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
The mobile phone usage is increasing every day, revolutionizing the field of technology and our lives throughout the world. We all spend a considerable amount of time using our mobile phone for various purposes making it the technical innovation that we use most frequently. Nokia is one of the biggest brands in Telecommunications Industry globally. It enjoys a market share of around 35% at the moment. The Finland based company Nokia caters to GSM as well as CDMA segments. Nokia's phones are loved by a lot of people and its name is synonymous with reliability. Nokia has its presence in every segment of the market. It offers the cheapest of phones with the most basic features as well as high-end swanky phones with all the latest features.
The purpose of this paper is to briefly look at Nokia’s impact on the international business 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
This will help to understand how Nokia’s way fits in to the theories of International Business and what strategy put it on the top of mobile phone market.
1. Introduction: Nokia’s background
Nokia was founded by Fredrik Idestam in 1865 as a wood-pulp mill in south-western Finland. It was later relocated to the town Nokia where the company got its name. The name Nokia is an old Finnish word for a dark, furry animal (such as the sable). In the beginning of the 20th century Finnish Rubber Works established its factories and began using Nokia as its brand. The companies merged in 1967 as Nokia Corporation, which went on to produce paper products, bicycles, car tires, footwear, personal computers, communication cables and televisions. It was not until 1987 that Nokia introduced one of the world’s first handheld phones, the Mobira Cityman 900. It weighed only 0.8 kg and cost €4,650. In 1992 Jorma Ollila became the President and CEO of Nokia and focused the company on telecommunications. Nokia launched its first GSM handset in 1992, the Nokia 1011. In 1994, the first mobile to feature the Nokia Tune the Nokia 2100 was launched. In the same year, world's first satellite call was done using one of Nokia's GSM handsets. In 1997, the first mobile to feature Nokia's classic Snake game was launched, the Nokia 6110. 1998 was the year when Nokia became the world leader in mobile phones. The year 1999, was very significant as the Internet went mobile when the world's first WAP handset, Nokia 7110 was launched. 2002 saw the launch of Nokia's first 3G phones, the Nokia 6650. Nokia launched the N-Gage in 2003. It helped in making the mobile gaming multi-players. Another significant year in the history of Nokia was 2005 when the ‘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-national company with manufacturing units all over the world. In the highly competitive world of mobile phones, Nokia still has a lot of market presence and provides a lot 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 new innovation plan aimed at keeping the tiny Nordic country competitive in an increasingly 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 made Finland one of the fastest-growing and most prosperous economies in Europe. A company becomes a ‘multinational corporation-MNC’ when it conducts any business function beyond its domestic borders’ (Cullen & Parboteeah, 2010). Internationally Nokia has captured markets of over 60 countries in the world where China, India, USA, Middle East, Africa, Asia, Australia and New Zealand having largest market shares. It was ranked in 85th place of ‘Fortune 500 list’ and employees over 125,000 staff (Cable News Network, 2009). "We are expanding our presence and operations in India, not for the local market alone. We want to strengthen our global presence by exploiting the skills found here.'' Said Kullasvuo to Bloomberg when India became the second largest market for Nokia surpassing USA in 2007 (Kallasvuo, 2007). This is clear intention of Nokia’s globalization strategy. The sales volumes depict how Nokia’s business arms have spread globally. Nokia Q1 2009 net sales were EUR 9.3 billion. This is enough proof for one to realize how Nokia’s presence in each country contributes towards GDP and employment statistics. (NOKIA, 2009) Finland already commits around 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 around 1.8 percent. Around 28 percent of this is paid for by the government, with the lion's share--72 percent--being footed by the private sector. Nokia accounts for 45 percent of all industrial R&D in Finland and more than 80 percent of the R&D investment in the telecommunications sector (Blau, 2008). Time marches on and history has proven that standing still means death for any company (Bradford, Duncan, & Tarcy, 2000). Change is inevitable for telecommunication industry and the size doesn’t matter even for a company like NOKIA if it is not adoptive. Based on strategies and events of 2008-09, let’s look at the SWOT analysis of NOKIA. SWOT analysis will help a firm to understand 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 |
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:
Price: The phones that Nokia produce are usually sold at high prices (new phones can be expected to enter the market at around £200+, if they carry the latest technology). The price of the new phones usually decreases after an introductory period, which is usually around 2 months long. Nokia's prices are usually competitor based, in such a way as, they try to keep their prices a bit lower than those of the closest competitors, but not as low as the "smallest" competition as consumers do not mind paying the extra money for the "extra quality" they will receive with a well known brand, such as Nokia.
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.