Expansion of Nokia into Vietnam - Example

Executive Summary This report provides an analysis the proposed expansion of Nokia into Vietnam. The report first provides an introduction explaining the factors that would make this expansion favourable. It then conducts a situation analysis through the SWT methodology, weighing between the strengths and weaknesses among others of the country against the climate in Vietnam. Thereafter, the discussion delves into Porter’s Competitive Forces. The report also investigates the most appropriate market strategy to employ and rounds off with an evaluation of the cultural differences between Vietnam and Finland through Hofstedes cultural analysis. The report summarily concludes with recommendations Nokia needs to implement in order for it to enjoy success in Vietnam. Introduction Nokia Corporation is undoubtedly one of the leading and most successful telecommunications manufacturing companies in the world. It has a strong brand presence in several markets, and this is particularly so in the mobile phone market. Nokia is the world leader in mobile communications with several of its models such as the Nokia 1100 consistently being the best selling mobile phones. In addition, demand for mobile phones is growing every year and as such, the potential for Nokia’s expansion into the world is great and there is no better country to realize this expansion than Vietnam. According to (Vietnam Net, 2008), the telecom market in Vietnam is the world’s highest growing market, growing at an annual average of 25%. In fact, Vietnam has surpassed such major players like China and Thailand with regards to having the largest percentage of mobile phone users with more than half of the Vietnamese population owning at least one cell phone. In addition, in excess of 10 brands of handsets are sold in the country. Evidently, Vietnam has a very high potential in the telecom market and it is this potential that Nokia must tap into. The following report will analyze the chances Nokia has if it is to set up a manufacturing plant in Vietnam. Situation Analysis Nokia is in a highly lucrative market in a global economy that is constantly evolving. The strength of this company is its ability to provide quality mobile phone handsets and accessories in a growing market and the ability to respond promptly to whatever the market dictates. Further to that, through quality management and aggressive marketing Nokia seeks to become the most well known and respected global entity in the telecommunications field. Our well- trained personnel possess a thorough and broad based knowledge of the international manufacturing market and this shall be crucial for penetrating the Vietnam market. In addition, we intend to employ well- trained personnel within Vietnam to take advantage of their knowledge of the local market. Nevertheless, Nokia recognizes its weaknesses such as the inadequate after sales services provided as well as the threat of competition from leading mobile manufacturing companies such as Samsung and Vodafone each of who have strong interests in Vietnam. The following summary is thus a SWOT analysis of the strengths, weaknesses, opportunities and threats of the company with regards to the analysis of the internal characteristics and external operating environment of the company. Strengths: Nokia is the worlds best selling mobile manufacturing company Nokia has the best global distribution network for any international mobile phone manufacturing company It has a strong management team that has the worlds greatest supply management in addition to the highly professional Human Resources Department team. The products are user friendly therefore various segments of society such as the old find it easy to use In terms of accessories, Nokia has a vast array of accessories depending on the model leading to its high demand. Contains a wide range of products from very cheap and simple phones to more sophisticated models to cater to consumers from all walks of life Nokia phones have the highest re-sell value as compared to competitors such as Motorola Has a very strong brand loyalty and most Nokia users find it hard to switch to using other models Phones have strong battery life Nokia has the best internal software development capability Has a very good track record with regards to design innovations in relation to areas such as scroll- down text bars, user- changeable handset covers and the predictive text messaging application. Weaknesses: Nokia lags behind in the CDMA market (Dobson, 2004, p. 208) Nokia lags behind in 3G technology Many Nokia phones are bulky in design Some of the highly sophisticated models are too expensive and out of reach for many consumers. Some of the products are not user friendly particularly the more expensive models Below par service/ after sales service at Nokia Service Centres Slow pace in embracing newer technology in areas such as mobile phone cameras Lack of innovation in terms of the hardware platform and individual products unlike a competitor such as Apple for instance Opportunity: Nokia has a wide array of products, price ranges and features thereby catering to many different types of consumers. This gives Nokia plenty of opportunities to expand and increase its market share. The Vietnamese economy is growing well, so Nokia will have a good market in Vietnam. According to the Report of the General Statistics Office Vietnam, by the end of 2009 Vietnam’s economy was up 6.9% an increase from the 5.32% increase throughout the year making it the second highest growing Asian economy after China. Mobile advertising. This shall afford Nokia many opportunities particularly in a country like Vietnam where it is yet to take root. Threats: Competition from formidable mobile manufacturers such as Sony Eriksson, Motorola and Cingular can lead to a decrease in its market share and resultant profits Threats in terms of providing cheap phones for the many potential consumers in the developing nations Threat in the innovation of new designs, styles, features, accessories, and the like. Innovative competitors such as Apple are therefore very strong threats in that regard. The global economic downturn which has yet to fully recover. The market for handsets is saturated after over a decade of double digit growth (Dobson, 2004, p. 207). Porter’s Competitive Forces Framework for Nokia’s Expansion into Vietnam The Porter's Five Forces framework is used to discover whether new businesses or new ventures can be profitable. It is also useful when a company wants to assess the balance of power in a business Situation in relation to the strength of ones competitive position at present in relation to the strength of a position the company seeks to get into. To enable Nokia to understand where their power lies, it has to take advantage of their strength, improve their weaknesses and avoid making wrong decisions. It is this that the following analysis shall attempt to do (Porter, 2008, p. 3). Analysis 1. Threat of New Entry: Various mobile phone manufacturing companies already have their eyes set on Vietnam like Samsung. Most importantly, Vietnam has a good investment climate that will encourage other rival companies to similarly invest in Vietnam. According to OCRA (2010), the Common Investment Law is investor friendly whereby foreigners pay the same fees and prices as the Vietnamese; they can freely export and import materials and goods; they have the right to market and advertise freely; they can remit money abroad as long as it has been lawfully earned; and their capital and assets can not be confiscated or nationalized through administrative measures. This legislative from increases the threat of new entry. 2. Supplier Power: Under the Common Investment Law, investors are not obligated to buy from any specific supplier (OCRA, 2010). As such, suppliers in Vietnam do not have much power in driving up the prices of their supplies making it easier for investors. Moreover, the supplies on offer in Vietnam such as the natural resources necessary for the manufacture of mobile phones are available in other countries therefore if the Vietnamese suppliers bring complications, Nokia can simply obtain the resources from elsewhere such as from African countries like the Democratic of Congo which are relatively cheap. 3. Buyer Power: Buyer power is relatively low in Vietnam and the consumers do not have much power in bringing the price of goods down. As such, the environment is favourable for Nokia. 4. Competitive Rivalry: The competitive rivalry is quite high since mobile phone manufacturers such as Samsung and Vodafone have a keen interest in Vietnam already. Other major manufacturers such a Motorola, Siemens and the like likewise pose a threat as they can easily decide to expand into Vietnam. There are so many mobile phone companies, both global and local and these companies are of considerable strength. Companies such as Motorola offer phones that are of very good quality thus pose a competitive threat. Nevertheless, with Nokia’s strong brand presence and wide variety of brands, the competitive is lower than it otherwise would have been. Therefore, the competitive rivalry is moderately high for Nokia in Vietnam. 5. Threat of Substitution: The threat of substitution in Vietnam is moderately high. This is due to the fact that that mobile phone manufacturing has already taken root in the country. Therefore, Vietnamese consumers have the choice of buying locally made phones. Nevertheless, these locally made phones are not as popular as Nokia models, lessening the threat of substitution substantially Porter’s Competitive Forces Framework Chart KEY + = sign for a force moderately in our favour + + = sign for a force strongly in our favour - = sign for a force mildly against us -- = sign for a force strongly against us Judging from the analysis and chart above, the forces strongly or moderately in favor of Nokia far outweigh those factors against them. Nokia evidently has a very good chance of not only setting up business in Vietnam but also has a good chance of thriving in their expansion into Vietnam. DEVELOPING A MARKET STRATEGY Developing a market strategy is always crucial especially when expanding into a foreign market. There are three main types of market strategies that an international company such as Nokia would need. These are direct exporting, indirect exporting and direct foreign investment. In this case, the most appropriate would be Direct Foreign Investment (Michalet, 1997, p. 14). While employing this strategy, Nokia would invest into Vietnam for two major purposes: manufacturing its phones due to the advantage of the availability of natural resources needed in their manufacture of phones and secondly for selling the phones due to the ready availability within Vietnam and among her neighbors. This investment shall be in the form of opening a manufacturing plant, a sales office, an assembly operation and a distribution hub Foreign investment is the riskiest market entry strategy in existence. Since the company involved is investing a lot financially. Nevertheless, it is very necessary for venture of such a magnitude. It will thus be a very detailed and precise arrangement involving a type of formal agreement between Nokia and the Vietnamese government. CULTURAL ANALYSIS There are five dimensions in Hofstedes model. The first is Power/Distance (PD) which relates to the degree of inequality in existence between two cultures. In Vietnam, there exists a high PD score therefore society is in acceptance of an unequal distribution of power. Therefore, they are more likely to view a Finnish company like Nokia as superior and this shall be in favour of the company as during investment (Hofstede and Hofstede, 1984). Individualism (IDV) refers to the closeness of ties between members of society. In Vietnam, individualism is very low and there is a strong sense of community unlike a European country like Finland which is individualistic. Loyalty among group members is strong among the Vietnamese and this is a factor foreign employees in the Vietnam base will have to take into account (Gullestrup, 2006). Masculinity (MAS) refers to the extent to which a certain community adheres to traditional senses of traditional male and female roles. Vietnam has a higher MAS score than Finland thus men have a greater say in Vietnam unlike in Finland where there is greater equality (Hofstede and Hofstede, 1984). According to Hofstedes analysis, therefore, to open an office in Vietnam, Nokia would have to appoint a male employee to be in charge of the contingent if it hopes to be successful. In contrast, in Finland the head of the contingency would be based squarely on expertise and merit. Conclusions and Recommendations Evidently, from the just completed analysis, Nokia’s expansion into Vietnam is a prudent one and bound to be very successful. The growth of the economy, the existence of natural sources and the favourable investment all favour such a move. Challenges such as rivalry and competition as seen during the SWOT and Porters analysis, wile formidable, can easily be overcome through various recommendations such as the implementation of proper marketing strategies, good management, observing sensitivity to Vietnamese culture, strictly adhering to Vietnamese trade and investment policies. If Nokia can follow this advice, it will undoubtedly continue on as the worlds largest and most successful manufacturers of mobile phones. Bibliography Buckley, Peter J. and Freeman, Nick J. 1998. Market Entry and Investment in Vietnam: Long Term Enticements and Short Term Hurdles: Evidence from British Investors Journal of Transnational Management Development, Vol 3 (3): 309- 330 Dobson, Pul et.al. 2004. Strategic management: issues and cases. Oxford: Blackwell Publisher’s pp 207- 209 Gerson Lehrman Group. 2009. Nokia Best Served by Focussing on Strengths. http://www.glgroup.com/News/Nokia-Best-Served-by-Focusing-on-Strengths-43573.html (Accessed 25 January, 2010) Gullestrup, Hans. 2006. Cultural Analysis: Towards Cross- Cultural Understanding. Aalborg: Aalborg University Press Hofstede, Geert H. and Hofstede, Geert. 1984. Cultures Consequences: International Differences in Work- Related Values. California: Sage Publications. Michalet, Charles Albert. 1997. Strategies of Multinationals and Competition for Foreign Direct Investment. Washington D C: World Bank Publications Mind Tools. 1995. Hofstedes Cultural Dimensions: Understanding Workplace Values Around the World. http://www.mindtools.com/pages/article/newLDR_66.htm (Accessed 25 January, 2010) OCRA. 2010. Setting up a Business in Vietnam. http://www.ocra.com/solutions/vietnam-market-entry.asp (Accessed 26 January, 2010) Porter, Michael E. 2008. On Competition. Massachusetts: Harvard Business School Publishing Vietnam Net. 2008. Made-in-Vietnam cell phones regain attention. (Accessed 25 January, 2010) Read More