Nokia Study free essay sample

In recent 2 decades, people have seen the big convenience brought by colour TV, telephone, laptops, mobile phone and etc. Among them, the contribution of mobile phone is especially prominent: given the integration of technologies of Internet, laptop, and communication etc, the small and good looking handset will enable us ubiquitous application of modern multi-functions. The advantage of 3G even further attracts our minds with colourful imagination. During the up gradation of our living style, we owe a lot to the companies of the handset industry, especially those popular giants including Nokia, Motorola and Samsung etc When they change our living successfully, they realize their developing targets as well. For example, according to the Fortune Global 500 in 2005, Nokia and Motorola ranked 130th and 138 respectively1. Thus, they are recognized by the society. It’s unpredictable for a company to achieve great goals without correct strategies to employ. In the fierce competition of handset industry in China, the correct competitive strategies are required for the participant to win market shares. Surely, sometimes the right strategies are ifficult for survival. Nokia, as the no. 1 in the handset industry of China, is certainly the biggest winner through exertion of correct competitive strategies. As is mentioned above, the competition in handset industry in China will become even fiercer along with the emerging trend such as the advent of 3G, the alteration of distributing channels, and the improved level of industrial centralization etc. So competitors should promptly adopt relevant changes of their competitive strategies to adapt to new environment. 2. Company Background Nokia Corporation is a Finnish multinational communications and information technology corporation that is headquartered in Keilaniemi, Espoo, Finland. Over the past 150 years, Nokia has evolved from a riverside paper mill in south-western Finland to a global telecommunications leader connecting over 1. 3 billion people. During that time, Nokia made rubber boots and car tyres. They generated electricity. They even manufactured TVs. Changing with the times, disrupting the status quo – it’s what Nokia always done. Early Days In 1865, mining engineer Fredrik Ides tam sets up his first wood pulp mill at the Tammerkoski Rapids in south-western Finland. A few years later he opens a second mill on the banks of the Nokianvirta River, which inspires him to name his company Nokia Ab in 1871. In 1898, Eduard Polon founds Finnish Rubber Works, which later becomes Nokia’s rubber business, making everything from galoshes to tyres. Nokia rubber boots become a bona fide design classic, still on sale to this day – though Nokia no longer make them. Electronics go boom In 1912, Arvid Wickstrom sets up Finnish Cable Works, the foundation of Nokia’s cable and electronics business. By the 1960s, Finnish Cable Works – already working closely with Nokia Ab and Finnish Rubber Works – starts branching out into electronics. In 1962, it makes its first electronic device in-house: a pulse analyser for use in nuclear power plants. In 1963, it starts developing radio, telephones for the army and emergency services – Nokia’s first foray into telecommunications. By 1987, Nokia is the third largest TV manufacturer in Europe. Three become one Having been jointly owned since 1922, Nokia Ab, Finnish Cable Works and Finnish Rubber Works officially merge in 1967. The new Nokia Corporation has five businesses: rubber, cable, forestry, electronics and power generation. But as the 1980s come into view, it’s an entirely new industry that makes Nokia a household name around the world. The mobile era begins Nokia sets the ball rolling in 1979, creating radio telephone company Mobira On as a joint venture with leading Finnish TV maker Salora. 1981 then sees the launch of the Nordic Mobile Telephone (NMT) service, the world’s first international cellular network and the first to allow international roaming. The NMT standard catches on fast and the mobile phone industry begins to expand rapidly. In 1982, Nokia introduces the first car phone – the Mobira Senator – to the network. That same year, the Nokia DX200, the company’s first digital telephone switch, goes into operation. First handheld mobile phone Then in 1987, Nokia introduces the Mobira Cityman, the first handheld mobile phone for NMT networks. Despite weighing in at 800 grams and a price tag of Rs. 24, 000. The Cityman even earns a nickname, the â€Å"Gorba†, after Soviet leader Mikhail Gorbachev is pictured using one to make a call from Helsinki to his communications minister in Moscow. In 1987, GSM (Global System for Mobile communications) is adopted as the European standard for digital mobile technology. With its high-quality voice calls, international roaming and support for text messages, GSM ignites a global mobile revolution. A new direction On July 1, 1991, Finnish Prime Minister Harri Holkeri makes the world’s first GSM call, using Nokia equipment. And in 1992, Nokia launches its first digital handheld GSM phone, the Nokia 1011. That same year, new Nokia President and CEO Jorma Ollila make a crucial strategic decision: to focus exclusively on manufacturing mobile phones and telecommunications systems. Nokia’s rubber, cable and consumer electronics divisions are gradually sold off. Name that tune In 1994, Nokia launches the 2100 series, the first phones to feature the Nokia Tune ringtone. Based on Gran Vals, a classical guitar piece composed by Francisco Tarrega in the 19th century, it is probably one of the most frequently played pieces of music in the world. The Nokia 2100 series goes on to sell 20 million phones worldwide. Nokia’s target had been 400,000. On top of the world By 1998, Nokia is the world leader in mobile phones. The strategic decision to focus on telecommunications, plus early investment in GSM, has paid off. Between 1996 and 2001, Nokia’s turnover increases almost fivefold from EUR 6. 5 billion to EUR 31 billion and with the new millennium comes a host of new possibilities as the internet goes mobile. No longer are phones just for phone calls. Multi-tasking mobiles In November 2001 Nokia launches its first phone with a built-in camera, the Nokia 7650, and in September 2002 its first video capture phone, the Nokia 3650. Nokia launches its first 3G phone (third generation), the Nokia 6650, in 2002 that things really take off. With 3G technology, phones can now be used to browse the web, download music, watch TV on the move, and more. One billion and counting In 2005, Nokia sells its billionth phone – a Nokia 1100 – in Nigeria, and global mobile phone subscriptions pass 2 billion. Two years later, Nokia is recognised as the 5th most valued brand in the world. Dominated by others By 2010, having dominated the mobile world for over a decade, Nokia no longer has things all its own way. In the all-important Smartphone market, competitors such as the iPhone and Android-based devices now pose a serious challenge. Clearly, it’s time for a rethink. A fresh face at the helm In September 2010, Nokia appoints Stephen Elop as President and CEO. Formerly head of Microsoft’s business division, following roles at Juniper Networks and Adobe Systems Inc. , Elop has a strong software background and proven record in change management. In February 2011, Nokia announces it is joining forces with Microsoft to strengthen its position in the Smartphone market. The strategic partnership sees Nokia Smartphone’s adopting the new Windows 7 operating system, with the Symbian platform gradually being sidelined. The goal is to establish a third ecosystem to rival iOS and Android. Nokia launches its first Nokia with Windows phones, the Nokia Lumina 800 and the Nokia Lumina 710, in October 2011. . Strategic Analysis Nokia has three Strategic Business Units/Divisions (SBUs): Mobile Phones, Smart Devices and Location and Commerce. a) Mobile Phones Its Mobile Phone team focuses on bringing a modern and affordable mobile experience to people around the world. b) Smart Devices The Smart Devices team focuses on the creation of smart phones – this is the SBU responsible for the partnership with Microsoft and the Windows Phone platform. c) Location and Commerce The Location and Commerce team are responsible for developing a new class of integrated social location products and services for consumers, Nokia Maps. In addition to the services based aspect the Location and Commerce SBU provide digital map information, related location based content and services for mobile navigation devices, automotive navigation systems, governments and business solutions through Navteq, which was acquired in 2008 On 11 February 2011, Nokias CEO Stephen Elop, a former head of Microsoft business division, unveiled a new strategic alliance with Microsoft, and announced it would replace Symbian and MeeGo with Microsoft’s Windows operating system except for mid-to-low-end devices, which would continue to run under Symbian. Nokia was also to invest into the Series 40 platform and release a single MeeGo product in 2011. As part of the restructuring plan, Nokia planned to reduce spending on research and development, instead customizing and enhancing the software line for Windows Phone 7. Nokias applications and content store (Ovi) becomes integrated into the Windows Phone Store, and Nokia Maps is at the heart of Microsofts Bing and AdCenter. On 19 June 2006, Nokia and Siemens AG announced the companies would merge their mobile and fixed-line phone network equipment businesses to create one of the world’s largest network firms, Nokia Siemens Networks. Each company has a 50% stake in the infrastructure company, and it is headquartered in Espoo, Finland. The companies predicted annual sales of â‚ ¬16 billion and cost savings of â‚ ¬1. 5 billion a year by 2010. About 20,000 Nokia employees were transferred to this new company. In October 2007, Nokia bought Navteq, a U. S. -based supplier of digital mapping data, for a price of $8. 1 billion. Nokia finalized the acquisition on 10 July 2008. 3. 1 Corporate level Strategy On the corporate echelon Nokia is cultivating a growth strategy. Its growth is obsessed principally by acquisitions and concentrated RD. 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 Nokias ability to assist form the Mobile World. 3. 2 Business Level Strategy Nokias 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. 3. 3 Operational Strategy In 2011 Nokia had 130,000 employees in 120 countries, sales in more than 150 countries, global annual revenue of over â‚ ¬38 billion, and operating loss of â‚ ¬1 billion. It was the worlds largest manufacturer of mobile phones in 2011, with global device market share of 23% in the second quarter. The Nokia Research Centre, founded in 1986, is Nokias industrial research unit consisting of about 500 researchers, engineers and scientists; it has sites in seven countries: Finland, China, India, Kenya, Switzerland, the United Kingdom and the United States. Besides its research centres, in 2001 Nokia founded INdT – Nokia Institute of Technology, a RD institute located in Brazil. Nokia operates a total of 9 manufacturing facilities located at Salo, Finland; Manaus, Brazil; Cluj, Romania; Beijing and Dongguan, China; Komarom, Hungary; Chennai, India; Reynosa, Mexico; and Changwon, South Korea. Nokias industrial design department is headquartered in Soho in London, UK with significant satellite offices in Helsinki, Finland and Calabasas, California in the US. 3. 4 Supply Chain Strategy Nokia’s supply chain strategy is decentralized as its operational and marketing facilities are worldwide. 3. 5 Defensive Strategy In order to go with iPhone and Blackberry smart phones and protect its share in the converged handsets market, Nokia introduced 5800 touch screen. As a consequence, after the first quarter of 2009, Nokias market shares in smart phones augmented by 3%. 3. 6 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 is three competitive generic 3. 6. 1 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 is always using a highly variable, low fixed cost business model. The balance sheet of 2007 gives us a clearer view of this. The cost leadership strategy is possible to follow and the switching cost for customers of mobile telecommunication industry is very low, almost zero. So its rather easy for a customer to purchase another brand of mobile phone only for a lower price. 3. 6. 2 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. In Japan Nokia closed the mobile handset distribution and also cancelled the distribution of E71 handset due to low market preference. Opportunities ?In 2011, the global cell phone industry expected to grow by double digits ? Today, Asia-Pacific mobile phone industry is one of the fastest-growing industries in the world. ?Developing countries like China, Bangladesh, India and Pakistan has enormous demand potential. ?Nokia had a 50-50 joint venture with Siemens of Germany ?Youth wants the stylish aesthetics, fashionable handsets, it drive the new market for players. Threats Consumers are becoming more complicated in the choice of handset due to new styles by china mobiles. ?Difficult for sellers to differentiate their products and retain loyalty. ?Nokia is facing very strong price pressure from china and other mobile producers ? Nokia is losing global market share after the arrival of several Chinese producers ? In the Asia/Pacific emerged competitive forces. ?Apple, RIM and the other different sellers have created strong pressure for Nokia. 8. Competitive Analysis: Porter’s five forces model The micro environment is the internal factors that are affected by the customers, staff, shareholders and competitors. The best model for evaluating the micro environment of Nokia is Porter’s 5 forces as this takes into consideration the competitors, customers, suppliers and new entrants. Threat of new entrants: †¢The mobile phone industry is already a well established market and the threat of a new entrant is quite low, as the technology needed to rival the devices already available is quite advance if they want to differentiate from them †¢The barriers to entry in the mobile phone industry is high because any new entrants will need high investments in RD, technology and marketing in order to compete with the established organisations. New entrants want to take market share from the larger organisations but Nokia hold 29% of the market share in the industry, the highest market share in the industry. The threat of new entrants into the mobile phone industry is very unlikely as the start up cost of entering into the market at a high level needs a lot of investments and time to be considered a respectable competitor of the already established organisations. Nokia currently hold a 29% of the entire mobile phone market worldwide and for a new competitor to obtain some of their market will take either a very long term plan or something that is truly innovative and unseen before. This is because realistically the new entrant will need very high investment for RD and marketing, and would not be able to publish positive result for a long time as they try to build a customer base and a name for itself in an established market. In conclusion the threat of new entrants is very low and not a factor which Nokia will have to worry about in the near future. Power of suppliers: †¢Although Nokia rely on its suppliers to supply equipment for their advanced mobile phones there are actually a number of large equipment makers, which Nokia could switch to. The software suppliers for their Smart phones are now Microsoft, who will have a very high bargaining power. †¢As the leading mobile phone company in the industry they are in a very strong position when bargaining with their suppliers. Nokia are in the position where they can bargain and negotiate with any mobile phone hardware maker because there is a high number of equipment suppliers that are readily available to them should their current suppliers attempt to bargain for more money with them. Nokia’s main argument would be the fact that they are a global organisation that has the highest market share in the industry, so the suppliers would not want to lose such an illustrious organisation. On the other hand, Nokia have recently created an alliance with Microsoft for their software which would be considered a major coup for Nokia more than Microsoft. As a result, Microsoft will have a lot of power when negotiating a price and share because the deal is more beneficial to Nokia than Microsoft. In conclusion, there is a moderate threat from the powers of suppliers because although the hardware suppliers have a very low power, Microsoft’s power over the software is very high because they’re very few other organisations who have the expertise and skills to rival Microsoft. Powers of buyers: †¢The power that customers have is rising because of the increasing number of choices in the mobile telecommunication industry. †¢With a lot of the Nokia competitors all offering similar packages (e. g. nlimited texts and calls) the industry is very price sensitive with customers seeking out the best value for money. †¢Many of the consumers will also be tied into long term contracts so switching from one handset to another will be difficult and expensive for the consumer, as a result they may not want to change until the contract is finished. The mobile phone industry is a competitive market where the number of choices is very wide, resulting in the consumer ha ving a lot of power because they can choose to go to one of Nokia’s many rivals if they feel Nokia are not good enough. As Nokia do not have a direct store to sell to their consumers, intermediaries such as Car phone warehouse or network stores such as Orange also have other handsets readily available for the consumers, which makes it difficult for Nokia to have a direct impact on the selling of their handsets. As a result this has created a very price sensitive market because consumers will always be on the lookout for the best deals. In conclusion, the buyers have a high amount of power because of the other handsets they can purchase instead of Nokia. Threats of substitute’s products Mobile phones are an everyday essential in people’s lives today and people would find it hard to replace, as customers would not be able to be in constant contact when away from the house. †¢On the other hand, it could be said that customers would be able to contact people through others types of media such as social networking websites, email and home telephones. Although staying in constant contact would be hard in customers’ day to day life. †¢However, smart phones are capable of a lot of functions so there are many substitutes if the substitute focuses on one of the functions, e. . digital camera can take better photos then smart phones, notebooks can surf the web just as effectively and PDAs can plan a day the same way a smart phone can. Mobile phones have become an everyday necessity in peoples’ lives because of the important functions that they can do and are all available in just one handset. No other product has the ability to make phone calls, send messages, surf the web and many more in one device. The idea of being in constant communication with someone at anytime and anywhere makes the mobile phone a very important device to people. On the other hand, a mobile phone can be dissected into the key function where there are substitutes for the functions, such as the camera function on a mobile phone can be substituted for a digital camera which can do a better job than the camera in a mobile phone. In conclusion, the threat of a substitute product is very low due to the fact a mobile phone is no longer just for making calls but for all the other function as well are expected on all mobile phones. So, the only real substitute is to buy all the functions of a mobile phone in the individual products which would not be plausible to carry all around on a person at the same time. Without mobile phones consumers would find it very difficult to replace, as it can offer so much to the consumers all in one device, no matter what the needs of the consumer are. Consumers rely on mobile phones a lot and would not be able to find a substitute that has all the function of a mobile phone. Competitive rivalry: †¢Nokia rivals have moved to smart phones and androids while Nokia have only just recently released their first smart phones leaving them trailing their rivals such as Apple and HTC. There is also very little differentiation between the competitors which means any new smart phones in the market, like Nokia Lumina, will find it difficult to tempt existing iphone and HTC customers to switch. †¢Intense competition from large companies such as; Apple, HTC, Blackberry, Sony Ericson and LG, ect. Nokia operate in an industry where the competition is extremely fierce with high investment in RB and marketing to compete with some of the biggest organisations in th e world. This year Nokia’s market share has dropped to 29% and it is forecast to continue to fall because of the rising popularity of the Apple Iphone. After Nokia’s slow move into the Smartphone market it has left them trailing their rivals, and has just released their Lumina range which will find it difficult to compete and win over consumers from their iphone. In conclusion, competitive rivalry is very high and Nokia must be aware of the threat that competitors have on their business especially with the growing popularity of the Apple iphone and RIM blackberry. The competitive rivalry is the biggest threat to Nokia because in the Smartphone market they are considerably behind and to increase their market share will take a lot of work in a market where some of the biggest names in business operate in such as Apple and Sony. 9. Financial Ratio Analysis Financial analysis helps in establishing a relation between various financial statements’ elements which can then be compared with other information about the business. This also determines the future prospects of the company and the area that needs improvement. The basic purpose is to analyze the current financial position performance of the company according to which a judgement can be made regarding future performance of the business. One has to look carefully to the annual accounts of the company and the yearly growth trend in terms of revenues, profit and its market share. For the analysis purpose, consolidated accounts of Nokia i. e. Income Statement, Balance Sheet, Cash Flow Statement for the last four years from 2007 to 2010 is taken into account and theses figures obtained from the company’s website are given below.