How Nokia's Lumia hopes carry the weight of a nation

Finland, competitively speaking, is on fire, according to the World Economic Forum, but does its deep and lengthy dependence on Nokia leave it skating on thin ice?
Written by Liam Tung, Contributing Writer

The World Economic Forum (WEF) 2012-13 Global Competitiveness Report (PDF) attempts to shed light on each country's competitive standing, in terms of its productivity and prosperity.

Lumia 820
Nokia - and Finland - are pinning their hopes on its new Lumia phones. Image: Sarah Tew/CNET News

Finland is doing very well on all counts, according to the WEF, which placed the Scandinavian country ahead of last year's third runner, Sweden, and just behind the respective first and second placed nations, Singapore and Switzerland.  

The "pillars" holding up Finland's competitive standing are its "well-functioning and highly transparent public institutions", ethical private institutions, and excellent healthcare and education system, according to the WEF, with the latter laying the groundwork for further innovation and technological adoption.

But how did these institutions come to be in such a good state in the first place, and where will the spending on future innovation come from?

According to a recent study (PDF) by the Research Institute of the Finnish Economy (ETLA), which also contributed to the WEF's report, a great deal of it came from Nokia.

A taxing problem

In 2008, Nokia accounted for nearly one percent of national employment in Finland, 37 percent of its spend on R&D and half of its business sector's R&D spend. ETLA points out that R&D was 3.4 percent of GDP in 2008 — and if Nokia were removed, it would fall to about 2.4 percent.

Its corporate tax contributions are equally impressive. In 2008, Nokia's contributed nine percent of Finland's corporate taxes, but as The Economist noted recently, it was as high as 23 percent in the decade up to 2007.

Nokia's total tax payments, as outlined in its annual reports, are an imprecise indication of its contribution to Finland's coffers, but they highlight scale of the decline in its payments — from €1.1bn in financial 2008, to €702m in 2009, €443m in 2010, and €209m in 2011.

Nokia Salo
Nokia's facilities in Salo, which closed this year. Image: Nokia

At a local level in Finland, Nokia's tax payments are even more noteworthy — they account for 95 percent of the €60m corporate taxes paid in Salo — a city in the south-west of Finland where Nokia had a significant corporate presence — in 2010. The city's total tax revenues will likely dwindle to €10m next year as a result of Nokia's aggressive cutbacks in the city.

As The Economist points out, Nokia's 2011 revenue as a percentage of Finland's GDP (20 percent), its large share of the country's patents (27 percent last year) and employment, lands Finland with a problem unique in the world — its economy depends to a large extent on a single company.

Big in Finland

While there are other nations where individual companies play an important role, none do the same degree of heavy lifting. Taiwan's Hon Hai had a similar revenue-to-GDP ratio last year, but it only contributed to eight percent of the nation's patents, while many of its staff were located in China. Samsung's revenues, double Nokia's, only accounted for 10 percent of South Korea's GDP in 2011, indicating the nation's economy was more diversified. 

Similarly, ETLA notes the importance of Ericsson's and Philips' patents to Sweden and Netherlands respectively, but Ericsson is less dominant in Sweden's economy while Philips' business covers a range of technologies. 

"Nokia instead is very dominant in Finland and is very specialised in a limited number of technologies," the report says. 

It would seem there is a lot more riding on Nokia's newly-released line of Windows Phone 8 devices than just Nokia's own future. Perhaps in future WEF will need to include a 'dependency' index to identify whether a nation is vulnerable to the collapse of a single company.

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