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Markets for Managers: A Managerial Economics Primer by Anthony J. Evans

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CHAPTER 6 Capital Theory and Recalculation

‘The generic concept of capital without which economists cannot do their work has no measurable counterpart among material objects; it reflects the entrepreneurial appraisal of such objects.’

—Ludwig Lachmann1

Nokia was founded in 1865 as a wood-pulp mill in southern Finland. Around 30 years later a rubber company was set up in the same town (which had become known as Nokia), and 20 years after that a cable company was created. In 1967 these three companies merged and the modern company was born.2 Up until 1980 around 90% of their sales were in ‘rubber, cable, and other basic products’, and almost half of their customers were within Finland.3 When Jorma Ollila took over as President and CEO in 1992 the company was in a mess. They were an inward looking conglomerate without strategic focus. The collapse of the USSR dented a major trading partner and losses were mounting. But they had a plan. Nokia decided to focus on telecommunications and mobile phones (with a particular emphasis on the GSM digital standard), and over a few years sold off all other product lines.4 When they released the Nokia 2100 in 1994 they were hoping to sell 400 000. They sold 20 million.5

Not all stories of entrepreneurship have such stunning results, but they all share similar themes. The focus of a company often shifts over time, as product innovation and changing demand lead to new opportunities. Macroeconomic factors can cause disruptions, and attempts ...

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