EXECUTIVE SUMMARY. Thisassignment focuses on analyzing the downfall of Nokia. The assignment usesframeworks like PESTLE analysis and porter’s five forces to analyse thecompetitive environment of Nokia. Value chain analysis is used to come withrecommendations as to how Nokia can make a comeback in the market. 2.
INTRODUCTION. “Fewcompanies go beyond connecting people, they transform the world.”1Nokia a brand which was born “in a paper mill in South West Finland” isconsidered as “one of the most successful and important Fortune 500organisations”.1 This brand thatchanged the world of information technology and communication has been “in business going full throttle”.1Nokia”was found in Finland over” a hundred and forty years ago and currently it hasits operation spread over in a hundred and twenty countries all over the world.
2 Nokia is know to be aleading company specializing in IT corporation and mobile communication.2Nokia has been known as the largest phone maker “from 1998 to 2012”.3However Nokia’s market share started shrinking due to the increasing number ofother mobile phone market players such as Apple, HTC and Samsung.
3 Nokiawas “a pioneer in thesmartphone market” introducing smartphones to customers with the intial SymbianSeries 60 devices in 2002.4 These Symbian phones had some trouble inmaintaing their market share in the smartphone market.4 Nokia wasvery slow in responding to the changing trends to iphone and andriod phones.4The Symbian phones were outdated, and it could be shown when they were comparedto Apple and Samsung phones.4 Nokia did not “make the leap of faithonto Windows Phone until 2011”, which showed a slow response on the part ofNokia.4 In 2008,Andriod version 1.0 was launched and inthe same year Nokia’s quarter three profits fell 30% and its sales decreased3.1%, whereas the sales of iphone increased by around 330%.
Stephen Elop, whoas appointed as Nokia’s new ceo in 2010 had compared the company’s position inthe market to a man standing on a “burning platform” .5 It was quiteevident then that the situation of the company back then was deterioting frombad to worse.5 “Apple and Google’s carrier partners are releasing arainbow of Android-powered devices, turning what had been Nokia’s commandinglead into a shaky patch of ground over a very deep chasm.”6 The market share of Nokia in the smart phone marketdropped to 14% in 2011 from 33% in 2010, which was lower to the market share ofSamsung and Apple.7 As Nokia was struggling and it was desperate to come out of this crisisit decided to enter into a strategic partnership with Microsoft in order tomake the latter’s Windows Phone its primary mobile OS.5 In the meantime Apple overtook Nokia’s sale in Q2, 2011.5 The first productthat came out from the partnerhip between Nokia and Microsoft was Lumia 800 andLumia 710 smartphones, announcment for which was made later in 2011.5While Lumia 800 was meant for the higher end market, Lumia 710 was meant to target the lower endof the market.
Inspite of the decent sales of Windows Phones, nothing muchcould be done to help Nokia, as the company incurred an operating loss of 1.3billion Euro.5 Apart from movingslowly in the smartphone market, Nokia was unable to anticipate the competition”in the lower end of the market”, where HTC, ZTE and Huawei, were attackingNokia in the lower end of the market in developing markewts like China.
4Nokia did not project itself as an innovator.4 Nokia’sreaction to the shifting trend towards “touch–screen handsets with open Webbrowsers” was slow.8 Nokia is vulnerable at the ” high-endsmartphone business”.8 Most of Nokia’s growth was arising from thelow-end and low margin devices in the emerging markets.8 But Nokia’smarket share in high-end market , even in the home market in werstern Europewas falling.8 On 3rd September 2013, the mobile phonedivision of Nokia was sold to Microsoft.7 3.
ENVIRONMENTAL ANALYSIS. Theenvironmental analysis for Nokia can be conducted using the PESTLE analysis andanalyzing Porter’s five forces. Followingfactors need to be considered while conducting an analysis of the externalenvironment using the PESTLE analysis: Political factors: Nokia, which issituated in Finland, has not received much perks from the government ofFinland.9 Unlike its competitors Nokia doesnot have a “stronggovernment support” “as it based in a small country”.10 This can beconsidered as a boon and bane for the company as it doesnot have anyassociation with major power, “but it might lack the political clout ofAmerican- or Chinese-based rivals”.
10 Political uncertainty in Chinacan cause disruption to the production capability and capacity of Nokia inChina, which can cause Nokia to shift its production to high cost base such asthe United States.10 Economic factors: Nokia has been facing atough time due to turmoil faced by European countries.10 It has hurtthe buying power of Nokia in the home market.10 Nokia faced a toughtime in tapping in the “fast-growing Chinese economy”.10 Mobilephones 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 bythe widespread use of smartphones and apps, which is a major cultural factorthat effected Nokia.10 Apple’s popular association with smartphonesin some countries like the United States cut into the Nokia market as it hascreated a generation of customers that only buy one brand.10 There istwo popular misconceptions that Nokia is facing namely, there are only twobrands of smartphone in the market that is Samsung and Apple and there are onlytwo opertating sytems namley andriod and ios.
10 Technological factors: The technological factorsaffecting Nokia “are at the root of the social factors limiting its business”. 10The develpoment of “open sourced operating system” and the “invention ofapps”, brought a radical change to the mobile phone industry.10 Itled to the change of mobile phones from “simple communication devices” tohandheld computers.
10 Legal factors: The legal environment in whichNokia operates is very challenging as it operates in the European Union.10″Google’s use of Android” is been investigated for apossible case of antitrust.10 Any action against Google, by theEuropean Union, could cause significant change to the market of Nokia.10It could help to could create an oppurtunity for a “more level playingfield” and help Nokia to increase its access to the European market.10 Environmentalfactors: It could be very costly for electronic manufacturesif the future environmental laws requires them to be responsible for disposingor recylcling their products in an environmentally friendly manner.
10A long term problem that mobile phone industry could face is issues caused byglobal warming, as it could disrupt the transoceanic shipping and the supplychain.10 Analysis of Porter’s five forces will give an insight into the microenvironment of Nokia. Following is the analysis of Porter’s five forces forNokia: Threat of new entrants: In the well established mobile phone market the barrier to entry is high.2The primary reason for the low threat of entry is that the technology requiredto compete against the already established players is quite advanced andexpensive.2 Any new entrant will need to make high investments inresearch and development, marketing and technology.2 An importantfactor 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 suppliesavailable to them.2 Nokia has the power to switch from one supplierto the other.
2 Therefore it can be concluded that the threat ofsuppliers is low. Powers of buyers: In the mobile phone industry the power of the buyers can be considered tobe high.2 The customers of Nokia can decide to switch to any of therivals of Nokia, if they are not satisifed with its products.2 The mainreason as to why the buyers have shifted from Nokia to its competitiors is thedelay in “adaption of new technologies”, “less user friendly” operating system.13Thus the buyers have a high bargaining power because of various choicesavailable to them. Threats of substitute products: Mobile phones have become irreplacable.
2 It performs variousfunctions such as making phone calls, taking photos, surfing the internet,listening to music and others, just in one handset.2 However thefunctions of mobile phones can be broken down, and substitute devices for themare available.2 For example the digital cameras can be used to takephotos instead of the camera in the mobile phones, notebooks can be used tosurf the internet.
However it is not feasible to carry along all thesubstitutes of the mobile phones like cameras , mp3 players, notebooks.2Thereforethe threat of substitute products is very low.2 Competitive rivalry: Nokia is operating in amarket characterised by high competition, where the rivals are making hugeinvestments in research and development and marketing to differentiatethemselves.2 Its competitors have moved to android and smartphones.
2Nokia is facing high competition from companies like Samsung, Apple,Blackberry, HTC, LG and Sony Ericcson.2Therefore 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 usmake 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 ofNokia, it can be seen support activites such as the firm infrastructure and thehuman resource department is one of the areas where the core competencies ofthe company lies.
Nokia is also know to be entrepreneurial and innovative.14One of Nokia’s core competency is its investment inresearch and development.14 HoweverNokia must make efforts to continuously improve its research and developmentand generate new products, inorder to compete with established players likeApple and Samsung.14Nokia has also demonstrated the5G network technology.16This a classic example of Nokia exploiting its invesntment in research anddevelopment and taking advantages of its enhancement in technology. Currently Nokia has a strategicagreement with HMD Global Oy (HMD), covering “intellectual property licensing”and branding rights.17 Under this deal Nokia will receive royaltypayments in respect of sales of every mobile phone and tablet of Nokia.17Nokia is neither a sharholder nor an investor in HMD.
17 The Nokia should monitor theprogress of HMD Global, and its success in manufacturing and selling Nokiabranded mobile handset. Thereafter Nokia should also come up tablets working inclose alliance with HMD Global, considering that tablets are most commonly useddevices and they are close substitutes to laptops. The market for tablets havea large potential and provide great scope for expansion. Nokia N1 developed byNokia is a tablet which is powered by andriod.
It was a great success forNokia.19 The market requires tablets that are cheap and easilyavailabe to the mass consumers. People falling in the middle level income arethe ones that Nokia needs to target with the tablets. Nokia can differentiatethemselves by creating fully working apps and not just mobile friendly apps ofa personal computer. Design innovation is required. There is great scope forNokia to enter the tablet market and make an impact. It can leverage itscompetitive advantage in technological facilities and research and development,to come launch differentiated tablets , but keeping a low cost and thereby competingon cost advantage.
Currently Nokia is neither apartner nor a shareholder in HMD Global. However Nokia should consider aquiringa controlling stake in HMD Global,whereby Nokia will be in a position toexercise greater control over HMD Global, and also take advantage of HMDGlobal’s expertise. This will give Nokia great discretion when it comes toformulating designs and marketing startegies. It will be a great opputunity forNokia , to launch mobile phones and tablets which are compatible with 5G technology.
Various competitors of Nokia such as Samsung , are collaborating with networkproviders to provide for the smooth transition from 4G network to 5G network.20This involves an additonal cost for these handset providers. However in thecase of Nokia, Nokia has also demonstrated the 5G network technology.
16Nokiacan ensure smooth transition from 4G to 5G network at no extra cost, sinceNokia has both 5G network and the handsets are being manufactured by HMDGlobal, under a strategic alliance agreement, where Nokia has no investments.This provides Nokia cost advantage over its competitors in ensuring a smoothtransition from 4G to 5G network. 5. CONCLUSION. Thepresent market scenario presents Nokia with great opportunity to make acomeback. Nokia should tap the tablet market, as it remains unexploited by itscompetitors. Nokia with its low cost base can achieve competitive advantage onbasis 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 tocollaborate with HMD Global and come up with 5G compatible phones, which willbe a potential cost advantage for Nokia.
Additionally Nokia should considerentering into a partnership agreement with HMD Global, so as to exercise greatercontrol and exercise its judgments. 6. REFERENCES.