2. Contents…
1. Summary
Why and how did Nokia acquire consumer
electronics businesses?
2. Analysis
Why was the integration process of acquisitions so
difficult?
3. Observation
Why after a decade of investment, did Nokia divest
its consumer electronics businesses in 1996?
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3. 1. Summary
Why and how did Nokia acquire consumer electronics businesses?
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.
During the 1970s, Nokia started to diversify through expansion in different
electronic product areas.
In 1995, after 20 years of acquisitions, divestments, internationalization and
rapid growth, 99 percent of the turnover was presented by three business units
in electronics: mobile phones, telecommunications and consumer electronics.
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4. Formulation of a New long-term vision for Nokia:
The top management sets out the following strategic goals for future
development:
Internationalization
Increased share of high-tech products
Maintain the competitiveness of the original businesses (paper, tyres
and cables)
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5. How Nokia Enters the Consumer Electronics Industry?
ENTERING NORDIC MARKET:
(Nordic Countries: in the Northern Europe & Atlantic - Denmark, Finland, Iceland, Norway and Sweden)
During the 1970s, entering the consumer electronic market was one of the
main moves towards the vision of diversification and internationalization
(in order to increase the share of high-tech products).
After the acquisitions and integration of SALORA (Finnish) and LUXOR
(Swedish), two Europe electronic companies, Nokia (Salora-Luxor TV
brands) occupied about 40% market share in the Nordic market.
The results of the acquisitions were that Nokia got:
Initially, 58% shares in Salora & 51% shares in Luxor
1984, increased its share to 70% of the capital stock in Luxor
Market share in TV sector was 36% in the Finnish market and over 20% in
the Swedish market
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6. How Nokia Enters the Consumer Electronics Industry? (Cont.)
ENTERING MAJOR EUROPEAN MARKET:
In 1986, Nokia began to think of turning to the Western Europe market when
the company integration was considered to be under control.
During the late 1980s, Nokia acquired another two companies: OCEANIC
(French) and STANDARD ELECTRIC LORENZ (West Germany), Nokia
became Europe's 3rd largest colour TV manufacturer.
And two biggest competitors were Philips and Thompson (France).
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7. 2. Analysis
Why was the integration process of acquisitions so difficult?
MANAGEMENT RESOURSES PROBLEM:
In 1988, formed a new division, named Nokia Consumer Electronics. It was
integrated and Coordinated by SALORA-LUXOR, OCEANIC and SEL.
Integrated administration and production in all 4 units, a total of 10 factories
timetable could not be met entirely
Nokia did not have enough internationally experienced personnel (in
Consumer Electronics)
Nokia's market share of TV sets had declined from 14% to 11% in the Europe
whole group showed weak results
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8. 2. Analysis (Cont.)
MARKETING AND PRODUCTION STRATEGY PROBLEM:
Simo Vuorilehto - CEO, pointed out the key factors in the new consumer
electronics as the Strategy were marketing, design and production
The only advantage Nokia reached by large-scale production is that Nokia could
control the material costs.
On the other hand, Nokia had less flexibility and had to be global. It's a
question of the overall strategy.
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9. 2. Analysis (Cont.)
THE ORGANISATION STRUCTURE AND CULTURE PROBLEM:
In order to integrate the acquisitions, Nokia chose to try to merge the different units
into one organization more rapidly
Although the same fact that the president thought, in the short run, this approach
would lead to bigger difficulties because the units were used to working on their own
In this case, the strong functional centralization and a competent and powerful
management team were stressed importantly
because the management team was seen as the motor of the organization
The culture difficulties in integrating the different units and nationalities were
highlighted
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10. 3. Observation
Why after a decade of investment, did Nokia divest its consumer
electronics businesses in 1996?
THE DIVESTMENT OF CONSUMER ELECTRONICS:
The integration of the units in Nokia Consumer Electronics proved to be much
more difficult than expected and the profitability much lower than predicted.
The development of Nokia Consumer Electronics was problematic after the
acquisition of SEL.
Hence, Nokia stressed the importance of a new strategy so that the company
could take control of the situation.
The 1st step in this turnaround of Nokia Consumer Electronics was to close
down two Oceanic plants in France and in Portugal.
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11. 3. Observation
SOLUTIONS TO SOLVE THE PROBLEM
A NEW CEO MAKES RADICAL CHANGES:
Jorma Ollila became the new CEO for Nokia in 1992, after two very successful years
as the president of Nokia Mobile Phones. He started to reconstruct the group
immediately.
The basic goals for the Nokia Group in 1992 were still the same as two decades
previously: that is, growth through products with growth potential and
internationalization.
Additionally, Central values were formulated, 'the Nokia way‘
Such as the values common to all business were customer satisfaction, respect
for the individual, achievement and continuous learning
New key words were telecommunications, global, focus and value added
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12. 3. Observation (cont.)
COOPERATE WITH ANOTHER FIRM IN ORDER TO BE COMPETITIVE?
Unprofitable Nokia Consumer Electronics - internally discussed and a corporate
analyst at Morgan Stanley in London was of the same opinion that: 'Nokia has to
cooperate with another European or a Japanese firm in order to be
competitive.'
WITHDRAW FROM THE CONSUMER ELECTRONICS BUSINESS:
However, the Nokia Group acted more radically.
Decided to concentrate more and more on telecommunications.
Digital signal processing became the key concept in most of Nokia's operations and
in the group's future strategy.
This direction was further strengthened in 1993 when part of the cables and
machinery businesses was divested.
The divestments continued. In 1995 Nokia divested all its remaining tyres and
cables businesses.
Finally, in February 1996 Nokia announced its total withdrawal from the consumer
electronics business and its main product, colour TV sets.
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13. CEO - Jorma Ollila stressed in the annual report:
This is an important milestone since we shall now
have the structure in place to concentrate on the
growth segments of the telecommunications
industry, thereby improving our shareholder
return. This strategy has already helped us to grow
faster that the overall markets during the past few
years. With operations in 120 countries,
manufacturing on four continents and with
improved brand recognition worldwide, we now a
truly global player.
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14. 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 internationalization 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 can be used to explore the
difficulties of integration in terms of
management, culture and strategy.
Finally the
EVALUATION
is . . .
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