Nokia 1

Nokia 2

Executive summary
 Nokia 3

Table of contents

1. Company overview..........................................................................................................4
2. Mission and objectives of Nokia.....................................................................................5
3. Problem statement...........................................................................................................5
4. Five forces.......................................................................................................................6
4.1 Threat of entry...........................................................................................................6
4.2 Threat of rivalry.........................................................................................................7
4.3 Threat of substitutes...................................................................................................8
4.4 Threat of suppliers.....................................................................................................8
4.5 Threat of buyers.........................................................................................................8
4.6 Government; the sixth force......................................................................................9
4.7 Positioning.................................................................................................................9
5. VRIO..............................................................................................................................10
5.1 Quality.....................................................................................................................11
5.2 Price.........................................................................................................................11
5.3 Services/functions....................................................................................................12
5.4 Brand image.............................................................................................................13
6. Strategic options............................................................................................................14
6.1 Strategic option 1.....................................................................................................14
6.2 Strategic option 2.....................................................................................................17
 Nokia 4

Nokia Corporation

1. Company overview

Nokia Corporation is the world’s leading manufacturer of mobile devices and

mobile networks (Datamonitor, 2007). The company’s headquarter is in Espoo, Finland

and has about 68,500 employees (Datamonitor, 2007) Nokia offers its customers mobile

devices with functions for music, navigation, video, television, imaging, games and

business mobility (Datamonitor, 2007). During the fiscal year ended December 2006,

Nokia recorded revenues of €41,121 million with an increase of 20.3% over year 2005

(Datamonitor, 2007). In fiscal year 2006 the operating profit of Nokia was €5,488 million

with an increase of 18.3% over year 2005 (Datamonitor, 2007). The net profit of the

company grew 19.1% in fiscal year 2006 into €4,306 (Datamonitor, 2007). Nokia’s share

price has been growing steadily for the last year as well as illustrated in figure 1.

Figure 1 Nokia’s share price 11/19/2006 – 11/19/2007

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2. Mission and objectives of Nokia

Today, Nokia’s mission is to expand its interests into new areas of businesses that

drop outside of the company’s present core business units (Nokia, Mission, 2007).

September 17, 2007 Nokia agreed to buy a cellphone-ad firm, Enpocet (Sharma, Bryan-

Low, 2007). Less than two weeks later, on October 1, 2007, Nokia agreed to acquire high

quality electronic mapping provider, Navteq (Bryan-Low, 2007). These acquisitions are

part of Nokia Chief Executive Olli-Pekka Kallasvuo’s efforts to push Nokia into the

software and services company. Nokia has always been innovative and constantly been

renewing its core businesses. The company’s fundamental objectives are exploration,

experimentation, and objective that Nokia is not the only innovative company in the

industry (Nokia, Mission, 2007). These objectives have kept Nokia in a continuous stage

of growth and made it possible for the company to earn remarkable profits. “We are

living in an era where connectivity is becoming truly ubiquitous. The communications

industry continues and the internet is at the center of this transformation. Today, the

internet is Nokia’s quest.” (Nokia, Vision and strategy, 2007) Regardless of Nokia’s

goals to renew the company, they still keep hold of their broad vision, “Life Goes

Mobile” (Nokia, Mission, 2007).

3. Problem statement

By expanding its business into mobile softwares and services Nokia will face new

powerful competitors with enormous resources and outstanding managerial know-how.

Nokia has already invested significant amounts to acquisitions; for example the

acquisition of Navteq cost the company $8.1 billion (Bryan-Low, 2007). How can Nokia
 Nokia 6

keep up as competitive and successful as it has been when competing against companies

like Google, Microsoft, and Apple?

4. Five forces

The five forces framework identifies the five most common threats that Nokia

faces in their competitive environment (Barney and Hesterly, 2006). These threats are:

threat of entry, threat of rivalry, the threat of substitutes, the threat of suppliers, and the

threat of buyers (Barney and Hesterly, 2006). The threat of government, which can be

considered as the sixth force, can affect Nokia’s level of performance as well.

4.1 Threat of entry

Nokia’s economies of scale and the position as a market leader in the mobile

phone industry, with a market share of 39.5%, give the company a great barrier of entry

(Gonsalves, 2007). Differentiating their products by acquiring software and service

companies makes this barrier even greater. On the other hand, the repositioning of the

company by starting to provide mobile-services to its customers Nokia will face new

competitors. Managerial know-how, knowledge and skills of the industry as a first mover

have always been a competitive advantage for Nokia over its competitors (Barney and

Hesterly, 2006). Nokia will hold this advantage also in their new areas of businesses by

acquiring companies with valuable resources and capabilities. Nokia has a favorable

access to raw materials, which after the acquisitions includes the mobile-services. This

accessibility generates a cost advantage that acts as a barrier of entry. The threat of entry

is low.
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Market shares of mobile device manufacturers

45%
39.5%
40%
35%
30%
25%
20% 15.1%
15% 12.9%
9.4%
10% 7.7%
5%
0%
Nokia Samsung Motorola SonyEricsson LG

Figure 2 Market shares of mobile device manufacturers

4.2 Threat of rivalry

In the mobile phone industry, Nokia does not have too many serious competitors

as shown in figure 2. Samsung, Motorola, SonyEricsson and LG are some companies to

mention that Nokia are competing within the industry (Gonsalves, 2007). In the mobile-

services industry, Nokia does not face that many competitors either. “Google, Yahoo Inc.

and Microsoft Corp. long have purchased software from providers like Navteq to sell

maps to people to use on their computers, phones and other devices” (Bryan-Low, 2007)

Some might consider the mobile phone industry has reached the maturity stage but when

we think about the growing markets of China and India the industry is definitely still in

the growth stage. Products of rivals in the handset industry are homogeneous and the type

of competition the mobile phone and mobile-services industry is; is an oligopoly where

companies are expected to earn competitive advantage because of the high entry and exit

costs (Barney and Hesterly, 2006). Threat of rivalry is low.

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4.3 Threat of substitutes

The computer manufacturers are the most serious contenders as a threat of

substitutes for Nokia. They have the resources and innovativeness to create smaller and

smaller portable devices with all the services that the internet can offer. It is unlikely that

these substitutes could replace Nokia’s products and services. The threat of substitutes is

low.

4.4 Threat of suppliers

The number of suppliers in the industry is high. A lot of industries use the same

kind of electronic components as the mobile phone industry to produce their products, it

can be said that it is the buyers market. In the mobile services and software industry, this

threat would be high because of the small number of suppliers. Nokia is executing this

threat by getting full control of their suppliers by vertical integration (Barney and

Hesterly, 2006). The threat of suppliers is low.

4.5 Threat of buyers

Nokia has a large number of buyers which helps the company to maintain high

levels of profitability. Nokia can make logistical demands to their suppliers by reducing

cost and increasing quality. These actions can reduce supplier’s profits in favor of the

buyer. Nokia is constantly differentiating their products with new functions, services, and

software. This differentiation by product modularization increases profitability and

lowers the threat of buyers. The threat of buyers is low.

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4.6 Government; the sixth force

Nokia’s sales can be adversely affected in some emerging market countries

because of economic, regulatory and political developments or by import regulations set

by other countries (Nokia, Nokia in 2006, 2007).

Figure 3 Positioning

4.7 Positioning

In figure 3, Nokia and its most important competitors are positioned by using

three different variables; mobile devices, mobile services, and software. Overall Nokia is

very strong in the market but the company should observe their existing and possible new

competitors very carefully. For example Microsoft and Google have plans to add mobile
 Nokia 10

devices to their product selections. With the enormous resources and with the software

and services functions that these companies already have, as illustrated in figure 3, they

might become a serious threat for Nokia in the future. Any of the threats in the industry is

not powerful enough to make the company lose most of their profits which makes the

expected performance of the company to be high (Barney and Hesterly, 2006).

5. VRIO

The VRIO framework is a set of four questions of: Value, Rarity, Imitability, and

Organization (Barney and Hesterly, 2006). It is a tool to analyze company’s resources

and capabilities to discover their potential competitive advantages or to identify

company’s internal weaknesses (Barney and Hesterly, 2006). The following competences

were chosen from Nokia: quality, price, services/functions, and brand image.

Table 1 The VRIO framework

Imitabilit Organizatio Competitive

  Value Rarity y n implications

Quality Yes No -  Yes Competitive parity
Temporary competitive
Price Yes Yes No Yes
advantage
Services/ Temporary competitive
Yes Yes No Yes
functions advantage
Brand Sustained competitive
Yes Yes Yes Yes
image advantage
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5.1 Quality

The high quality of Nokia’s products and services enables the company to take

advantage of environmental opportunities or neutralize environmental threats. These

resources add value to Nokia’s customers and leads to customer satisfaction and loyalty.

This strength is developed by Nokia’s well controlled value chain. Even though quality is

a valuable resource for Nokia, it is not uncommon in the industry. All of Nokia’s major

competitors are investing in quality which is a crucial feature in the commodity product

business. Quality in management and value-based leadership are important issues at

Nokia. Nokia has created a framework called the “Self-Regulating Management System”

to run their business in a more consistent, effective and fact-based manner (Nokia,

Quality, 2007). Quality is an organizational strength for Nokia and generates a

competitive parity.

5.2 Price

A wide portfolio of different price products has created a competitive advantage

for Nokia. With the low-cost phones Nokia has been able to take the advantage from the

demand of inexpensive phones at the developing markets. Offering the consumers high

quality products for low-cost is an efficient way to create customer satisfaction and brand

loyalty. For example in India Nokia has a 70% market share with one billion potential

users (Lakshman, 2007). The price of a mobile phone in India can be as low as $19

(Lakshman, 2007). The low-price strategy is a rarity and controlled by Nokia in the

mobile phone industry. This feature is a source of competitive advantage for Nokia. In

trying to imitate Nokia’s low-price strategy, the competitors would not face a cost

disadvantage. The developing markets in China, India, Africa, and South-America are
 Nokia 12

enormous and they are growing fast, and the number of potential users is huge. This

resource generates for Nokia a temporary competitive advantage.

5.3 Services/functions

Through the acquisitions of service and software companies, Nokia is now

holding significant resources to exploit the environmental opportunities with the mobile-

services. The potential of these opportunities is huge. Most of the world’s people live in

poor rural areas or slums with no computers or internet connections. Mobile services

through mobile devices and wireless networks, is making it possible for Nokia to reach

all the people and all the areas of the world. These are rare resources compared to

Nokia’s competitors but not too costly for them to imitate. Nokia, with its market

capitalization of $ 149 billion, has a competitive advantage over its competitors (Berman,

Singer, 2007). This resource generates a temporary competitive advantage for the

company.

2007 Brand Value ($m)

70,000
60,000
50,000
40,000
30,000
20,000
10,000
0

Figure 4 2007 brand value ($m)

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5.4 Brand image

One of Nokia’s most important resources is its strong brand image. The company

has effectively been strengthening its brand image with efficient marketing campaigns.

Nokia is the world’s fifth most valuable brand with a brand value of $33,696 million as

seen in figure 4 (Interbrand, 2007). It is the first non-US company in the ranking and the

only phone manufacturer in the top ten (Interbrand, 2007). Nokia was also the Asia’s

most trusted brand in 2006 among 1,000 brands across 15 product and service categories

(Datamonitor, 2007). A strong brand image is an extremely valuable resource for Nokia

and along its market leader position the company is able to compete effectively against its

competitors. This is a rare and imperfectly imitable resource. The competitors would face

a huge cost disadvantage in trying to imitate this valuable resource. Nokia is very well

organized to exploit the full potential of this resource. Nokia’s key quality targets, that

are the base of the company’s strong brand image, are; “For Nokia to be number one in

customer and consumer loyalty, number one in product leadership, number one in

operational excellence” (Nokia, Quality, 2007). This resource is an organizational

strength and generates a sustained competitive advantage for the company.

As a conclusion Nokia has a wide variety of valuable resource that generates a

competitive advantage for the company as seen in table 1. These resources are results of

effective organizational culture, innovativeness, and well organized efficient business

strategies. Nokia observes the international market environment very intensively and is

able to react to any changes in the markets extremely quickly due to its huge market

capitalization.
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6. Strategic options

The strategic options include two different alternatives for Nokia to overcome the

issues stated in the problem statement.

6.1 Strategic option 1

Apple has reached into the mobile phone market and given Nokia and the other

phone manufacturers’ competition when it comes to the cell phones. The Apple iPhone

came with the best of both worlds from the cell phone side to the mp3 side of the

company. The thing that makes Apple the market leader within the mp3 market is their

software iTunes.

iTunes locks the consumer in to the Apple products, this is the direction Nokia

wants to go with their new music download system. Because Apple has a large market

share in this industry it will be hard to make people change over to the Nokia product.

One of the remedies Nokia has for this is a new campaign they are releasing now

to their consumers. The Nokia download system now offers their customers 1 year with

free downloads of music and movies (Eidem, 2007). With this year of free music Nokia

hopes to get customers to move over and use their product over the Apple products.

The Nokia downloading software is similar to the iTunes version in the fact that

you can play any mp3 you have on your computer on it, and that you can upload all your

music and movies that you are playing through the software into a hand held device made

by Nokia.

To differentiate itself from the iTunes version of online downloads of mp3’s

and movies the Nokia downloader need to have aspects of it that is different than the
 Nokia 15

iTunes, and to attract users to the new software Nokia needs to think outside the box

when it comes to online music shopping.

One of the things that can make the Nokia version more attractive for the users is

not only the operating software but also the operating hardware. The software that is used

for the Nokia downloader must be compatible to any user. So people using PC’s and

people using Mac can use the software. Having a broad user base on different platforms

can help Nokia get a higher market share in this industry.

A strategic alliance with Sony PS3 or Microsoft Xbox can introduce the online

music store to the game console market. People wanting to store and play their music on

something different then their computer can now use a console and TV to get what they

want of music to play in their house.

The thing that will give Nokia the greatest advantage from their competitors

would be online downloading software that is accessible from their cell phones. Making

online shopping available from anywhere in the world at the touch of your finger, where

ever you go you can buy music from the online store.

Adding this software to their new phones making the music library and

downloads available to the cell phones and PDA’s that Nokia offers can give the users of

Nokia phones the incentives to use the Nokia download program over other programs out

there (Eidem, 2007).

The key to this solution would be to not lock the users into a computer to get the

advantages of the software. Making the first mobile music store in the world and giving

the users the freedom to choose if they want a computer as a middle man in the purchase

of music.
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Making an easy interface between the user and the music store in this instance

would be a critical point is this process if you want this to work. If the program is too

hard to operate the user would just turn to an easier product to use instead.

To be able to buy your music online from your phone, Nokia would have to create

a strategic alliance with the large credit card companies. Making it possible to use the

phone as a credit card and paying for the music, or having a profile online that you can

access from the phone that will bill you on a card that you add to your account over a

computer.

With the payment procedures in place, the downloading software, the hardware to

play the music and films that you download and the fact that this is the first mobile music

store in the world the only thing missing is the strategic alliances with the record

companies and the movie companies to be able to sell their product online to the

consumers.

When Nokia has all these things in place the Nokia mobile downloading center

for music and movies will attract many users and locking them in with the Nokia

products as the media for which the music and films are played.

Nokia’s buying power has placed them in the situation that they are now the

owners of many companies that make complementing products to their already existing

product lines. So when it comes to speakers and headphones to play the music available

on their cell phones, one of their newly bought companies can supply them with these

products and give Nokia phones an advantage over other phone brands that are delivered

with a lesser quality headset for sound (Bakken, 2007).

 Nokia 17

6.2 Strategic option 2

Social networks have increased steadily in popularity over the past five years with

the introduction of MySpace, Facebook and hundreds of others. There is also a trend now

for companies to start their own social networks as a service to compliment their

products. Nokia with its high market share and enormous amount of available resources

to reinvest we think that Nokia could easily acquire a social network and transform it to

be a brand new business segment for the company. We want Nokia to create a social

network to compliment their mobile devices aimed at existing customers as well as

prospective customers. We want the company to launch Nokia.net. Nokia.net will

provide its users with many of the same features as Facebook and MySpace but it will

also feature many new and exciting features, the most prominent and revolutionary a dual

platform. Other features include contact list containing: names, phone numbers, email

addresses, street addresses, birthdays etc. By dual platform we mean that every individual

platform will be visible from both a computer and from the users mobile device. The

main reason we want to emphasize for potential success is availability. This social

network will be one of the most user-friendly networks because all you need to add a new

contact/friend is their phone number and that contact will be stored forever unless

removed by the user.

Nokia.net will be competing with current solutions such as Apple’s .Mac network

and the possible alliance between Facebook and Microsoft. Nokia.net will be able to

differentiate it self from its competitors by linking users directly by phone numbers. A

user will have the ability to enter a new contact/friend by entering his or her cell-phone.

But the difference is that the user of Nokia.net will now also have that person as a contact
 Nokia 18

on his or her Nokia.net profile, containing photo albums, message centre and other

applications like calendar, business planner etc.

A very apparent benefit of this solution is that the individual user’s contact list

will never be lost no matter if the user purchases a new device or loses his or her device

somehow. Nokia.net will be available for customers who currently own Nokia products

that support WAP or WI-FI. Customers who buy new Nokia products will have an

account available for easy setup at the time of purchase.

We think that Nokia.net can provide significant opportunity for customer

retention compared to its competitors because this will be a social utility that will be easy

to use and it is linked to each customer’s individual device instead of their service

provider. Another advantage with this solution is that Nokia can generate revenue

through advertising on their site and directly to the phones. We look at the opportunity

for Nokia that can be a multi million-dollar revenue source for the company. Nokia’s

products and this new service can create synergy for the company.
 Nokia 19

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