Nokia - Finland - Case Study Example

Nokia - Finland Executive Summary The report deals with detailed analysis of NOKIA in several perspectives. The History of the firm discusses in brief the evolution of the firm over the history and the business impact it had have over Finland and Finnish economy over the years. Then a financial analysis of the firm is undertaken to see how its stocks have fared over a time period of three years, and its ratios have also been analyzed. Next in line the evaluation of political, legal and social environment of Finland as a country is done. Another thing that is analyzed is the SWOT analysis of the firm. Then the report discusses about how the currency of Finland fares with respect to that of Dollar and how does Nokia go about in mitigating exchange rate related risk. The report also talks about the mission statement of the firm, the corporate and business level strategies that Nokia uses and the corporate social responsibility norms that the firm adheres to. History of Firm Nokia is a Finish company operating in information and communication technology sector. It is a public limited company and has its headquarters in Espoo, Uusimaa. A mining engineer in 1865 known as Fredrik Idestam opened wood pulp mill in south western region of Finland. After three years this mining engineer opened another mill which was located at Nokianvirta River. This in turn inspired the owner to keep Nokia Ab as the company name. During 1970s Nokia was actively involved in telecommunication industry. In this period company was producing radio telephones both for emergency responders and Finish army. Nokia introduced handheld mobile phones firstly in 1987 that was known as Mobira Cityman 900. It even offered handheld phones for GSM or in the first digital mobile technology based on European standards. The company eventually narrowed its focus on network infrastructure and mobile phones. Nokia till 2012 had adopted the best competitive strategies to become the most prominent vendor in market of mobile devices. However the company over the past few years is witnessing decline in relation to market share. Google’s and Apple’s operating system tend to dominate the entire Smartphone market. The share price of Nokia is $3.42 as per 2013 financial status which was supposedly $25 in 2008. Until 2011, Symbian and Meego were considered to be main operating system of Smartphone. Nokia has even made an announcement in 2011 that it shall incorporate Symbian as a franchise platform and OS of Microsoft Windows Phone as primary platform for Smartphone. This can be stated as a strategic decision undertaken by the company in order to attract customers in iPhone and Android market. Financial Analysis of Firm Comparing Stock price of Nokia from 2011-2013 Average return (monthly) 2% Std. dev. 0.24 As seen from the above figure it can be easily concluded that the stock is very volatile. The standard deviation of 24% also supports this view. However the stock gives a good return. The annual return for the stock is around 24%. So the risk to return compatibility for the stock is good. The trend of the stock is also positive. That is over the three years it has been analyzed it has shown a gradual price rise. So analyzing the stock price it seems as a good investment opportunity. Gross profit ratio The gross profit is on the rise from 2011 to 2013 period. Operating profit ratio An analysis of operating profit ratio shows that the firm was in a pretty bad shape from 2011 to 2012. But the consolation is that its losses have reduced over the years and now the ratio is positive in 2013. Liquidity ratio Current Ratio As seen from the figure the current ratio is varying between 1.3 to 1.5. This is good and means the company will be able to pay off its current liabilities using assets. But the ratio has seen a drop in 2013. This may be due to clearance of inventory. However Nokia must ensure that the current ratio does not drop below 1. Revenue Growth It is seen that the trend of revenue growth over the years is downward. If CAGR is calculated, it comes out to be -8%. This paints a very bad image about the current health of the company. Since any firm survives by the amount of sales it generate, so Nokia must do something urgently to bring up its sales revenue. Political, Legal and Economic Issues of Firm and Country Political and legal issues are deeply correlated as legal framework is basically approved by governing bodies. Political, economic and legal issues are a matter of concern for the firm as it helps in determining effectiveness of business operations. Political conditions of Finland are comparatively stable. This in turn has enabled Nokia to perform its business operations efficiently in this region. However certain legal constraints need to be taken into consideration as firms in order to make profits often misinform their customers about availability and prices of goods. On the other hand, attempts can be made to lower expense by utilizing lower quality materials like batteries or Nokia cases. Finland in context of legal framework has issued a license for all organizations who want to sell in market next generation mobile phones. In 2002, Nokia outperformed in its GSM camera phone sales which accounted for ninety one percent of its overall sales. On the contrary, Samsung only scored twenty one percent in the same financial year in relation to CDMA camera phone sales. The company has estimated the internet service market to grow further in coming years. Major economic issue for the company is raising competition with declining market share of Nokia. However the company has invested lump sum amount in technological advancements in global market but the return on investment is yet to be achieved. The domestic market of the company offers a great deal of opportunities and comprise of stable economic conditions. Legal issue for Nokia is working in compliance with laws or regulations as it differs along with new service or product introduced by the firm (David, 2011). Mission and Vision Statement of Firm The mission statement of the company is – “we believe in connecting people.” This statement can be further elaborated as their goal is to develop successful mobile products which shall enable billions of people located across the globe to enjoy the offerings of life to a greater extent. Nokia feels their major challenge is achieve such mission in competitive and dynamic environment. Their mission statement has proved to be effective in due course of business since they aim at enhancing communication across mobile phone users located worldwide. The operational procedure of the company is aligned with its mission statement in context of delivering high quality products to end users. These devices in turn provide required access to wide array of social networks and mobile apps. Nokia is not only focused towards providing Smartphone device apps but even is aligned towards Internet enabled mobile phones. This strategy helps the company to offer value proposition and outstanding experiences to its large base of customers. However there are certain areas which have not been covered in the mission statement of the company. Nokia should not only highlight strategies adopted by the firm to connect people but even needs to focus on long term customer service given to customers. In its mission statement apart from global reach there should be description about friendly service to customers or aiming towards creating a loyal base of customers. Hence their new mission statement should be – “we believe in bringing people close to one another and developing a loyal base of customers.” This in turn will help to develop further a positive image about the company in customer’s mind. However primary business focus is well described in mission statement of Nokia. Cultural and Ethical Issues of Firm and Country In present scenario some organizations consider profit to be most valuable component in comparison to sustaining ethical code in the system. This in turn ruins behavior of team members as well as create negative impact on business ethics. However some unethical workplace practices is highly illegal and firms should not be a part of these practices. On the contrary, some practices are legally right but considered as unethical by end users. The firms who indulge into such kind of practices tend to lose on market share at a rapid pace. Hence it becomes essential for companies to act cautiously regarding the ways they conduct their business operations. Nokia till date through its business operations has not offended the general public. Being environmental friendly and performing as per ethical norms makes this firm one of the most popular brand names across the globe. Finland does not possess any such ethical issues but this region maintains strict regulations and abides by its set laws. The region has even enforced upon all organizations operating in its area to perform as per ethical norms. Cultural issues for the firm are ever changing global market place and this initiates change in consumer demand. This factor has even enabled the firm to invest in different dimensions so as to achieve better profit margins (Peng, 2013). On the other hand, cultural issues observed in Finland is that consumer market in this region is more aligned towards innovative products or goods available in other foreign markets. In order to sustain business operations in domestic market, Nokia eventually has to incorporate the best practices within the system. SWOT Analysis of Firm SWOT analysis can be regarded as a strategic framework which helps to determine internal strengths or weakness of firm and its corresponding external opportunities or threats. The major strengths of the company are It is the largest distributor of cell phones in overall mobile phone industry. Nokia’s experience in this industry from past many years has given the firm a competitive advantage. Highly qualified personnel in the system. Has a high re-sale value in relation to other brands in the industry. Launches user friendly mobile devices comprising of wide set of accessories ((Mcfarlin & Sweeney, 2008). The major weakness of the company are- No such promotional activities are undertaken by the company. Less service centers and has poor after sales service. Software capabilities of the organization have been eventually surpassed by other players. Less focus on lower segment of consumer market The company is not inclined towards product innovation or market development. Opportunities for Nokia are- Production of low price mobile devices Developing own software platform Expansion in wide set of features and products Engaging into promotional activities Focusing on product bundling. Threats for the company are- To maintain its position in the market. Fluctuating economic conditions affect purchasing power of customers New players entering into the market Technological advancements at a rapid pace Global changes in political environment. Foreign Direct Investment (FDI) Issues Net Inflow 2012 2013 Net FDI inflow 3.2 billion € -0.8 billion € Net FPI inflow 2.6 billion € 9.2 billion € As is clear from the above diagram the net FDI into Finland has decreased alarmingly from 2012 to 2013. Whereas FDI out flows from Finland in 2013 was 3 billion €, it was around 5.8 billion € in 2012. This means that Finland as an investment destination has suffered in the recent years (Bank of Finland, 2013). Net FPI inflow into the Finnish economy has also decreased from 2012 to 2013. The amount of FPI flowing into Finland in the year 2013 was 10.5 billion € where as the amount of portfolio investments that flowed into Finland in the year 2012 was 25 billion €. The decrease in the portfolio investment amount flowing into Finland can be attributed to decrease in investment in the bond market by foreigners. Simulatneous decrease in inward FPI outward FPI also decreased (World Bank, 2013). In 2013 the amount of FPI by Finnish investors in bonds portfolio market of other countries was 7.9 billion €. Compared to this the amount that out flowed as foreign portfolio investment to the securities market of other countries was 15.8 billion €. The decrease can be attributed to the decrease in investment in the bond market of other countries by Finnish investors. Foreign direct investment in Finland comprises a major part of Finnish economy. Among the countries investing in Finland Sweden comes first. The major investment that takes place in Finland from foreign countries is in the Information and communication technology. Other sectors are mining, services, metallurgy, retail etc. Foreign Exchange and Monetary Issues Currency of Finland has witnessed lot of changes and has been changed 2 times in the past. It was first changed in 1860 from Russian Ruble to Finnish Markka which was then introduced by the Bank of Finland. The Exchange rate was 4marrka = 1 Ruble. Then in 2002 Euro was introduced as the official currency of Finland. At that time the exchange rate was fixed at 1€ = 5. 9457 marrka. The exchange rate of Euro with US $ currently is 1€ = 1.25 US $. Nokia reports all its financial transactions and profitability in Euro. However due to the fact that Nokia is a multinational company and many of its transactions takes place in countries other than Euro it has to face Foreign exchange exposure risk. Other than Euro the main currencies in which Nokia operates are US $, £ sterling and Japanese ¥. But due to its strong presence in emerging markets and economies it has to also deal with Russian Rubble, Indian Rupee, Brazilian Real, Chinese Yuan etc. Depreciation of other currency with respect to Euro will cause NOKIA’s products to cost more and thus will have an adverse effect on the sales and operating profit of Nokia. On the other hand Appreciation of the currencies of other countries with respect to Euro will have a positive impact on sales and operating profit figures for Nokia. To counteract the adverse effect of foreign exchange rate fluctuations on the profitability Nokia hedges its material transaction exposure on gross basis. Nokia uses hedging on forecasted future cash flows for a 6- 12 months period. Nokia applies hedge accounting to mitigate its Profit and loss volatility. Global and Regional Economic Integration The global and regional economic issues tend to affect the company to a great extent. In context of global economic issues, limited product range of the company with comparatively high prices makes it difficult to sustain its business operations in global context. To be more precise fluctuating demand of global market lays more emphasis on strategic change of the company. On the other hand, economic conditions in global market are highly different from that of local market. For instance there are external factors affecting such global economic scenario such as tariff rates, etc. Whereas in regional context, conditions are more stable for the firm as it is able to analyze it well and offer products accordingly. However limited product range of Nokia indicates that in order to stay competitive in regional or global markets it needs to expand product range as well as prices category. Integration is majorly gained by the firm by maintaining a standardized approach for its international and domestic operations. NOKIA operates in a highly volatile and competitive market. The problem with NOKIA lies in the fact that although it is able to enter early in a market and gain a good market shares it is not able to sustain it. It had to face this situation in markets of America and now in India to it is facing the same problem. The problem lies in the fact that although it is an innovation based company it is sometimes slow in implementing the innovations. It severely got beat by its competitors in the Smartphone department. It brought in its Smartphone quite late in the market and in the meanwhile other competitors quickly barged in and gained a considerable share of the pie. Business and Corporate Level strategies Business level strategies aim at giving value to the consumer an ensuring competitive advantage that distinguishes the firm from its competitors. Nokia wants to create its competitive advantage through projecting itself as a company focused on quality, efficiency, and innovativeness. Nokia also tries to differentiate itself from its competitors through providing of environment friendly products manufactured by environment friendly practices at its facilities. If Porter’s model is considered then it is found that Nokia focuses on differentiation strategy through its innovations and focus on quality and efficiency at the same time it focuses on implementation of low cost strategy to capture mass market. Although Nokia does not follow a wide market scope and does not focus on different market it has spread its wings within the information and telecommunication sector. Nokia produces many phones at the same time to bring in economies of scale. Additionally it bases its operation in regions where cost of manufacturing is less facilitated by availability of cheap labor. By this method it is able to facilitate low cow costs. Nokia also has an efficient R&D team which focuses on development of newer products. Nokia does not outsource any part of its manufacturing process. It also lays down stringent criterion for the materials it procures from suppliers also including environment friendly practices. It does this in order to ensure quality in the products it manufactures. Corporate level strategies refer to the strategic decisions that a firm makes that affect the entire organization. Nokia uses value creating strategies. By using this strategy NOKIA seeks to beak its competitors by creating more market share. For creating more market share it uses business level strategies discussed above. Global Strategies- Entering Markets- Global vs. Local To enter into Global and local markets Nokia has used several different strategies over the years. It has focused on different strategies based on the region it has to enter. But the topmost strategy that has been its guiding principal throughout the years is to provide its customers good value and to differentiate itself from its competitors. In order to differentiate itself from its competitors it focuses on quality, innovation, efficiency, and cost effectiveness. Nokia realized early the potential of emerging markets and economies. So to cater to this emerging markets and economies it developed low cost products. It achieved low cost through reduction in operating cost and cost of labor by setting up their factories in Brazil, china etc. However while developing low cost products it did not compromise with the quality of its products. In fact, in order to ensure quality it does not outsource any part of its manufacturing process and lays down strict guidelines that are to be followed by the companies supplying raw materials to the company. Additionally to differentiate itself it used greener technologies and greener materials in manufacturing process. It also produces in large no. to effectively use economies of scale. Another strategy that it uses to give value to its customers is through acquisition. When it goes in for acquiring any company the main driving philosophy always is whether the new acquisition will add any value to the products we currently serve to our customers. Alliances, Partnerships and Joint Ventures of the Firm Nokia has long used alliances, partnerships and joint ventures throughout their existence to gain competitive advantage and to serve their customer in a better way. Among the major acquisitions made by Nokia in the past 5 years comes the acquisition of Symbian ltd. Symbian is the operating platform which Nokia uses in its mobile handsets. In 2008 it acquired the remaining 52% of the company’s shares. With this acquisition Nokia hoped that it will be able to provide better experience to the customers who use their phones. The Symbian operating system is an open source platform and so changes can be made and introduced to it when the time requires. New applications made as compatible to the operating system can also be developed from time to time. Nokia mainly acquired the Symbian system to develop the web based application. The Symbian ltd. was mainly acquired to increase the Smartphone capability of Nokia and to make it competitive with its other strong contributors such as Apple, Blackberry etc. Nokia Siemens network a 50-50 joint venture that Nokia had entered into with Siemens back in 2006 completed their acquisition of Motorola networks in 2011. As part of the acquisition it paid $975 million in cash. By this acquisition Nokia hoped that it will be able to develop its communication platform. They also hoped that through this new acquisition they will be able to enter new market segments, cater to newer breed of customers and increase their market share (Nokia, 2014). Managing Human Resources Globally- Corporate Governance Nokia’s human resource team has a very big task in hand to perform. Their job is to ensure that the people recruited should not be based on cast, creed and other differentiating factors. The recruitment should be solely based on selecting the right talent for the company who will help in taking the company forward. The recruited individual should not just come in to fill empty chairs but be able to contribute something for the company. The person should additionally be able to adjust with the organization culture prevalent at NOKIA. The recruitment process aims at maintaining diversity at work place based on gender, caste, creed, sexual orientation, etc. so as to include maximum diversity in workplace. This is done in order to ensure creativity as creativity fosters in diversity environment. Recruiting individuals is one thing but to make them fit to the organization is a far greater challenge. Nokia facilitates employee training through e-learning and training to the new entrants by seniors in the team. Nokia also has a very good compensation package for its employees in terms of monetary and non monetary benefits. Nokia’s board of directors comprises of Risto Siilasmaa who is of Finnish origin and is the chairman of the board. Jouko Karvinen who is vice chairman and belongs to Sweden, Other board members include Vivek Badrinath belonging to India, Bruce Brown, Elizabeth, Mårten Mickos, Elizabeth Nelson Kari Stadigh, and Dennis F. Strigl. The board comes from different nationality and diverse backgrounds. They have different educational background and different thinking styles. This diversity has been purposefully included to enable free exchange of ideas and growth of new creative ideas. Corporate Social Responsibility of the Firm There are various societal issues which are taken into consideration by the company. Mission of the company is to achieve targets of climate strategy, develop human rights metrics and approach, to be ranked as number1 in sustainability index, introducing sustainable materials in the industry and adjusting availability of green energy. CSR activities adopted by Nokia are in context of such set targets. The companies have entered into partnership with International Union to save species and conserve nature. Nokia is also trying to initiate recycling culture throughout European Union. Re-employment practices are taken seriously across the firm by providing career counseling to every employee and making them aware about job opportunities. The Mobile learning for Mathematics service which was started by Nokia has been extended to Finland after successful execution of its operation in South Africa (Henry, 2011). This kind of educational learning was developed by the company to enhance the platform of social networking as classmates can exchange knowledge and creative ideas through innovative chat rooms. Developing such programs has a wider impact on the society as it is beneficial for students, teachers, parents as well as broader community. Nokia is also entering into partnerships with Oxfam to identify how mobile communication technologies can be effectively utilized to improve maternal health during childbirth or pregnancy. This CSR activity has been termed as Open IDEO which is a global community bringing in people from different backgrounds to provide solutions regarding any societal issue. Mobile assistance is provided by the company in any form of developmental activities during disaster management. Conclusions The report above analyzed NOKIA as a company and evaluated in particularly in the context of the country of its origin i.e. e. Finland. The report was aimed at evaluating the company starting from its history. The country was simultaneously analyzed through PESTEL model. A SWOT analysis was performed on the company to identify its strengths, weakness opportunity and threat. Next a Financial analysis of the firm was also found. It was found from the financial analysis that Although Nokia’s share have shown positive trend over the years it has been analyzed but the stocks have been highly volatile in nature. The company was analyzed on several grounds based on the corporate and business strategy, how it manages foreign exchange risks, Strategies it uses to enter local and global market, the alliances, partnerships and JVs it uses to bring value to its customers. Also analyzed is the human side of the firm by analyzing the human resource practices. Its board of Directors was analyzed based on the countries they belong to and the background they belong to. It was found that although NOKIA has strong fundamentals and good business strategies in place but it lacks in certain aspects and is not able to maintain its competitive advantage in the current years; a fact that is made evident by the declining sale figure of the company year on year. The company seems to be losing its valued place in the customers’ hearts which is a pretty alarming situation. The company has to introduce radical changes in the organization in order to stay relevant and regain its competitive advantage. References Bank of Finland (2013). Inward and outward portfolio investment decreased in 2013. Retrieved from: http://www.suomenpankki.fi/en/tilastot/maksutase/pages/maksutase_201401.aspx. David, F. R. (2011). Strategic management and cases. New Jersey: Prentice Hall. Henry, A. (2011). Understanding strategic management. New York: Oxford University Press. Mcfarlin, D. B., & Sweeney, P. D. (2008). International management. New Delhi: Dreamtech Press. Nokia (2014). Acquisitions & divestments. Retrieved from: http://company.nokia.com/en/investors/acquisitions-divestments. Peng, M. (2013). Global strategy. USA: Cengage Learning. World Bank (2013). Foreign direct investment, net outflows (% of GDP). Retrieved from: http://data.worldbank.org/indicator/BM.KLT.DINV.GD.ZS. Read More