International Business Strategis of Nokia and Samsung - Essay Example

Business International Business Strategy Contents Contents 2 Introduction 3 Nokia’s Business Strategy 4 Samsung’s Business Strategy 10 Conclusion 15 References 16 Introduction International business strategy are the guidelines of doing commercial business in foreign countries. Typically international business strategy is nothing but the plans and course of actions needed to be taken by companies opting for international business. International business strategy can be substantially different from the home country to any foreign country depending upon the level of development the host country is subjected to. There are three broad strategic options to do international business – an industry based view, a resource based view and a combination of the both the views known as the institution based view. International firms do their business utilizing these three strategies and depends on their choice, their success come out. Samsung and Nokia, two internationally renowned mobile phone manufacturing giants, has been credited as long time competitors. The change in technology in mobile phones to smartphones and touchscreens from normal keypad based phones and the firmware updates came with it have emerged as the key issues to be addressed while doing the business. In UK, Samsung entered to capture the market that was dominated by Apple and Nokia. While most of the industrial strategist viewed Samsung’s decision to invade the UK market as a next to impossible venture, the Korean strategists thought it in different way. In the end, it is found that, Samsung has become the market leader and Nokia’s marketing strategy has failed miserably. This paper is concerned with discussing the international business strategies taken by Samsung and Nokia in UK in the context of the industry based, resource based and institution based view of international business strategy. This is also known as Industrial Organization thinking of strategic approaches where it is assumed that internationalization of a firm depends on the degree of competitive rivalry existing in its operating environment. Nokia’s Business Strategy Nokia, once termed as the undisputed king of the mobile handset market, has followed the resource based strategy during their ‘going global’ process. The Finland based mobile handset manufacturing giant has realized that in order to prevent the dipping sales figure, technological up gradation up to the standard of modern day business is needed. Nokia believed that firm’s own resource and capabilities are enough to build core competencies and due to strong brand image of Nokia, their position in the market place will be secured automatically. But it is found that the Symbian OS Nokia’s phones are out dated in modern day scenario and other mobile giants have introduced their own technologically advanced devices. United Kingdom, a technology advanced country, has experienced the technological benefits from smartphones that was started by Apple through their own smartphone named iPhone. The more the operating system of the mobile is improved, the more people find it easier to handle and ultimately buy. Nokia tried to intervene this ‘new’ market with their strategic offerings but in return, ends up in a disruptive marketing strategy. Resource Based Strategy The resource based view is based on a framework known as VRIO framework (Barney, 1991, pp. 99-120). This framework emphasizes the basic strategic statement of a firm that begins with the vision statement, continues on through objectives, internal and external analysis, strategic choices and strategic implementation. Figure: VRIO Framework (Source: Rothaermel, 2013, p.91). The resource based view focuses on the heterogeneous and firm specific characteristics which is significantly different from the porter’s industrial organization view (Mahoney and Pandian, 1992, pp. 363–380) and it ensures sustained competitive advantage in the industry Resources: Nokia’s resources are the value driven mobile manufacturing technology and their brand image built by competent employees. To find whether the resources are enough to gain competitive advantage, they are analyzed in VRIO framework. Value: The first question of VRIO framework is intended to discover whether the resources are adding value by enabling the firm in exploiting opportunities or defending against threats. In case of Nokia, the resources are their mobile manufacturing technology, especially with their own operating system, which was seemed not valuable to the end users. Lack of differentiation in their product was a major concern for their mobile handsets. Consumers were already familiar with using touchscreen android phones, and their response is quite high. This has indicated that Nokia needs to rethink their strategy to do business in the industry. Simple brand image is not enough to capture the value proposition of the customers. Rare: Rare and valuable resources give temporary competitive advantage. In this case, Nokia has their technological uniqueness in their mobile phones in the form of quality battery, durability of their phone and the relevancy. On the other hand, a situation may appear when more than a few companies have the same resources or using their capabilities in the same way. This results in Competitive Parity. During the initial days, when Nokia was the leading manufacturer and seller of mobile handsets, Samsung, Sony Ericsson and other competitors tried to build handsets in a way similar to that of Nokia because of their usage of resources in the same manner. But when technological leapfrogging in terms of smartphones occurs, Nokia failed to customize these resources. Their one time competitors, like Samsung exploited this opportunity to invade the market and started strategic collaboration with other global giants for necessary technological up gradation. As a result of it, Nokia’s resources lost its rarity and the firm pushes to the point of competitive disadvantage (Sandeen, n.d.). Imitability: The resources used by the firm must be costly to imitate. Imitation can occur in two ways: by duplicating or by introducing comparable product/services known as substituting. A firm with valuable, rare and costly to imitate resources can achieve sustained competitive advantage. Nokia was the pioneer in mobile handset technology. When they introduced their technologically upgraded phones like the N- Series and E-Series, competitors could not imitate this advantage. But as technology changes, competitors have introduced new phones that can be a direct substitute of old Nokia phones and eventually the once perceived as costly to imitate resources become out dated (Klingebiel, 2013). Organized: The resources must be organized in a proper manner to capture the value from them. This last component of resource based view does not serve as a way to achieve competitive advantage because the company has already lost its temporary competitive advantages due to inappropriate usage and lack of up gradation of the previous resources. Institutional Based Strategy This view argues that industry and resource based views need to be supplemented depending on the societal differences of the industry. This theory states that institutions directly determine the determinants of a firm’s advantage and along with the industry based view and resource based view, this acts as an essential tool for formulating and implementing strategy. Also known as the third leg of strategy tripod, this view is shown below: Figure: The institution-based view: a third leg of the strategy tripod (Source: Peng, 2006, p. 15). In terms of practical benefits, institution based view can help firms to enhance their competitiveness while venturing abroad. When the market share was going down to further lower, the company tried to restructure the strategies by considering the external factors. When they discovered that Samsung and other competitors are serving the market with newly advanced devices, they tried to innovate smartphones with windows operating system with their Lumia series. Imminent threat of substitutes have forced them to introduce something unique of their own. But the newly introduced devices was not felt satisfactory to the changed customer base residing in United Kingdom. They also tried to focus more on retail and digital marketing with product variety, but it didn’t help them to resist their declining market share in UK market (Arthur, 2011). Industry Based Strategy Developed by Michael Porter, this traditional organization literature emphasizes that the macro environmental conditions within an industry determine a firm’s business strategy and performance (Porter, 1980). This is also known as the international organizational thinking of business strategy where it is assumed that companies achieve competitive advantage over global scale by considering the nature of the industry in which it is operating in terms of competitive rivalry, suppliers’ and buyers’ power, threats present, product homogeneity and barriers of entry and exit (Flowers, 1976; Hymer, 1976; Boter & Holmquist, 1996, pp. 471–487). Porter proposed that a nation can create competitive advantage by four ingredients, which is known as porter’s Diamond. The four factors are: Firm Strategy, Structure & Rivalry Factor Conditions Demand Conditions Related and Supporting Industries In case of Nokia, the four factors that lead them to form competitive advantage are: Factor Conditions: Nokia does have skilled resources and a sound technological base. But the lack of up gradation of these factors lead to Nokia’s lack of innovativeness in the production process. Demand Conditions: UK market is strongly demanding and competitive. This trend setting local market helped Nokia to achieve competitive advantage. Related and Supporting Industries: Local industries are competitive and there is ample opportunity for Nokia to innovate. Firm Strategy, Structure & Rivalry: As the market is highly competitive, all the firms operating in UK enjoys high rivalry that leads to pressure during the initial and support for innovation. Nokia has lacked this factor of the diamond and thus do not enjoy competitive parity. Samsung’s Business Strategy During its initial days, Korean electronics Giant Samsung did not enjoy great market share. In fact, its sales were down compared to that of Nokia, who was the market leader at that time. When Apple’s iPhone hit the UK market, the enthusiastic customers immediately shifted their choice to this new technological milestone. Samsung considered this situation as their opportunity and they quickly collaborated with Google’s Android and introduced a variety of phones. The approach used by Samsung was Institution Based which emphasizes on the concept that every market is distinct and therefore they need to be addressed concurrently. Resource Based Strategy Samsung realized that only competitor positioning is not enough to capture the diversified market. The firm must develop their own resources for sustained competitive advantage. Samsung’s resources were their manpower, collaboration with application providers and their continuous up gradation facilities. They handsets with newly introduced technology delivers substantial value to the customers. Customer’s value seeking behavior results in product variety with unique attributes, such as display, product variety and the competencies that were used by Nokia, like the battery sustainability advantages etc. The way Samsung introduced and sold their variety was simply not imitable by its competitors. Samsung’s major competitor was Apple with their iOS enabled iPhone, but the organized way of doing business has put them in a meaningfully apart position. Their employee strength and expertise is their primary advantage and this is a unique resource that has been their reason for success (bbc.com, 2013). Institutional Based Strategy In order to sustain the competitive advantage, managers and firms must rationally pursue their interests and make strategic choices with the formal and informal constraints in the institutional framework. Samsung believed that there is a need for dynamic interaction between them considering the formal and informal constraints and industry specific and firm specific resources. This institutional transition based view was a completely unique thing for Samsung and this is the way they have achieved market share in UK. Industry Based Strategy Samsung realized that they are trying to penetrate into a market already dominated by big players like Nokia and Apple. Therefore only way to do business is by applying the differentiation strategies so that the UK customers perceive their product as significantly different from the competitors. Samsung also realized that the economically sound consumers can easily buy costly products because they seek value not the price, thus cost leadership strategies will not work. Samsung introduced their own Android smartphones of different varieties with added value to compete with the competitors in the industry. In case of Samsung, the four factors that lead them to form competitive advantage are: Factor Conditions: Samsung has skilled resources and a sound technological base. up gradation of these factors lead to Samsung’s innovativeness in the production process which ultimately lead to different types of products to offer.. Demand Conditions: UK market is strongly demanding and competitive. This trend setting local market helped Samsung to achieve competitive advantage. Related and Supporting Industries: Local industries are competitive and there is ample opportunity for Samsung to innovate. Firm Strategy, Structure & Rivalry: As the market is highly competitive, all the firms operating in UK enjoys high rivalry that leads to pressure during the initial and support for innovation. Samsung grabbed this factor of Porter’s diamond to the fullest extent and enjoys national competitive advantage over its competitors. Nokia’s Market Share in UK Year Market Share (%) 2010 34.00 2011 30.00 2012 19.10 2013 14.80 2014 7.35 Samsung’s Market Share in UK Year Market Share (%) 2010 23.60 2011 24.00 2012 22.00 2013 23.60 2014 22.80 (Source: Nias, 2013). Market Share by Different Mobile OS (Source: Goodwin, 2014) Conclusion Therefore, in the conclusion, it can be said that by using a single strategy is not enough to capture the market. Resource based approach along with a continuous monitoring of the external environment can lead to competitive advantage if there is a definite synchronization between the institutional actors. References Arthur, C. 2011. Business Technology sector Nokias new smartphone strategy fails to impress market watchers. [Online]. Available at: http://www.theguardian.com/business/2011/jun/12/nokia-windows-mobile-phones. [Accessed On March 07, 2014]. Barney, J. 1991. “Firm Resources and Sustained Competitive Advantage”. Journal of Management. Vol.17, No.1. bbc.com, 2013. 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