had become one of the leading global producers of mobile phones and telecommunication systems, and the third biggest in Europe in consumer electronics, with 34,000 employees, 14,000 of them working outside Finland in 45 different countries. The Nokia case is a remarkable corporate transformation, achieved through focusing the company’s strategic activities in the consumer electronics industry, where Nokia attained its position after a series of rapid acquisitions of five different European companies between 1983 and 1992 (Exhibit 1). Colour 1

The exchange rates in June 1996: 1 British pound (£) = 7.27 FIM 1 Swedish krona (SEK) = 0.70 FIM 1 German mark (DM) = 3.07 FIM 1 US dollar ($) = 4.70 FIM

This case study was prepared by M. Lindell of the Swedish School of Economics and Business Administration and L. Melin of Jønkøping University in Sweden. It is intended as a basis for class discussion and not as an illustration of good or bad management practice. © M. Lindell and L. Melin, 1996.

Exploring Corporate Strategy by Johnson, Scholes & Whittington

1

Nokia: The Consumer Electronics Business

Exhibit 1 The acquisitions made by Nokia in consumer electronics 1983 1987 1988 Salora (Finland), Luxor (Sweden) Oceanic (France) Standard Electric Lorenz (Germany) Main plants: Bochum (Germany) and Ibervisao (Portugal), with six other plants supporting the manufacturing of TV sets Finlux (Finland)

1992

Exhibit 2 Nokia’s turnover by business groups (%)
1972 Paper industry Tyres fabric Electronics Telecommunications Mobile phones Consumer electronics Cable fabric Others 19.9 24.5 8.0 1983 22.7 11.1 19.1 1988 10.0 6.0 60.0 1995 0 0 99.0 27.0 43.0 29.0 – 1.0

47.6 –

22.0 25.1

9.0 15.0

TV was the dominant product group in the consumer electronics business, with audio systems and satellite receivers as other product groups. The radical changes in Nokia can be seen from the division of the turnover into various business areas for four fiscal years (Exhibit 2). The main products in these different business areas have been as follows: l l l l l l

Paper industry – soft tissues, consumer products, power. Tyres fabric – tyres, industrial rubber, footwear. Telecommunications – telecommunication systems used in mobile and fixed networks. Mobile phones – products for all major digital and analogue systems. Consumer electronics – colour TV sets, satellite receivers, VCRs...
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