As Goes Nokia, So Goes Finland?

Microsoft's purchase of Nokia signals leaner times to come for Finland.

Microsoft Corp. has struck a deal to buy Nokia Oyj's mobile-phone division, apparently in the hopes that lashing together two also-rans in the mobile business will somehow turn them into one successful firm.

It's hard to imagine now that the first article for which I was paid money was a piece on the antitrust suits that were supposed to keep Microsoft from taking over the world. Ten years later, it has lost out on search, and again on mobile. The most prominent portent for the company's future is that it's coming out with an awesome game console this holiday season.

Nokia, meanwhile, has been declining even faster, as Samsung Electronics Co. Ltd. and Apple Inc. have carved up the market between them. The company that used to account for 20 percent of Finland's gross domestic product has seen its sales decline dramatically in the smartphone era and is operating at a loss.

That raises an interesting question: What does this mean for Finland?

I'm not exaggerating how dependent Finland's economy has been on Nokia. Here's the Economist last year, detailing the extent of the country's reliance:

NOKIA contributed a quarter of Finnish growth from 1998 to 2007, according to figures from the Research Institute of the Finnish Economy (ETLA). Over the same period, the mobile-phone manufacturer's spending on research and development made up 30% of the country's total, and it generated nearly a fifth of Finland's exports. In the decade to 2007, Nokia was sometimes paying as much as 23% of all Finnish corporation tax. No wonder that a decline in its fortunes -- Nokia's share price has fallen by 90% since 2007, thanks partly to Apple's ascent -- has clouded Finland's outlook.

One way to answer this question is to look at what happened to the companies' respective stock: Nokia's went up and Microsoft's went down. Nokia's shareholders will get to cash out at a premium, and if the businesses that are left (maps and telecoms infrastructure) don't make that much money, at least they don't seem to be in a cash-vaporizing downward spiral.

But that's a snapshot. What will the moving picture look like?

On the plus side of the balance sheet, Microsoft is still a huge company with a big pile of cash that it can spend on making Nokia phones better. On the downside, it's a big company that hasn't had a lot of hit products recently; will it boost Nokia's efforts, or will the corporate culture stifle its research and development?

Even if Microsoft does manage to make things work as an integrated manufacturer of devices and software (something it has done very well with the Xbox), that doesn't necessarily mean that Finland will prosper. R&D often shifts around inside large, multinational corporations that don't feel the same kind of loyalty that a homegrown firm does. Over the years, I'd expect to see Nokia's center of gravity shift toward the U.S. -- which for Finland means fewer high-paying, satisfying jobs in R&D, or global strategy.

Of course, those jobs were always relatively few -- but a global company run out of a small country can offer disproportionately rewarding jobs when times are good. The corollary is that when times aren't good, the whole local economy gets pretty bumpy. You don't need to go to Finland to see what this looks like; just take a peek at "company towns" like Detroit and Rochester, New York.

Overall, I'd expect that this merger signals leaner times to come for Finland -- not an economic contraction necessarily, but slower growth than it was probably expecting six years ago. Which is not to say that this is somehow the wrong thing to do. The whole reason that it's selling to Microsoft is that the company's in deep trouble. Without the sale, the company -- and Finland's economy -- might end up in even worse shape.

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