1. EXECUTIVE SUMMARY.

 

This
assignment focuses on analyzing the downfall of Nokia. The assignment uses
frameworks like PESTLE analysis and porter’s five forces to analyse the
competitive environment of Nokia. Value chain analysis is used to come with
recommendations as to how Nokia can make a comeback in the market.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.INTRODUCTION.

 

“Few
companies go beyond connecting people, they transform the world.”1
Nokia a brand which was born “in a paper mill in  South West Finland” is
considered as “one of the most successful and important Fortune 500
organisations”.1  This brand that
changed the world of information technology and communication  has been “in business going full throttle”.1
Nokia
“was found in Finland over” a hundred and forty years ago and currently it has
its operation spread over in a hundred and twenty countries all over the world.2 Nokia is know to be a
leading company specializing in IT corporation and mobile communication.2
Nokia has been known as the largest phone maker “from 1998 to 2012”.3
However Nokia’s market share started shrinking due to the increasing number of
other mobile phone market players such as Apple, HTC and Samsung.3 

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Nokia
was “a pioneer in the
smartphone market” introducing smartphones to customers with the intial Symbian
Series 60 devices in 2002.4 These Symbian phones had some trouble in
maintaing their market share in the smartphone market.4 Nokia was
very slow in responding to the changing trends to iphone and andriod phones.4
The Symbian phones were outdated, and it could be shown when they were compared
to Apple and Samsung phones.4 Nokia did not “make the leap of faith
onto Windows Phone until 2011”, which showed a slow response on the part of
Nokia.4 In 2008,
Andriod version 1.0 was launched  and in
the same year Nokia’s quarter three profits fell 30% and its sales decreased
3.1%, whereas the sales of iphone increased by around 330%. Stephen Elop, who
as appointed as Nokia’s new ceo in 2010 had compared the company’s position in
the market to a man standing on a “burning platform” .5 It was quite
evident then that the situation of the company back then was deterioting from
bad to worse.5 “Apple and Google’s carrier partners are releasing a
rainbow of Android-powered devices, turning what had been Nokia’s commanding
lead into a shaky patch of ground over a very deep chasm.”6

 

 

The market share of Nokia in the smart phone market
dropped to 14% in 2011 from 33% in 2010, which was lower to the market share of
Samsung and Apple.7 As Nokia was struggling and it was desperate to come out of this crisis
it decided to enter into a strategic partnership with Microsoft in order to
make the latter’s Windows Phone its primary mobile OS.5 In the mean
time Apple overtook Nokia’s sale in Q2, 2011.5 The first product
that came out from the partnerhip between Nokia and Microsoft was Lumia 800 and
Lumia 710 smartphones, announcment for which was made later in 2011.5
While Lumia 800 was meant for the higher end market,  Lumia 710 was meant to target the lower end
of the market. Inspite of the decent sales of Windows Phones, nothing much
could be done to help Nokia, as the company incurred an operating loss of 1.3
billion Euro.5

 

Apart from moving
slowly in the smartphone market, Nokia was unable to anticipate the competition
“in the lower end of the market”, where HTC, ZTE and Huawei, were attacking
Nokia in the lower end of the market in developing markewts like China.4
Nokia did not project itself as an innovator.4 Nokia’s
reaction to the shifting trend towards “touch–screen handsets with open Web
browsers” was slow.8 Nokia is vulnerable at the ” high-end
smartphone business”.8 Most of Nokia’s growth was arising from the
low-end and low margin devices in the emerging markets.8 But Nokia’s
market share in high-end market , even in the home market in werstern Europe
was falling.8 On 3rd September 2013, the mobile phone
division of Nokia was sold to Microsoft.7

 

 

3.ENVIRONMENTAL ANALYSIS.

 

The
environmental analysis for Nokia can be conducted using the PESTLE analysis and
analyzing Porter’s five forces.

 

Following
factors need to be considered while conducting an analysis of the external
environment using the PESTLE analysis:

 

Political factors: Nokia, which is
situated in Finland, has not received much perks from the government of
Finland.9 Unlike its competitors Nokia doesnot have a “strong
government support” “as it based in a small country”.10 This can be
considered as a boon and bane for the company as it doesnot have any
association with major power, “but it might lack the political clout of
American- or Chinese-based rivals”.10 Political uncertainty in China
can cause disruption to the production capability and capacity of Nokia in
China, which can cause Nokia to shift its production to high cost base such as
the United States.10

 

Economic factors: Nokia has been facing a
tough time due to turmoil faced by European countries.10 It has hurt
the buying power of Nokia in the home market.10 Nokia faced a tough
time in tapping in the “fast-growing Chinese economy”.10 Mobile
phones are considered to be more of a utility item rather a luxury item,
thereby making the mobile industry resilient.11

 

Social factors: Nokia has been hurt by
the widespread use of smartphones and apps, which is a major cultural factor
that effected Nokia.10 Apple’s popular association with smartphones
in some countries like the United States cut into the Nokia market as it has
created a generation of customers that only buy one brand.10 There is
two popular misconceptions that Nokia is facing namely, there are only two
brands of smartphone in the market that is Samsung and Apple and there are only
two opertating sytems namley andriod and ios.10

 

Technological factors: The technological factors
affecting Nokia “are at the root of the social factors limiting its business”. 10
The develpoment of “open sourced operating system” and the “invention of
apps”, brought a radical change to the mobile phone industry.10 It
led to the change of mobile phones from “simple communication devices” to
handheld computers.10

 

Legal factors: The legal environment in which
Nokia operates is very challenging as it operates in the European Union.10
“Google’s use of Android” is been investigated for a
possible case of antitrust.10 Any action against Google, by the
European Union, could cause significant change to the market of Nokia.10
It could help to could create an oppurtunity for a “more level playing
field” and help Nokia to increase its access to the European market.10

 

Environmental
factors: It could be very costly for electronic manufactures
if the future environmental laws requires them to be responsible for disposing
or recylcling their products in an environmentally friendly manner.10
A long term problem that mobile phone industry could face is issues caused by
global warming, as it could disrupt the transoceanic shipping and the supply
chain.10

 

Analysis of Porter’s five forces will give an insight into the micro
environment of Nokia. Following is the analysis of Porter’s five forces for
Nokia:

 

Threat of new entrants: In the well established mobile phone market the barrier to entry is high.2
The primary reason for the low threat of entry is that the technology required
to compete against the already established players is quite advanced and
expensive.2 Any new entrant will need to make high investments in
research and development, marketing and technology.2 An important
factor for the sale of mobile phones is the brand factor.12

 

Power of suppliers: Nokia is in a position to negotiate and bargain with any hardware maker,
as there are a number of equipment suppliers who are willing to make supplies
available to them.2 Nokia has the power to switch from one supplier
to the other.2 Therefore it can be concluded that the threat of
suppliers is low.

 

Powers of buyers: In the mobile phone industry the power of the buyers can be considered to
be high.2 The customers of Nokia can decide to switch to any of the
rivals of Nokia, if they are not satisifed with its products.2 The main
reason as to why the buyers have shifted from Nokia to its competitiors is the
delay in “adaption of new technologies”, “less user friendly” operating system.13
Thus the buyers have a high bargaining power because of various choices
available to them.

 

Threats of substitute products: Mobile phones have become irreplacable.2 It performs various
functions such as making phone calls, taking photos, surfing the internet,
listening to music and others, just in one handset.2 However the
functions of mobile phones can be broken down, and substitute devices for them
are available.2 For example the digital cameras can be used to take
photos instead of the camera in the mobile phones, notebooks can be used to
surf the internet. However it is not feasible to carry along all the
substitutes of the mobile phones like cameras , mp3 players, notebooks.2
Therefore
the threat of substitute products is very low.2

 

Competitive rivalry: Nokia is operating in a
market characterised by high competition, where the rivals are making huge
investments in research and development and marketing to differentiate
themselves.2 Its competitors have moved to android and smartphones.2
Nokia is facing high competition from companies like Samsung, Apple,
Blackberry,  HTC, LG and Sony Ericcson.2
Therefore it can be concluded that their competitive rivalry is very high.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4. RECOMMENDATIONS:

 

Nokia’s competitive advantage
“is based on scale, brand and services”.14 Let us
make an analysis of the value chain of Nokia.

 

Firm
Infrastructure: Nokia has a new organisational structure and
leadership team, with focus on results, accountability and speed.15

Human
Resources: The company has a shared vision which ensures,
more acountability and responsibility amoing the employees, and they are
motivated to take part in the success of the company.14 Feedbacks
about products and services are asked for from employees which ensure
continous learning.14

Technology
Development: Nokia has demonstrated the 5G network technology.16
Full  5G services are expected to be
launched by 2020, thereby “enabling unprecedented levels of coverage and
capacity”, enhancing energy efficiency, increasing the speed and reducing the
latency.16

Research
& Development:  Its investment in research and development enables it to create
“trusted
consumer relationships”, “context enriched services”  and the “best mobile devices everywhere”.14

Inbound
Logistics: Inbound supply chain is diverse. However due to
earthquake in Japan, the system has become shaky.15

Operations:  Nokia has entered into a strategic alliance
agreement with HMD Global covering “intellectual property licensing” and
branding rights.17 This means that HMD Global can “can begin
operations as the new home of Nokia phones”.17

Outbound
Logistics: Distribution channels are robust.15
Aglity and Nokia have taken up a supply chain initiative resulting in
reductions in transport cost, carbon emissions and ene to end transit time
and offers stability of shipment transit and high security.18

Marketing: Nokia has
entered into a strategic alliance agreement with  HMD Global covering
“intellectual property licensing” and branding rights.17  HMD will also market the products.17

                  Primary
Activities

 

 

 

 

 

 

 

 

Figure 1: Value Chain.

 

On analysing the value chain of
Nokia, it can be seen support activites such as the firm infrastructure and the
human resource department is one of the areas where the core competencies of
the company lies. Nokia is also know to be entrepreneurial and innovative.14
One of Nokia’s core competency is its investment in
research and development.14 However
Nokia must make efforts to continuously improve its research and development
and generate new products, inorder to compete with established players like
Apple and Samsung.14

Nokia has also demonstrated the
5G network technology.16
This a classic example of Nokia exploiting its invesntment in research and
development and taking advantages of its enhancement in technology.

 

Currently Nokia has a strategic
agreement with HMD Global Oy (HMD), covering “intellectual property licensing”
and branding rights.17 Under this deal Nokia will receive royalty
payments in respect of sales of every mobile phone and tablet of Nokia.17
Nokia is neither a sharholder nor an investor in HMD.17

 

The Nokia should monitor the
progress of HMD Global, and its success in manufacturing and selling Nokia
branded mobile handset. Thereafter Nokia should also come up tablets working in
close alliance with HMD Global, considering that tablets are most commonly used
devices and they are close substitutes to laptops. The market for tablets have
a large potential and provide great scope for expansion. Nokia N1 developed by
Nokia is a tablet which is powered by andriod. It was a great success for
Nokia.19 The market requires tablets that are cheap and easily
availabe to the mass consumers. People falling in the middle level income are
the ones that Nokia needs to target with the tablets. Nokia can differentiate
themselves by creating fully working apps and not just mobile friendly apps of
a personal computer. Design innovation is required. There is great scope for
Nokia to enter the tablet market and make an impact. It can leverage its
competitive advantage in technological facilities and research and development,
to come launch differentiated tablets , but keeping a low cost and thereby competing
on cost advantage.

 

Currently Nokia is neither a
partner nor a shareholder in HMD Global. However Nokia should consider aquiring
a controlling stake in  HMD Global,
whereby Nokia will be in  a position to
exercise greater control over HMD Global, and also take advantage of HMD
Global’s expertise. This will give Nokia great discretion when it comes to
formulating designs and marketing startegies. It will be a great opputunity for
Nokia , to launch mobile phones and tablets which are compatible with 5G technology.

Various competitors of Nokia such as Samsung , are collaborating with network
providers to provide for the smooth transition from 4G network to 5G network.20
This involves an additonal cost for these handset providers. However in the
case of Nokia, Nokia has also demonstrated the 5G network technology.16
Nokia
can ensure smooth transition from 4G to 5G network at no extra cost, since
Nokia has both 5G network and the handsets are being manufactured by HMD
Global, under a strategic alliance agreement, where Nokia has no investments.

This provides Nokia cost advantage over its competitors in ensuring a smooth
transition from 4G to 5G network.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5. CONCLUSION.

 

The
present market scenario presents Nokia with great opportunity to make a
comeback. Nokia should tap the tablet market, as it remains unexploited by its
competitors. Nokia with its low cost base can achieve competitive advantage on
basis of its low cost advantage and target the market with low cost tablets.

The invention of 5G technology by Nokia is a great opportunity for Nokia to
collaborate with HMD Global and come up with 5G compatible phones, which will
be a potential cost advantage for Nokia. Additionally Nokia should consider
entering into a partnership agreement with HMD Global, so as to exercise greater
control and exercise its judgments. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6. REFERENCES.

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