Issues with Nokia
The Mobile phone giant, Nokia, was originally a small business and it has reinvented itself several times. The company has, in the past, was changing its core business several times, and has developed a strong culture of change. Nokia Corporation was founded in 1966 by the merger of three companies:
· Nokia Company, a manufacturer of paper;
· Finnish Rubber Works, a manufacturer of rubber and tires and
· Finnish Cable works, a former manufacturer of telephones cables (Nokia)
Today, the telecommunications market matures in developed countries. Mobile phones are replacing landlines in many developing countries. They contribute to economic growth, because they promote the business by allowing them access to a greater number of markets. They also account for remote communities or underserved means of communication more reliable than road networks or postal systems. With the evolution of technology, these phones cannot only make voice calls, but also to use an extraordinary number of ingenious applications. In developing countries, they facilitate access to market information, health surveillance, remittances and literacy (Enemark & McLaren, 2008). That is why Nokia sees mobile Internet a new relay service of possible growth in a context of convergence of Internet and mobile sectors.
To achieve the business targets, it is necessary to build up some strategies apart from company’s contribution echelon. Providing services to the user can go a long way to promoting a vibrant business society, especially those services that facilitate communication among organizations. For instance, the strategy could be to develop good relationship with the customers a strategy might be use by providing a web based call center facility. The product diversification is also an element of the strategy (Saylor, 2012).
Sources of Innovation
Following are some of the sources of Innovation at Nokia Company
With the development and advancement of technology the company must ensure seamless integration of its entire mobile infrastructure in the network, so that data are available at the desired locations every time. Nevertheless, there are some impediments to acquire the best results. One of the biggest challenges in this regard is the support environments of multiple operating systems and setting up a reliable network (Davila et al., 2006). Similarly, concerns of data security are amplified by the decentralized nature of environments. Not only the data resides on multiple devices outside the walls of the enterprise but they often pass by public networks, sometimes via points of unsecured wireless access to reach their final destination. Without integrated security features, such as encryption, and without proper infrastructure to support the data protection, business may find themselves in danger.
Nokia has primarily target the youth; although the market is very competitive but Nokia has launched some right products to attract this market. Nokia’s products like Nokia Lumia have all the features that can attract the urban youths.
Growth and Development
The concerns to have its production are a constant problem that can be found over time in the history of Nokia. Even in 2001, when the mobile terminal market was in crisis and several manufacturers are being forced to sell their production to become "Companies without factories". Nokia now has new plants, four in Europe (Finland, United Kingdom, Romania, Hungary), two in America (Mexico, Brazil) and three in Asia (China, South Korea, India).
Customers tend to be loyal purchasers of products that are differential in ways that are meaningful to them. As their loyalty to a brand increases, customer’s sensitivity to price increases is reduced. The relationship between brand loyalty and price sensitivity insulates Nokia from competitive rivalry (Seybold, 2001). Fortunately, Nokia is among those few companies which have always been able to foster and subsequently culture their positive image in the minds and hearts of their customers and clients with the help of the quality products and services that they are committed to provide. In addition to this it is also important that when analyzing the journey that the organization has gone through to carefully have a look at the different dynamics and different stages that it has made use of in order to achieve the position that it has today.
Although Nokia value its customers but, it is true that company needs a drastic change in its management. It is said that the division between the decision making process and their execution is actually the root cause of present problems of Nokia. The mindset needed in the present global economy’s competitive landscape requires decision makers to define firm’s strategy in terms of a unique competitive position, rather than strictly in terms of operational effectiveness. Too much diversity in the workforce may also cause ambiguity and confusion. There is also a chance that majority group members may create obstacles for minority group member to take full participation. If such clashes cannot be handled and managed by the leaders then the organization may suffer ineffectiveness, less productivity and absenteeism of the employees (Pearce & Robinson, 2009).
Nokia is a huge company having presence on almost every part of the world and having a diverse workforce. It can overcome its weaknesses by changing the mindset of the upper management and by adopting organizational change in the company. This change will help the company to formulate strategy to overcome its weaknesses and to utilize its strengths in a manner that it will be able to regain its previous profitable position in today’s challenging market.
The slowdown in the sales of mobiles is mainly due to the saturation of the market for mobile telephony in Europe, with a penetration rate equal to or greater than 100% in 18 out of 25 countries within the EU. The evolution of the average selling price (Average Selling Price) of Nokia devices is in decline. These two facts explain that Nokia is facing a sharp slowdown in revenues from the sale of handsets.
It is due to this problem that Nokia is diverting its attention towards the mobile Internet services market. The term "mobile Internet" is used to describe the convergence between mobile and the Internet. It must mean the ability to have a quality customer experience on the Internet used on the mobile. The market for mobile Internet services includes all services delivered by a mobile terminal over an Internet connection, or downloaded from the Internet and issued after the connection. A typology of mobile Internet services can be a collection of:
· Multimedia services (e.g. Flickr, Picasa);
· Functions related to the geographic location of the user (Google Map etc.);
· Interpersonal communication through communities (e.g. Facebook, MySpace);
· Information services (general news, sports, music, weather, horoscope);
· Professional services such as "office-mobile" (Ex: Microsoft Office);
· Personalization services and entertainment (Music, Games);
· Public utility services (emergency, security, medicine);
· Mobile commerce (e.g. Ebay, Amazon);
· Interpersonal communication in the form of email (e.g.: Hotmail, Gmail, Yahoo Mail);
· Communication machine
The mobile Internet technology is currently takes off thanks to the growth rates of mobile telephone networks. Today, the HSDPA network enables the transport of all types of data (voice, images, videos), and can potentially offer the customer a real mobile Internet experience, similar to a Internet experience on PC. Nokia is not alone in the market for mobile Internet services. In front of the equipment stand of the mobile operators: Vodafone, Orange, Telefónica Mobile, TIM, and T-Mobile, Japanese NTT DoCoMo, India's Bharti Airtel and China Mobile for Asian markets.
Revenue sharing on the market for mobile Internet Services now account for €3 on an average bill of € 50 per month. The issue of revenue sharing is paramount. In fact, manufacturers are not the only one to predict a decline in traditional revenue: operators also expect an erosion of their revenues from voice, and therefore looking for new avenues of growth. The revenue is shared between the players in the market of mobile phones, which are the owners, distributors, and carriers.
Owners are rights holders who own the content. These suppliers of content (including Record Companies, Publishers games, Media, Supplier Site Community, sites for sharing photos), handset manufacturers (such as Nokia, with the acquisition of Navteq digital mapping specialist), Internet Brands (Such as Microsoft, Yahoo and Google that offer their mail box and search engine)and operators. The distributors are the intermediary between the owners and carriers and the Carriers carry the data. Within this trio owner / distributor / carrier, each role is inescapable: the content providers are at the top of the distribution chain, carriers have access to final customer, and distributors are located between the two.
However, the major chunk of the revenues returns to the brand with the content. If Nokia wants to draw resources from Internet services, it must pursue a policy of redemption in the sector of Internet services. Launched its Ovi portal, Nokia's ambition is to occupy both site owner and distributor, and confine the role of transport operators. The operators, meanwhile, also want back the supply chain and care Instead of carrier, distributor. The new models launched by Nokia have shown that Nokia has expanded its range of entertainment-oriented devices. Nokia since 2003 has been preparing its strategy to capture mobile Internet services market and games were the first building block of Nokia’s digital fortress.
OVI, Nokia portal, thus appears as a growth to mobile Internet services; although Nokia pretended not to have a long-term strategy. Nokia has strong roots in this market, because of its range of multimedia products and interest in services since 2003. While a signature policy allows it to exist in the market for mobile Internet services, but it must be positioned in it as owner. The strategy of buying content then makes sense.
Merger and Acquisitions
Manufacturers and operators have the same reasoning to exist on the market of mobile Internet services, the first step is to sign with major Internet brands. Redemption policy is conducted by Nokia in Internet services since 2003 in this direction. It seems that the Nokia Group separates companies or equity to acquire the assets needed to pursue its external growth. This financial strategy is one of the elements that allow Nokia to maintain financial stability even in times of acquisitions. Long-term oriented Internet services strategy is expensive, and requires significant intangible investments. This observation deserves to be deepened and is a limitation of this monograph (Beardsley et al., 2006).
The acquisition of If Navteq, a provider of digital mapping, is not only the most significant in terms of value, but also the most relevant. In terms of value, the acquisition of Navteq is estimated at 5.7 billion Euros, or 5.4 billion Euros after absorption of excess cash. In June 2007, Nokia cash placed in short-term amounted to EUR 8.7 billion. The acquisition was funded 50% by cash and 50% in debt, which was apparent in the group's results in 2008 and 2009. Nokia values Navteq 54 Euros (78 dollars) per share, representing a premium of 34% compared to its previous month rate (84% compared to the rate observed 3 months ago). The value of American cartographer rises to 24.2 times its EBITDA and 8.4 times its sales. It is the largest acquisition in the group since 1992, when it refocused on the mobile phone business.
At the strategic level, it is for Nokia to up the value chain by acquiring one of its suppliers. This "growth through backward integration” proves relevant to good digital mapping sector performance, and its strong growth prospects. More specifically, with the acquisition of Navteq, Nokia seizes one of the two suppliers in the market for digital mapping. Navteq (2006 sales: $ 582 million) occupies a dominant position, with one competitor Dutch company Tele Atlas (2006 revenues: $ 264 million). This duopoly maintained for twenty years, is explained by the large database (69 countries on six continents in 2008) owned by Navteq (60% market share) and Tele Atlas (40% market share). The mapping data is more accurate (speed limits, location of service stations etc.) being collected in the hand along the roads, the difficulty of building a new database is a high barrier to entry in this market. Navteq appears as a real strategic asset source of competitive advantage that enables Nokia to have an edge over some of its competitors. With this acquisition, Nokia is positioned at the side of Tele Atlas on the overall digital market mapping.
Porter’s Five Forces Model
The strategy of buying content from Nokia enables it to secure its long-term position in upstream market for mobile Internet services and reduce the forces that affect the firm:
· Reducing the bargaining power of suppliers and securing supply in services where it has its own content;
· Providing content to some of the competitors in the industry, and probably some new entrants;
· Positioning itself on the market substitutes for some services, such as geo-location service
Bargaining Power of suppliers
The bargaining power of suppliers is zero in geo-location, sharing content, and games, where Nokia is the owner of the offer. For other services, it seems that the power of suppliers is equivalent to the power of Nokia. On the one hand, Nokia has a "super weapon" its 300 million multimedia terminals circulation, great tool for content distribution providers. On the other hand, Nokia absolutely needs to sign with major brands content providers to ensure visibility on the Internet services market.
Bargaining Power of Customers
Other operators who control today the low end of the distribution chain, that is to say, the customer relationship, billing and charging for access and data consumption on mobile against the power of Nokia.
Threat of Substitute Products
There are alternatives offering one to one services grouped in OVI: Browsers, GPS, mp3 players and portable game consoles, which offer the same quality of service or higher for a lower price, but a cumulative higher price.
Threat of New Entrants
The threat of new entrants is relatively high because it is easy to enter the market, signing with major brands which exist on the content market.
Strong Rivalry among Competitors
Device manufacturers, mobile operators, traditional web brands, competitors from different sector are numerous, for a fast-growing market. The Nokia brand, however, remains the most strong and distinguishes itself from its competitors by the plurality of proposed services.
Thus, it can be concluded that the strategy of buying content allows Nokia to secure its presence in upstream (suppliers) and downstream (distributors) Internet services market. Purchasing content is sufficient to secure its presence in the upstream Internet services market (providers) and reduce the pressure of the 5 Forces. Purchasing content also plays to secure the presence of Nokia in downstream market (distributors). Nokia cannot bypass the operators, who hold the key to access to the end user. Even if it is forced to distribute some of its white label service, Nokia, as owner, would collect most of the revenues.
It seems important to remember that Nokia’s position in market is a definite asset to engage in Mobile Internet services. This variable does play a leading role in Europe and Asia Pacific, it prevents the operators to break the ventures with Nokia. In contrast, the weakest position of Nokia in other markets (11% of shares market in the United States, behind the U.S. Motorola and South Korean Samsung and LG with respectively 33%, 18% and 15% market share) does not preclude the risk of rupture with operators. Therefore, it seems premature for Nokia today to negotiate the distribution of Internet services in the U.S. market.
The Internet environment is one of the strongest growth areas of Nokia, and the financial health of viable semblance firm in the long term; it is quite possible that Nokia pursue its external growth strategy. Several options are open to it: first, buy small companies with the aim of acquiring knowledge, skills and technologies. This type of purchase is necessary to become familiar with Nokia culture for Internet universe. Another possible line of development is the acquisition or equity participation with companies contained in the goal of acquiring the hearing. To build its music offer, Nokia seems to pursue a strategy of signing agreements with all major companies. Nokia has already signed an agreement with two labels: Universal Music and Sony Music. Nokia has to work to create or maintain a dominant position in mobile telephony markets where it launched its mobile Internet services so that operators can circumvent the pro-OEM competitors.