Global Corporate Strategy - Assignment Example

Global Corporate Strategy With the continuous changes in the business environment, organizations are being forced to respond to these changes in various ways. In the high-tech industry, growing complexity has necessitated global collaboration and integration. Nokia and Microsoft took this route in 2011 when they formed a strategic alliance. The strategic alliance would enable Nokia to use Microsoft Windows Phone OS as its primary operating system in its high-end smartphones. Nokia entered into this alliance to try and regain its declining share in the global smartphone market after the entry of new rivals especially Google and Apple Inc. Google and Apple introduced Android and iOS operating systems, which provided greater functionality and app support than Nokia’s Symbian. As a result, Android and iOS gained larger market shares than Nokia within less than four years after they were introduced. Nokia lost its position as the leading smartphone company in the world. The alliance between Nokia and Microsoft did not achieve the intended purposes. Rather than help Nokia to regain market share, the alliance resulted in Nokia losing more market share as the Microsoft Phone OS started losing market share to Android and iOS. Ultimately, Nokia decided to sell off its devices business to Microsoft, marking the exit of Nokia from the smartphone industry. The failure of the Nokia-Microsoft alliance was based on various factors including poor leadership, organizational culture, and structure. Table of Contents Abstract 2 Table of Contents 3 Introduction 4 Question 1: Smartphone Industry Competitiveness 4 Nature of Industry Competition Facing Nokia 4 Porter’s Five Forces 5 Impact of Global Competition on Nokia’s Market Share and Income 7 Question 2: Strategic Alliances and Global Competitiveness 8 Strategic Alliances versus Mergers and Acquisitions 8 Outcomes of Nokia-Microsoft Alliance 10 Question 3: Organizational Culture, Leadership and Competitiveness 12 Question 4: Personal Reflections on Learning 14 Conclusion 15 References 16 Appendices 19 Appendix 1: Global Smartphone Market Share 19 Introduction The business environment is continually changing (Stangler, D. 2012). These constant changes influence industries and companies in various ways (Jain, Trehan & Trehan, n.d.: 16). Within the high-tech industry, the increase and emergence of new challenges such as declining growth, growing competition, and globalization have necessitated the integration and collaboration of the industry at the global level (Saksena, 2009: 1-2).In the recent past, major integrations and collaborations have been witnessed in the global smartphone industry. One such integration was involved Nokia and Microsoft Inc., which resulted in the two tech giants working together in the smartphone industry. In 2011, the two companies entered into a partnership where Nokia would produce its high end smartphones, Lumia, which would run on Microsoft’s Windows operating system. The partnership was motivated by Nokia’s threat of losing market share after the entry of new competitors including Google Inc. and Apple Inc. The entry of these new competitors into the smartphone sector resulted in Nokia’s loss of market share. With divergent opinions after the Nokia-Microsoft partnership, the challenge for the two technology companies was to prove that the partnership could work. This paper presents a critical analysis of the partnership with a greater emphasis on the global corporate strategies adopted by Nokia and its greatest competitors in the smartphone sector. Question 1: Smartphone Industry Competitiveness Nature of Industry Competition Facing Nokia The global smartphone industry has become increasingly competitive over the years. Before 2006, Nokia dominated the industry with its Symbian Operating System (OS). However, this changed with the entry of new competitors specifically Google Inc. and Apple Inc., who introduced their own operating systems, Android and iOS respectively (Rao, 2012: 714). With the entry of the new competitors, the competition structure in the industry started changing. Nokia started loosing its market dominance. By 2011, Nokia’s Symbian ecosystem was lagging behind Google’s Android and Apple’s iOS (Rao, 2012: 714). Nokia was no longer a top contender in the smartphone market, which was now dominated by the new entrants Google and Apple. The nature of competition in the smartphone industry is quite unique. The smartphone manufacturers compete primarily on the basis of mobile ecosystems, which include operating systems and apps. The smartphone hardware is not a major factor of competition because the smartphone hardware is almost the same for all manufacturers. Therefore, consumers are focusing more on the mobile ecosystems provided by the smartphone manufacturers when deciding what smartphones to purchase. Nokia’s Symbian ecosystem was outshone by the Android and iOS ecosystems because the new ecosystems could support more smartphone apps and functionalities than the Symbian ecosystem could (Rao, 2012: 714). However, to have a better understanding of the nature of competition in the global smartphone industry, it is important to apply strategic models for analyzing industries. For the purpose of this assignment, the global smartphone industry will be analyzed using Porter’s Five Forces. Porter’s Five Forces The porter’s five forces is an important tool for analyzing the suitability and competitiveness of an industry based on five elements including ease of entry, rivalry, supplier power, substitution, and buyer power (Hill & Jones, 2009: 42).The porter’s analysis will focus on software rather than hardware because competition is in the former. Ease of Entry – ease of entry into global smartphone industry is low because of several factors. First, the industry is capital intensive requiring significant investments in terms of capital. Small companies may not have the financial resources to establish a global presence, which requires significant investment in terms of marketing, human resource, and supply chain among factors. Second, this industry is currently dominated by few large companies such as Samsung, Apple, LG, Lenovo, Xiaomi, and Nokia. Currently, the five leading brands in terms of market share are Samsung, Apple, Xiaomi, Lenovo, and LG (see appendix 1). Rivalry – competition is medium to high. There is intense rivalry among smartphone manufacturers including the major manufacturers such as Samsung and Apple as well as the new entrants including China’s Xiaomi, which has become among the top smartphone manufacturers in the world recently beating some of the established brands such as Nokia (Olson, 2014: 1). However, the rivalry in the industry is more on operating systems, which are fewer. Currently, only Apple, Google, RIM, and Microsoft develop OS for smartphones (Gruman, 2014). However, the OS development is dominated by Google’s Android with a market share of 84.7 percent and Apple’s iOS with a market share of 11.7 percent. Windows Phone market share is 2.5 percent while that of BlackBerry is less than one percent (Protalinski, 2014: para 1). Supplier power –suppliers in the industry have high bargaining power. This is primarily because of the existence of few major smartphone manufacturers. The main smartphone manufacturers have to develop long-term relationships with their suppliers to maintain their reputation. For example, the partnership between Nokia and Microsoft led to a change in the operating system that Nokia smartphones used. This was a major change considering that Windows was not the supplier of OS to Nokia prior to the partnership. The change of OS supplier has had significant implications on Nokia. The cost of changing or switching suppliers is high, which gives suppliers higher bargaining power. Substitution – the threat of substitution in the smartphone industry is low to medium. The smartphone industry is a high-tech industry, which is difficult to penetrate. This makes it more difficult for substitute products to be developed. However, some few products and technologies can substitute smartphones including Tablets and personal computers. These devices also run on the ecosystems as the smartphones and provide similar functionalities. The only major difference between these devices and the smartphones is the portability of smartphones, which make them more convenient for use. Buyer Power – buyer power is high in the smartphone industry because of various factors including the limited number of popular smartphone brands, high price sensitivity, increasing volume of buyers, and limited threat of backward integration (Saharan, 2012: 9). The analysis of porter’s five forces above confirmsthe fact that Nokia has continued to face growing competition with the entry of new players, particularly Apple and Google, into the smartphone industry. Currently, Nokia’s Windows Phone OS market share is declining as those of Android and iOS increase. This implies that Nokia’s competitiveness after the partnership with Microsoft adversely affected the company’s competitiveness. Impact of Global Competition on Nokia’s Market Share and Income The changing competition dynamics in the global smartphone industry has affected Nokia market share and revenues. The primary effect has been an overall decline in market share and stagnation of revenues since the entry of Android and iOS mobile ecosystems, which support multiple smartphone manufacturers. With regard to market share, Nokia’s market share in the smartphone sector fell significantly between 2006 and 2011. By 2006, the company’s smartphone market share was 73 percent, which dropped to 14.4 percent in 2011 (Rao, 2012: 716). This represents a decline of over 80 percent in the company’s original market share in just five years. The massive decline in the company’s market share coincides with the entry and growth of Samsung and Apple smartphones, which ran on the new mobile ecosystems, Android and iOS respectively. By 2011, Samsung and Apple smartphone shipments had overtaken Nokia’s (Rao, 2012: 717). Within the same period, Android market share had grown to 53 percent while that of iOS had grown to 15 percent (Rao, 2012: 716). With regard to Nokia’s financial performance, Nokia’s net sales between 2006 and 2010 grew from 41.1 billion to 42.4 billion. However, this slight growth in revenue was not consistent. Between 2006 and 2007, the company’s revenue increased by over nine billion Euros. However, the net sales dropped in the following two years, 2008 and 2009, before growing again in 2010 (Rao, 2012: 717). The drop in Nokia’s net sales from 2007 was partly due to the entry of Android and iOS, which provided new competition for Nokia’s Symbian. The company’s sales dropped as a result of some of its original market share was taken over by Android and iOS. Question 2: Strategic Alliances and Global Competitiveness Strategic Alliances versus Mergers and Acquisitions As the global smartphone industry continues to grow in terms of complexity and competition, companies are considering technology integration as a competitive strategy. The case of Nokia partnering with Microsoft is a real example of this trend where Nokia’s smartphones started using Microsoft’s operating system. The integration of Nokia’s hardware and Microsoft’s software is a real example of technology integration. However, for this to have succeeded, Nokia and Microsoft had to enter into some kind of partnership. To understand what kin of partnership the two companies formed, it is important to understand the difference between strategic alliances and mergers and acquisitions. According to Hagedoorn and Duysters (2002: 167), mergers and acquisitions and strategic alliances became popular strategic instruments for organizations to improve their capabilities, increase market power, and venture into new markets in the 1990s. This trend has prevailed to date. The two strategic instruments are different although they may be used for the same purposes. Strategic alliances are long-term or short-term contractual relationships between organizations to produce a product or service that is mutually beneficial. However, the organizations in a strategy alliance maintain their identities and independence (Gaughan, 2010: 530). Mergers and acquisitions differ from strategic alliances in that the partnering one or both of the partnering companies looses identity or independence. In a merger, the companies combine to form a new entity, which is different from the original companies. In an acquisition, one company is absorbed by another, leading to the loss of the acquired company’s identity and independence. In mergers and acquisitions, a new entity or organization is formed (Faulkner, Teerikangas & Joseph, 2012: 456). The partnership between Nokia and Microsoft was a strategic alliance. The two companies engaged in what is referred to as strategic technology alliance. a strategic technology alliance is formed when two or more companies form a partnership or collaboration which is partly based on sharing of technology or innovation (Hagedoorn and Duysters (2002: 168). in the case of Nokia and Microsoft, the two technology companies formed an alliance based on the sharing of Nokia’s prowess in smartphone hardware and software as well as Microsoft’s operating system. the partnership deal did not involve sharing of company assets and liabilities. Instead, it was only based on sharing smartphone hardware and software. Nokia’s decision to form a strategic alliance with Microsoft was motivated by the need to retain the company’s dwindling market share in the face of growing competition from Android and iOS ecosystems. Nokia realized that its main weakness was in the software side. On the other hand, Nokia was still a respected brand in mobile phone hardware (Rao, 2012: 720). Nokia’s decision to form the partner with Microsoft was partly justifiable considering the circumstances the firm was in prior to the alliance. According to Vaidya (2011: 91), strategic alliances can be effective defensive mechanisms for firms that are facing future uncertainties. This is what transpired in the deal between Nokia and Microsoft for Nokia to start using the Microsoft Phone OS. Nokia’s future was uncertain considering the decline in market share and the growing competition from Android and iOS. Through the partnership, Nokia hoped to address the future uncertainty hovering over its smartphone business (Rao, 2012: 720). Nokia has also implemented some structural changes to prepare the company for the strategic shift. Prior to partnering with Microsoft, a new CEO, Elop, was appointed. Elop’s appointment was meant to prepare the company for the strategic shift from smartphone hardware alone to software as well (Rao, 2012: 719). The new CEO also made major changes in the company including shaking up the executive team and reduce company workforce by 10,500 employees (Rao, 2012: 719). Elop challenged the company employees to develop a new smartphone that would be competitive against other high-end smartphones in the market such as the iPhone (Rao, 2012: 720). From these undertakings to prepare the company for the strategic shift, it is clear that Nokia was set to regain its lost glory in the smartphone market. Outcomes of Nokia-Microsoft Alliance The alliance between Nokia and Microsoft was expected to help Nokia regain its market share in the global smartphone market. However, this has yet to be realized. In fact, Nokia continued to experience declining market share while using the Windows Phone OS on its smartphone devices. Initially, the alliance between Nokia and Microsoft was anticipated to last over five years (Rao, 2012: 720). However, less than five years after the deal, the alliance ended when Microsoft acquired Nokia’s devices division that manufactures the smartphones and tablet devices in April 2014 (Kovach, 2014). The acquisition of Nokia’s smartphone business by Microsoft is an indication that Nokia was not able to achieve its intentions in the earlier strategic alliance between the two companies. The decision to sell the devices business to Microsoft was arrived at much earlier than the projected period of the original strategic alliance. There must have been major problems that pushed Nokia to accept to sell the device business to Microsoft. This decision marks Nokia’s exit from the smartphone industry. The industry must have become too competitive for Nokia to stay. For a company that had been the market leader in smartphone business before 2007, the decision to leave the industry must have been reached after it was clear that reviving the Nokia smartphone would be difficult when Android and iOS were growing each year since they came into the industry.Without a strong competitive edge in software, Nokia realized that maintaining its devices business was a bad idea because competition in the smartphone industry was based on software rather than hardware. Since the company lacked the software element, it was unnecessary to continue using the Windows Phone ecosystem, which was actually declining in terms of market share. The employees of Nokia were affected after the Nokia-Microsoft deal. In the initial alliance deal, over 10,500 employees lost their jobs (Rao, 2012: 719). This means that the deal was not beneficial to the employees whose job security was undermined by the shake up. In the 2014 deal where Nokia sold its devices business to Microsoft, more employees are expected to loose their jobs. For example, Nokia plans to close down one of its manufacturing plants in South Korea, which will affect about 200 employees (Trenholm, 2014). Question 3: Organizational Culture, Leadership and Competitiveness The competitiveness of a firm is linked to its internal culture and leadership. The organizational culture represents the shared ideas, norms, and beliefs within an organization. According to Shahzad, Luqman, Khan and Shabbir (2012: 976), organizational culture influences the behavior, decisions, and thoughts of employees within an organization.Apart from organizational culture, organizational leadership is also a major factor determining employee productivity. In fact, the three concepts of organizational culture, organizational leadership, and organizational performance are interrelated. Organizational leadership provides vision and motivation to the overall organization, which in turn influences organizational performance and organizational culture. The interrelationship among the three concepts is evident in Nokia’s case. Nokia underwent a change in leadership just before the alliance with Microsoft. A new CEO was appointed to spearhead the strategic shift of the company. The new CEO, Elop, did not take long to learn that organizational culture of Nokia. Having come from Microsoft, he was keen on observing the different culture in the company. In one of his addresses to the employee of Nokia, Elop noted: “We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times…We haven’t been delivering innovation fast enough. We’re not collaborating internally. Nokia our platform is burning.”(Rao, 2012: 719). The statement by Elop reveals some of the problems that plagued Nokia. First, Elop notes that the company’s culture has been weak and rigid. Apparently, lack of accountability has been a norm in the company. Without accountability, the company’s leadership has failed to steer the company above the challenges that faced especially with regard to the disruptions caused by the entry of Android and iOS. This lack of accountability in the company, coupled with poor internal collaboration and rigidity has made Nokia to fail in adjusting its smartphone technology and business strategy to match the changes in the industry’s structure and competitiveness. For example, Nokia was not fast enough to produce new innovations to counter the iPhone and Android innovations, which were disrupting Nokia’s competitive advantage and industry dynamics. Nokia was not flexible enough to adjust after Google and Apple developed their operating systems that were much better than Nokia’s. The company took too long to learn and appreciate that the Nokia Symbian platform was not a match for the new operating systems. Google entered the smartphone market with its Android platform in 2007. However, Nokia maintained its Symbian platform despite the obvious decline in market share as Android was gaining market share consistently. Nokia only reacted in 2011 when it partnered with Microsoft in an attempt to create a third force to counter Android and iOS. For three consecutive years, Nokia retained its Symbian platform when it was already clear that the future of the platform was uncertain. The culture of lack of accountability may have caused this failure to respond quickly. Apparently, the predecessor of Elop, Kallasvuo, may have been under less pressure to account for Nokia’s declining market share. The fact that Nokia’s board retained Kallasvuo as CEO for four years after Android and iOS hit the market depicts a leadership problem based on the culture of unaccountability. Moreover, Elop noted Nokia’s laxity in developing new innovations. The company may have been stuck on its past glory as the leader in mobile phone market such that it forgot to keep improving by developing new innovations. When Google and Apple entered into the smartphone industry, this should have been a warning sign or wake up call for Nokia to come up with new innovations to counter Android and iOS. Even after noticing that Android, iOS, and iPhone were becoming popular, Nokia remained in a relax mode until when it was too late. The alliance with Microsoft in 2011 may have been too late to save the company’s declining market share. The 2014 decision to sell Nokia’s devices business to Microsoft provides proof of this. When Elop came in as Nokia CEO, he intended to change all these. First, he made changes to the leadership of the company and reduced the workforce. Elop was trying to pump new blood into Nokia that would make the company more flexible, innovative, and responsive. His leadership approach was transformational and different from his predecessor’s. The fact that Elop spearheaded the alliance between Nokia and Microsoft depicts him as a transformational leader who was not willing to maintain the status quo in Nokia. However, Elop’s strategy may have failed because of the different cultures of Nokia and Microsoft. Nokia had a reputation for producing quality hardware while Microsoft was known for software. Moreover, Microsoft was well known in the computer business while Nokia was more recognized in the mobile phone business. The alliance between Nokia and Microsoft was implemented shortly after Elop’s appointment as CEO. Although he had worked for Microsoft before, Elop may not have gained much insight into Nokia’s culture, which could have led him to make changes that were ineffective. Question 4: Personal Reflections on Learning Conducting this assessment has been very useful in enhancing my understanding of the global smartphone industry. Prior to conducting the assessment, I did not realize that competition in the smartphone industry is based on software (mobile ecosystems) rather than on hardware. I thought that competition was more intense among manufacturers of smartphones such as Samsung, Apple, Huawei, and BlackBerry among others. However, after conducting the assessment, I now realize that smartphone hardware is not the main driver of competition. Companies such as Google and Apple that develop operating systems are influencing the global smartphone industry. For example, Google’s Android platform is used by many smartphone manufacturers. When making decisions regarding the type of smartphones to purchase, consumers place greater emphasis on the mobile ecosystems rather than the smartphone hardware. This is what led to Nokia’s fall after the entry of new competitors who provided better mobile ecosystems that Symbian. In the changing dynamics in the smartphone industry, companies are resulting to strategic alliances to survive. Strategic alliances are enabling smartphone manufacturers to work with developers of operating systems to enhance their competitiveness. However, the success of such strategic alliances is partly based on corporate leadership. Poor corporate leadership is recipe for failure as in the case of Nokia and Microsoft. Conclusion The analysis of Nokia-Microsoft alliance in 2011 reveals important insights into the global smartphone industry especially the changing competitive dynamics. Smartphone manufacturers had dominated the industry before new competitors such as Apple and Google introduced disruptive innovations in the form of operating systems. With the introduction of these disruptive innovations, traditional leaders in the smartphone industry such as Nokia lost their glory. Competition shifted from smartphone hardware to mobile ecosystems. The new competitive structure in this industry calls for responsiveness. Traditional smartphone manufacturers must consider forming strategic technology alliances with software developers to avoid being pushed out of the market. However, this strategy requires effective leadership and appropriate changes in organizational culture and structures. Greater flexibility can only be achieved if organizations become continuously innovative and not stuck to past innovations. References Faulkner, D., Teerikangas, S., & Joseph, R., J 2012. The handbook of mergers and acquisitions. Oxford University Press. Gaughan, P., A. 2010. Mergers, acquisitions, and corporate restructurings. 5th Ed. John Wiley & Sons. Gruman, G. 2014, ‘Windows Phone is heading back to death’s door,’ InfoWorld. [Online] Available at: http://www.infoworld.com/article/2855039/windows-phone-os/windows-phone-heading-back-to-deaths-door.html [Accessed 16 Dec. 2014]. Hagedoorn, J, & Duysters, G 2002, External sources of innovative capabilities: the preference for strategic alliances or mergers and acquisitions, Journal Of Management Studies, 39, 2, pp. 167-188, Business Source Complete, EBSCOhost, viewed 16 December 2014. Hill, C., & Jones, G. 2009. Strategic management theory: An integrated approach. 9th ed. Cengage Learning. IDC. 2014, ‘Smartphone vendor market share, Q3 2014’, [Online] Available at: http://www.idc.com/prodserv/smartphone-market-share.jsp [Accessed 16 Dec. 2014]. Jain, T., R., Trehan, M., & Trehan, R. n.d. Business environment. FK Publications. Kovach, S. 2014, ‘Microsoft closes its $7.2 billion purchase of Nokia’,Business Insider [Online] Available at: http://www.businessinsider.com/microsoft-closes-nokia-acquisition-2014-4 [Accessed 16 Dec. 2014]. Olson, P. 2014, ‘China’s Xiaomi becomes world’s 5th largest smartphone maker’,Forbes [Online] Available at: http://www.forbes.com/sites/parmyolson/2014/07/31/chinas-xiaomi-becomes-worlds-5th-largest-smartphone-maker/ [Accessed 16 Dec. 2014]. Protalinski, E. 2014, ‘IDC: Global smartphone shipments pass 300m in Q2 2014, Android at 84.7%, iOS at 11.7%, Windows Phone at 2.5%’, [Online] Available at: http://thenextweb.com/mobile/2014/08/14/idc-global-smartphone-shipments-pass-300m-q2-2014-android-84-7-ios-11-7-windows-phone-2-5/ [Accessed 16 Dec. 2014]. Rao, A., S. 2012, ‘Nokia-Microsoft alliance: Joining forces in the smartphone wars’. IBS Center for Management Research. Saharan, P. 2012, ‘Porter’s 5 forces analysis: Nokia’, [Online] available at: http://users.metropolia.fi/~pankajs/docs/Nokia-5-forces-analysis.pptx [Accessed 16 Dec. 2014]. Saksena, A. 2009, ‘High-tech industry: The road to profitability through global integration and collaboration’, Cisco IBSG [Online] Available at: http://www.cisco.com/web/about/ac79/docs/wp/High_Tech_Indus_0716FINAL2.pdf [Accessed 16 Dec. 2014]. Shahzad, F., Luqman, R., A., Khan, A., R., & Shabbir, L. 2012, ‘Impact of organizational culture on organizational performance: An overview’,Interdisciplinary Journal of Contemporary Research in Business, vol. 3, no. 9, pp. 975-985. Stangler, D. 2012, ‘Change: The one enduring principle’,Forbes. [Online] Available at: http://www.forbes.com/sites/kauffman/2012/09/27/change-the-one-enduring-principle/ [Accessed 16 Dec. 2014]. Trenholm, R. 2014, ‘Microsoft closes Nokia deal, pays more than expected’, [Online] Available at: http://www.cnet.com/news/microsoft-closes-nokia-deal-pays-more-than-expected/ [Accessed 16 Dec. 2014]. Vaidya, S. 2011, ‘Understanding Strategic Alliances: An Integrated Framework’, Journal of Management Policy and Practice, vol. 12, no. 6, pp. 90-100. Appendices Appendix 1: Global Smartphone Market Share Source: IDC (2014). Read More