Nokia - Fostering Innovation

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Case Details:

Case Code : HROB023
Case Length : 14 Pages
Period : 1997 - 2002
Pub Date : 2003
Teaching Note : Available
Organization : Nokia
Industry : Mobile Telecommunication
Countries : Finland

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note

The history of Nokia can be traced back to the year 1865, when, Fredrik Idestam, a mining engineer, established a forest industry enterprise on the banks of the river Nokia in South-Western Finland to manufacture paper. The enterprise was called the Nokia Company.

Later, in 1898, Carl Henrik Lampen, a shopkeeper and J.E. Segerberg, an engineer, set up the Finnish Rubber Works Ltd. (FRW) to manufacture rubber and associated chemicals. In 1912, Konstantin Wikstrom, an engineer, set up the Finnish Cable Works (FCW) to manufacture electrical cables for lighting purposes. These 3 companies were merged in 1967 to form the Nokia Corporation.

In the early 1900s, FRW started exploring possibilities of expansion to meet increased production. It ultimately decided to enter into a partnership with Nokia Company, which had by then diversified into power generation, to purchase energy inexpensively from the Company for its own operations. In 1904, FRW relocated to a place near the Nokia river and started working in cooperation with the Nokia Company.

During the early 1900s, the FRW grew, and in 1922, it bought a majority stake in the FCW which was then in the midst of a financial crisis. The 3 companies then started working in cooperation and managed to capture market leadership in their respective areas. Talks of integrating the 3 companies through a merger began surfacing at board meetings from the early 1930s. This however, met with stiff opposition from auditors and lawyers who rejected such a move on the grounds that it was not in accordance with corporate bylaws. Consequently, the board voted against the merger in 1937. The issue emerged again only in the 1960s, when the Nokia Company began moving towards the technology sector.

Over the years, the FRW had been controlling the Nokia Company and the FCW through majority stakes. However, as the business grew and the control pattern no longer reflected the changing revenue mix of the company, talks of a merger started resurfacing. To gain economic efficiency and deal with the threat posed by international competitors, a merger seemed desirable at that point of time.

In 1967, the original Nokia company was merged with the FRW and the FCW to form the Nokia Corporation. This new company had four major businesses-forestry, rubber, cable and electronics...

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