FINLAND AND NOKIA:

CREATING THE WORLDS MOST

COMPETITIVE ECONOMY
- CASE ANALYSIS

Dr. Vighneswara Swamy

Nordic Countries
 Finland: Then and Now
Macro-Indicators
Indicator Name 1980 1990 2000 2005 2010 2011 2012 2013

Agricultural land (% of land area) 8.33 7.86 7.28 7.47 7.54 7.52 7.52
Agriculture, value added (% of GDP) 9.59 6.21 3.38 2.61 2.73 2.73 2.64 2.68
Birth rate, crude (per 1,000 people) 13.20 13.10 11.00 11.00 11.40 11.10 11.00 10.70
Industry, value added (% of GDP) 38.06 33.61 36.16 33.54 29.97 28.89 27.15 26.87

Labor force participation rate, total (% of total population ages 15+) 65.00 61.70 61.00 60.30 60.30 60.10 59.80
Labor force, female (% of total labor force) 47.13 47.42 47.96 47.84 47.56 47.78 47.75
Manufacturing, value added (% of GDP) 27.06 22.44 27.64 24.33 19.53 18.87 16.93 16.62
Manufacturing, value added (annual % growth) 7.38 -0.26 14.20 3.82 7.68 -0.11 -11.58 -1.94
Mobile cellular subscriptions (per 100 people) 0.49 5.17 72.03 100.45 156.31 165.89 172.32 171.57
Population growth (annual %) 0.31 0.44 0.21 0.34 0.46 0.46 0.48 0.46
Services, etc., value added (% of GDP) 52.35 60.19 60.46 63.85 67.30 68.38 70.21 70.45
Services, etc., value added (annual % growth) 4.79 1.97 4.49 1.95 0.94 2.95 0.98 -1.10
Tax revenue (% of GDP) 23.91 21.63 18.41 19.83 20.00

Unemployment, total (% of total labor force) (modeled ILO estimate) 9.70 8.40 8.40 7.70 7.60 8.20
Urban population (% of total) 71.73 79.37 82.18 82.91 83.56 83.69 83.82 83.95
 Finland: Then and Now
Trade Indicators
Indicator Name 1970 1980 1990 2000 2005 2010 2011 2012 2013

Exports of goods and services (% of GDP) 23.85 30.80 22.13 42.09 40.26 38.68 39.16 39.62 38.18
Food exports (% of merchandise exports) 4.24 3.09 2.40 1.64 1.83 2.58 2.83 2.91 2.95
Food imports (% of merchandise imports) 9.82 7.10 4.88 5.22 5.20 7.13 6.80 7.36 7.93

ICT goods exports (% of total goods exports) 23.55 20.29 6.36 4.92 3.98 2.31

Imports of goods and services (% of GDP) 25.53 32.10 23.68 32.91 36.37 37.41 40.01 41.07 39.14

Manufactures exports (% of merchandise exports) 66.65 69.72 82.96 84.90 84.17 76.59 73.71 71.92 69.81

Manufactures imports (% of merchandise imports) 69.50 56.18 75.95 72.55 70.00 60.68 58.02 58.01 57.16
Merchandise trade (% of GDP) 43.50 55.48 37.86 64.16 60.79 55.82 59.71 58.47 56.80
Time to export (days) 9.00 9.00 9.00 9.00 9.00
Time to import (days) 8.00 8.00 8.00 7.00 7.00

Trade (% of GDP) 49.38 62.90 45.82 74.99 76.63 76.09 79.17 80.70 77.32

Trade in services (% of GDP) 14.48 19.65 20.15 21.97 20.91

 Finland: Then and Now
Macroeconomic Indicators
Indicator Name 1970 1980 1990 2000 2005 2010 2011 2012 2013

Current account balance (% of GDP) 3.81 2.40 -0.62 -1.22 -0.92

Domestic credit provided by financial sector (% of GDP) 40.00 44.52 80.31 54.04 74.20 96.79 97.71 101.73 104.86

Foreign direct investment, net inflows (% of GDP) 0.16 0.05 0.57 7.27 5.32 4.93 -2.20 1.93 -1.98

GDP growth (annual %) 7.01 5.39 0.68 5.63 2.78 2.99 2.57 -1.46 -1.21

GDP per capita (current US$) 2467 11232 28380 24253 38968 46202 50790 47243 49150

GDP per capita growth (annual %) 7.42 5.06 0.23 5.42 2.43 2.52 2.10 -1.93 -1.66
Gross savings (% of GDP) 29.95 26.13 31.87 28.16 23.35 22.29 20.83 19.67

Inflation, GDP deflator (annual %) 5.47 9.64 5.20 1.63 0.92 0.35 2.58 2.61 2.38

Official exchange rate (LCU per US$, period average) 4.20 3.73 3.82 0.92 1.24 1.33 1.39 1.28 1.32
 Finland: Then and Now

Indicator Name 1970 1980 1990 2000 2005 2010 2011 2012 2013

Forest rents
5.27 4.76 1.43 1.33 0.91 1.11 1.03 0.97 1.07
(% of GDP)

Indicator Name 1996 2000 2005 2010 2011 2012

Research and development expenditure
(% of GDP) 2.53 3.35 3.48 3.90 3.80 3.55

Vighneswara Swamy
1. How did Finland Strategize its Competitiveness?

Competitiveness means the ability of a country to compete effectively in global markets.

Finland focused on Non-price competitiveness which refers to how well Finland exports
of branded goods and services do in overseas markets in aspects of competition not
associated with price, such as:
Product quality and design,
Research and Development (R&D), especially new product development,
Product reliability,
The effectiveness of marketing in overseas markets,
Levels of productive and dynamic efficiency of firms,
Investment in new technology, which helps improve quality and reliability,
Investment in human capital, which improves skill levels and reduces skill shortages low skills,
and labor shortages, can both seriously reduce competitiveness.
Vighneswara Swamy
1. How did Finland Strategize its Competitiveness?..
Finland chose to capitalize on the sound educational system it had inherited to enhance research
and development particularly in the field of communication technology in the context of Nordic
Mobile Telephone (NMT) network.
Cluster approach was introduced in Finland to coordinate the research and development.
The introduction of NMT made the Nordic region the worlds largest single mobile market at the
time offering huge opportunities for Finland.
Finnish Telecommunication Policy was liberalized and rationalized to evolve a Mobile Phone Value
System.
Nokia and Salora in a joint venture created the Mobira in the 1980s.
Nokia, during this period consolidated the Finnish Telecommunications equipment industry through
a series of mergers.
Besides, large mergers between Swedish and Finnish firms resulted in huge firms: Nordea
(banking), ABB (engineering), Nokia (electronics), and Sora-Enso (pulp and paper). Vighneswara Swamy
 Global Competitiveness Index
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Switzerland 8 8 4 2 2 1 1 1 1 1 1

Singapore 7 6 8 7 5 3 3 2 2 2 2

United States 2 2 1 1 1 2 4 5 7 5 3

Finland 1 1 6 6 6 6 7 4 3 3 4

Germany 13 15 7 5 7 7 5 6 6 4 5

Japan 9 12 5 8 9 8 6 9 10 9 6

Hong Kong 28 10 12 11 11 11 11 9 7 7

Netherlands 12 11 11 10 8 10 8 7 5 8 8

United Kingdom 11 13 2 9 12 13 12 10 8 10 9
Source: GCI Reports of WEF http://reports.weforum.org/global-competitiveness-report-2014-2015/rankings/
 Theoretical understanding
Finland gained comparative advantage in the export of mobiles and mobile
technology compared to other countries. (Ricardos Comparative
Advantage Theory).
Finland was able to produce Mobiles (Nokia) by using fewer resources, at a
lower opportunity cost, that gave it a comparative advantage.
Heckscher (1919) - Olin (1933) Theory is also applicable here as the
factor endowments in the form of quality higher education and skilled labor
were available to Finland to strategize for reaping the mobile telephony
technology through its firm (Nokia).
At the same time, as stated by Leontief ( 1953), Factor endowments can be
impacted by government policy - minimum wage.
Vighneswara Swamy
2. Can the Finlands Success in
Communications Sector be explained using
Porters Theory of National diamond?

Vighneswara Swamy
Porters Diamond
Determinants of National Competitive Advantage for Finland
The Telecom Diamond

Firm Strategy,
Structure and
Rivalry

Factor Endowments Demand Conditions

Related and
Supporting
Industries

Vighneswara Swamy
Finlands Telecom diamond explained
Factors of Production:
Human Capital supported by a world-class education system
Capital:
Governments policy of financial liberalization coupled with the emergence of venture capitalists
Demand Conditions:
Finns fascination for new technologies
Committed government support
Related and supporting Industries
Intense linkages between firms, firms and universities
Emerging venture capital
Advanced telecom operators
Firm Strategy and Rivalry
Less rivalry at home for Nokia
Long term strategies focused on technological excellence
Historically many business groups and conglomerates made use of globalisation.
Vighneswara Swamy
Thank You

Vighneswara Swamy