Strategic Choices of Nokia Corporation - Case Study Example

Strategic Choices of Nokia Corporation Name: University: Course Title: Instructor: Date: 1.0 Introduction Nokia Corporation is one of the largest manufacturers of mobile devices and network equipments. The company also engages in the provision of mobile equipments, solutions, as well as services for corporations, service providers and network operators (Steinbock 2010, p.1-3). The business strategies of the company encompasses of five fundamental success factors. The success factors/ key competencies are formulation of unimaginable mobile gadgets, mobile telephone gadgets with internet capacity, availing of enterprises solutions of high standards, enhancing professional services and building scale in networks. The strategic assets of Nokia include the brand and design of its mobile devices, consumer engagement and fulfilment, as well as technology and architecture (Sairanen, 2006, p.7).The aim of this discourse is to identify and critically discuss the key issues involving/ confronting the strategic choices of Nokia. To attain this, the expose utilises Porters Five Forces model, PESTEL and SWOT analysis. 2.0 Key Issue from Strategic Choices The major shortcomings afflicting the company are tied to marketing strategies that are wrong, non coherent vision with the current market trends, having in place management that has not been able to anticipate change especially in relation to technological change. This inability to anticipate and direct change in the field of Smartphone has seen them lose considerate market share in mobile device industry (Steinbock 2010, p.3-11; Burrows, 2011). This inability to take lead in Smartphone development has allowed Apple, Samsung, RIM (Research-in-Motion) and other new companies to challenge advantages enjoyed by Nokia (Spektor, 2012; Goasduff & Pettey, 2010). Carew & Virki (2012) concurs with the later by stating that the inability to arrive faster and concrete decisions has undermined the company’s dominance. The threat of relinquishing leadership in mass market has grown manifold with the emergence of Asian competitors manufacturing low-cost mobile phone gadgets (Burrows, 2012). A noteworthy decrease in the market share of Nokia’s mobile phone by 17%, from 40% to 23% has seen the company dominance in mass market decline to 17% in the period of 2007-2012, up from a high of 40%. In addition, the company only controls a paltry of 12% market share in the Smartphone sector as compared to Apple and Samsung that boast of a combined 50% market share of Smartphone (Nokia Corporation, 2012). After the launch of the Nokia’s Window 8 Phone, analysts postulated that, "The challenge is that the world is working on the 4th, 5th and 6th editions of their devices, while Nokia is still trying to move from chapter 1. It still has quite a bit to catch up," (Carew and Virki, 2012). The grave consequence of this laxity in taking leadership in Smartphone production is the possibility of a decline in brand recognition. Moreover, there is also the possibility of losing the goodwill it enjoys in relation to customer loyalty in the advanced economies. Wall Street postulates a worrying future about Nokia. It observes that, Nokia is among the ten brands that will not feature in America by the year 2013 (McIntyre, 2012). 3.0 Factors Impacting on Nokia’s Strategic Choices 3.1 Macro Factors Impacting on Nokia: PESTEL Analysis 3.1.1 Political Factors It is fundamental for the company to exploit its strong points to the fullest within the legal context of the countries that host its markets. For instance, in 2008, the inability of the company to meet German Federal Government requirement of offering the agreed number of full-time local jobs forced them to return investment subsidies given to them (International Institute for Sustainable Development, 2008). Furthermore, in the year 2011, Chinese government levelled accusations against them that they transferred the Symbian workforce without following due diligence (Xi, 2011). 3.1.2 Economical Factors The economic downturn experienced globally has reduced the purchasing power and disposable income of prospective consumers thus, making them unable to purchase mobile phones. In order to mitigate against the inability to buy phones, the company should constantly monitor global economic trends and price their products competitively. 3.1.3 Social Factors According to Rosendahl (2011), the company is likely to gain negative image from prospective clients as a result of dismissal of their employees and the closing down of factories across the globe. The reason behind this argument is that in the public eye, they are likely to be judged as only profit oriented company without any social responsibility. With the changing social trends, mobile phones are not only used for communication, but also for other services like entertainment and navigation among others. It has become a tool for gaining social status (Katz & Sugiyama 2006; Wilska, 2003). This implies that there would be considerable increase in Smartphone demand. Thus, the success of the company lies with its ability to venture effectively in Smartphone production. 3.1.4 Technological Factors There has been a rapid change in mobile network technology. These have been from 3G to 4G (Bhalla and Bhalla, 2010). Wang and Rangapillai (2012) opine that 5G network would bring tremendous changes on how people use their mobile phones. This calls for mobile manufacturers including Nokia to be proactive in anticipating this change. The company which will be able to take advantage as a first mover will be able to control the market share, but those which are not able to attain the same are likely to be rendered redundant. 3.1.5 Legal Factors With the long success stories that the company has attained over time, it is able to ride on patent protection of their inventions and innovations. The company relies on the patent protection that it gets from the €500 million annual royalties. The beauty of these is that it enhances the income margin of the company by more million Euros (Virki, 2012). The barrier to be overcome by Nokia is how best they can match the market leaders in Smartphone without infringing on their intellectual property. 3.1.6 Environmental Factors Huang (2012) notes that there is an increasing awareness level by the public about business ethics and sustainable development. Any company that is not able to address the latter is likely to lose the public goodwill. The possible consequence of this is negative brand image and reduced market share (Wharton, 2012). The ability of Nokia to do sustainability reporting in the face of carbon controlled economy has seen them gain positive ranking in relation to greenhouse gas control. For instance, with a score 4.9 out of 10, the company has maintained top global ranking in relation to green energy in the mobile telephony manufacturing sector (Greenpeace International, 2011). 3.2 Competitive Factors: Porter’s Model 3.2.1 Threat of New Entrants Barrier to entering the mobile phone industry is low as a result of decreased demand for mobile phones. Comparatively, barrier to entering Smartphone market is higher based on the fact that large financial base is required so as to initiate research & development and marketing (Virki, 2012).despite of all these facts, there are prospective new entrants who pose competitive threats to existing players. These include companies like Lenovo and Fujitsu that are causing a star in their local markets (Strategy Analytics 2012; Kenny and Pon, 2011). 3.2.2 Bargaining Power of Buyers Due to low switching costs in Smartphone sector, the bargaining power of customers is high (Lee, 2011). In a nutshell, this means that the longstanding reputation of the company is not always likely to play in its favour, but how it is able to create a high switching cost and thus lock in customers. 3.2.3 Threat of Substitutes There are gadgets of communication that can be used to substitute Smartphone since they have almost similar or superior functions. These are Laptops, net-books and tablets (Corrigan, 2012). The only comparative advantage that Smartphone has over these substitutes is portability and convenience (Armano, 2012; Ting et al., 2011). What this implies is that Smartphone has a head-start over the substitutes, and thus not likely to relinquish its position as the preferred integrated communication and entertainment gadget. 3.2.4 Bargaining Power of Suppliers and Partners As a result of its massive history and market experience, Nokia has developed mutual working rapport with its suppliers. Moreover, Nokia has a wide array of suppliers. This means suppliers cannot dictate terms for Nokia. Instead, it is vice verse, in fact some suppliers are greatly relying on Nokia as their key purchasers. Lawton (2011) observes that some suppliers are technically dependent on Nokia. From the above, it means that suppliers have a relatively low bargaining power. 3.2.5 Rivalry among Existing Competitors The emergence of Apple IP Phones and other Smartphone has posed grave challenge to Nokia’s market dominance (Spektor, 2012). The reason why Nokia has lost massively is because of its inability to drive change in Smartphone manufacturing (Virki, 2012). This case holds true for developed economies (Schrage, 2011). The situation is worsened by the fact that Nokia has continued to focus its production on mobile phones with basic functions and dual-SIM phones (Weber, 2011; Steinbock 2010, p. 198). 3.3 SWOT Analysis in Relation to PESTEL & Porter’s Model The factors outlined below as the SWOT of Nokia are derived from PESTEL analysis and Porter’s model. Strengths Weaknesses Knowledge of market Strong brand Outstanding market presence Skilled workforce Strong in-house research and development Old-fashioned brand Slow pace towards smart phone technology Opportunities Threats Emerging markets e.g. in India and China Opportunity to rebrand Growing market demand for smart phones High competition from rivals such as Google, Apple and RIM controlling smart phone technology Ever changing technology Source: Author’s own work 4.0 Recommendation To regain its market share that it has lost to Smartphone manufactures like Apple and Samsung, it has to venture rapidly into that segment with gusto. The advantage would to exploit its already existing key competencies and resources. In addition, it has to exploit the macro economic opportunities that exist. One way of combating this challenge and especially from phones that relies on Android operating system is to collaborate with Microsoft. It is a good opportunity for Nokia to better the ecosystem and dropping the competition level in the market as many prospective consumers who are using Windows operating system on their computer or tablets anticipate to be more convenient among their equipment (Carew and Virki 2012). 5.0 Conclusion The paper was to critically examine strategic choices of Nokia. The strategic choice reviewed is the market focus where by Nokia had failed to venture in Smartphone market. It is thus essential for Nokia Corporation to closely analyze their strengths, weaknesses, opportunities and threats to effectively operate in the technology market place. References Armano, D. 2012, ‘The Future Isn't About Mobile; It's About Mobility’, Harvard Business Review Blog Network, 18 July, viewed 17 December 2012, . Bhalla, M. R. & Bhalla, A. V. 2010, ‘Generationa of Mobile Wireless Technology: A Survey’, International Journal of Computer Applications, vol. 5, no. 4, pp.26-32. Burrows, P. 2011, ‘Huawei’s Cheap Deals Pressure Samsung in Smartphone Arena’, Bloomberg Businessweek, 19 July, 17 December 2012, . Burrows, P. 2011, ‘Stephen Elop’s Nokia Adventure’, Bloomberg Businessweek, 02 June, viewed 17 December, 2012, . Carew, S. & Virki, T. 2012, ‘New Windows phones from Nokia disappoint investors’ Reuters, 06 September, viewed 17 December 2012, . Corrigan, B. 2012, ‘Smartphone Sales on the Slide’, Financial Review, 28 Aug, viewed 17 December 2012, . Goasduff, L. & Pettey, C. 2010, ‘Gartner Says Worldwide Mobile Device Sales Grew 13.8 Percent in Second Quarter of 2010, But Competition Drove Prices Down’, Gartner, 12 August, viewed 17 December 2012, . Greenpeace International, 2010, ‘Greenpeace Guide to Greener Electronics Version 16- Microsoft’, Greenpeace International, 7 January, viewed 17 December 2012, . Greenpeace International, 2011, ‘Greenpeace Guide to Greener Electronics Version 17- Nokia’, Greenpeace International, 9 November, viewed 17 December 2012, Read More