Executive Summary
The following is the strategic analysis of Nokia Corp., which discusses the external and
internal environment. The first part, external environment, presents the opportunities and
threats along with the political, economic, sociocultural, and technological issues of the
handset industry. It provides Porters five forces framework for the discussion of the
attractiveness of the industry.
The second part of the report analyzes the main strengths behind Nokias success and
leading position as a handsets manufacturer.
We proceed with the analysis of Nokias weaknesses which may impede on its ability to
utilize the growth opportunities. We also make recommendations regarding Nokias
strategy for US market, converged handsets market, and acquisitions.
Table of Contents
Industry Overview: Communications Equipment (Handsets) 4
PEST Analysis 6
Porters Five Forces 8
Industry Characteristics 10
Strategic Maps 11
Key Success Factors 11
Summary: EFAS 12
Overview and History of Firm 13
Goals and Mission Statement 15
Culture 17
Leadership 19
Corporate Structure 21
Products 22
Value Chain 25
Financial Analysis 28
Summary 31
Business Level 32
Corporate Level 32
References……………………….. ………………….34
External Environment
Industry Overview: Communications Equipment (Handsets)
The industry is dominated by a small number of manufacturers: Alcatel-Lucent, Motorola,
Telefonaktiebolag LM Ericsson, Nokia Corp., etc. These companies enjoy economies of
scale, substantial R&D, international distribution channels, and established relationships
with major telephone companies. The industry is characterized as an oligopolistic
structure. They are also the ones most capable to withstand the current economic
downturn, and even make use of the opportunities it offers. Companies that are able to
maintain investments while their competitors scale back are most likely to gain market
share.
The consolidation of the industry as a whole provides carriers with significant pricing
leverage. This challenges vendors to maintain acceptable operating margins. The
communications equipment industry provides the electronic products * from hand-held
telephones to large-scale computer and telephone network infrastructure * that people use
daily to communicate. The primary drivers of the industry are corporate information
technology (IT) spending and telecommunications capital expenditures. In this fast-paced
environment, competitors must understand the dynamics of the customer base to meet the
changing needs of the marketplace. New product development (NPD) is essential, and
transitions to new technology present an ongoing challenge.
The wireless communications equipment segment consists of two categories: wireless
handsets and wireless infrastructure. Infrastructure products are typically made in the
vendors home country, whereas handsets are often produced at overseas locations where
costs are lower.
With regards to the number of units sold worldwide, wireless handsets is the largest
consumer electronics market. According to the data provided by Standard and Poors , the
number of handhelds sold worldwide in 2008 was 9% higher than in 2007. According to
estimations, phone shipments would reach 1.6 billion by 2012. New wireless subscribers,
mainly in emerging markets, are the primary driver of industry growth. At the end of 2008,
global wireless subscriber base totaled just under 4 billion, for an approximate 57%
penetration rate . The top five wireless phone manufacturers accounted for 82% of all the
handsets shipped globally (Appendix 1, Exhibit 2).
The wireless infrastructure ($52 billion in vendor sales) segment is relatively mature, with
2G networks largely gone. Market growth is driven by continued expansion of 3G digital
networks. Carriers seek to handle a significant rise in usage levels, especially for data
services. The biggest players in this segment are Ericsson and Nokia Siemens Network
(together they account for more than 50% of the market) and Alcatel-Lucent (20%). The
two most popular networks are Wi-Fi and WiMax (see also Appendix 1, Exhibit 1). Wi-Fi
(wireless fidelity) is associated with lower costs, but is also a niche technology due to its
small hot spot coverage. WiMax, on the other hand, is capable of transmitting signals over
distances in excess of 30 miles. However, it requires more fixed infrastructure.
Handset manufacturers distribute their phones to wireless service providers (Sprint Nextel
Corp, AT&T Inc., Verizon Wireless) or to electronics retailers (Best Buy Co. Inc.). Service
providers typically subsidize the purchase of wireless phones to customers who sign a
long-term service contract. Worldwide cellular penetration and global growth of wireless
subscriptions accounted for 49.3% in 2007, a big increase from 41.8% in 2006.
Impact of the global economic crisis spread to the mobile phone market resulting in a
downturn in shipments in 2009. According to the IDC , total mobile phone volumes will be
1.9% lower in 2009 than 2008 levels, the first downturn in annual shipment volumes since
2001 when shipments declined 2.3. Reuters estimates that the sales for the January-March
quarter will be down 18 percent from a year earlier to 241.7 million phones. For the full
year, the phone market is expected to struggle as consumers cut spending on new gadgets,
with vendors selling 11.4 percent fewer phones than in 2008. The cell phones are quickly
becoming a necessity, however, and that reduces the negative consequences and influences
of the overall recession (Appendix 1, Exhibit 1).
The market of the new subscribers in the developed countries is saturated, thus, companies
turned to the emerging markets (China, India, Asia-Pacific, Middle East, and Africa)
(Appendix 1, Exhibit 1). The penetration rates there are low and the price sensitivity is
high. Hence, price pressure is increasing and the average selling price is lower. This is the
market for entry-level phones. On the other hand, developed markets demand is driven by
replacement cycles, which, in turn drives the growth of expensive high-end phones.
However, emerging market growth is slowing as those markets mature. With less
disposable income available, consumers may prefer to hold on to rather than replace or
upgrade their current handset. The IDC does not expect the downturn in mobile phone
shipments to stretch past 2009. Additionally, not all segments of the mobile phone market
are expected to decline. Converged mobile devices (smartphones) are expected to grow
8.9% worldwide in 2009 . Lower prices are making smartphones an attractive choice for
consumers. As prices have come down in recent quarters (Appendix 1, Exhibit 1), these
devices have become competitive alternatives to traditional mobile phones. Continued high
demand and lower prices will keep this category growing, even as the overall market
struggles (see Appendix 1, Exhibit 3). Another effect of the economic downturn was a shift
in focus from generating revenues to cutting costs, including and often starting with,
workforce, and preserving cash.
PEST Analysis
Political
The first factor in the external environment (for PEST Analysis see Appendix 1, Exhibit 1)
that affects every companys bottom line is the tax regulations. Nokia must comply and
follow all domestic and international tax laws. Different countries have different
legislation; therefore Nokia must be up to date on all legislation that will affect the amount
they pay in taxes. The next external political factor affecting Nokia is environmental
regulation. These require Nokia to develop its design process, supply network
management, and recycling practices to comply with ISO 14001 and certified EMS
practices. Political stability within countries of operations is a big concern. Much of
Nokias sales come from emerging markets. These countries and the ones surrounding must
maintain a stable political environment. Finally, a change in trade protections and
voluntary export restraints has the potential to disrupt Nokias global business.
Economical
As we saw, the global financial crisis affected most companies throughout the world.
Continued economic downturn has adverse effects for Nokias business. Additionally,
exchange rate fluctuations disrupt the repatriation of profits earned overseas. In the
emerging markets we see an increased growth in incomes, which increases demand for our
products. A change in incomes is positively correlated to Nokias sales. Nokias profits are
reliant on the costs of their inputs, if the inputs increase their profits will likely decrease.
Sociocultural
The sociocultural environment has rapidly changed around the cell phone industry. Cell
phones have become relied upon as a primary source of communication; they have started
to replace the use of land lines. Worldwide subscribers of wireless service totaled 3.4
billion, increased subscription is crucial in increasing growth for this industry. The
consumer has increasingly demanded additional features with their phones including; MP3
players, cameras, games, GPS, etc. Having the ability to satisfy customer demand is key in
increasing sales. Market penetration is approaching and even exceeding 100% in some
countries. Nokia will have to rely on replacement sales in these countries and will be
fighting to maintain share. Finally, the cell phone is becoming a useful tool for more than
just calls; some countries have started using cell phones as a medium of payment.
Technological
Being that Nokia is in a technological industry, this factor affects them most. The 3G
technology has been deployed and work has started on 4G technologies. Dual mode
handsets which use a combination of services to provide additional coverage have become
increasingly popular. Successful combination of other electronic devices into cell phones is
important for Nokia to maintain and grow share. Technology breakthroughs in
complementary products like cameras and GPSs should be watched and even integrated
into cell phones. Nokia must focus on creating/improving forms of mobile entertainment to
satisfy customer demand for additional features. Nokia also must be aware and be taking
steps to prevent hacker activity on their phones and within their organization.
Industry and Competitive Environment
Porters Five Forces
Rivalry
Rivalry (Appendix 1, Exhibit 9) in an industry is influenced by a number of factors. First,
the handset industry is highly concentrated * five companies hold approximately 82% of
