Strategic analysis of Nokia Corp
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Published: Mon, 5 Dec 2016
1.0 Executive Summary
The following is the strategic analysis of Nokia Corp., which discusses the external and internal environment. The first part, external environment, presents the opportunities and threats along with the political, economic, sociocultural, and technological issues of the handset industry. It provides Porter’s five forces framework for the discussion of the attractiveness of the industry.
The second part of the report analyzes the main strengths behind Nokia’s success and leading position as a handsets manufacturer.
We proceed with the analysis of Nokia’s weaknesses which may impede on its ability to utilize the growth opportunities. We also make recommendations regarding Nokia’s strategy for US market, converged handsets market, and acquisitions.
Owing to the complex and self-motivated environment, Nokia faces numerous strengths, weaknesses, opportunities, and threats. This report is to look for the best possible strategy of Nokia. Initially, the key strategic issues Nokia is facing today is acknowledged to be economy, technology, leading brand, scale, and number one market position based on the strategy analysis in Task A. Secondly, the imposing strategy that Nokia should take on is analyzed to be exhaustive growth strategy, and in particulars, the strategy options of Nokia today is illustrated to be cost leadership, differentiation, and focus strategy. Among which Nokia should select a combination of the cost leadership and differentiation strategy according to its brawny assets, low fixed cost, and elevated research aptitude. The paper also discusses the relationship between Nokia management style, climate and its organizational structure.
Strategy can be defined as “the basic characteristics of the match an organization achieves with its environment.” Owing to the complex and go-ahead environment, Nokia faces several strengths, weaknesses, opportunities, and threats. This article is to seek the optimal strategy of Nokia. The investigation is affirmed in the following ways. Firstly, the key strategic issues of Nokia are acknowledged based on the strategy analysis in Task A. Secondly, the strategy options of Nokia are analyzed by the competitive generic strategies theory which has been promoted by Porter. Thirdly, after the illustration of the competitive generic strategies, the optimal strategies will be proposed.
2.0 Section 1 Company Background
Nokia was established in Finland in 1865. Owing to its digital insurgency starting from 1992 by introducing its first GSM model as well as the new formulation of the key essentials of its strategy by sending-off the old businesses and progressively more focus on telecommunications in 1994, it helps Nokia generate the basis for a triumphant conquer of the world telecommunication market. Till now, Nokia is by now the world leader in mobile communications, driving the growth of the broader mobility industry.
Fulfilling an elementary human necessitates for social connections and contact by connecting people is the mission of Nokia. Currently, Nokia comprises four business groups that are mobile phones, multimedia, enterprise solutions and networks.
Being the forge of the mobile communication market in the world enjoying about 30% share of the world’s mobile phone market, Nokia is abiding to discover innovative investment opportunity. Teaming up with the Sanyo Electric Corp. Which ranked the 10th world while to shape a shared endeavor, Nokia will carry on to be outrival and advance in the world telecommunication market.
3.0 Assessment of Strategies
3.1 Business Level
Nokia’s trade level strategy is based on a cost leadership. Nokia has an outsized product portfolio which would gratify consumers all over the world. It strives to keep low costs for its products throughout firm costs management and economies of scale. Nokia utilizes strategic suppliers all over the globe to attain extremely modified subassembly apparatus which are used to generate its elevated tech savvy devices.
Market location: Nokia counts profoundly on its sales in key market regions. More than half of sales arrive from operations in Europe. Another vital market for Nokia is China, and, finally, Asia-Pacific region.
In order to go with iPhone and BlackBerry smartphones and protect its share in the converged handsets market, Nokia introduced 5800 touchscreen. As a consequence, after the first quarter of 2009, Nokia’s market shares in smartphones augmented by 3%.
3.1.3 Corporate level
On the corporate echelon Nokia is cultivating a growth strategy. Its growth is obsessed principally by acquisitions and concentrated R&D. During the past few years Nokia has been vigorously obtaining companies with new technologies and competencies, including besides investments in alternative positions. All of these acquisitions and investments were embattled to improve Nokia’s ability to assist form the Mobile World.
4.0 Section 2: Eliciting and Evaluating Strategy
All companies have their way of identifying and commerce with these, their mainly decisive strategic question. Though, this process of managing emerging strategic issues is typically non-structured, not essentially optimally appropriate to facilitate the efficient identification of the most significant questions and the suitable allocation of top management attention and corporate aptitude support to answer the recognize strategic questions. In spite of the post research during 1960s, 1970s, and 1980s into the domain of strategic issues (SI), strategic issues management (SIM), and strategic issue management systems (SIMS) there is an insufficiency pertinent approaches for firms to use in improving their awareness focus and distribution in strategic issue management process.
4.1 Key Strategic Issues Face Nokia
Nokia should concentrate more on the electrical market during the financial crisis era because the financial tumult has absolutely predisposed the global economy. A report of Nokia which exposes a lower mobile device industry outlook for fourth quarter of 2008 than the previous estimate of roughly 330 million units. Nokia acknowledges a tough time for telecommunication industry in 2009 symbolized by an anticipation of mobile device volumes turn down 5% or more from 2008 levels which exposed the immense concern of recession (Nokia Capital Markets Day, 2008). In short, the mobile device market has declined. From the market prediction it will constantly decrease. Such state of affairs is caused by consumers’ pull-back in spending, legal tender unpredictability, and decreased ease of use of credit from the slowdown of global economy. Especially, Nokia believes the incremental collision affects the emerging markets more other developed markets (Nokia Capital Markets Day, 2008).
Technology is the soul of telecommunication industry which is the reason why the R&D investment of Nokia in the year passed is EUR 5.6 billion (Company information, 2008). Smart phones, 3G mobile phones and environment friendly mobile phones are the substantiation of technology progressing in telecommunication industry. Nokia Research Center make-believe many new technology reflected by the forthcoming innovations as well as indoor positioning, location sensing, mobile journalism and so on (Upcoming innovations, 2008).
The most important brand, scale and number one market position is the most noteworthy strengths of Nokia (Nokia Capital Markets Day, 2008). As the most well-known brand of mobile device supplier in the world, Nokia is the representation of quality. Consumers are comfortable with its devices and services. Nokia’s highly variable, low fixed business model gives it the opportunity to scale to a declining market (Nokia Capital Markets Day, 2008).
The mobile communications industry is changing quickly, for instance, network plays a more and more significant part and the market articulations have been introduced and are still being familiarized (Annual report, 2007). Nokia’s sales and profitability are considerably exaggerated by the growth and success of the innovative market division, which needs a distant outlook and sympathy of the market. Nokia lost the market share of 3G mobile phones once owing to the neglect of the significance of network. On the contrary, Apple experiential the tendency and brought out iphone.
Competition is extreme in mobile communications industry. To shun the collapse the company should progress its market standing, or become accustomed to the changes in the spirited scenery which is very imperative for Nokia’s strategic marketing design. Though Nokia has already been the top one in the mobile communications industry. The existing the pressure is from other telecommunication providers such as Samsung, Motorola. Moreover, as the rising importance of network in mobile communications industry, the entrance of network companies becomes an enormous anxiety.
5.0 Strategic Options
5.1 The Grand Strategy of Nokia
Considering the SWOT analysis of Nokia, the grand strategy Nokia should accept is growth strategies. And among which, exhaustive growth strategy is deserve to be paid immense consideration in order to reinforce the competitive position of accessible products or services of Nokia such as devices, PCs and the amalgamation with the Internet (Nokia Capital Markets Day, 2008).
5.1.1 Competitive generic strategies
In particulars, the competitive strategies lead the success in the marketing. The key attitude for a competitive strategy is how to build advantages in market competition. Cost leadership、differentiation and focus are three competitive generic strategies (Porter, 1980, 1985).
Three of them let companies to gain the profits over the average level of industry and form steady competitive recompense.
5.1.2 Cost leadership Strategy
Nokia claims a cost reducing on its capital markets day at the end of this year. Nokia CFO, Rick Simonson emphasized that Nokia is practicing a cost reduction which is effective now and is continuing to keep the strategy for 2009 and 2010 ((Nokia Capital Markets Day, 2008). Nokia is always using a highly variable, low fixed cost business model. The balance sheet of 2007 gives us a clearer view of this. The fixed assets and other non-current assets are 8305 EURm, but the current assets are 29294 EURm (Annual report, 2007).
Mobile phones are identical products if you do not call for multifunction except sending massages or making calls. Thus, the cost leadership strategy is possible to follow and the switching cost for customers of mobile telecommunication industry is very low, almost zero. So it’s rather easy for a customer to purchase another brand of mobile phone only for a lower price.
One of the risk of adopting a cost leadership strategy maybe the simulation of competitors which guide to a price campaign and lower the gainful aptitude for the whole market. And the change of technology can dissolve the low cost benefit.
5.1.3 Differentiation Strategy
Differentiation strategy means providing diverse products or services from competitors to attain competitive advantages focused on enormous market.
Modern telecoms market is changing quickly, grows up rapidly, and compete fiercer than most other markets. So it is quite vital to keep competitive by maintaining up to date and spotlight on modernization. The marketplace is shifting all the time and the conventional mobile device industry is implicated with internet services, therefore, the products and services Nokia offers should be totally change (People management, 2008). Seeing this trend, Nokia amalgamated with Nokia Siemens Networks.
5.1.4 Focus Strategy
Focus strategy is using the cost leadership or differentiation focus on certain customer group, regional market and product segment market. It often applies to medium and small enterprises which are not able to achieve cost leader and differentiation in the whole industry (Lynch, 2003). As for a leading company of mobile telecommunication industry, the focus strategy is not appropriate for Nokia.
5.1.5 Optimal Strategy
According to the analysis above, Nokia should acclimatize a mixture of cost leadership strategy and differentiation strategy. Nokia has burly assets which craft the strategy is likely to carry out, and in the year passed total tangible assets are 33857 EURm (Calculated based on Annual accounts, 2007) comparing to 21777 EURm in 2006. Wherein, Property, plant and equipment amounts to 1912 EURm, Inventories is 2876 EURm, and accounts receivable is high to 11200 EURm (Annual account, 2007) Sometimes, an stress on cost leadership can perform as a shape of differentiation when the cost leadership strategy focused on providing value-oriented customers with products that are certainly value-for-money, relation to its competitors. And its guarantee is to help people sense close to what is imperative to them.
Focusing on customers rather than the competitors is vital when deciding differentiation strategy. Several customers’ apprehension the design, quality or customer services of a company. Consumers’ needs are constantly what Nokia anxious the most. Continuous of innovation is critical in a company adopted differentiation strategy. Nokia put its priorities for 2010 in increasing Services & Software and mobilizing customer email and consumer instant messaging for millions of Nokia product purchasers.
6.0 External environment and organizational audit
6.1 PESTEL (located in Finland)
6.1.1 Political and legal
Finland has the steady economics and policies. Finland is exceedingly open to investment and free trade. Finland has peak levels of economics sovereignty in many areas, although there is a profound tax load and nonflexible job market. Finland has topped the patents per capita statistics, and overall efficiency growth has been brawny in areas such as electronics.
The legal system is obvious and business bureaucracy less than most countries. Poverty rights are able-bodied confined and contractual agreements are severely honored (CIA World Fact book, 2007). From that, it is straightforward to see that Nokia can befall reputation because of the steady policies and economics of Finland, where head office of Nokia is situated. Moreover, Finland constantly tries to expand job market regulation.
Finland increased job market regulation in the 1970s to offer steadiness to manufacturers.
The global financial disaster exaggerated most companies all over the world. Constant economic downturn has unfavorable effects for Nokia’s business. Moreover, exchange rate fluctuations interrupt the repatriation of profits earned abroad. A change in incomes is definitely associated to Nokia’s sales. Nokia’s profits are contingent on the costs of their inputs, profits will likely decrease if the input increase.
According to document searched, labor force had 2.68 million people in 2007. In labor force by profession, industry has 17.5% labor, finance, insurance, and businesses devices are 12%, and public services are 30.2% (CIA World Fact book, 2007).
This statistic proves that income of end is higher than European’s income. In addition, finish has elevated living situation. According documents, in 2006, there were 2,381,500 household of average size 2.1 persons; and approximately 92 percent has mobile phone (CIA World Fact book, 2007). Therefore, it is easy to see that this is immense market for mobile manufacturers as Nokia.
Finland is extremely incorporated in the global economy, and global trade is a third of GPD. In a 2004 OECD assessment, high technology built-up in Finland ranked second biggest after Ireland (CIA World Fact book, 2007). Nokia realize that technology is really essential for their expansion so that they have slogan:
Firstly, substance management means that they try to work closely and create the friendly environmental with their suppliers. Second issue is energy effectiveness, to make sure devices use as little energy as possible. Finally, it is to get back and recycling. They want to boost customer responsiveness of recycling, recommend better recycling in all markets and encourage the recycling of used devices through precise initiatives and campaigns (Nokia, 2008).
7.0 Nokia Value Chain
An evaluation of Nokia’ value chain is displayed in Fig 7 based on work by Porter (2004: p.38), who describes it as:
The linkages show how distinct key and supporting actions interrelate to generate value within the industry.
8.0 Section 3 Core Competence
Core ability of Nokia is scheming and executing extensive term expansion programs employing core competence of interacting in-house and outside capability in conditions of Nokia’s name of the most victorious (Marshall’s plan) and consistent global growth leader. This mixture of assets represents Nokia core competence since it could not be simply copied or imitated while meeting two theoretical situation of a resource-based potential formulated by Teece at al. (1997). Competitors cannot build up similar combination competences and capabilities promptly (Dierickx and Cool, 1986).
“Nokia’s core competencies approach in three main fields – mobile handsets, network technology and middleware. When deciding on the development and manufacturing of innovative products, speed is the serious factor in this quickly changing technological environment. For example, when deciding whether to work together on a product or software development, we will mull over if we are able to create the product alone fast enough and do we have the competencies to create it within a short time frame. If it is a core product, that is mobile telephony, Nokia will manufacture it internally because it is much well-organized and the finish product will also be of enhanced quality. But on the other hand if the new product is not within our capability and core product range, our next step will be to decide on the form of association or outsourcing with a company that can create it quick adequate. And if a new technology emerged and is not shaped by Nokia, Nokia will work together and subcontract for the technology” (A manager at Nokia Group).
8.1.0 Example 1
In 2000 Nokia initiated SyncML – a usual for universal of synchronising far-flung data and personal information crossways multiple networks, platforms and devices, while a range of companies sponsored for the standard. These companies comprise Ericsson, IBM, Lotus, Matsushita, Motorola, Operwave, Starfish Software, and Symbian whilst the technology is supported by frequent most important wireless companies.
Outsourcing to external vendors however not a well-liked choice within Nokia and prior to 2002 is, this activity contributed only about 15 to 20 percent.
8.1.1 Example 2
Nokia’s two key core competences are GSM handsets assembling and the mainly wide-ranging distribution network building up. Early before 1998 in India, Nokia had mastered on designing GSM handsets. It had been the top one worldwide on making the paramount excellence and the most creative GSM handsets. Besides, it rolled out the distribution network by partnering with HCL ([email protected], 2007). The network now is the most extensive in Indian market and it at least involves over 90000 retailers to market Nokia’s handset over India, compared to Samsung, which is the third top handset seller in India and only has the distribution network that associate 35000 retailers (Rao, 2007). With these two core competence; Nokia had succeeded in creating a brawny charisma from zero ground between its rivals since 1997 (Datta, 2004).
By looking within Nokia’s core competence, we see that Nokia’s in-house organization operation is too successful feature for supplementary it to govern handset market. It constantly at once adjusts itself to adjust any environment changes. In operating in early time in 1990s, being short of local a talent that was common. For avoiding lack of local talents, Nokia established an art studio and add program into Indian university to train locals and attract them work in Nokia (Pahwa, 2007). Further, for its auxiliary more intensely understand the Indian culture mechanism, it reduce the number of Finnish expatriate and boost the amount of hiring Indian as local managers. In addition, it also accomplishments to alter its shortage. For atoning for the short of technology that making CDMA handsets, it in 2004 established R&D center for developing CDMA technology (Staff Writer, CNET News, 2004). Although it regained market share of CDMA in India from Samsung (Grinsven, 2003), the circumstances becomes worse in 2008. So far, they have held very little number of CDMA handset models. As a result, they lose the chance that work with Sprint and Verizon and thus they indirectly lose U.S. market (Gardiner, 2008). Their newest handset models- n96, n95, n85, n79, Nokia E series handsets, and typically Nokia 4 digit number of model don’t support CDMA (http://www.Nokia.co.in/products).
9.0 Appendix 1
Tools, Techniques & Artifacts and
applicability to Ladbrokes’ LBO business stream
BCG portfolio matrix (Henderson, 1979)
Experience curve (Henderson, 1979)
Game theory tools (Von neumannn and Morgenstern, 1944)
PIMS (Buzzell et al., 1975)
Porter’s 5 forces (Porter, 1980)
Porter’s generic strategy model (GSM) (Porter, 1985)
Strategic groups (McGee and Thomas, 1986)
Value chain (Porter, 1985)
external environment exerts pressure over betting and gaming industry especially legislation and pure economies of scale. This is not a high velocity environment due to relatively slow moving changes in numbers of overall LBOs in the UK. Changes to legislation which govern the industry are also slow moving. It is a low knowledge intensive environment where key skills are concentrated in risk management and trading departments concentrated in Head office.
value is created through use of financial resources and technological assets to add value to management of risk, store level efficiencies and customers’ experience in-store.
The relaxation of the ‘demand test’ in the Gambling Act 2005 has allowed the key operators to play a strategic defensive/offensive ‘game’ with shop locations, thereby making it harder for smaller operators to compete in popular locations
Strategic Groups –
there is some evidence to support the grouping of the three key operators in the UK betting industry: Ladbrokes, William Hill and Coral in a Strategic group as described by McGee and Thomas, 1986, given that strategic decisions Ladbrokes make, cannot be easily replicated by firms outside this ‘key operator’ group due to the nature of the regulatory environment and essential economies of scale required in the industry. Barriers to entry or ‘mobility barriers’ as described by Henderson and Thomas, are high. While in other industries, this could be considered an ‘oligopoly’, it is not the case in the betting industry because the betting firms are primarily price takers, not price setters, therefore cannot control prices.
This does not primarily apply to the Betting industry because supply prices are fixed and are the same for all firms, resulting in no gain through a superior ‘experience curve’. Other costs, however, could be less in firms with more experience, but some of these are costs levied by industry legislation and do not reduce over time due to the experience curve of individual firms.
Profit Impact on Market Share as described by Buzzell et al, provide some explanations for profit increases as a result of scale. The comparison of profitability between the three key operators demonstrates that market share will not deliver profitability in the betting industry unless they manage their financial resources and capital structures in an efficient manner. Note the similarities in operating margins based on similar gross margins, market share and market capitalization. Costs, including interest payments are potentially profit sapping in this industry, especially as products are homogeneous and supply price is fixed.
Porter’s Value Chain
Core competences (Prahalad and Hamel, 1990)
Dynamic capabilities (Teece et al, 1997)
Knowledge management (Nonaka and Takeuchi, 1995)
RBV: Valuable, rare, inimitable and non-substitutable (Barney, 1991)
Value chain (Porter, 1985)
Sample of textbook schemata:
Resources, capabilities and rents (Grant, 2002:153)
Resources, competence & strategic capability (Johnson and Scholes, 2002: 146)
The contextual Not particularly relevant to the LBO operations due to low levels of environmental velocity and low Knowledge intensity (source for argument in main doc).
the analysis of Ladbrokes’ LBO operations suggests that advantage is primarily gained through greater financial resources. This is not a resource which meets the VRIO test as it is a fundamental economic and static resource and (arguably) easy to acquire. In terms of rent extraction this is down to leveraging scale to achieve higher value of margins through increase volume properly risk managed. Additionally, Ladbrokes display capabilities designed for sustainability, defensibility and ultimately market dominance.
Core competences –
in general, there is little innovation required in the LBO business due to the homogeneous nature of the products and the economic structure of the pricing. Being a low knowledge intensity business, the tacit and intangible knowledge inherent in the definition of core competences further supports the lack of applicability of this concept in the LBO business.
VRIO/Dynamic capabilities –
again, the contextual environment of low KI low EV reduces the need for Ladbrokes and other betting companies to be truly learning organisations or organisations creating dynamic capabilities which meet the VRIO characteristics and definitions. It could be argued that Ladbrokes do not create competences as defined by Prahalad and Hamel but possess a number of capabilities designed for margin protect and greater financial resources.
High Velocity School
Cycle-time reduction (Stalk, 1988)
7S Disruption: speed, surprise, shifting the rules, simultaneous and sequential thrust, signaling, strategic soothsaying, and stakeholder satisfaction (D’Aveni, 1994)
Market disruption analysis (Bower and Christensen, 1995; Rigby, 2003)
Patching – flexible & modular organizational design for rapid entry and exit of markets (Eisenhardt and Brown, 1999)
Real options to negotiate favourable environments (McGrath, 1997)d
Simple rules to facilitate speed and flexibility (Eisenhardt and Sull, 2001)e
Time-pacing (Eisenhardt and Brown, 1998; Stalk, 1988)
Delta model (Hax and Wilde, 1999)
Ladbrokes operate in a low velocity environment with regards to LBO operations and these concepts are less appropriate for that contextual environment.
Applicability would be more relevant in the ‘remote’ business operations: Internet Sportsbook and Exchange (see figure Core betting industry) however, there would still be imposed constraints on the velocity due to industry regulations.
Complex ecosystem school
Co-evolution (Eisenhardt and Galunic, 2000)
Knowledge management tools
Managing the system architecture (modular design, reward systems, team processes, strategic language) to ensure diversity and increase within-firm and extra-firm interactions (Eisenhardt and Galunic, 2000; Moore, 1993; Nahapiet, 2001; Pascale, 1999 and Stacey, 1995)
Porter’s diamond (1990) explains ecosystem competitive advantage as complex interactions between co-evolutionary pockets (McKelvey, 1999 and Thomas, 1996)
Real options and multiple scenarios to capture emergent learning in complex conditions (Bowman and Hurry, 1993, Copeland and Keenan, 1998, Luehrman, 1998 and Miller and Waller, 2003)
Simple rules to condition system interactions (Eisenhardt and Sull, 2001, Macintosh and Maclean, 1999 and Sanchez, 1997)
Supply chain integration and simplification (Levy, 1994, Harvard Management Update, 1999 Harvard Management Update (1999) And now: Complexity theory. Harvard Management Update, 4(3), 8-9.Harvard Management Update, 1999; Whiting, 2001)
Labrokes does not primarily operate within a high knowledge intensive environment. While there is clearly are need for knowledge to flow from the wider bet-taking channels to Head Office to ensure adequate risk management, most of this information is done via the use of technology. It could be argued therefore that Ladbrokes’ core knowledge is concentrated in the central trading functions.
In this context therefore, complex ecosystem theories are a less relevant strategic influence for the Ladbrokes’ LBO business.
9.1 Appendix 2
LG is a Korea based company which provides ranges of mobile phone for customers to choose. Since its establishment, LG has evolved a lot according to the trend of mobile phone in Hong Kong. However, instead of putting all emphasis on 2-G GSM mobile phone, LG has put more focus on the 3-G mobile phone market and worked closely with the Hutchison Group, The 3 Hong Kong service provider, to provide high quality 3G mobile to customers. LG has used different means of marketing strategies including print advertisements, TV advertisements and celebrities to promote the products.
Motorola introduced the first mobile phone in Hong Kong in the 1980’s Motorola emphasizes on the transformation of device formerly known as the cell phone into a universal remote control for life by adding more functions and innovations in the mobile phone. Motorola won the Asian Innovations Award by the technology of the product A668 with a “finger writing board” on the mobile phone, also, with the integration of the technology of iTunes® by cooperation with Marc®, Motorola launched the product ROKR E1. Motorola aims to be the leader in multi-mode, multi-band communications products and technologies.
Samsung provide a wide range of products for customers to choose from, including the 3G mobile phone, the MegaPixel Camera Phone, the Camera Phone and the Color Display Phone. No matter from the prime mobile phone of the latest 3 G mobile phone, Samsung provides choices for customers to deliver the desirable benefits and solutions for different customers.
Ø Sony Ericsson
Sony Ericsson has the mission to be the most attractive and innovative brand of mobile phone in the world. To achieve this goal Sony Ericsson integrated design into every step of the process – intelligent features, user-friendly applications, innovative materials and attractive visual appearance. Design is the essential differentiator when comparing mobile communications products. The attractive good looking appearance and the sophisticated integration of technology has contributed to the success of Sony Ericsson, some products like W800i and W55
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