Nokia Strategy Final

NOKIA’S STRATEGY ByPrasenjit (34) Vibhas (52) Vikram (53)

OF • Established in 1865 as a wood-pulp mill by Knut Fredrik Idestam on the banks of Nokianvirta river in Finland. • Finnish Rubber Works acquired Nokia Wood Mills  Telephone and Telegraph Cables • Nokia Corporation created - 1967 paper products- car tires- personal computers-cables

OF • Nokia began developing the digital switch (Nokia DX 200) which became a success. • 1991 Nokia - agreements to supply GSM networks - nine European countries. • August 1997 Nokia - GSM systems to 59 operators in 31 countries.

THE VISION • The Vision of Nokia: “Our vision is a world where everyone can be connected. Our vision is to ensure that 5 billion people are always connected at any given point and to achieve 100 fold more network traffic”

NOKIA TODAY • Head office in Finland; R&D, production, sales, marketing activities around the world • World’s #1 manufacturer of mobile devices, with 38% share in 2007 • 112 262 employees • Sales in more than 150 countries

CORPORATE STRUCTURE

NOKIA AND ITS SBU’S

CELLULAR DEVICES TECHNOLOGY

NETWORK SECURITYCORPORATE EMAIL

PESTEL ANALYSIS Political – As markets are deregulated, both operators and manufacturers are free to act independently of government intervention. In Countries like India and China where Partial regulations exist, government intervention does take place.

PESTEL ANALYSIS Economic – With incomes rising, people have more disposable income, which enables consumers to be more selective with their choice of mobile phone, looking to other factors rather than fulfilling the most basic of user needs (text messaging and phone calls) and price being such a key factor.

PESTEL ANALYSIS Social – The rise of the so-called information society has made telecommunications increasingly more important to consumers, both in terms of work and leisure. Users are more aware of mobile phone handset choice and advancements due to increased information availability.

PESTEL ANALYSIS Technological – There have been many global advancements in technology such as MMS, Bluetooth, WAP, GSM, GPRS, cameras etc. The Asian markets are more technologically advanced than their European counterparts, for example in 2002, just 4% of phones had cameras, whereas in Asia 90% did.

PESTEL ANALYSIS Environmental – There is a concern that the use of mobile phones could be damaging to health, with tumours potentially being caused by the waves emitted by the handsets. There is also immense wastage created by unwanted mobile phones that are thrown away as they are nonbiodegradable.

PESTEL ANALYSIS Legal – Difficult to patent mobile phone designs. Technology Infringement causes a lot of legal issues.

PORTER’S DIAMOND ANALYSIS

Porter’s 5 Forces Framework Analysis: The Mobile Handset Industry

RIVALRY AMONG COMPETITORS •

• •

•

INDUSTRY GROWTH RATE: The industry has grown by just 10% during 2007. This is down from the 23% growth rate seen in 2006. CONCENTRATION AND BALANCE: The major players are BenQ-Siemens, LG, Motorola, Samsung and Sony Ericsson. INFORMATIONAL COMPLEXITY: Devices are becoming more complex and getting features (picture, audio, video) that are outside the core competencies of traditional manufacturers. CORPORATE STAKES: High stakes for the companies because of huge investments into the business.

BARGAINING POWER OF BUYERS •

BUYER INFORMATION: Buyers have comparative information about the product in terms of price and features.

•

BUYER CONCENTRATION: Network operators are relatively concentrated and large service providers such as Orange and Vodafone have high bargaining power.

•

SWITCHING COSTS: Individual buyers have low switching costs and are price or feature sensitive.

•

PRODUCT DIFFERENCES: Low degree of product differentiation and any new feature or technology is quickly imitated.

BARGAINING

POWER OF SUPPLIERS •

SWITCHING COSTS: A large number of suppliers for non critical components. For critical components suppliers work closely with companies as they involve joint development of specialty inputs and sub-systems.

•

IMPACT ON DIFFERENTIATION : Companies could switch suppliers for non critical components but are closely tied to them for critical components and sub-systems.

•

THREAT OF FORWARD INTEGRATION: Suppliers do not pose any credible threat of forward integration even though they are outsourced.

THREAT OF NEW ENTRANTS -ENTRY BARRIERS • • • • • •

PROPRIETARY PRODUCT DIFFERENCES: Technology and product designs are protected by patents. BRAND IDENTITY: Powerful brand identity of the existing players developed through advertising and product excellence. ECONOMIES OF SCALE: High fixed costs means that volume is essential to companies. CAPITAL REQUIREMENTS: Activities such as R&D and advertising requires large capital commitments. EXPECTED RETALIATION: Existing competitors have the financial clout to deter new entrants. ACCESS TO NECESSARY INPUTS: Suppliers work closely with existing companies and therefore critical components may only be available at a premium.

THREAT OF SUBSTITUTES • PC based applications such as IP TELEPHONY • Convergence between PDA’S AND MOBILE PHONES. • Technological regression due to ESCALATING MOBILE COSTS.

Basis of Competitive Advantage •

• • •

•

Product competitiveness : Nokia profitably competes in all mobile device segments from entry-level to high-end. It has the broadest product portfolio in the market. Customer satisfaction : Nokia uses customization to gain greater customer satisfaction R&D effectiveness : Nokia spent about USD 3.4 Billion on R&D. Demand-supply network alignment : Nokia captures its potential upside in high-demand situations by aligning its demand-supply network.  End-to-end capability : Nokia systematically leverages its end-to-end capability by integrating mobile devices, applications and infrastructure

NOKIA’S VALUE NETWORK

SWOT ANALYSIS STRENGTHS •Strength of CORPORATE BRAND •Design, the branding and the technology •Dominant player in SMARTPHONE market •Largest CELL PHONE VENDOR

WEAKNESS

•Slow to adopt new ways of thinking- Clamshell Phones •Being the market leader and its increase role in SYMBIAN is giving Nokia a bad image

THREATS OPPORTUNITIES •Growth markets such as CHINA, LATIN AMERICA •Increase their presence in the CDMA market •Leverage its infrastructure business to get preference and stronger position with carriers

•INFLECTION POINT- “A Disruptive Technological Change” •Cheaper MID RANGE models from Motorola & others • Operators want to lessen their dependency on handset vendors •Potential threat from Microsoft’s entry into mobile telephony

Vs One To One Comparison Key NOKIA Success Factors Technology 5 Strategy

MOTOROL A

Edge

3

Nokia

3G Products Application

4

5

Motorola

5

3

Nokia

s Software

5

4

Nokia

Total

19

15

NOKIA

Main Division: Mobiles NOKIA

MOTOROLA

SALES

60.2%

66.2%

OPERATING INCOME

70.4%

65.7%

Vs

200 Million

75 Million

Vs Continuous innovation and new features.  Moves faster than rivals in introducing new features Year No of New Products 2002 34 2004

36

2006

39

Nokia’s approach is more flexible to diversify its product line

as focused on “iconic” products to change trends on the market

Motorola's approach is more risky as they depend on single “big hits”

FINANCIALS: STOCK VARIATIONS

COMPARING FINANCIALS

Profit Margin

$mm

%

60,000

14.0

$mm

%

Profit Margin

50,000

15.0

45,000 12.0

50,000

10.0

40,000

40,000

10.0

35,000 30,000

8.0 30,000 6.0 20,000

4.0

10,000

2.0

0

0.0 2001

2002

2003

2004

2005

2006 Total Revenue Income After Tax P rofit Margin

5.0

25,000 20,000 0.0

15,000 10,000

-5.0

5,000 0 -5,000

2002

2003

2004

2005

2006

2007

-10.0

Total Revenue Income After Tax P rofit Margin

FINANCIALS

(in EUR millions)

Year

2003

2007

Gross Profit 12,208

-

Operating Profit 4,326 Net Income

3,192

2006 13379

11,982

7985 4,960

7205 3,543

2005

2004 11,192

5488 4306

4,639 3,616

FINANCIALS Year Equity

Assets

=

2006 2005 2004 2003

22617 22425 22669 23920

10557 9938 8270 8608

Liabilities

Net sales of EUR 51,058 million Operating margin :15.6% Estimated device market share 38% 14 manufacturing facilities in 9 countries

+

12060 (in EUR 12514 millions) 14339 15312

FINANCIALS

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