Реферат: Globalization Strategy of Nokia

Korea University

Graduate School of International Studies

Globalization Strategy of Nokia

Professor: Dong Ki Kim

Course: Global marketing management

Prepared by Mykhailova, Karolina

(Sogang University Student)

ID: I25004

November 8, 2010

Contents

Abstract

1.Introduction: Nokia’s background

2.Role of Nokia on the telecommunication market

3.Market Entry Strategy of Nokia

4.Nokia’s Foreign Direct Investment

5.Mergers, Collaborations and Acquisitions by Nokia

6.Foreign Exchange Market Impact over Nokia

7.Culture and Environment

Summary

References

Abstract

Themobile phone usage is increasing every day, revolutionizing the field oftechnology and our lives throughout the world. We all spend a considerableamount of time using our mobile phone for various purposes making it the technicalinnovation that we use most frequently. Nokia is one of the biggest brands inTelecommunications Industry globally. It enjoys a market share of around 35% atthe moment. The Finland based company Nokia caters to GSM as well as CDMAsegments. Nokia's phones are loved by a lot of people and its name issynonymous with reliability. Nokia has its presence in every segment of themarket. It offers the cheapest of phones with the most basic features as wellas high-end swanky phones with all the latest features.

Thepurpose of this paper is to briefly look at Nokia’s impact on the internationalbusiness under the following topics:

•Nokia’s market entry strategy: Marketing Mix, Branding, PLC

•Foreign Direct Investment

•Foreign Exchange Impact over international Trade of Nokia

•Culture of Nokia and CSR

Thiswill help to understand how Nokia’s way fits in to the theories ofInternational Business and what strategy put it on the top of mobile phonemarket.

1.Introduction: Nokia’s background

Nokiawas founded by Fredrik Idestam in 1865 as a wood-pulp mill in south-westernFinland. It was later relocated to the town Nokia where the company got itsname. The name Nokia is an old Finnish word for a dark, furry animal (such asthe sable). In the beginning of the 20th century Finnish Rubber Works establishedits factories and began using Nokia as its brand. The companies merged in 1967as Nokia Corporation, which went on to produce paper products, bicycles, cartires, footwear, personal computers, communication cables and televisions. Itwas not until 1987 that Nokia introduced one of the world’s first handheldphones, the Mobira Cityman 900. It weighed only 0.8 kg and cost €4,650. In 1992Jorma Ollila became the President and CEO of Nokia and focused the company ontelecommunications. Nokia launched its first GSM handset in 1992, the Nokia1011. In 1994, the first mobile to feature the Nokia Tune the Nokia 2100 waslaunched. In the same year, world's first satellite call was done using one ofNokia's GSM handsets. In 1997, the first mobile to feature Nokia's classicSnake game was launched, the Nokia 6110. 1998 was the year when Nokia becamethe world leader in mobile phones. The year 1999, was very significant as theInternet went mobile when the world's first WAP handset, Nokia 7110 waslaunched. 2002 saw the launch of Nokia's first 3G phones, the Nokia 6650. Nokialaunched the N-Gage in 2003. It helped in making the mobile gamingmulti-players. Another significant year in the history of Nokia was 2005 whenthe ‘Nseries’ was introduced. In the same year, Nokia sold its billionth phone.Nokia continues to be the market leader. It is now a huge multi-nationalcompany with manufacturing units all over the world. In the highly competitiveworld of mobile phones, Nokia still has a lot of market presence and provides alot of mobile contracts and will continue to do the same (Nokia, 2010).

2.Role of Nokia on the telecommunication market

Finland,home of Nokia, the world's largest manufacturer of mobile phones, has honed a newinnovation plan aimed at keeping the tiny Nordic country competitive in anincreasingly competitive, global market. In 2006, Olli-Pekka Kallasvuo,formerly Nokia’s Chief Financial Officer, took over as CEO from Jorma Ollila,who became chairman of Nokia’s Board of Directors. Nokia’s success has madeFinland one of the fastest-growing and most prosperous economies in Europe. Acompany becomes a ‘multinational corporation-MNC’ when it conducts any businessfunction beyond its domestic borders’ (Cullen & Parboteeah, 2010). InternationallyNokia has captured markets of over 60 countries in the world where China,India, USA, Middle East, Africa, Asia, Australia and New Zealand having largestmarket shares. It was ranked in 85th place of ‘Fortune 500 list’ and employeesover 125,000 staff (Cable News Network, 2009). «We are expanding ourpresence and operations in India, not for the local market alone. We want tostrengthen our global presence by exploiting the skills found here.'' SaidKullasvuo to Bloomberg when India became the second largest market for Nokiasurpassing USA in 2007 (Kallasvuo, 2007). This is clear intention of Nokia’sglobalization strategy. The sales volumes depict how Nokia’s business arms havespread globally. Nokia Q1 2009 net sales were EUR 9.3 billion. This is enoughproof for one to realize how Nokia’s presence in each country contributestowards GDP and employment statistics. (NOKIA, 2009) Finland already commitsaround 3.4 percent of its GDP (gross domestic product), or 6 billion [euro](US$8.6 billion), to R&D. That compares with the European average of around1.8 percent. Around 28 percent of this is paid for by the government, with thelion's share--72 percent--being footed by the private sector. Nokia accountsfor 45 percent of all industrial R&D in Finland and more than 80 percent ofthe R&D investment in the telecommunications sector (Blau, 2008). Timemarches on and history has proven that standing still means death for anycompany (Bradford, Duncan, & Tarcy, 2000). Change is inevitable fortelecommunication industry and the size doesn’t matter even for a company likeNOKIA if it is not adoptive. Based on strategies and events of 2008-09, let’slook at the SWOT analysis of NOKIA. SWOT analysis will help a firm tounderstand its Strengths, Weaknesses, Opportunities and Threats.

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

Outof the above weaknesses, reduction of overheads and staff was critical forNokia since staff cut down had to be handled more humanly. Nokia announcedplans to cut Operating expenses and cut production overheads by EUR500 millionat an annualized level by the end of 2011. As part of this effort, the companyis conducting a global personnel review, which may lead to headcount reductionsin the range of 7% to 9% out of approximately 125,000 employees.

Alsoto reap benefits from the opportunities Nokia renewed its business mobilitystrategy 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 insurviving in the economic turmoil is to re-invent the business by way ofinnovative product and services (Fischer, Gebauer, & Fleisch, 2008).

3.Market Entry Strategy of Nokia

Themarketing mix:

Price:The phones that Nokia produce are usually sold at high prices (new phones canbe expected to enter the market at around £200+, if they carry the latesttechnology). The price of the new phones usually decreases after anintroductory period, which is usually around 2 months long. Nokia's prices areusually competitor based, in such a way as, they try to keep their prices a bitlower than those of the closest competitors, but not as low as the»smallest" competition as consumers do not mind paying the extramoney for the «extra quality» they will receive with a well knownbrand, such as Nokia.

Place:Nokia phones are generally sold at all established mobile phone dealershipssuch as Carphone Warehouse and The Link, although they are also sold at otherretailers such as Dixon's and other electrical suppliers. The products are onlysold in the electrical suppliers and store other then dedicated phonedealerships after the introductory period so the phones can remain limitededition, as this will encourage younger consumers to buy them.

Promotions:Nokia tend to promote the new technologies and mobile devices they create usingone big advertising campaign that focuses on a singular technology instead ofeach individual handset so they can appeal to a lot of different markets withone campaign.

Product:Nokia phones tend to include all the latest technology. When the phones cameout they were big and bulky and quite unattractive but now they are all quitesleek and stylish with phones now they are small and slim. Most of the phonesproduced nowadays have accessories that consumers must buy with them (carrycases, hands free kits and in-car chargers) these generate Nokia a lot ofprofit, as they are very high priced.

Nokia'smarketing mix has worked very well until recently as the market they are aimingat has become more and more saturated and after looking at all the mobile phonesales figures, it looks as if the phone companies can aim at this same youthmarket for about another 2 years until they need to change, but they shouldchange sooner so they can start making a bigger profit and get a head start onthe 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 ratherthan the niche markets the old promotional strategies where restricted to.

Marketsegmentation

Marketsegmentation refers to the different areas of the population that companies canaim their products towards. The market segment that Nokia has chosen to aim isthe youth market focusing on students aimed 13-19 as market research has shownthat some of the youth market are receiving large amounts of pocket money andmost have no real commitments to spend it on and that means they have lots ofdisposable income and will be able to spend a lot money on new mobile phones.

Asa big company Nokia is able to do a lot of promoting and advertising thatsmaller, less successful companies, may not be able to afford, such astelevision advertising and sponsoring lots of events that will be viewed orheard by large amounts of people in their chosen market segment (events such asmusic festivals and music awards are a goldmine for companies as they areviewed by millions of people worldwide). Adverts such as television and printadverts will be put into certain areas so that they can attract their chosenmarket segment, Nokia tend to put a lot of their print adverts in men'smagazines such as FHM and Loaded so they can appeal to all of their readers insteadof a smaller percentage of the readers they would attract in magazines such asLifestyle and Good Housekeeping. Nokia's way of promoting is very good as theycan appeal to mass markets and large amounts of people in their chosen market segmentationwith certain advertisement's and with sponsoring large events like the ones Ihave previously mentioned.

Pricingstrategy

Nokia'scurrent pricing strategy is based on two main theories: 1. Penetration pricing-although this strategy is usually for companies that are trying to gain instantmarket share in a new market, companies who are already well known in themarket still do it with new products that carry new technologies so they can takemore market share from their competitors. 2. Competitor based pricing- this isused when there is a lot of competition in the market and a company is lookingto take another companies market share by offering the same or similar productsor a lower price, this happens a lot in the communications market and thisstrategy is used by every mobile phone producing company that is still inbusiness.

Nokia'spricing strategy has proven very effective, this is down to the fact that theyfirst sell their products for high prices and have very limited sales but makebig profits on each sale, they then lower the price of their product and havelots more sales but they make less profit, but they still make a large profitdue to the amount of sales, the other reason that they are so successful isthat they offer high quality products and they sell them for the same price andsometimes even lower prices than the competition and have now built up the highestmarket share, they currently have 37.2% of the mobile phone market share andare the biggest selling mobile phone company in the world.

Branding

Nokiaphones are seen as being of the highest quality and this is reflected in theirmassive sales figures. The fact that they are seen to be such high qualityproducts is partly down to successful branding, they have a highly recognizablepackaging style and the style of their handsets is similar in every line ofproduction with the company name printed just above the screen and just belowthe earpiece. The fact that Nokia operate such an aggressive marketing strategyhas elevated them above the competition as consumers are fooled into believingthat branded products are «better» then un-branded products orproducts produced by lesser-known brands such as One Tel and other lesser-knownphone producers in the market.

Productlife cycle-Nokia

WhenNokia phones were first introduced they required a lot of promoting andadvertising as they weren't established enough to sell based on their qualityand what they offer to the consumer, so this is where Nokia spent the largestamount of money promoting their products and establishing their brand as aleader in the communications market. Also when mobile phones were first availablethere were only a few companies as well as Nokia in the market (Sony est.) sothey could charge higher prices then they can at the present time in theproduct life cycle because no companies would dare to enter a price war withsuch a new product.

Growth-This stage of the life cycle also has high promotion costs involved in it, thisis due to the fact that mobile phones are becoming established as a consumernecessity and lots of other companies decide to enter the growing market,although companies do not need to assure customers that they need a mobilephone, Nokia have to assure the customers that they want a Nokia phone and thisis 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 andonly have to show customers that they have a new model out and it will sellwell, as they have been established as a quality brand and customers no-longerneed to be persuaded to buy Nokia brand technology.

Decline-This is the stage that the mobile communications market, including Nokia, haverecently entered, and companies are promoting, heavily, their new products tothe market in an attempt to get out of decline and back into growth, with a newgeneration of technologically advanced phones that offer motion picturecapture, camera technology and the opportunity to watch television on your handset.

TodayNokia has captured the markets of over 60 countries in the world where China,India, USA, Europe, Middle East, Africa, Asia, Australia and New Zealand havinglargest market shares. There are two interesting cases of entering strategy ofNokia: Indian market and Chinese market.

Nokiaentered India in 1995. Since then the Nokia brand has been steadily growing andhas gained wide acceptance in the Indian market. India is the third largestmarket for Nokia, in terms of its net sales as of 2006. Nokia is one of themost trusted brands in India and leads other cellular phone brands in terms ofmarket share, advertising and customer service. The innovative technologies,user-friendly features and affordable prices contributed to Nokia's success inIndia. The case facilitates discussion on Nokia's brand building strategies inIndia. It also allows for discussion on the future of the Nokia brand and thecellular market in India.

Since1985, Nokia had been fighting hard to establish a strong presence in theChinese cell phone market that had grown significantly during the 1990s.Despite investing heavily in research and development and manufacturingfacilities, Nokia had been facing tough competition not only from foreigncompanies like Motorola and Samsung but also from domestic players like TCL andNingbo Bird. The market share of domestic players had increased from a mere 5%in 2000 to 56% in 2003.

Thereare six types of entry barriers to international markets according MichaelPorter. They are listed below (Porter, 1980). (1) Loyalties among buyers andsellers established previously. (2) Customers’ switching costs (any customerwho wants to switch from one Supplier to another faces varying costs). (3)Access to distribution channels (available channels might not be imaginable orthey may be controlled by competitors). (4) Scale effects (the entrant may needlarge volumes and low costs). (5) Extensive need for resources (e.g. managementcapacity and capital) in order to be firmly established. (6) Important costsindependent of scale.

Inorder to overcome the above barriers Nokia adopted strategies such as mergers,acquisitions and partnering or collaborating with market leaders in those specificcountries/industries.

4.Foreign Direct Investment

Thissection analyzes what kind of strategy Nokia took in terms of FDI.

Foreigndirect investment (FDI) occurs when a company directly invests in productionand/or marketing of products in a foreign country. FDI can be categorized in totwo. 1. Greenfield Investments, when established as a new operation in aforeign country. 2. Acquiring and merging with existing firms of a foreign nation(Joint Ventures).

HorizontalFDI is when the company is starting business in the same industry in theforeign nation. Dubai based Telecommunication Corporation buying over Tigo SriLanka in Oct 2009 to enter into the Sri Lankan market is a good example (ArabNews, 2009).

VerticalFDI takes place when a multinational corporation (MNC) owns some shares of aforeign enterprise, which supplies input for it or uses the output produced bythe MNC (Hill & Jain, 2007).

Interms of motives, Foreign Direct Investment can be categorized as: 1. Marketseeking FDIs 2. Resource seeking FDIs 3. Efficiency seeking FDIs

FDIsthat are undertaken to strengthen the existing market structure or explore theopportunities of new markets can be called 'market-seeking FDIs.' 'Resource-seekingFDIs' are aimed at factors of production which have more operational efficiencythan those available in the home country of the investor. FDI activities mayalso be carried out to ensure optimization of available opportunities and economiesof scale. In this case, the foreign direct investment is termed as'efficiency-seeking.

ForNokia it was more or less a mix of all of the above three motives. Some of thekey examples for NOKIA can be listed as follows: Mergers, Collaborations andAcquisitions by Nokia • Nokia Siemens Networks (NSN) — To develop a portfolioof products and service solutions to help operators run their networks moreefficiently. • NAVTEQ acquisition. To get in to the Maps and navigationtechnology, which have become tremendously popular services on mobile devices.(NAVTEQ’s advanced map capabilities are critically important, as we believethat the next phase of Internet services will be defined by local relevance andyour «social location». Nokia is well-positioned to take leadershiphere). • Collaborate with The Symbian Operating System to broaden thedefinition of the smartphone, by expanding smartphone features into themid-range, and into new categories. • Working together with certaincompetitors, new players and partners in new ways to tackle globalenvironmental issues. • Agreements with Microsoft and IBM for corporate e-mailservices. • Collaborate with Qualcomm to develop smartphones for the NorthAmerican markets. • Nokia and Broadcom are cooperating on technologies a nextgeneration 3G baseband, radio frequency (RF) and mixed signal chipset systemsupplier for worldwide markets., including Nokia modem technology (Tolkoff,2009).

Inthe 1990s, Nokia internationalized its R&D function, by setting up researchcenters abroad. By 1998, half of the company’s R&D was conducted outside ofFinland. Some of these centers, located in regional clusters of scientificexcellence (e.g. Silicon Valley), have helped Nokia tap knowledge from rivalsand foreign markets. In addition, Nokia has forged collaborations with leadinguniversities in Finland and abroad (e.g. Massachusetts Institute of Technology)and has participated in various international R&D projects, in view ofexpanding the scope of its long- term technology development. By the end of the1990s, co-operation with other companies, research institutes and universitieshad become a central part of Nokia’s global R&D strategy. This approachtriggered two-way knowledge transfers, enabling Nokia to exploit externalexpertise and technology.

Furthermore,by end 2000 Nokia had set up ten plants for the manufacturing of its mobiledevices in nine different countries. These plants have handled huge amounts ofparts (e.g. more than 100 billion in 2006). The challenges of managing suchhuge volumes are enormous, but Nokia has turned high-tech manufacturing, supplychain management and logistics into one of its core competencies. In addition,the company has also been working with a selected number of external suppliersin Finland and abroad to procure electronic and mechanical components, andsoftware. Collaborating with such a diverse base of suppliers worldwide througha horizontally-integrated supply chain model has generated (two-way) knowledgeand technology transfers between Nokia and its partners, helping it to multiplyits technological capacities. Moreover, Nokia’s long-term supplierrelationships have functioned as a growth engine for the entire Finnish ICT(information and communication technologies) sector as it served as aninternational marketing channel for many smaller Finnish companies. Theincreasing significance of Nokia’s foreign operations in the company’s globalbusiness strategy has however implied potentially greater risks and highercosts from changes in tariffs and other obstacles to trade affecting the importand 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 marketdeclined dramatically at the expense of other European countries, theAsia-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 changingcomposition 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 investmentsmore easily. Today Nokia is ranked 85 in top 500 companies in the world(Lesser, 2009).

5.Foreign Exchange Market Impact over Nokia

«Theforeign exchange risk usually affects businesses that export and/or import, butit can also affect investors making international investments. For example, ifmoney must be converted to another currency to make a certain investment, thenany changes in the currency exchange rate will cause that investment's value toeither decrease or increase when the investment is sold and converted back intothe original currency» (Investopedia, 2010). This way unfavorable marketvolatility will have a huge negative impact in Nokia’s profitability.

Largecompanies such as Volkswagen, Airbus and Philips, among others, haveexperienced a foreign exchange loss on profit arising from unhedged sales indollar countries. Moreover, some companies, such as Heineken, Nokia and againAirbus, have already announced that the weakened dollar will keep affectingreturns, due to mere short-term hedges in previous years.

Themost common of these solutions are conversion of contracts into domesticcurrency or transferring the production abroad. The foreign exchange risk for acompany will increase with the length of its foreign commitments. Relativesmall changes in the foreign exchange rates can have a huge impact on theprofit and solvency of a company (Wijckmans, 2005).

Accordingto the foreign exchange policy guidelines of the Group, material transactionforeign exchange exposures are hedged. Exposures are mainly hedged withderivative financial instruments such as forward foreign exchange contracts andforeign exchange options. The majority of financial instruments hedging foreignexchange risk have duration of less than a year. The Group does not hedgeforecasted foreign currency cash flows beyond two years. One example from Nokiais KongZhong Corporation, a leading mobile Internet company in China, reachinga non-binding agreement with Nokia Growth Partners (NGP) to receive aninvestment of about US$6.8 million in 5-year convertible senior notes. NGPwould also receive warrants to purchase an additional 2.0 million AmericanDepositary Shares (ADS) at US$5.0 per ADS, exercisable within five years (PRNewswire Association LLC, 2009).

Nokiauses the Value-at-Risk («VaR») methodology to assess the foreignexchange risk related to the Treasury management of the Group exposures. TheVaR figure represents the potential fair value losses for a portfolio resultingfrom adverse changes in market factors using a specified time period andconfidence level based on historical data. To correctly take into account thenon-linear price function of certain derivative instruments, Nokia uses MonteCarlo simulation. Volatilities and correlations are calculated from a one-yearset of daily data. The VaR figures assume that the forecasted cash flowsmaterialize as expected.

6.Culture and Environment

Cultureof a MNC is very vital when conducting business. Colleagues of different ethnicgroups should be clear in communication as well as in interaction. Whileunderstanding the core cultural competencies within MNC it is equally importantto apply them in the local contents (Smedley, 2008).

Someof the key highlights in the ‘Nokia Way’ can be listed as follows: • In 2007,it held 16 «Nokia Way Cafe» events, which saw 2,500 employeesworldwide getting together to discuss what they perceived the driving culturalvalues of their company to be. • The four values, ‘Engaging you’, Achieving together’,‘Passion for Innovation’ and ‘Very Human’ are drilled down to the new recruits •Job rotation is highly valued by the employees and transparency in selections •Work-life balance and flexibility in home worker facility

Asa MNC the belief that a company should take into account the social, ethical,and environmental effects of its activities on its staff and the communityaround it is defined as the Corporate Social Responsibility (CSR). Let us alsolook at Nokia’s belief in company's accountability towards the community.Someof the key CSR initiatives of Nokia are as follows: • A global leader inrecycling, with the industry’s largest voluntary recycling program. It is nowoperating in 85 countries, and working hard to increase awareness to encouragemore customers to recycle their old phones. • Responsible ways of working havebecome business as usual at Nokia. • China headquarters in Beijing has receivedglobal recognition as one of the most environmentally sensitive buildings inthe world. • Nokia also has been highly ranked for its environmentalsustainability by several organizations worldwide. These include the Dow JonesSustainability Index, the Carbon Disclosure Project and more recently, theGreenpeace Green Electronics Guide. • The GSM Association recently recognizedNokia's commitment and actions with its environmental achievement award forNokia this year. • Nokia also is working with the industry to reduce theenvironmental impact of mobile phone chargers.  

Summary

Mobilephones have already become part of our lives. People want to be trulyconnected, independent of time and place, in a way that is very personal tothem. Nokia’s promise is to connect people in new and better ways. Nokia’sstrategy is to build trusted consumer relationships by offering compelling andvalued consumer solutions that combine beautiful devices with context enrichedservices.

Butat the same time as a multinational corporation Nokia has to be mindful in howthe future is planned and executed. This paper gave some insight information ofNokia’s market entry strategy, foreign direct investments, foreign exchangerisk culture and environment. Lessons can be learnt from Nokia on theimportance of interacting and integrating these segments as often as possiblein 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 cultureshould be encouraged to be adoptive to change as and when the market conditionschange.

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