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1) Overview of Nokia Corporation In 1967, three Finnish companies merged to form the Nokia Corporation; entering the telecommunications

market and establishing a corporate position of innovation; aesthetically-pleasing products and high technology development. During the 1980s, Nokia strengthened its position in the telecommunications and consumer electronics markets through the further acquisitions of French, Finnish and German firms operating in consumer electronics operations which provided the basis for the long term acquisition growth strategy (Steinbock, 2001; www.nokia.com) The cellular industry is tpically divided into two parts: cellular infrastructure and mobile handsets. Nokia has operated in both of these segments but most of its recent success derives from handsets (Steinbock,2001) The company includes four business groups: mobile telephones; multimedia; enterprise solutions and networks. The mobile device business accounts for 80% of Nokia's revenue and 82% of its profit, and despite recent declines, Nokia still controls nearly a third of the global handset market (Schwartz, 2005) Nokia has production in 11 countries and a global network of distribution, sales, customer service and other operational units (www.nokia.com) 1.1 Current Position Nokia is ranked as the fifth most valuable brand in the world earning $40 billion in sales within 140 countries. With 55,000 employees worldwide and a focus on a global mindset, innovative corporate culture, R&D and high market segmentation; Nokia has built a strong global market position. In the past 3-5 years, Nokia has been losing market share to its major handset development rivals: Motorola, Siemens and Sony-Ericsson. The steady decline has been a result of internal factors such as the future-orientated strategic focus that has not responded to the present and recent changes in the market and consumer preferences. 1.2 Corporate Objectives Mission Statement The stated mission statement reflects and enforces the consumer focus of Nokia, and the objectives to bring technology and communication to more people: “By connecting people, we help fufill a fundamental human need for social connections and contact. Nokia builds bridges between people- both when they are far apart and face-to-face – and also bridges the gap between people and the information they need” (www.nokia.com) Corporate Goals and Objectives

The Nokia strategy continues to focus on three activities to expand mobile communications in terms of volume and value: Expand mobile voice Drive consumer multimedia Bring extended mobility to enterprises 2) External Environment 2.1 Industry Analysis Global Industry Trends The mobile communications industry continues to undergo significant changes as more users in growth markets gain access to mobile communications, enterprise becomes increasingly mobile, the importance of end-to-end solutions increases, and technology continues to evolve. Another trend is an increased emphasis on the role of customisation in mobile devices. These changes have demanded flexibility from handset developers to adapt to new market conditions and shifting consumer trends. The current global industry trends include:  Convergence of products and technologies to add maximum value to handsets. The mobile communications, information technology, media, and consumer electronics Industries are converging in some areas into one broader industry. Some of the first examples of this convergence include camera phones, as well as the use of mobile devices for email, web browsing and applications, and music downloading. It also includes Multiradio solutions and devices, which automatically transfer connectivity among cellular networks and complementary access technologies.  Global cross-industry partnerships to capitalise on technology and knowledge sharing to provide competitive advantage;  Shifts in consumer demands towards more attractive and fashion-orientated handsets;  High fragmentation of markets (www.accenture.com, Steinbock,2001)  Development of �End-To-End’ Solutions: A solution is considered end-to-end when it provides the hardware and software elements, including infrastructure, applications or service platforms and mobile devices. The ability

from an estimated 643 million units in 2004. Telecommunications helps the rapid movement of information from one country to another and allow optimal utilisation of available technology. The European Commission is striving to make Europe the "world's most competitive and dynamic knowledge-based economy" Nokia is involved in the cluster development process. including establishing research in Sweden. to drive active national IT policy. PESTLE model Political Domestic Government Support The Finnish government has long been supportive of the telecommunications industry. Telecommunications in the Global Economy Nokia and the other leading network providers/handset developers will continue to play a strategic role in the emerging global economy. enterprises. IBM. The overall market is also expected to grow in value. these include Compaq. International communications also increase the . and consumers.to offer tailored end-to-end solutions is becoming increasingly important to meet the needs of operators. compared with the previous estimate of approximately 10% annual growth. Future plans include further support for the industry involving a high-level Information Society Committee. Intel. Hewlett Packard. Future Issues: Industry Clusters Western Europe and Scandinavia are carrying out strategic efforts to attract different industry segments to specific regions. International telecommunication networks can improve the global economy in many other ways. The speed of transmission of technological knowledge and other information depends on the quality of information connecting channels among different countries and the degree of absorption capacity of different countries. Ericsson. Nokia now expects the overall mobile device market for 2005 to reach about 740 million units. resulting in the number of cellular phone subscribers as well as the number of Internet connections per capita in Finland used to be the highest in the world. Economic Market Trends Based on volume developments during the first quarter 2005. led by the prime minister. thus helping to improve the global economy. clustering with other international IT companies to focus on wireless technology. but to a lesser extent. Motorola and Microsoft. Modern telecommunication helps the coordination of different countries and increases the division of labour at the global level. products and services around the world.

 High technology products seen as a necessity not a luxury item.  Continued growth in the market segment of consumers replacing and upgrading existing handsets in more developed markets as new designs and technologies become available. USA. has identified a strong trend for consumers to move from their fixed line phones to use their mobile handsets for all or most of their voice calls. Intellectual Property Management . Technological  Development of third-generation technologies that incorporates a variety of applications  Industry convergence to produce multi-use applications and products Legal  There is a lack of global consumer welfare anti-trust laws.  Increase in disposable income in Western economies. However.with upwards of 45 million consumers estimated to now make all their voice calls from their mobile phone in these markets alone. Fixed-to-Mobile Substitution is occurring across the four major markets surveyed .  Widespread permissive licensing without universal service obligation. Change in consumer behaviour Global research conducted for Nokia.Great Britain. the expansion of global telecommunications can benefit different countries very unevenly due to their differences in political and economic powers as well as the differences in social and cultural backgrounds. designs which are more compact. Social The shifting consumer product demands and trends includes:  The creation of flip �clamshell.  Decreasing age of first-users. Germany and South Korea .opportunities for many small potential traders in different countries and increase the efficiency of international capital markets.

and the US dollar. particularly between the euro. 2005) 2. are essential to maintaining competitiveness and to creating profitable products.1. it will depend on the ability to build a solid IPR portfolio through strong research and development capabilities. While this strategic decision has enabled Nokia to avoid the heavy expenditures and significant risks involved with semiconductors. and the potential to lose its position within the industry.3 Porter Industry 5 Forces model As seen in the analysis contained in Table 3. which is their reporting currency. Nokia’s sales. the high buyer power and level of substitutes will continue to force Nokia to further develop its product portfolio and design capabilities. choosing to buy its components.nokia. costs and results are affected by exchange rate fluctuations. Nokia has opted not to possess its own semiconductor production. emerging market countries which may be adversely affected by economic. The threats to Nokia includes the loss of market-share to it’s main rivals. with high industry rivalry which will increase in the future. the UK pound sterling and the Japanese yen  Political risks.  Financial risks are minimised by the centralised management of currency exposures however.com.The creation and ownership of relevant intellectual property rights. the global mobile handset industry is moderately concentrated. and assets located in. regulatory and political developments (www. For Nokia to continue technology leadership. or IPR. it has rendered the company more vulnerable than its cellular competitors to distribution and market fluctuations (Steinbock : p202) In addition.2 Global risks affecting Nokia  Market risk is reduced by Nokia’s globalisation strategies as it’s dependence on its home/local market and also the European markets is minimised.Nokia’s sales are derived from. 2. Opportunities and Threats Opportunities include the convergence of applications which provides industry leaders to gain large market share through high level strategic relationships to create next generation products. Hill. Table 1 Global cellular telephone industry analysis Threat of new entrants (Defined as mobile handset developers) . A strategic concern for Nokia is the potential increase in supplier power.

.Established strong brand identities within in the industry.Existing firms have existing high economies of scale within production and R&D. There is also potential retaliation through measures such as price wars towards new entrants from the existing market leaders. . .core product value is added through software developed within handset firms. . . .medium impact of input cost on cost of production.High investment capital needed.Unique product and technology differentiation.low supplier concentration compared to industry concentration. the switching costs for consumers can vary depending on the partnerships between product developers and network providers which may result in contractual obligations making switching handsets difficult. . Power of substitutes (other mobile telecommunications products) .core component of semi-conductors is relatively widely produced.competitive advantages are mainly derived from product and software design and development.supplier switching costs are relatively low. . Bargaining power of suppliers (Suppliers defined as firms providing hardware components for handset products) Supplier power has only a low-medium impact on the industry due to factors including: .Low to medium threat of new entrants based on high barriers to entry including: . .the threat of forward integration from component suppliers is low. Bargaining power of buyers (End consumers) The high presence of substitutes and product differentiation results in medium-high bargaining power of end consumers. However.

Product differentiation is high-very high within the industry causing high rivalry between firms and a fragmented market.4 Competitor Analysis Nokia’s major competitors in the cellular handset development sector include: Motorola (16. Intensity of industry rivalry Rivalry within the international handset industry is high.7% market share). Steinbock. and Siemens (5.com. there are marked differences between the rivals. This has caused existing firms to achieve growth at the expense of other firms losing market share. Switching costs is a moderate factor on industry rivalry but will become more important as the handset upgrade market segment increases. Motorola and Ericsson have excelled in upstream innovation and Nokia’s focus has been on downstream innovation (Steinbock.4% market share). Fixed costs are moderate. Motorola Current position: Motorola is the number two handset producer in the global and has recently benefited from it’s recently launched super. Hubbard. There is a high buyer propensity to substitutes that offer better and more recent technologies and value-added components.5% market share). Source: (www. While Motorola's core business is operating well. Sony-Ericsson (5. While Nokia is the clear market leader. 2001.thin.The high to very high power of substitutes results from the high price and performance levels relative to the existing handset technologies. the company faces several large challenges. including the up-coming expiration of major royalty contracts. This increases the industry rivalry as the industry has shifted from the initial boom period and is in steady growth before the next wave of technology development and product convergence.nokia. high-end model of handset. but still provide opportunities for firms to reduce product prices to increase market saturation when necessary. 2004) 2. . 2001). Industry growth rate is currently under 10% within the global industry. Most firms have the ability to create or copy unique product advantages. Brand identity and consumer awareness of brands is very strong within the industry.

then their price will fall down and they will become mass products for the lower segments (www. Strategy used: The strategy is focused on the production of only expensive models of the high class segments. China. handsets have been at the centre of the company's efforts to build a global brand around innovation and technical expertise. North America 12% (16%).com) Sony-Ericsson Current position: Sony-Ericsson is the mobile phone joint venture of Sony and Ericsson and has recently reported net income fell by 61%. there is relatively high threat in the future. backed by .forbes. India. with Motorola planning to present 10-15 thirdgeneration (3G) phones in the near future.wired.8 billion by the end of the 2004 quarter.a similar level to Nokia (www. and Asia-Pacific 15% (14%). Europe/Middle East/Africa accounted for 55% of Nokia's net sales (56% in 2003). Total global subscriptions increased to 1. The company is only planning to release two 3G phones. China 10% (8%). Brazil. thus potentially reducing their limited market share (www. UK.wired. together representing 54% of total sales. creating product designs and value-added services for varying consumer needs and tastes. due to price declines and a weak product portfolio.com) Siemens Current position: mobile handsets account for only 7% of Siemens's 75 billion euros in revenue and occupy only a small corner of Siemens's vast empire of 12 divisions. Threats to Nokia: As Motorola is Nokia’s closest competitor. Strategy used: Despite the small amount of revenue and market share.wired. given the alliance with Sony and the competitive advantage that brings in future phone-music technologies (www. Motorola and Nokia will continue to compete in the new generation technologies segments. Latin America 8% (6%). Italy and Spain. United Arab Emirates. Germany. Russia. Currently it has models in the middle and high price segments but lacks products in the low-end segment. They develop high-end models which have only a one-year life cycle. Threats to Nokia: Siemens provides little threat for Nokia at this time and most likely will not be a threat in the future.com) Threats to Nokia: There is potential for Sony-Ericsson to gain further market share in relation to the high-end segments and future combined technology products.5 Market Analysis In 2004. The 10 largest markets were the US.Strategy used: Motorola has segmented the market further than Nokia.com) 2.

and  heavily populated areas. Specifically. innovation and convergence with other technologies. The markets on which Nokia intends to continue to focus on include markets with the following characteristics:  low mobile subscription rates relative to the size of the population. India. Russia.com) Market Characteristics The global handset market has a growth rate per annum of approximately 10%. The buyer decision process does include the assessment of usability with existing technologies and cross-function capabilities. with cyclic high boom periods due to new technology developments and product designs. regional markets will have differing consumer demands in respect to price and features.  markets where the need for network capacity is growing as a result of mobile network operators promoting the replacement of fixed networks with wireless. Regional Market Development As the industry continues to evolve. however in the high end segments. there is a moderate to high sensitivity to price variations.Net Sales Existing and future markets Nokia has traditionally focused on mid range handsets incorporating standardised technologies with segment-related customisations.  geographic areas where it is more cost-effective to build wireless infrastructure than fixed-line networks. value added features. In the low to mid range market segments. Nokia has continued the strategy of entering market segments that they believe will experience rapid growth or more aggressive growth than the mobile telecommunications industry as a whole (www. where factors such as poor housing infrastructure or theft of materials favours wireless solutions.the ongoing strong momentum in new growth markets such as India. Chart 1. Russia and Latin America and the Middle East will require products in the mid-to low-end market segments. .nokia. price is less important over style. Nations such as China. the development of segmentation by regional markets will become more important to Nokia. China and Brazil.

Throughout all these. user interface and pricing capabilities together with a short cycle from development to market entry. differentiating operations between the low-cost basic segment and the high-end.accenture.com. and Networks -. Weaknesses Loss of market share due to limited scope of vision and slow reaction to consumer trends. Large capital available for future investments. 2005) 3) Internal Environment Strengths Established brand identity and high consumer awareness of Nokia image. These two distinct markets will provide opportunities for Nokia to increase the development of regional-specific strategies. future growth will be driven by replacement of existing handsets and the convergence of technologies.Nokia Business Group Structure . Nokia is no longer seen as cutting edge technologies and products Nokia is currently promoting the majority of products to a market that is verging on saturation. Europe. the Networks business group provides the infrastructure backbone and enables end-to-end communications. Enterprise Solutions. The regionalisation of the high end segments will potentially provide strategic focus for Nokia (www. Product design. Loss of image. To overcome this. Nokia should expand the system of re-launching older models to the emerging markets and developing economies. and North America. Chart 2. Schwartz.1 Organisational Structure On January 1. strong brand value and the ability to respond flexibly to network operators’ requirements will be key success factors for Nokia. which is where most industry handset profits come from. While Nokia continues to dominate the market for cheaper phones. highly customised segment. Multimedia. 3. 2004. it is substantially weaker in the mid. such as Western Europe and the United States.to high-end segments in Asia. Nokia restructured into four business groups – Mobile Phones. Streamlined and highly efficient operating strategies.In mature markets.to better focus and capitalise on the opportunities in each of these areas. Economies of scale from worldwide input sourcing and production.

as part of a broader plan to reorganise the company in the face of changes in the market. where software within the phone would become as important as the technology to make telephone calls. Nokia's management team discussed the importance of generational change. Under Jorma Ollila. turning it into one of the most successful firms in both the mobile phone and telecommunications infrastructure markets.The thinking behind the realignment was straightforward. Mr Ollila has added two new business units: a multimedia unit. along with his team. respect for the individual.3. 2002: 154) Examples of his radical global focus and innovative style of leadership is seen in the recent management of changes to Nokia’s top management sectors. the shift from traditional comparative advantage and natural resources to sustained and renewing competitive advantages through human capital will provide future strategic benefits. Nokia has moved from a �European company to a global company’ (Steinbock. CEO : Jorma Ollila Mr Ollila joined Nokia in 1985 and held a variety of key management positions before becoming CEO in 1992. However. It is this commitment to the vision of Nokia as a truly global firm that is responsible for a lot of its success in the 1990s. As CEO he presented an ambitious strategy that successfully restructured the former industrial conglomerate and. . on the executive board. Nokia is becoming a knowledge company where human capital is critical in value creation and value extraction (Steinbock. However. over time. "The aim has been to get scale advantage in the handset business at the same time as being better focused on the new niches of the market-place .to capture the value added through multimedia and enterprise solutions.2 Management Evaluation The recent product issues can be attributed to the management focus toward phones with far more video and media content. The company prides itself on four core values and principles which it places at the centre of its corporate philosophy: customer satisfaction. In the past year. the rationale for Ollila is that Nokia is a global company and he wants this to be reflected. concentrating on more advanced handsets with imaging or music capacity. 3. Only four out of the 12 members of the new board are non-Finns. and an "enterprise solutions" unit. 2001) The recent product issues can be attributed to the management focus toward phones with far more video and media content. where software within the phone would become as important as the technology to make telephone calls.". The outcome has been the departure of three top management positions.3 Corporate Culture Nokia’s corporate culture is one of the company's strategic and competitive advantages. has accelerated the growth of Nokia.

Strategic Employment Nokia has established an innovative and entrepreneurial culture almost unparalleled in the telecommunications sector. allowing the company to quickly change departmental layouts in response to fast-moving business needs. and helps define the purpose of its physical facilities. fitness centres and saunas. The company's buildings (both HQ and internationally)feature natural wood. A key component of its values-based strategy is the focus not solely on technical skills but also on attitudes and behaviours critical to the creative spirit of the company. and the predominance of team areas for meetings and collaboration contributes to the sharing of ideas and information. Management seeks to create opportunities for the fluid exchange of ideas and empowering of employees. Visual and physical barriers are minimal. . warm colours and areas designed for recreation. These core values include: • Customer orientation: seeing the customer as the basis of all Nokia activities. The catch phrase used by Nokia. and a �feedback culture’ of employee input is vital. Nokia has established a set of values and behaviours across all business units and incorporated them directly into its screening and selection processes as well as its performance management system. suppliers and partners. business partners and customers with respect • Achievement: working toward a well-defined common goal and strategy.4 Human Resource Management Nokia is becoming a knowledge company where human capital is critical in value creation and value extraction. creativity and openness to new ideas. Employees and management are able to further develop and expand relationships. large windows.achievement and continuous learning. Nokia encourages and seeks to hire staff with entrepreneurial behaviour shown by traits such as: analytical and practical abilities. A universal plan was created for the office workspaces. • Continuous learning: constantly looking for ways to improve performance and having the courage to pursue new ideas. initiative and risk management. To retain this entrepreneurial spirit. 3. customers. • Respect for the individual: treating employees. In addition. There is a shift from traditional comparative advantage and natural resources to sustained and renewing competitive advantages through human capital will provide future strategic benefits. `Connecting People' is symbolic of the culture.

Nokia. the focus on these values and behaviours becomes much more important. with a workforce of 51. Dec. personnel. group exercises and one-on-one behavioural interviews. Knowledge Management Traditionally.In the final stages of the selection process. mainly because they come from the universities with entirely new skill sets. which play a critical role in the company's team-driven culture. The company relies heavily on behavioural interviewing to identify people it believes will thrive in its entrepreneurial. has hired approximately 1.750 of which 19.000 researchers and engineers every year. 31 2004 2003 Finland 23 069 22 274 USA 6 706 6 636 China 4 788 4 595 Hungary 3 778 2 571 . International HRM Issues Chart 3 Personnel.580 are employed in research and development. creative environment and uses non-traditional screening techniques including role plays. Nokia believes that technical skills are easier to assess and to learn than personal skills. December 31 2004 2003 Change % Mobile Phones 2 558 2 764 Multimedia 2 738 2 777 Enterprise Solutions 2 234 1 986 Networks 16 595 15 301 Common Functions 31 380 28 531 Nokia Group 55 505 51 359 10 major countries.

4) Strategy Analysis 4. Nokia CEO Ollila has appointed dynamic young leaders as key motivators in two critical business areas --telecommunications and mobile phones to promote the concepts of empowerment and taking initiative. 3) Bring extended mobility to enterprises and capture profitable segments of the corporate market by offering products and services that will benefit companies and individual business people. The long term strategy of pursuing emerging segments of mobile technologies has resulted in the strong corporate strategy of cultivating a strong local presence in all growing markets .Germany 3 522 3 486 Brazil 2 640 1 497 UK 1 903 1 947 Denmark 1 296 1 270 Mexico 1 160 1 290 Singapore 713 717 Nokia has been involved in creating the paradigm shift away from traditional views of human resource management to a focus on talent management. that using imagination is a condition for success and. finally.1 Corporate Strategy Nokia uses three main corporate strategies to lead the development and commercialisation of high capacity products and networks: 1) Continue to expand mobile voice by capitalising on demonstrated core competencies of efficiency and skill in execution and demand-supply chain management and a history of innovation. 2) Drive consumer mobile multimedia development through entering emerging product and service niches created by the present and future convergence of technologies. This will include both handset product development and customised secure and seamless mobile operations for this segment. and have varying amounts of responsibility and autonomy. that implementation must be swift and effective One issue for functional level management review is that Nokia's standardised performance management system does not take into account variations that exist between different types of expatriate workers since they are under different pressures. They are systematically spreading the message that leadership is everybody's role.

with often limited customisation. Nokia also has created a global strategy focus. By creating a generic strategy utilising the leadership position.2 Business level Strategy Nokia has positioned itself with a differentiation strategy with some segmentation focuses. A large amount of Nokia’s success has been as a result of positioning itself as an industry leader with a large scope of production.and pursuing collaboration and investment opportunities in order to obtain complementary technologies and a strong market position. Nokia has utilised a technology generic strategy of a full line technology leader. and a corporate reputation for quality and innovation. This is shown in the firm where “technology has a significant and/or dominant role in business strategy and is a source of competitive advantage”(Porter) This also includes the creation of a firm owned R&D concerning the whole technological field. firms that succeed in using the differentiation strategy have the attributes of: access to leading scientific research. Nokia has in the past and can benefit from in the future. The company's business model relies on churning out huge volumes of standardised phones in its own factories around the world. highly skilled and creative product development team. 4. impeding competitor activities. Table 2. industry pioneering advantages including: capturing large market share. According to Porter. As shown in the diagram below. and influencing consumer trends and behaviours. Nokia relies on strong brand awareness and customer loyalty to their products over a cost leadership position. with the rationalisation that consumers will pay premium prices for quality and value-added services within their products.Technology Industry Leadership model Scope Full Selective Leader Leadership Full Line Technology Leader * Nokia Niche Player Follower Technology follower .

com) Currently. the strategy used is related diversification to support the core operations and competitive advantages of Nokia and allows the firm to concentrate on its core competencies. by divesting its information technology and basic industry operations. the high cost of imports forced Nokia to increase operations into electronics and inputs. The global strategy of Nokia differs in the moderate product and marketing customisation for local markets. It has seized downstream processes as bases for competitive differentiation and invested in regional downstream activities. selling to most countries in the world but has a concentrated number of production operations to maximise economies of scale. However.its diversification strategy.Technology rationalizer Diversification Strategy Nokia has it’s origins in unrelated diversification including rubber and cable production. Upstream Innovation Because Nokia has not integrated into semi-conductors. The company is continuing to push a long-term plan to move beyond mobile phones into more consumer. Nokia has focused on its core capabilities by outsourcing the majority of its upstream operations. Nokia has concentrated on its core business. To meet these objectives.and accelerate -. it has nurtured solid and efficient long term supplier relationships over two decades.and business-communication devices. with heavy divestment of the unrelated subsidiaries as part of a larger restructuring strategy. The main role of international country locations is sales and customer service with some R&D facilities. telecommunications. the investment strategy was more focused on related industries. Nokia has been divesting businesses which have not a critical component to the long-term global vision. Nokia continued un-related diversification particularly through mergers and acquisitions. as the industry continues the global strategy will no longer customise according to regions but continue to segment the market in terms of product characteristics and consumer demands. Nokia’s strategy has ensured that its . International Market-Entry Strategy Nokia operates on a mostly global strategy. design and marketing. In turn the suppliers have significantly benefited from Nokia’s rapid growth.nokia. 6) Operations Analysis – Competitive Advantage through Innovative Operations Nokia has sought optimal allocation of resources by concentrating on industry differences in branding. By the late 1980’s. From the mid 1950’s onwards. This strategy has enabled Nokia to focus on shareholder value by concentrating on the core competencies and business areas where we see the most value added and the best growth opportunities (www. The recent reorganisation of Nokia into four business units intended to reflect -. Since the beginning of the 1990's.

Nokia’s subcontractors consisted of: electronic contract manufacturers. the United States head office and R&D centre is locates strategically close to its American semiconductor chip supplier to assist in product capabilities development. In addition. Nokia’s suppliers have been forced to adapt cost-focus strategies and as a result. with net profits falling by 15% to EUR816 million. combined with falling prices for terminal equipment saw total sales decrease by 2% to EUR6. This strategy initially complemented the core capabilities of Nokia. Nokia has invested in co-operation. Nokia mobile phones and multimedia device divisions came in below company expectations in recent financial periods.625 billion. However. Nokia sales had been affected by "a product mix more weighted towards the low-end". as its upstream operations were relatively homogenised and therefore standardisation could work easily and effectively. In contrast to Microsoft. By 2000. component suppliers. strategic coalitions and open standards. software and product development companies. production equipment suppliers and service companies. Data as at January 2005 2004 . but its enterprise and infrastructure businesses have performed better than anticipated. It has nurtured suppliers through procurement which has contributed to its growth. This has been established to exploit local-market knowledge and trends (Steinbock. Mr Ollila. have attained high operational effectiveness. For example. and that the benefits of the company’s new product launches aimed at stabilising its market share would not have an impact on sales for 1-2 quarters. This has been a result of heightened competition from competitors including Samsung and Siemens. Nokia captured market share through downstream innovation and the development of branding and image. Use of Clustering Nokia uses R&D to tighten key relationships. the key R&D resources are located close to Nokia’s most important production sites worldwide. Nokia has experienced declining net sales in the period 99-04 due to factors including the changing trends in consumer behaviour and lack of product design change to meet these trends. Nokia’s focus strategy has been global and has taken advantage of global segmentation. Downstream Innovation Since the early 1990s. more According to Nokia CEO. in light of the shifting consumer customisation requirements. this heavily standardised approach is no longer providing competitive advantages for Nokia and will result in declining market share if continued to the extent in the 1990s.suppliers extracted more value than suppliers for other industries. 2001) 7) Financial Analysis As seen below. compared to the corresponding period of 2003.

Overall market volumes for the same period reached an estimated 170 million units. Nokia's estimated market share for the first quarter was 32%. representing 20% annual growth. 2005. while Nokia's smart phone volumes increased to 5.35bn. or up by 17%. Operating profit for the Mobile Phones division decreased by 16% to EUR869m while net sales increased by 11% to EUR4. Nokia has reported an operating profit of EUR1.2005 As at 21 April. and EUR6.16 in January-March 2004. In smart phones. .8 million units in the first quarter of 2004. the total industry volume for the first quarter reached an estimated 10 million units. as compared to the corresponding period in 2004. flat year-on-year and down from 34% in the fourth quarter 2004.3 Net debt to equity (gearing) -78 -71 -61 Current Financial Position .43bn.40bn for the financial quarter January-March 2005. or up by 10%. Operating profit and net sales for the Networks division increased. respectively by 44% to EUR221m and by 6% to EUR1. an increase from 1. an increase of 20% year-onyear.53bn.12bn on net sales of EUR7.EURm 2003 EURm Change % 2002 EURm Net sales 29 267 29 455 -1 30 016 Operating profit 4 330 5 011 -14 4 780 Profit before taxes 4 709 5 345 -12 4 917 Net profit 3 207 3 592 -11 3 381 Research and development 3 733 3 760 -1 3 052 2004 % 2003 % 2002 % Return on capital employed 31.6 34. The total mobile device sales amounted to 53.8 million units.7 35.19 from EUR0. respectively from EUR1.02bn. Both operating profit and net sales for the three-month period increased.Earnings per share (EPS) increased to EUR0.4 million units.

Top 10 major markets by net sales 2004 EURm 2003 EURm 2002 EURm USA 3 416 4 475 4 665 China 2 660 2 013 2 802 UK 2 261 2 693 3 111 Germany 1 730 2 297 1 849 India 1 364 1 062 539 Brazil 1 091 805 773 Russia 938 570 UAE 909 1 886 925 Italy 884 1 003 1 342 Spain 768 748 531 January 2005 2004 EURm 2003 EURm Change % Mobile Phones . Emerging markets will continue to grow in mobile phone usage and ultimately net profits for Nokia. Russia and Brazil.There has been a high increase in net sales from emerging markets including India.

At the early stage Nokia concentrated merely on technical competence. Core competencies were defined to understand.Net sales 18 507 20 951 -12 Operating profit 3 768 5 927 -36 Research and development 1 189 1 022 16 Multimedia Net sales 3 659 2 504 46 Operating profit 179 -186 Research and development 855 725 18 Enterprise Solutions Net sales 830 529 57 Operating profit -199 -141 Research and development 298 235 27 Networks Net sales 6 367 5 620 13 Operating profit 878 -219 Research and development 1 178 1 540 -24 8) Analysis of Core Competencies Nokia began a strategic core competency project in 1995. . systematically exploit and develop the competence that was the supporting pillar of the company’s competitiveness. with the idea that the competitiveness of a company in the long term depends on its ability always to create new products and services bringing excellent value added to its customers.

in which they had specialised skills.  cost efficiency. Limited Strategic Vision in Product Design One of Nokia’s objectives has been global segmentation to maximise exploitation of global market opportunities with a product that has universal appeal.  brand. However. The development of the GSM telecommunications standard was based on open interfaces. they created a network system that spread the costs of developing new technologies. the Finnish telecommunication industry had to develop new competencies and resources in the area of digital mobile technologies. By focusing on their core competencies and purchasing the remainder from specialist suppliers. such as Nokia.  global customer service. were developing their competencies and resources by building up innovation networks.  fast creation of systems and products to selective market needs. This has resulted in Nokia engineering its phones so that the same models could be adapted to the varying frequencies and standards around the world.Nokia’s stated and actual core competitive advantages include:  superior products and product usability. which allowed other than established manufacturers to provide telecommunication equipment. in order to respond to the increasingly rapid pace of technological change in the industry. This allowed systems firms to focus on only those elements of the product. Major firms in the industry. They sought to produce a dominant product design to capture the allegiance of the marketplace. During the late 1980s. mastering telecommunications networks. purchasing all other components externally.  technology leadership including Digital signal processing. This encouraged new entry of suppliers and facilitated experimentation by forcing suppliers to differentiate their products while competing within a common industry standard (NMT). radio technology. this strategy which initially . reduced product9) Nokia �Gap’ Analysis The recent loss of profit and market share in some segments is a result of the internal organisational strategies not responding fast enough to the changing external factorsnamely the change in consumer tastes and further fragmenting of the market.  the demand supply network. telecommunications software platforms and architectures.

e-mail support and wireless games. While Nokia was focused on functional advantages like phone size and ease of use. Bluetooth connectivity. Despite the loss of market share from product development. 2005) For example. Unlike traditional wireless retail stores. Recently. but provides a service of featuring Nokia's full line of products and then referring customers to nearby retailers if they wish to purchase the devices. Nokia’s major competitors have increased their market share based on the development of new and innovative styles and designs. Thus. Nokia’s Korean competitor Samsung has increased its competitive advantage in design and functionality. who are advocates of the product’. Nokia seeks to use interactivity to reward them by creating content they will want to show their friends. there has been a period where Nokia has not offered mid-range and the latest �clamshell’ design of phones demanded by consumers. In the past it has been hard for firms to determine the consumer rationale for the expense of interactive marketing. responding to the tastes of the Asian market in preferring the folding phones. Nokia’s current product portfolio is targeted at the low-end market. All of the Nokia devices displayed at the centres are operational to allow consumers to try out new features such as cameras. which has challenged Nokia at the high end of the market. Interactive Marketing Companies such as Nokia �know they have a group of enthusiastic consumers. aggressive product development and increased customisation of style and design can renew Nokia’s market position and provide future increased market position in the high-end segments (Schwartz. Nokia has still been generating more profits than its competitors from its mobile phone division because of its unrivalled economies of scale. However. the development in 2005 of the Nokia ads for its 6630 videophone are creating promotional . 2005) 10) Future Strategic Developments Marketing Directions Targeting End Customers A recent development that Nokia intends to utilise in more markets is the establishment of �Nokia Experience Centres’.created market share for Nokia is no longer providing a competitive advantage in the recent and current market environment. which leaves a big gap for enticing medium-priced products in Europe and North America from competitors including Samsung. its competitors have emphasised factors such as colour richness and screen size (Schwartz. Nokia Experience Centres don't actually sell devices. The market is becoming more fragmented and driven by style and fashion tastes rather than being primarily focused on functionality.

which includes exclusive colours.forbes. 34 had colour screens and 23 were camera phones. Customisation in the mobile infrastructure and mobile devices businesses is an important element in Nokia's commitment to greater customer satisfaction. overtaking Nokias 7. However.65 million handset units respectively in last years first 10 months. The firm is aiming to significantly increase its global market share. The interest in the content ensures repeat visits to the interactive areas and a willingness to tell others about the ad.68 million and 7. and niche vendors (Steinbock.to mid-range of digital cameras (www. Nokia is facing threats from Chinese mobile phone makers such as Ningbo Bird and TCL.38 million and Motorolas 7. it has extended its business to CDMA mobile phones to boost phone sales.35 million for the first time. logos.com) The future industry will consist of global leaders. Nokia must sustain this combining of technologies to remain the market leader (www. In 2004. and both sold 9. Of the products launched. 2001) In 2004. Nokia announced a total of 36 new mobile devices in a wide variety of designs and technologies for all segments and at all price points.accenture. Nokia sold 10 million phones with integrated music players. Such examples of future industry convergence is that the mobile handset is poised to replace the entire low. The Chinese Market China is a major target for Nokia.advantages and reaching additional market segments. 3G Technology The continuing development of 3G technologies that will combine multiple uses and technologies within single products will provide opportunities for Nokia to gain further market share. This however may prove to be harder than it appears. low-cost competitors. while focusing on GSM handsets. This means the interactive element has succeeded in taking a logical role in the complex mix of communications objectives. Nokia plans to release 90% of its new phones in 2005 with this industry customisation feature which must become an ingrained part of operations to further increase the opportunities for cross-promotion. industrial design alterations and product numbers. As well as continuing traditional .com) Strengthen B2B Relationships The recently launched Nokia 6101 is the company's first mobile phone to offer hardware design customisation for key operators. Nokia is setting up a new joint venture in the Chinese national capital one year into reorganising its China business for obtaining top handset sales in the country. Nokia asked consumers to shoot a video on their phone and send it in for inclusion in the ad. as independent Chinese and Taiwanese handset vendors are able to offer cheaper options.

com) 11) Recommendations 1) Increase the corporate focus on changing customer tastes and demand for customisation to regain lost market share.forbes. including Australia. 3) Overall corporate strategy shift from broad cost-leadership strategies towards more niche segments in the increasing fragmented market.forbes. wallpapers and downloadable games. . Nokia is working with Microsoft to develop a music download service for mobile devices (www. including the acquisition of firms with core compentices in product design. Dedicated internal teams have been set up to deal directly with Vodafone and other providers that have a big say in what brands consumers see when they sign up for mobile service. Dedicated internal teams have been set up to deal directly with Vodafone and other providers that have a big say in what brands consumers see when they sign up for mobile service. In response to the increasing convergence within the mobile phone industry combining technologies such as music storage. Yahoo! entertainment services such as ring tones. entertained and in touch through Yahoo!'s rapidly developing internet services including Yahoo! data communications services such as e-mail.supplier/technology/value chain relationships and strategic alliances.com) As part of the youth-orientated focus on product positioning and promotion Nokia is establishing an agreement with Yahoo!. In response to the increasing convergence within the mobile phone industry combining technologies such as music storage. Nokia has followed the lead of its Asian rivals and is prepared to customise phones to meet the needs of service providers. the number one global internet brand that will allow millions of Nokia smart phone users to stay informed. 2) Increase product development for high-end segments and previously overlooked niche segments. Strategic Alliances As well as continuing traditional supplier/technology/value chain relationships and strategic alliances. Nokia is still working with Microsoft to develop a music download service for mobile devices (www. Nokia is the first handset manufacturer with Symbian-based products to distribute Yahoo! services for consumers in such a large number of European and Asian markets. Nokia has followed the lead of its Asian rivals and is prepared to customise phones to meet the needs of service providers.

5) Increase cross-industry strategic alliances and relationships to take maximum advantage of the converging industry such as: banking/shopping sectors.4) Long-term strategy of viewing regionalised markets in terms of product requirements to maximise economies of scale and scope in targeting all segments of the market. however increase the exploitation of localised resources such as Indian software development capabilities. camera technology developers and personal organisation technologies. 8) Develop relationships with key network providers. 6) Target the handset replacement segments and establish a �trade in’ price reduction system and incentives for long-term/lifelong consumers. 7) Evaluate the need for potential backwards integration of components to reduce supplier risks. 9) Continue to develop strategically located R&D facilities. GPS and motor vehicles. .