Section2_Group11_Nokia1

Strategic Management Case Analysis Group 11Section 2

GROUP 11 | SECTION 2

Keerthi P. DM 15267

Rachit Bhatnagar DM 15244

Sarvagya Nayak DM 15250

Seerat Ghuman DM 15251

Vaibhav Agnihotri DM 15262

Emerging Nokia?Case Analysis | Strategic Management


Industry structure and trends:• Industry structure changed drastically from 1998 to 2010. There were new entities in the industry such as application developers, virtual network

providers, basic software providers, IP providers, etc. • In both developed and developing markets, a number of competitors had entered the market - Dell, Acer, Apple and Google threatening Nokia’s

dominance• Ecosystems developed by specialist firms (and not handset manufacturer), such as Google, with support for third partly application are becoming

more popular. Consumers are spending more on smartphones and third party applications. • Developed Markets:

– Shift in preferences from basic phones & enhanced phones to smartphones. – Smartphones are expected to be the key revenue driver. – Cell phone carriers are responsible for marketing, sales and distribution of handsets. Implying that a strong relationship with cell phone

carriers is vital for success of the product. • Developing Markets:

– Volume driven market characterized by low-end handsets and low average selling prices; but there is also a price driven market for high-end products having high ASP.

– Products that are launched first in the developed markets are adopted in the developing markets only much later due to these constraints. Numerous new products are manufactured and launched simultaneously in the developing markets to tap low end phones market.

– Marketing, sales and distribution of the handsets is handled by the manufacturer. Thereby necessitating a wide distribution network.– Users are mostly first time purchasers of the product so penetration is through first time sale.

Case Background


Business Strategy

• The company caters to both developing and developed markets by launching similar products in both the markets to get a dual advantage. Developing markets - More low cost products are launched to meet requirements of price sensitive and volume based market.

Core Competency

•Manufacturing of wireless handsets and the ability to adapt to changing market conditions. The company has a long history of turning around the businesses at numerous occasions from paper manufacturer to rubber manufacturer to an electronics company and finally to a leading handset manufacturer.

Geographies

•Developed markets (Western Europe and North America) and developing markets (Eastern Europe, Asia, Middle East, Africa and Latin America).

Innovation & Design

Distribution method

Services

Image of the product

Price

Developed Markets

Advanced technology and services such as 3G - first

movers have a big advantage

Sold through carriers like Vodafone and AT&T on

contracts

Advanced technologies offered through latest

software, apps, games, etc.

A stylish or attractive image is very important for the

success of product

Handsets are subsidized due to contracts with carriers

Emerging Markets

Products with functionalities such as longer battery life, flashlights, etc. that meet

needs of specific segments

Sold directly through distribution channels.

Relevant and useful services like life tools, Nokia money

that cater to the needs of the market

Not very relevant in the low-price phones

No subsidy and price is very important due to price

sensitivity and low disposable income

Key Success Factors

Case Background


Resource Valuable (Adds value as perceived by customers)

Rare Hard to imitate Non substitutable Implications

Ability to exploit economies of scale to generating consistent profits

No No No Yes Temporary Competitive advantage

Innovation culture Yes Yes Yes Yes Sustained competitive Advantage

Worldwide distribution network Yes Yes Yes Yes Sustained competitive Advantage

Qualified staff Yes No No Yes Temporary Competitive advantage

Providing good quality service to customers

Yes No No Yes Temporary Competitive advantage

Expertise in network and broadband capabilities (NSN)

Yes Yes Yes Yes Sustained competitive Advantage

Competence of using its experience from one country in another for various business functions

Yes Yes Yes Yes Sustained competitive Advantage

Resource Based View


• Nokia is unable to maintain its competitive advantage through increasing R&D spend. It has been launching numerous low cost products in developing markets giving rise to high R&D cost and low margin products as reflected by the return on sales. Despite this, it does not have a great product to compete against Apple or Samsung in the smartphone market yet.

R&D/Sales V. Return on Sales1985 1990 1995 2000 2005 2006 2007 2008 2009

R&D/Sales 5% 5% 5% 8% 11% 10% 11% 12% 14%Return on sales 3% 3% 5% 13% 11% 11% 14% 8% 2%

• Since 2007,Nokia saw significant decline in Revenues and operating profits of its core competence segment – Devices and Services. This is an indicator that it has been losing against its competitor.

• Europe contributed 35% of revenues in 2007 indicating that it is a very lucrative market for Nokia. Further, with respect to ASP and Gross margins, smartphones are more lucrative compared to basic phones.

Devices and Services Million Euros 2007 2008 2009Revenues 37,668 35,084 27,841Operating Profit 7,931 5,816 3,314

• Nokia had the least PE ratio compared to major competitors in 2007. This indicates a lack of trust that the company will continue to be a market leader in the future.

Nokia LG Samsung Apple RIMPE Ratio 14.56 27.5 20.06 32.34 19.89

Exhibit Analysis


Projections for 2010-2013

In $ Thousands

Middle East/Africa Americas Asia-Pacific Europe

N.America LatAM AP excl. Japan Japan W.Europe E.Europe

Basic Phone 18,52,143 6,26,640 10,05,549 90,93,612 115 4,26,780 12,54,000

Enhanced Phones 73,54,350 1,05,13,327 1,01,31,660 3,74,84,321 43,88,768 91,26,432 52,58,496 Smart Phones - Entry Level 27,19,368 33,38,775 34,55,760 87,40,224 6,13,536 1,54,45,262 16,53,225

Smart Phones - Feature 46,85,065 2,90,80,350 41,03,080 1,32,30,334 98,73,488 2,39,26,650 29,24,176

Expected increase in Handset Market

Emerging Markets

Developed Markets Total

Emerging Market %

contribution to increase

Developed Market %

contribution to increase

Basic Phone 1,32,05,304 10,53,535 1,42,58,839 92.6% 7.4% 100.0%

Enhanced Phones 6,02,28,827 2,40,28,527 8,42,57,354 71.5% 28.5% 100.0%Smart Phones - Entry Level 1,65,68,577 1,93,97,573 3,59,66,150 46.1% 53.9% 100.0%

Smart Phones - Feature 2,49,42,655 6,28,80,488 8,78,23,143 28.4% 71.6% 100.0%

Total 11,49,45,363 10,73,60,123

22,23,05,486 51.7% 48.3% 100.0%

• Increase in total handset market is estimated to be about $222 bn

• 92.6% and 71.5% revenue from basic and enhanced phones segment will come from emerging markets

• 53.9% and 71.6% revenue from smartphones - entry level and smartphones – features will come from developed markets

• In developed markets, smartphones will be the main drivers of revenue

• There will be a demand for all type of products - basic, enhanced, smartphones – entry level, smartphones – feature in the emerging markets

Financial Projections Analysis


Alternatives available:• Do Nothing• Exit Developed Markets• Compete in both markets with different strategiesRecommendation: Compete in both markets with different strategies• Both markets are expected to grow almost 50% each by 2013.• Developed markets give higher margins• Leverage its core competency in producing handsets by

collaborating with a software company to develop mobile ecosystems for high-end phones. Continue to use existing software for medium and low-end phones. This can enable the company to compete better in developing markets

• In developed markets, Nokia must improve relationships with cell phone carriers to market, distribute and sell its products better.

• Reduce the number of launches in developing markets so that R&D per product is higher and better quality high-end products may be launched in developed markets. This will improve profitability.

ConclusionRecommended Strategy

Developed Markets Emerging Markets

Product High-end, latest designs

Wide array of products from low-end to high-end

Technology Advanced Technology

Advanced technology for high-end and utility-based for low-end

Software Latest mobile ecosystem with all the latest offerings

Latest ecosystems for high-end and easy-to-use ones for low and medium-end phones that are most used by rural populations

Services Wide array of the latest services

Innovative services catering to specific customer needs like Life tools, Mobipay, etc.

Price Premium Premium for high-end and low for low-end due to price sensitivity

Documents

Section2_Group11_Nokia1