Nokia International Business Strategy - Essay Example

International Business Strategy Executive Summary The study highlights the strategic audit of Nokia Corporation through the use of frameworks such as Porter’s Five Forces Model, Porter’s Generic Strategies and Resource-based View approach. In this study, it can be understood that strategic analysis falls under strategic management which is an important part for Nokia to sustain in the prevailing market. Moreover, through the use of secondary sources, the company’s overall performance in the year 2013 has been revealed that provides an understanding that Nokia’s performance in the market for the past few years has been declining. Thus, the company must effectively use its resources in order to improve its performance and get competitive advantage in the global market. Table of Contents Table of Contents 2 Brief Case History 3 Data and Methods 4 Strategic Analysis 5 Porter’s Five Forces Analysis of Nokia 5 Porter’s Generic Strategies 7 Resource Based View of Nokia 9 Strategic Recommendations for the Future 11 References 12 Brief Case History Nokia was founded in the year 1865 by Fredrik Idestam and is headquartered in Espoo, Finland. It is a multi-national company which is specialised in producing mobile phones that provides telecommunication services to its customers. In the year 2013 Nokia had employed more than 87,771 employees across 120 nations and the company has been selling its product over 150 nations. Moreover, it was witnessed that Nokia earned revenue of 30 billion euros in the year 2013 and the company being a public limited-liability company, it is listed in the New York Stock Exchange (NYSE) and Helsinki Stock Exchange (HSE). However, presently the company’s market share has been declining due to the tough competition faced from Samsung and Apple. Besides, lack of innovation in the recent time has been identified as a major reason behind the company’s losing market share worldwide (Blandford, 2011; Ingo Malchow, 2007). Correspondingly, the study is primarily focused towards strategic analysis of Nokia Corporation through frameworks such as Porter's Five Forces, Porter’s Generic Strategies and Wernerfelt’s Resource Based View framework. Moreover, the study focuses to provide recommendation to Nokia Corporation through the strategic analysis so that it can regain its supremacy in the global industrial context. Strategic management is a systematic process that involves the combination of actions such as strategic analysis, preparation of strategies along with its implementation (Huiru, 2011; Smircich & Stubbart, 1985). Strategic analysis is an integral part of strategic management that involves examining the organisation in relation to the organisational structure and culture, strengths as well as weaknesses, product, people along with services (The Institute of Cost Accountants of India, 2013; Bwalya, 2012). Data and Methods In relation to this study, secondary sources have been used to gather data for Nokia Corporation. Qualitative method has been used in order to analyse Nokia’s prevailing strategy. The gathered data mainly highlights interim report of Nokia Corporation on the second quarter of 2013. It has been revealed that Nokia Corporation attained operating profitability consecutively for the fourth quarter with an operating margin of 5.3% and in the fifth quarter it increased to 11.8% that actually was due to good strategy and performance (Nokia Corporation, 2013). Net sales of the company for second quarter of 2013 were 5.7 billion euros in which it was observed that the net sales were continuously decreasing by 3% on a quarter to quarter basis. Moreover the sales of devices and services in the second quarter decreased to 6% quarterly due to which the company had to go through a loss of 2.7 billion euros (Nokia Corporation, 2013; Mixed Bag Media Pvt Ltd, 2012). However, the sales volume of other mobile phones manufactured by the company decreased to 4% quarterly. Overall, it is viewed that in the second quarter of 2013, the net sales of Nokia Corporation increased to 8% that earned a revenue of 0.2 million euros for the company. In relation to the smart devices the net sales of the company were 1541 million euros in the second quarter of 2012 which then reduced to 1164 million units in the second quarter of 2013 due to which there was a 24% decrease in the net sales of the company for 2013. The volume of smart devices produced was 10.2 million units in second quarter of 2012 which then reduced to 7.4 million units in the second quarter of 2013 wherein it is deemed that there was a 27% reduction in the volume of production for smart phones. On the other hand, the operating expense of the company was 540 million euros for the second quarter of 2012 which then plummeted to 406 million euros in the second quarter of 2013. This data provides evidence that the company’s overall performance in relation to smart devices was continuously declining (Nokia Corporation, 2013). Similarly, in relation to mobile phones, it was viewed that the net sales of the company in the second quarter of 2012 was 2291 million euros which then reduced to 1405 million euros in the second quarter of 2013 wherein it could be revealed that there was a 39% decline in the net sales of mobile phones for the company. Similarly, the volume of production for mobile phones in the second quarter of 2012 was 73.5 million units which decreased to 53.7 million units in the second quarter of 2013. Moreover, the operating expenses for the company were 450 million euros within the second quarter of 2012 which significantly reduced to 266 million euros in the second quarter of 2013. Therefore, through these data, it can be ascertained that there was a decline in the overall sales and performance of mobile phones for Nokia Corporation (Nokia Corporation, 2013; Mixed Bag Media Pvt Ltd, 2012). Strategic Analysis In this particular section, there are three frameworks that have been applied for strategic analysis of Nokia Corporation. Porter’s Five Forces Analysis of Nokia Competitor Rivalry: Competitor rivalry within the industry operated by Nokia is quite intense as its competitors have established a good market presence. Moreover, the products offered to the customers by the company do not have much of a differentiation in its features. Additionally, the operating system used in the mobile phones of Nokia are mostly Symbian or Windows which have not gained much of a profitability for the company as compared to the operating system such as Android used by its competitors such as Samsung and HTC (Aalto University School of Economics, 2011). Therefore, these factors provide an understanding that the rivalry of its competitors has had a significant impact on the functioning of the company in the global market (Slideshare, 2014; Hill & Jones, 2007). Bargaining Power of Suppliers: This aspect does not pose a huge threat as the components and equipment required by the company for manufacturing its product is sourced from several suppliers all over the world. Therefore, it can be asserted that the bargaining power of suppliers is relatively lower for the company as the raw materials required for production are gathered from different suppliers wherein if a supplier fails to supply its material then the company can purchase these materials from other suppliers (Slideshare, 2014; Hill & Jones, 2007). Bargaining Power of Buyers: Buyers power with respect to Nokia products is quite high as they have more choices for these products and there is not much of differentiation in the features of the product offered by Nokia. Moreover, there is no cost of switching for buyers which hence provides more power to the customers to switch over to any other brands such as Apple, Samsung and HTC as and when required (Slideshare, 2014; Hill & Jones, 2007). Threat of Substitutes: There is a moderate threat of substitutes for Nokia as it directly depends on the impact of the substitutes made by the product in the market. The features provided in these substitutes also act as a major factor as these features are not comparable with the portability features provided in smartphones which have a variety of functions in a single gadget. However, substitutes such as personal digital assistant (PDA’s), tablets and notebooks have acted as a threat for the company to a certain extent (Slideshare, 2014; Hill & Jones, 2007). Threat of New Entrants: This factor does not pose much of a threat to Nokia as the initial capital required to start a new company is quite high. A new company has to be technologically advanced and its standards should meet the expectations of the customers. Moreover, due to changing government policies and other legal issues, it is considered very difficult for a new company to enter into Nokia’s globally operational mobile phone market (Slideshare, 2014; Hill & Jones, 2007). It has been observed from applying Porters’ Five Forces on Nokia that due to the intense competition in this industry and the failure of Nokia to cope up with ever increasing competition has radically contributed towards deterioration of its performance. Porter’s Generic Strategies The generic strategies introduced by Michael Porter include cost leadership strategy, ‎differentiation strategy and ‎focus strategy. In relation to the strategic decisions of Nokia, it has been revealed that the company in recent years is more focused towards differentiation strategy which can be regarded as a blend of differentiation in competitive strategy along with aiming towards reaching a wider target customer market. For instance, the company has followed a differentiation strategy in its marketing mix for Lumia 920 and Lumia 820. The physical characteristics used by Nokia in these products are clearly distinctive as the components used in these products are different. Moreover, the company has designed these phones in such a way wherein the customers are bestowed with uniqueness i.e. they can choose from multiple choices of colours as per their preference. The factors have differentiated Nokia products that include Lumia 920 and Lumia 820 from other products of Apple and Samsung as these companies mostly produce smartphones that provide the option of two colours to the customers. Moreover, there is a differentiation in the non-physical characteristics of Lumia 820 and Lumia 920 wherein the operating system used in these phones are powered by Microsoft (Aarhus School of Business and Social Sciences, 2013). Porter’s Generic Strategies (Jiang, 2003) Accordingly, Nokia is the first producer of smartphones that offers Windows operating system to its customers that is entirely different from other operating systems used in smartphones by its competitors such as Samsung and Apple. More precisely, Lumia 920 is inbuilt with a revolutionary camera that offers the customers an exceptional experience and provides evidence that the product introduced by Nokia is largely differentiated from its rivals. Furthermore, it has been revealed that Lumia 820 and Lumia 920 offer the facility of wireless charging to its customers which has established an innovative presence of the company in the European market (Aarhus School of Business and Social Sciences, 2013; National Institute of Business Management, n.d.; Aalto University School of Economics, 2011). Thus, it can be asserted that the company has to predominately focus on differentiation strategy as a marketing strategy and has been less concerned about the changing customer preferences. Resource Based View of Nokia According to Wernerfelt (1984), an organisation’s resources can be termed as tangible as well as intangible assets. In order to derive a prudent comprehension of a company’s competency and future strategic directions, it needs to be looked at with regard to the available resources instead of products. Correspondingly, in the past few decades especially during the late 1990s till the year 2010, it is affirmed that Nokia had achieved major success and the decisive contribution to this success was achieved through tangible and intangible resources. In relation to the tangible resources, one of the key dimensions i.e. human resources of the company entails highly skilled employees who are technologically oriented and updated. These employees have created the opportunity for the company to develop programs that has provided a competitive advantage to the company. On the other hand, the physical resources of the company include exceptional infrastructure, huge manufacturing units and advanced equipment that are scattered on the global front (Kirchoff, 2011). Although Nokia started its initial business in Finland but it has expended its branches worldwide wherein the production plants have been shifted to India and China that has helped the company in reducing its cost of production. However, financial resources of the company have witnessed a huge decline and presently the financial resources of the company have been continuously declining that has resulted in adversely affecting the company in its global market presence. Furthermore, intangible resources include the aspect that the company is recognised worldwide and it has a unique trusted brand value in the global market (Nokia Corporation, 2012). It has been viewed that there are many loyal customers who consider the brand as the best in its range of products. The competency level of the company is hard to imitate and it has been viewed that the competency strategy of the company has been changing simultaneously with the level of competition in the market. Moreover, the company is known for providing best services to its customers along with the value for money (Scribd, 2014). Resource Based View of Nokia provides an understanding that the financial resource of Nokia has decreased due to decline of market share and dismal of performance due to lack of appropriate strategy. Strategic Recommendations for the Future From the overall analysis and interpretation through different frameworks, it can be recommended that it is important for the company to understand the competitive environment in which it’s functioning. Moreover, it is considered that the company must reshape its brand to increase its market share in the developing countries which represent the largest market for selling low-cost phones. The company must use its wide network of distribution effectively in order to expand further in these developing nations. The organisational structure of Nokia should be optimised and the entire manufacturing units should be transferred to Asia which would result in reducing the cost of production. Nokia must also increase its range of products that would actually cater the requirements of consumers and increase its market presence. Product differentiation strategy must also be developed and improved that would provide a competitive advantage to the company and increase their market share. Furthermore, it is highly recommended that Nokia must initiate a new marketing strategy in its business operations that would ensure that the company can sustain in the competitive market and enjoy dominance. Consequently, it is regarded that if these factors are taken into consideration the company can achieve success in the market and can increase its profit margin. References Aalto University School of Economics, 2011. Analysis of Competition in the Mobile Phone Markets of the United States and Europe. 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