Finland’s Export Opportunities: Nokia’s 5g Network Equipment Fills the Infrastructure Needs of India
A Case Study in Global Entrepreneurship
University of South Florida
Dr. Diana Hechavarria
Todd Benschneider
Nicole Jordan
Eric Kopelovich
Paola Peralta
Christopher Preleski
Kannan Sunharavaradhan
05/01/2021
Nokia Telecom Technology, an Intrapreneurial Opportunity for Finland’s Largest Exporter
The Company: Nokia
Our research team examined the strengths and resources of the country of Finland to identify a company and its product that could be most competitive as an export to untapped markets. We chose to focus on Finland’s largest and most experienced export company, Nokia. The company has been evolving through an identity crisis, recently restructuring, selling off its retail focused mobile phone and computer divisions to bet the company and the country’s future on building 5g network broadcast hardware (NAIC 3344113, SIC 36740200) for the telecom industry. By both thinking and acting globally over the past two years, Nokia managed to identify that its true competitive advantages lie in business-to-business relationships, growing into an electronics supplier to nearly all the cellular networks in Europe, Japan, and the United States. Despite unexpected success entering the highly competitive western markets, its competitors from Huawei and Samsung leveraged their ability to extend credit to their commercial partners and were able to dominate the emerging markets in mainland Asia, India, and Africa. We believe that the timing is ideal for Nokia’s 5g MIMO antenna team reopen contract negotiations with Indian utilities to win the region for Nokia from Huawei. India’s 5G network rollout plan was derailed by political opposition to its Chinese supplier Huawei and alternative solutions were delayed since 2020 by the lockdowns from the COVID outbreak.
The Market Opportunity: India
India’s is one of few remaining semi-developed countries where less than half the population has access to the internet. This is due to India’s sprawling and sparsely populated rural population that live in remote rural villages where it has not been economically feasible to connect the villages through fiber optic land lines. Indian officials believed the areas could be best served through cellular or satellite broadband as the technology evolved; therefore, a massive cable laying initiative was never created. Even after wireless technology could reach the remote areas, many Indian telecom providers delayed building out LTE networks; instead, choosing to wait for the arrival of the higher capacity 5g broadcast hardware in development. 5g hardware’s arrival was several years later than expected, leaving many unconnected rural children at a disadvantage in education. As 5g standards were established, wealthier cities and states in the US and EU bought the first available broadcast equipment, leaving India with an uncertain supply date. Once COVID disrupted international travel, the pace of 5g deployment slowed while demand increased from countries that had better access to 5G hardware suppliers. Compounding the supply and demand imbalance were two new factors. The first complication was possible additional restrictions that may prevent the deployment of the cellular network equipment from Huawei when it arrives. The second complication was that global demand for electronics equipment had grown so much during the COVID lockdowns, that chip makers would be delaying future delivery dates on new orders, leaving India without the equipment they needed for possibly several additional years.
The Product: Nokia’s Dual Network Connectivity Hardware (Patent US1053691782 granted 01/14/2020)
Nokia realized in 2014 that many of its cellular network clients were delaying equipment purchases, reluctant to invest in LTE hardware when 5G was expected to be available within months. Nokia engineers understood that while the broadcast hardware was ready to deploy 5G, the international communications standards remained undecided. The consensus on software languages, frequency parameters and coverage density would take several years to establish, delaying the rollout by nearly half a decade later than expected. Nokia executives determined that they needed a hybrid hardware that could broadcast the current LTE standard and later be reprogrammed to broadcast the higher performance 5G signal. This multi frequency hardware would allow Nokia to generate sales revenue in regions that were still building out coverage without rendering the equipment obsolete after 5G standards were deployed. A series of cellular broadcast antennas were developed using a dual frequency connectivity software that would allow the LTE hardware to later broadcast 5G with a simple software update. Nokia applied for a patent on the design in February of 2015, which was later granted in January of 2021. This technology allowed Nokia to convert their antenna hardware prior to the launch of the 5G broadcast standards. The hybrid solution later proved more beneficial than expected since it allowed Nokia to pre-order large quantities of the 5g hybrid semi-conductors which later gave the company an edge over cellular hardware competitors when the semiconductor supply chain was overwhelmed in early 2021, limiting available inventory to Ericsson and Qualcomm.
Nokia’s Competitive Advantages in India
During our research we learned that Indian politicians are sensitive to any appearance of being subservient to western government leaders; therefore, Nokia’s political neutrality, non-threatening size, collaborative culture, and English language fluency could be a better fit for the Indian market than other hardware suppliers from Sweden and the United States. India is also the best choice for Nokia to focus on, of the many emerging market countries, since India has established sources of credit from western banks that its national telecom utilities can draw on to fund the multibillion-dollar 5g network contracts. Nokia is often at a disadvantage in emerging market economies since Finland’s limited economic size inhibits its ability to provide the credit terms in the size needed by the larger countries in Africa and South America. Another advantage for Nokia to focus on the Indian market is that its government prefers a collaborative supply relationship where Nokia would provide the hardware and training for India to retain control over its own existing telecoms to implement and support in the equipment in the future. Nokia’s culture and language provided a smoother transition into India’s supply requirements than from Nokia’s remaining competitors at Ericsson, Samsung or Qualcomm. The greatest factor for success has only recently been revealed, that only Nokia and Samsung have adequate reserves of the 5g semiconductors needed to service a country the size of India through 2022. We believe that since Samsung is likely to be at full capacity taking over Huawei’s contracts in Africa and South America, we assume that the company will be less aggressive at underpricing Nokia in the 5g battle for India.
Nokia’s Cultural Fit in India
Our confidence in Nokia’s 5g hardware’s deployment success lies in the cultural features of Finnish companies and its country’s flexible trades policies. Finland is a country approximately the size of Florida and Georgia combined, sparsely populated with only of 5.5 million residents, situated between the Sweden and Russia. Its non-threatening size is an advantage in gaining the cooperation of foreign governments that have been reluctant to see their citizen’s export spending further enrich the US and China superpowers. Finland has enjoyed generations of success in global exports, the country’s prosperous export dependent economy was initially created on wood and paper products until the late 1900’s, later developing a metals industry from its vast mineral reserves and leveraged those specialty metals to position itself more recently as a wire and electronics hardware exporter.
Its largest corporation, Nokia has been the leader in Finland’s exports since the company’s founding in the mid 1800’s, beginning as a paper pulp producer, evolving into to rubber products, later to metal cables and in the past 30 years finding its global niche after pivoting into electronics hardware. Throughout its 160-year history, Nokia has managed to think and act globally, repeatedly reinventing itself to create products with global appeal that transform Finland’s natural resources into export profits that the country depends on. Much of Nokia’s repeated successes in global markets can be credited to a culture uniquely suited for successful cross border business relationships. The collaborative Finnish culture, its engineering expertise and its politically neutral history have enabled the small population to grow from a period of poverty and starvation in the early 19th century, into the world’s 16th highest GDP nation, ranking ahead of Hong Kong, Germany, and Canada. Nokia’s exports alone, at times, have provided nearly 5% of the country’s total GDP.
For Nokia, its export success can be traced to its harmonious culture. Among its own citizens, the Finns are exceptionally collaborative from the earliest preschool learning to its college sports strategies, the culture has an extraordinary focus on teamwork and fair play. In business, Finland’s own companies avoid domestic competition, believing that it dilutes profits for all, rarely entering business lines that other Finnish companies already produce. However, when competing globally for exports, the culture is surprisingly nationalistic, some critics even describe its international business tactics as ruthless, especially where it competes against the more widely recognized telecommunications pioneer Ericsson, its Swedish neighbor to the west.
The multinational success of the Finn’s export products, especially their technical inventions are a source of great national pride. The collaborative culture inside its borders extends beyond businesses, teamwork is ingrained throughout the culture, the Finns discourage competition among themselves in other aspects of society as well. For example, schools’ systems do not give standardized tests until age 16, fearing that a low ranking on the tests might undermine individual self-confidence and might prevent a child from finding where their underlying talents might be found. In addition, teachers rarely assign or grade homework until the 8th grade, and if graded, the comparative scores on the assignments are not typically shared with the students, since they believe the practice discourages collaboration, expression, and harmony. This might help the Finns to be attuned to the subtle needs for the Asian cultures to “save face”.
Despite enjoying a remarkably light academic workload, the Finnish curriculum strategically prepares students for global thinking, with group science and building projects in addition to many years of coursework for multilinguistic fluency. It is the Finnish goal that each student master at least two additional languages before entering the workforce. Most students choose English for a secondary language since many Finnish employers like Nokia require English to be used for internal communications. The third most popular language is French which served an important role in Nokia’s outmaneuvering Samsung in a successful takeover of one of the world’s largest telecom network equipment manufacturers in 2016, the French cellular giant Alcatel-Lucent that later gave Nokia a competitive platform to enter the 5g network market.
Education in Finland is mostly tuition-free and encouraged for all ages, which has resulted in Nokia’s highly trained workforce that embraces knowledge work and lifetime learning. The educational system throughout encourages perceptions of equality and a flat social hierarchy also seen inside Nokia. For example, there are no “gifted student” or learning disability separation classes in its schools. The Finnish education system has strict rules against cognitive ability discrimination; for example, schools are prohibited from denying a student admission using a qualification system, such as a minimum test score or GPA, which limits the demand for private schools that might compete against the publicly funded schools. All elementary students are treated equally as having some types of “special needs” in individual areas, given extra time, and tutoring in areas that they struggle with, which are often the foreign language areas. Students with even severe learning disabilities are progressed through the grades alongside peers their own age in what they define as a “mixed abilities environment”. The mixed abilities equality is the nearly opposite to the educational philosophy of other developed countries and may provide Finland’s science and engineering programs with a competitive advantage at finding unorthodox solutions overlooked by companies in Asia and the United States. The mixed abilities culture might prove especially beneficial in industries needing solutions at the intersection between hardware and software engineering. Software researchers have published several studies about exceptional software developers finding their exceptional programming talents after being misdiagnosed as “learning disabled” in elementary schools. The cultural support that Finnish children of all abilities receive, may reveal that there are many underutilized workers whose strongest language skill is found once they learn software coding.
Competition, even in school sports is not directly rewarded over collaboration; instead, the Finn’s promote team strategy, cooperation, and sportsmanship on their hockey and basketball teams over the resulting winning scores. The Finn nationalistic pride extends to its unique educational system where teaching is perceived as a prestigious career, so honored, that fewer than 10% of applicants for elementary school teaching positions are accepted. It is often claimed that Finland is the only country where it is easier to become a doctor than a teacher. Despite Finland’s unorthodox educational philosophy, its students score among the highest of any developed nation, especially in the sciences. This unusual educational experience creates a workforce that has excelled in the collaborative engineering environment that Nokia will need to produce complex networking software code products that are developed using a large team of engineer’s working simultaneously on large blocks of abstract computer code.
As a country with few military victories, little global economic prestige and notably lacking in global sporting team wins, the Finns instead reserve their competitive energies for outside its borders, celebrating Finnish victories over larger multinational competitors with an enthusiasm normally reserved for sports rivalries. Unlike the culture in Silicon Valley, Finn’s do not celebrate the individual successes of its tech entrepreneurs or corporate executives; instead, the Finn’s national exports are a team sport and belonging to the company that is on the winning team is its source of family pride. The annual global export revenue rankings are the scoreboard that defines career success in Finnish culture. Like a job at Goldman Sachs, Google, or Apple in the US, belonging to one of the companies that contributed to that country’s economic success is a source of honor and at times in Finland’s history, Nokia has been the prestige employer. So highly was the company’s regard in society, that in the years from 2010 to 2018, Nokia’s fall from dominance in cellular phones is felt by many as a humiliating defeat, causing many to question its culture’s strategies at competing in technology industries. However, this fall from dominance occurred during a period where Nokia appointed a Microsoft executive from Canada as their CEO, this abrupt change in corporate culture may have been poorly timed and in 2020, Nokia appointed a Finnish oil executive as the CEO to lead Nokia’s bet on telecom hardware.
Nokia’s Competitors and their Products
Today Nokia remains a global brand, mostly recognized for its inexpensive cellular phones that dominated the global phone market in early 2000’s. However, the company missed the move to smartphones and lost its global leadership to Apple and Samsung. Nokia recently downsized its workforce after its loss of cellular handset dominance and a failed smartphone alliance with Microsoft, struggling to find a new identity from 2012 to 2018. Nokia leadership saw its strengths suited to pivot away from retail products into cellular network infrastructure, and the company shed its consumer-focused retail divisions.
In 2019, revitalized and back the under new leadership from a native Finn CEO, Pekka Lundmark launched Nokia’s race against China’s Huawei, Korea’s Samsung, Sweden’s Ericsson, and the United States Qualcomm to be the first to build the broadcast antenna hardware for the upcoming 5g revolution in the telecom industry. With its sights focused on its Swedish neighbors at Ericsson, a company that was founded in 1876 as Europe’s first telephone maker. Ericsson invented Bluetooth wireless and the valuable 4G MIMO LTE design and has pioneered telecommunication technology for almost 150 years. Ericsson had a 27% market share of all the wireless telecommunications hardware in previous cellular networks, the largest of any non-Chinese company. As the rush for 5g evolved by 2018, Qualcomm and Ericsson had filed the most patents for 5g hardware with Samsung at a distant third and Huawei in fourth place. At the time of Nokia’s commitment to the 5g future, it was the 5th largest patent holder. However, by April of 2021, Nokia’s engineers have shocked the competition, announcing 3000 new 5g patent declarations and claiming the number one spot by a large margin as the largest portfolio of essential 5g patents. While critics may have suspected that many of these patent applications were trivial technologies patented as a marketing stunt to promote Nokia’s rankings; however, the 1st qtr. 2021 earnings report from Ericsson and Nokia showed that Nokia had grown its patent royalty income at Ericsson’s expense, also making gains in patent income at QUALCOMM’s loss as well. Nokia’s hardware revenue gained from careful planning in its supply chain from long standing relationships with Taiwan Semiconductor and a new relationship with Broadcom for access to chip inventories. It appears that once again the Finn’s have demonstrated their skills at not only strong collaborations with customers; but also building loyalty from its suppliers. That loyalty allowed Nokia to keep its hardware assembly lines moving when chip shortages stalled production at competitors Qualcomm and Ericsson.
Nokia’s rush to become the world’s supplier of 5g paid off late in 2019 when the US and EU banned import of the market leader Huawei’s network equipment citing national security concerns. Nokia became the only politically neutral supplier of network hardware that managed to be approved by all 4 telecom operators in the US, Korea, and Japan. The COVID 19 epidemic also benefitted Nokia, accelerating the global demand for 5g, and crippling its remaining competitors Ericsson and Qualcomm that were unable to deliver on 5g equipment orders due to shortages from semiconductor suppliers. Nokia’s status as the new global leader in 5g hardware was revealed as 1st qtr. 2021 earnings reports showed that Nokia had moved into the number one telecom hardware leader, taking large cellular hardware market shares as well from Huawei, Ericsson, and Qualcomm due to its access to large inventories of the scarce computer chips when its competitors sat on the sidelines waiting to be resupplied.
India’s Cellular Market Potential
Nokia’s growth outlook improved in 2019 as the competitive atmosphere in network hardware quickly evolved with recent regulatory surprises that have opened additional export opportunities for Nokia. The global telecom market was disrupted by political forces, as its largest supplier, the Chinese Huawei, was placed on the restricted supplier list in western countries. This restriction opened a lucrative opportunity for Nokia to benefit from the massive infrastructure spending in the countries that Nokia previously lost to Huawei. Political pressure from the United States and its European allies mounted, especially for trading partner India to eliminate Huawei’s hardware from its telecom networks. Fears, which many believe are unfounded, have spread that Chinese made equipment contained security breaches that allowed the Chinese government to eavesdrop on secure communications made across the networks. We saw an opportunity for Nokia to leverage the recent political discord against India’s current supplier and offer the Indian utilities an easy solution to resolve their Huawei supply relationship dilemma.
Due to limited wired internet access, India is the largest consumer of wireless data worldwide, the average wireless subscriber uses 11GB per month. In January 2021 there were 1.1 billion wireless subscribers among four wireless providers, Jio, Airtel, Vi and BSNL India ranks second for total telecommunication subscriptions. 70% of India’s population resides in rural areas but those residents only have 44% of the total wireless accounts, making rural markets the key to India’s growth. India’s ultra-broadband 5G wireless subscriptions are forecasted to surpass 350 million by 2026.
Global 5g network infrastructure spending doubled in 2020 to $8.1 billion and has been growing at 10.4% the total wireless revenue. For example, in the United States, the typical family of four spends $1650 per year in wireless subscriptions, which requires the wireless providers to invest about $170 each year in capital infrastructure to support the data transfer needs for those subscriptions. Wi-Fi as a service, including, 3g, 4g, LTE and 5g is projected to grow at 19.8% CAGR from $3.4 billion in 2020 to $8.4 billion by 2025. India’s own broadband subscriber base has grown at 43.7% CAGR since 2015.
The Indian government launched a digital communications policy in 2018 aiming to provide broadband access to all by 2022. In 2020 India’s Department of Telecommunications allocated $9 billion toward assisting their private sector achieving its broadband objectives. Due to the unforeseen delays in acquiring 5G hardware, this goal will be delayed be delayed by several years. All the current events have snowballed into a great opportunity to match up Nokia’s strengths with India’s needs.
Market Entry Strategy
We believe that Nokia should approach the export opportunity with a think global-act global perspective. India’s telecom hardware services do not require a high degree of cultural adaptation to be accepted by wireless utility providers. We believe the most crucial customized cultural aspect will be how the sales contract team manages to handle the delicate public relations image issues that the Indian government leaders are facing as they appear to be pressured by the U.S. to cancel their previous purchase agreements with Chinese telecom hardware supplier Huawei. India’s officials may make a public display of resistance to the Nokia conversion or be overly critical of the deployment as a tactic to diffuse the moral obligations they feel to their contacts at Huawei.
We believe that focusing on Nokia’s dual channel technology differentiation as being a superior solution that is a better fit for India since COVID 19 disrupted the timeline for the government’s 5g frequency auctions, which were a prerequisite to its local telecom providers to begin placing orders for 5g broadcast antennas. Government officials can cite the need to buy 4g convertible antennas for immediate buildouts, with the details that they could not afford to buy Huawei’s 4g transmitters and later buy additional 5g hardware to replace the earlier purchased 4g antennas. Using that reasoning, the officials could assert that they were not bowing to U.S. political pressure by shutting out Huawei and ZTE, it was just a matter of a better solution being available that would make the best use of taxpayer funds.
We believe that pricing of Nokia’s equipment is less sensitive than it was pre-covid when Huawei’s won the initial equipment orders. With China no longer in the running, it is unlikely that Ericsson or any other small competitor would bid the contracts at low price points. Nokia is the only antenna provider that has adequate inventory to deploy the build-out by end of the 2021 fiscal year. With current price increases on future semiconductor orders, it can be assumed that all competitors will be bidding with a generous margin for price increases factored in.
Budget Allocations and Cash Flows
Profit Potential and Cash Flow Schedule
Risk Analysis
Sources
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Ray, Tiernan. “For Ericsson and Nokia, 5G can’t Deploy Fast enough.” Barron’s Mar 05 2018: 23. ProQuest. 4 May 2021 .
“Huawei Part of DoT Groups to Prep India’s 5G Roadmap.” Mint Dec 02 2020 ProQuest. 4 May 2021 .
“Nokia Dives as 5G Rollout Costs Bite: Briefing.” Financial Times Oct 25 2019: 1. ProQuest. 4 May 2021 .
“Stock Review: Nokia (NOKIA:EUR3.39) Decreases.” Company Data Report May 19 2020 ProQuest. 4 May 2021 .
mableannchang. “China’s Huawei, ZTE Set to be Shut Out of India’s 5G Trials.” China Economic Review Aug 14 2020ProQuest. 4 May 2021 .
Milne, Richard. “Nokia and Ericsson Remain Exposed in Geopolitical 5G Tussle: INSIDE BUSINESS EUROPE.” Financial Times Jul 02 2020: 7. ProQuest. 4 May 2021 .
Mingas, Melanie. “India’s 5G Countdown Begins.” Capacity Magazine (2020) ProQuest. 4 May 2021 .
Ray, Tiernan. “For Ericsson and Nokia, 5G can’t Deploy Fast enough.” Barron’s Mar 05 2018: 23. ProQuest. 4 May 2021 .
