Strengths
• Long history of flexibility and adoptive to change • Steady revenue growth •
Brand power • Strong financial position • Flexible Capital Structure •
Investment in research and development of technology • Reached low operating
costs in 2009 • Consumer retention rate of 55% • Product innovation bundled
with value added services mainly focusing on maps, music, messaging, media
and games. • Successful mergers, acquisitions and collaborations
|
Weaknesses
• Reduced staff strengths to achieve low costs. • Declining profitability
ratio due to current economic conditions • Decline in the converged device
share (by 32% in 2008 despite the shipment of over 60 million units).
|
Opportunities
• Consumer demand for mobile computers • New segments such as potential
first-time email users in India, Africa, etc
•
Consumers attracted to less expensive devices during recession
|
Threats
• Mobile device manufacturers • New entrants from the PC and internet
industries • Contraction of the market due to current economic conditions •
Innovative technologies in smartphone industry by competitors
|
Out
of the above weaknesses, reduction of overheads and staff was critical for
Nokia since staff cut down had to be handled more humanly. Nokia announced
plans to cut Operating expenses and cut production overheads by EUR500 million
at an annualized level by the end of 2011. As part of this effort, the company
is conducting a global personnel review, which may lead to headcount reductions
in the range of 7% to 9% out of approximately 125,000 employees.
Also
to reap benefits from the opportunities Nokia renewed its business mobility
strategy in year 2008 and set out to excel in the following three key areas
(International Security & Counter Terrorism Reference Center, 2009): 1.
Successful device portfolio; 2. Collaborating closely with carriers; 3.
Partnering with industry's leading companies. One of the key strategies in
surviving in the economic turmoil is to re-invent the business by way of
innovative product and services (Fischer, Gebauer, & Fleisch, 2008).
3.
Market Entry Strategy of Nokia
The
marketing mix:
Place:
Nokia phones are generally sold at all established mobile phone dealerships
such as Carphone Warehouse and The Link, although they are also sold at other
retailers such as Dixon's and other electrical suppliers. The products are only
sold in the electrical suppliers and store other then dedicated phone
dealerships after the introductory period so the phones can remain limited
edition, as this will encourage younger consumers to buy them.
Promotions:
Nokia tend to promote the new technologies and mobile devices they create using
one big advertising campaign that focuses on a singular technology instead of
each individual handset so they can appeal to a lot of different markets with
one campaign.
Product:
Nokia phones tend to include all the latest technology. When the phones came
out they were big and bulky and quite unattractive but now they are all quite
sleek and stylish with phones now they are small and slim. Most of the phones
produced nowadays have accessories that consumers must buy with them (carry
cases, hands free kits and in-car chargers) these generate Nokia a lot of
profit, as they are very high priced.
Nokia's
marketing mix has worked very well until recently as the market they are aiming
at has become more and more saturated and after looking at all the mobile phone
sales figures, it looks as if the phone companies can aim at this same youth
market for about another 2 years until they need to change, but they should
change sooner so they can start making a bigger profit and get a head start on
the competition who will also have to change the market they are aiming at.
Nokia's current promotional strategy is working very well as they are able to
"talk to" a large number of consumers in different markets rather
than the niche markets the old promotional strategies where restricted to.
Market
segmentation
Market
segmentation refers to the different areas of the population that companies can
aim their products towards. The market segment that Nokia has chosen to aim is
the youth market focusing on students aimed 13-19 as market research has shown
that some of the youth market are receiving large amounts of pocket money and
most have no real commitments to spend it on and that means they have lots of
disposable income and will be able to spend a lot money on new mobile phones.
As
a big company Nokia is able to do a lot of promoting and advertising that
smaller, less successful companies, may not be able to afford, such as
television advertising and sponsoring lots of events that will be viewed or
heard by large amounts of people in their chosen market segment (events such as
music festivals and music awards are a goldmine for companies as they are
viewed by millions of people worldwide). Adverts such as television and print
adverts will be put into certain areas so that they can attract their chosen
market segment, Nokia tend to put a lot of their print adverts in men's
magazines such as FHM and Loaded so they can appeal to all of their readers instead
of a smaller percentage of the readers they would attract in magazines such as
Lifestyle and Good Housekeeping. Nokia's way of promoting is very good as they
can appeal to mass markets and large amounts of people in their chosen market segmentation
with certain advertisement's and with sponsoring large events like the ones I
have previously mentioned.
Pricing
strategy
Nokia's
current pricing strategy is based on two main theories: 1. Penetration pricing-
although this strategy is usually for companies that are trying to gain instant
market share in a new market, companies who are already well known in the
market still do it with new products that carry new technologies so they can take
more market share from their competitors. 2. Competitor based pricing- this is
used when there is a lot of competition in the market and a company is looking
to take another companies market share by offering the same or similar products
or a lower price, this happens a lot in the communications market and this
strategy is used by every mobile phone producing company that is still in
business.
Nokia's
pricing strategy has proven very effective, this is down to the fact that they
first sell their products for high prices and have very limited sales but make
big profits on each sale, they then lower the price of their product and have
lots more sales but they make less profit, but they still make a large profit
due to the amount of sales, the other reason that they are so successful is
that they offer high quality products and they sell them for the same price and
sometimes even lower prices than the competition and have now built up the highest
market share, they currently have 37.2% of the mobile phone market share and
are the biggest selling mobile phone company in the world.
Branding
Nokia
phones are seen as being of the highest quality and this is reflected in their
massive sales figures. The fact that they are seen to be such high quality
products is partly down to successful branding, they have a highly recognizable
packaging style and the style of their handsets is similar in every line of
production with the company name printed just above the screen and just below
the earpiece. The fact that Nokia operate such an aggressive marketing strategy
has elevated them above the competition as consumers are fooled into believing
that branded products are "better" then un-branded products or
products produced by lesser-known brands such as One Tel and other lesser-known
phone producers in the market.
Product
life cycle-Nokia
When
Nokia phones were first introduced they required a lot of promoting and
advertising as they weren't established enough to sell based on their quality
and what they offer to the consumer, so this is where Nokia spent the largest
amount of money promoting their products and establishing their brand as a
leader in the communications market. Also when mobile phones were first available
there were only a few companies as well as Nokia in the market (Sony est.) so
they could charge higher prices then they can at the present time in the
product life cycle because no companies would dare to enter a price war with
such a new product.
Growth-
This stage of the life cycle also has high promotion costs involved in it, this
is due to the fact that mobile phones are becoming established as a consumer
necessity and lots of other companies decide to enter the growing market,
although companies do not need to assure customers that they need a mobile
phone, Nokia have to assure the customers that they want a Nokia phone and this
is where the high promotional costs come from.
Maturity-
In this stage the promotional costs do decrease as the more popular brands,
such as Nokia and Samsung, have gathered the majority of the market share and
only have to show customers that they have a new model out and it will sell
well, as they have been established as a quality brand and customers no-longer
need to be persuaded to buy Nokia brand technology.
Decline
-This is the stage that the mobile communications market, including Nokia, have
recently entered, and companies are promoting, heavily, their new products to
the market in an attempt to get out of decline and back into growth, with a new
generation of technologically advanced phones that offer motion picture
capture, camera technology and the opportunity to watch television on your handset.
Today
Nokia has captured the markets of over 60 countries in the world where China,
India, USA, Europe, Middle East, Africa, Asia, Australia and New Zealand having
largest market shares. There are two interesting cases of entering strategy of
Nokia: Indian market and Chinese market.
Nokia
entered India in 1995. Since then the Nokia brand has been steadily growing and
has gained wide acceptance in the Indian market. India is the third largest
market for Nokia, in terms of its net sales as of 2006. Nokia is one of the
most trusted brands in India and leads other cellular phone brands in terms of
market share, advertising and customer service. The innovative technologies,
user-friendly features and affordable prices contributed to Nokia's success in
India. The case facilitates discussion on Nokia's brand building strategies in
India. It also allows for discussion on the future of the Nokia brand and the
cellular market in India.
Since
1985, Nokia had been fighting hard to establish a strong presence in the
Chinese cell phone market that had grown significantly during the 1990s.
Despite investing heavily in research and development and manufacturing
facilities, Nokia had been facing tough competition not only from foreign
companies like Motorola and Samsung but also from domestic players like TCL and
Ningbo Bird. The market share of domestic players had increased from a mere 5%
in 2000 to 56% in 2003.
In
order to overcome the above barriers Nokia adopted strategies such as mergers,
acquisitions and partnering or collaborating with market leaders in those specific
countries/industries.
4.
Foreign Direct Investment
This
section analyzes what kind of strategy Nokia took in terms of FDI.
Foreign
direct investment (FDI) occurs when a company directly invests in production
and/or marketing of products in a foreign country. FDI can be categorized in to
two. 1. Greenfield Investments, when established as a new operation in a
foreign country. 2. Acquiring and merging with existing firms of a foreign nation
(Joint Ventures).
Horizontal
FDI is when the company is starting business in the same industry in the
foreign nation. Dubai based Telecommunication Corporation buying over Tigo Sri
Lanka in Oct 2009 to enter into the Sri Lankan market is a good example (Arab
News, 2009).
Vertical
FDI takes place when a multinational corporation (MNC) owns some shares of a
foreign enterprise, which supplies input for it or uses the output produced by
the MNC (Hill & Jain, 2007).
In
terms of motives, Foreign Direct Investment can be categorized as: 1. Market
seeking FDIs 2. Resource seeking FDIs 3. Efficiency seeking FDIs
FDIs
that are undertaken to strengthen the existing market structure or explore the
opportunities of new markets can be called 'market-seeking FDIs.' 'Resource-seeking
FDIs' are aimed at factors of production which have more operational efficiency
than those available in the home country of the investor. FDI activities may
also be carried out to ensure optimization of available opportunities and
economies of scale. In this case, the foreign direct investment is termed as
'efficiency-seeking.
For
Nokia it was more or less a mix of all of the above three motives. Some of the
key examples for NOKIA can be listed as follows: Mergers, Collaborations and
Acquisitions by Nokia • Nokia Siemens Networks (NSN) - To develop a portfolio
of products and service solutions to help operators run their networks more
efficiently. • NAVTEQ acquisition. To get in to the Maps and navigation technology,
which have become tremendously popular services on mobile devices. (NAVTEQ’s
advanced map capabilities are critically important, as we believe that the next
phase of Internet services will be defined by local relevance and your "social
location". Nokia is well-positioned to take leadership here). •
Collaborate with The Symbian Operating System to broaden the definition of the
smartphone, by expanding smartphone features into the mid-range, and into new
categories. • Working together with certain competitors, new players and
partners in new ways to tackle global environmental issues. • Agreements with
Microsoft and IBM for corporate e-mail services. • Collaborate with Qualcomm to
develop smartphones for the North American markets. • Nokia and Broadcom are
cooperating on technologies a next generation 3G baseband, radio frequency (RF)
and mixed signal chipset system supplier for worldwide markets., including
Nokia modem technology (Tolkoff, 2009).
In
the 1990s, Nokia internationalized its R&D function, by setting up research
centers abroad. By 1998, half of the company’s R&D was conducted outside of
Finland. Some of these centers, located in regional clusters of scientific
excellence (e.g. Silicon Valley), have helped Nokia tap knowledge from rivals
and foreign markets. In addition, Nokia has forged collaborations with leading
universities in Finland and abroad (e.g. Massachusetts Institute of Technology)
and has participated in various international R&D projects, in view of
expanding the scope of its long- term technology development. By the end of the
1990s, co-operation with other companies, research institutes and universities
had become a central part of Nokia’s global R&D strategy. This approach
triggered two-way knowledge transfers, enabling Nokia to exploit external
expertise and technology.
Furthermore,
by end 2000 Nokia had set up ten plants for the manufacturing of its mobile
devices in nine different countries. These plants have handled huge amounts of
parts (e.g. more than 100 billion in 2006). The challenges of managing such
huge volumes are enormous, but Nokia has turned high-tech manufacturing, supply
chain management and logistics into one of its core competencies. In addition,
the company has also been working with a selected number of external suppliers
in Finland and abroad to procure electronic and mechanical components, and
software. Collaborating with such a diverse base of suppliers worldwide through
a horizontally-integrated supply chain model has generated (two-way) knowledge
and technology transfers between Nokia and its partners, helping it to multiply
its technological capacities. Moreover, Nokia’s long-term supplier
relationships have functioned as a growth engine for the entire Finnish ICT
(information and communication technologies) sector as it served as an
international marketing channel for many smaller Finnish companies. The
increasing significance of Nokia’s foreign operations in the company’s global
business strategy has however implied potentially greater risks and higher
costs from changes in tariffs and other obstacles to trade affecting the import
and export of mobile device components.
Finally,
in the early 1990s, Nokia adopted an export-based sales strategy. As a result,
between 1990 and 2006, Finland’s position as Nokia’s dominant geographic market
declined dramatically at the expense of other European countries, the
Asia-Pacific and the Americas. In recent years, emerging markets (e.g. China,
India and Russia) have been Nokia’s main markets. In addition to the changing
composition of key markets, the volume of net sales also dramatically increased
(+ 209% over eight years, increasing from a total €13 326 million in 1998 to
€41 121 million in 2006), which enabled Nokia to recoup its R&D investments
more easily. Today Nokia is ranked 85 in top 500 companies in the world
(Lesser, 2009).
5.
Foreign Exchange Market Impact over Nokia
"The
foreign exchange risk usually affects businesses that export and/or import, but
it can also affect investors making international investments. For example, if
money must be converted to another currency to make a certain investment, then
any changes in the currency exchange rate will cause that investment's value to
either decrease or increase when the investment is sold and converted back into
the original currency" (Investopedia, 2010). This way unfavorable market
volatility will have a huge negative impact in Nokia’s profitability.
Large
companies such as Volkswagen, Airbus and Philips, among others, have
experienced a foreign exchange loss on profit arising from unhedged sales in
dollar countries. Moreover, some companies, such as Heineken, Nokia and again
Airbus, have already announced that the weakened dollar will keep affecting
returns, due to mere short-term hedges in previous years.
The
most common of these solutions are conversion of contracts into domestic
currency or transferring the production abroad. The foreign exchange risk for a
company will increase with the length of its foreign commitments. Relative
small changes in the foreign exchange rates can have a huge impact on the
profit and solvency of a company (Wijckmans, 2005).
According
to the foreign exchange policy guidelines of the Group, material transaction
foreign exchange exposures are hedged. Exposures are mainly hedged with
derivative financial instruments such as forward foreign exchange contracts and
foreign exchange options. The majority of financial instruments hedging foreign
exchange risk have duration of less than a year. The Group does not hedge
forecasted foreign currency cash flows beyond two years. One example from Nokia
is KongZhong Corporation, a leading mobile Internet company in China, reaching
a non-binding agreement with Nokia Growth Partners (NGP) to receive an
investment of about US$6.8 million in 5-year convertible senior notes. NGP
would also receive warrants to purchase an additional 2.0 million American
Depositary Shares (ADS) at US$5.0 per ADS, exercisable within five years (PR
Newswire Association LLC , 2009).
Nokia
uses the Value-at-Risk ("VaR") methodology to assess the foreign
exchange risk related to the Treasury management of the Group exposures. The
VaR figure represents the potential fair value losses for a portfolio resulting
from adverse changes in market factors using a specified time period and
confidence level based on historical data. To correctly take into account the
non-linear price function of certain derivative instruments, Nokia uses Monte
Carlo simulation. Volatilities and correlations are calculated from a one-year
set of daily data. The VaR figures assume that the forecasted cash flows
materialize as expected.
6.
Culture and Environment
Culture
of a MNC is very vital when conducting business. Colleagues of different ethnic
groups should be clear in communication as well as in interaction. While
understanding the core cultural competencies within MNC it is equally important
to apply them in the local contents (Smedley, 2008).
As
a MNC the belief that a company should take into account the social, ethical,
and environmental effects of its activities on its staff and the community
around it is defined as the Corporate Social Responsibility (CSR). Let us also
look at Nokia’s belief in company's accountability towards the community.Some
of the key CSR initiatives of Nokia are as follows: • A global leader in
recycling, with the industry’s largest voluntary recycling program. It is now
operating in 85 countries, and working hard to increase awareness to encourage
more customers to recycle their old phones. • Responsible ways of working have
become business as usual at Nokia. • China headquarters in Beijing has received
global recognition as one of the most environmentally sensitive buildings in
the world. • Nokia also has been highly ranked for its environmental
sustainability by several organizations worldwide. These include the Dow Jones
Sustainability Index, the Carbon Disclosure Project and more recently, the
Greenpeace Green Electronics Guide. • The GSM Association recently recognized
Nokia's commitment and actions with its environmental achievement award for
Nokia this year. • Nokia also is working with the industry to reduce the
environmental impact of mobile phone chargers.
Summary
Mobile
phones have already become part of our lives. People want to be truly
connected, independent of time and place, in a way that is very personal to
them. Nokia’s promise is to connect people in new and better ways. Nokia’s
strategy is to build trusted consumer relationships by offering compelling and
valued consumer solutions that combine beautiful devices with context enriched
services.
But
at the same time as a multinational corporation Nokia has to be mindful in how
the future is planned and executed. This paper gave some insight information of
Nokia’s market entry strategy, foreign direct investments, foreign exchange
risk culture and environment. Lessons can be learnt from Nokia on the
importance of interacting and integrating these segments as often as possible
in order to ensure survival in economic turmoil. New markets has to be tapped,
new products and services have to be invented and above all a positive culture
should be encouraged to be adoptive to change as and when the market conditions
change.
References
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Tolkoff, S. (2009). STRATEGIC alliances (Business). Orange County Business
Journal , 32 (9), 3-36.
16.
Wijckmans, J.-W. (2005, January). Reducing long-term forex transaction risk
under volume uncertainty. Risk , 18 (1), pp. 70-73.