Strategic Look at Nokia Rise & Fall

February 22, 2018 | Author: Ashish Shukla | Category: Smartphone, Android (Operating System), Nokia, Windows Phone, Apple Inc.
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Nokia Strategy...


Strategic look at Nokia’s Rise & Fall

Submitted to: Mr. Luv Tondon

By: Group 10 Varun Bijur


Manjul Sankhla F46

Saurabh Kapoor F24

Ashish Shukla F51

Shyam Kumar

Ramandeep Singh Mand F62


Nokia – An Overview Nokia has evolved over the past 150 years from a paper mill in South Western Finland to a global telecommunications leader. Serving and connecting over 1.3 billion people. Through this time, Moved from rubber boat manufacturing to generating electricity and making TVs. Nokia manufactures mobile electronic devices, mostly mobile telephones and other devices related to communications, and in converging Internet and communications industries. Nokia has around 97,798 employees across 120 countries, sales in more than 150 countries and annual revenues of around €30 billion. It is the world's second-largest mobile phone maker by 2012 unit sales (after Samsung), with a global market share of 22.5% in the first quarter of that year Nokia entered mobile race in 1970s and 80s. It was a market leader in mobile segment till 2007.After remaining market leader for so long it started loosing market share in smarphone segment and was considered as a follower rather than a leader.

Reasons for Nokia’s Rise 1)Strong presence in developing market Nokia has a strong presence in developing market primarily due to better quality feature phones at a reasonable prices. Since feature phone market is price sensitive and hardware centric,Nokia plays on its strengths there and is able to capture a big market share there. But with the advent of cheaper smartphones this segment is shrinking. 2)Wide product range Nokia has a wide product range in mid and low price market segment.No other phone manufacturer has been able to provide such a wide range in these segments.This strength of Nokia has been the primary reason for it being the market leader in these segment.At the same time company’s reputation for quality and durability is helping it to stave off competition from less known cheap brands. 3)Trust Nokia has built a name for itself for quality and durabiluity.People trust the brand of Nokia and consider it as a seal for quality.In the low and mid market segment people care less about features and more on quality and that has always been the USP of Nokia

Ecosystem of smartphone market Earlier nokia was a leader in a market whose focus was more on hardware than on software.But all that changed with entry of IOS. Apple became a leader in smartphone market by concentrating on improving user interface. Mobile phones have come a long way in last couple of decades. From just a calling instrument, today's mobile phones have become “smarter” and undertake all those activities that are performed by computers and laptops. Smartphones are fast becoming a viable alternative to PDAs and laptops, offering phone features such as voice and SMS coupled with mobile internet applications, multimedia functionality, high speed data processing capabilities, and inbuilt GPS capabilities. The first decade of the 21st century saw a sudden increase in the market for convergedfunction smartphones. The turn of the century saw the mobile phone turning into an ultimate device of aspiration for consumers around the world. In 2010, more than 1.5 billion mobile handsets were shipped globally, of which almost 20% were smartphones. And by 2015, it is estimated that the smartphones will make up to 45% of the 2.1 billion mobile handset shipments worldwide. (Exhibit 1: Expected growth in the smartphone industry) The smartphone industry is currently dominated by five manufacturers. Android is a clear success story of the last 12 months. Apple is currently leading in terms of the overall mobile handset revenue closely followed by Samsung. (Exhibit 2: Market share of mobile manufacturers and operating system) At the time of introduction of IPhone Nokia had a superior hardware phone N97 in market at lower price but still it lost the smarphone race to apple primarily due to better user interface of apple. The feature rich Nokia N97 saw a sales figure of 500,000 phones in the first quarter of its launch as compared to Apple iPhone’s phenomenal sales of 1,000,000 phones in the first week.

Pestel Analysis during the period of Nokia’s Rise

Poter’s Five Forces Model during Nokia Rise

Threat of new entrants: The mobile phone industry is very well established market and the cost for marketing and technology is very high. With the advancement in the field of mobile technology the investment in R&D is huge which creates a huge barrier for a new entrants. The threat of a new entrant is quite Low. Power of Supplier: Nokia is in the position where it can bargain and negotiate with mobile phone hardware makers because of high number of equipment suppliers that are readily available . As a result their current suppliers bargain power for more money becomes very less. Hence the threat of Supplier is Low Powers of Buyers: During the rise era of Nokia , there were relatively less players in the market. The options available to the buyer were limited. The small players catering to lower end market did not exist. Nokia and few other companies like Samsung and Motorola were the only players playing at a large scale. But as the products were available for all ranges, the buyer had the option of switching to some other brand. The power of Buyer is Medium- High. Threats of substitute’s products During the Rise phase there were a very few substitute of a mobile phone which could provide similar range of functionality. Devices like digital camera and pager were popular but could not provide all the functions. Hence the power of Substitute is Low. Competitive rivalry: Nokia was the market leader in all segments during this period. The rivals like Samsung, Motorola and LG were competing in the race but failed to deliver differentiating products. Hence the primary choice for majority of consumer was Nokia. We can say that the Competitive Rivalry is Moderate-High.

Pestel Analysis during the period of Nokia’s Fall

Poter’s Five Forces during Nokia Fall Threat of new entrants: The mobile phone industry is very well established market and the cost for marketing and technology is very high. With the advancement in the field of mobile technology the investment in R&D is huge which creates a huge barrier for a new entrants. However the possibility of new operating system like Android allows potential new comers a better and convenient options. So the comparative threat from new entrant is more during the fall of Nokia as compared to the blossoming period. The threat of a new entrant is Medium. Power of Supplier: Nokia is in the position where it can bargain and negotiate with mobile phone hardware makers because of high number of equipment suppliers that are readily available . As a result their current suppliers bargain power for more money becomes very less. Hence the threat of Supplier is Low. Powers of buyers: The power of customer has been rising with increasing choices in the mobile industry. With the increasing popularity of Android OS and with major players going with Android , the buyer has better options to choose from. Nokia’s decision of not using Android pulls it in a shell where buyers have other favourable products to buy. Also new players like Micro Max, Spice, Lava catering to smaller markets also came into the picture. The buyer had enough options to choose in every range. The Power of buyer is very High. Threats of substitute’s products Mobile phone functionality and features has been replicated in a lot of devices like tablets and digital camera. Evolution of tablets has enhanced the threat from the substitute. Ipad and Galaxy Tab use IOS and Android OS which make them a very attractive substitute. The power of Substitute is Low-Medium. Competitive rivalry: Nokia rivals have moved to smart phones and androids while Nokia have only just recently released their first smart phones leaving them trailing their rivals such as Apple and HTC. There is also very little differentiation between the competitors which means any new smart phones in the market will find it difficult to tempt existing iphone and HTC customers to switch. In conclusion, competitive rivalry is very High and Nokia must be aware of the threat that competitors have on their business.

Critical Success Factors for Mobile Manufacturers (2008 onwards)

2.5 2 1.5

Nokia Samsung Apple

Rating 1 0.5 0 Brand


Ecosystem Aesthetic RobustnessBattery Life Quotient

Most ImportantLeast Important

Fig. 1

The factors/values shown in fig.1 are considered particularly important by the customers, and these form an important part of their buying decision. Brand, Operating System, Ecosystem are considered most important factors, followed by Aesthetic Quotient, Robustness and Battery Life. So from the phone manufacturer’s point of view these are the critical success factors. As it is clearly visible in fig.1, that Apple and Samsung were leading Nokia in Brand, OS, Ecosystem and Aesthetic Quotient, which are the most valued factors, by the customers. Nokia leads Apple and Samsung in Robustness and Battery Life, but the perceived value of these factors is on a lower side. Thus Nokia was under a significant pressure from the changing environment scenario of the industry, and to regain its constantly degrading market share, Nokia had to reassess its existing strategic capabilities and upgrade them or replace them with the ones which were in sync with the current environment of the industry. Like developing a new operating system which is user friendly and provide an ideal platform for developer community, to develop new applications, as in the case of android. And create an integrated ecosystem, as done by Apple and Samsung etc.

Acquisitions The strategic development options available for Nokia

Products New


Product Development

Protect / Build Existing

 

Market s

Decrease the cost of production Tap the growth of smart phone market

Market Development New

Expand to new markets

  

Introduce new Symbian phones Introduce new segment specific phones Develop internet services for devices

Diversification None

The methods of strategic development 1. Internal Development – In 2009 the average disposable income in the US is eight time that of Brazil, 17 times that of China, and 45 times that of India. Access of computers and internet being low, wireless phones became main way to access internet for 3 billion people. In order to capture the growing Asian and Latin American markets Nokia introduced phones in all price ranges. Because of catering to price-sensitive growing market by 2009 more than half of Nokia’s revenue came from low end phones. Nokia was first in the world to introduce a smart phone, 7650 in 2001. Later it introduced many phones, notable N95 which achieved considerable success

2. Mergers and Acquisition a. OVI – Nokia introduced internet services in 5 key areas : Games, Music , Maps, Messaging and Media. By including other third party developers, Nokia

wanted to compete with services provided for iPhone. This internet service was introduced on 2007 by acquiring key building blocks overtime mainly using acquisitions of different companies. Few include i. Intellisync - is a provider of Data Synchronization software for mobile devices. The company was acquired by Nokia in 2006. ii. Twango – Is an online media sharing site that supports multiple file types such as photos, documents, video, and audio. It also provides users a means of modifying their media, including sharing and editing. Nokia acquired the company in 2007. iii. Gate5 AG – Is a mapping and navigation multimedia company. Nokia used these services to develop applications for intelligent mobile guides and innovative messaging solutions Nokia developed other components internally and by using patents from companies such as StartFish Software, Plazes and others. b. N-Gage devices – Nokia developed N-gage devices based on the technology acquired from On 22 September 2003, Nokia acquired The opportunity that Nokia identified is combining a game console and a mobile phone. This phone was meant to lure gamers away from Game Boy Advance. Even though this model is not successful N-Gage service was used on existing Symbian S60 smartphones to play games. c. Navteq – Is a provider of Geographical Information System data and electronic navigable maps. Nokia acquired Navteq in 2007 and used this technology in OVI Maps Internet service. Using this customers can browse cities across the world, plan trips and search for addresses and save them in OVI.

3. Strategic alliances – a. Nokia and Intel – Nokia merged efforts with Intel to produce phones based on MeeGo Platform. Intel’s Moblin and Nokia’s Maemo projects were merged into a common new project. Based on this platform Nokia released N9 and N950 phones. MeeGo is a Linux based free mobile operating system. The much-hyped mobile OS got substituted by a new OS named Tizen. Tizen OS is the result of a joint effort by Samsung and Intel, hosted by the Linux Foundation. Tizen would support multiple devices which include smartphones, tablets, Smart TVs, netbooks and even in-vehicle infotainment devices. One of the chief reasons why Tizen has replaced MeeGo is the fact that it is based on HTML5 and various other soon-to-be-launched web standards. The developer fraternity was not too pleased with this abrupt changes.

b. Nokia and Microsoft – Nokia has formed a strategic partnership with Microsoft that will, Nokia hopes, to see is gain in the lost ground in the Smart phone market. Together, they in tend to build a global ecosystem that surpasses anything currently in existence. The Nokia-Microsoft ecosystem will deliver differentiated and innovative products with unrivalled scale in terms of product breadth, geographical reach and brand identity c. Nokia and China Telecom – China and other emerging markets are in the center of huge smart phone growth. Nokia paired up with China Telecom to formally launch the Nokia 800C, the first CDMA Windows Phone to hit China, and the first of Nokia’s Lumia line of high-end devices tailored specifically for that market.

The comparison of perceived benefits and price of Nokia’s high end and low end phones

Reasons for perceived value variation between IOS/ Android and Symbian OS


IOS / Android



Android is highly customizable when compared to IOS. But user-friendliness of both IOS and Android is high compared with Symbian

Symbian not customizable like Android and relative userfriendliness is less


Android’s open architecture helps the user to extract the best out of the hardware. IOS’s secretive nature and discriminating nature is not as powerful as Android.

Symbian has greatly improved but the foundation has not changed a great deal since the launch of Symbian^3


IOS and Android are both visually striking with bright colors and finger friendly icons.

The look and feel of the Symbian OS is not as great as IOS and Android

Application Support

IOS and Android have very high number of application with easy to develop API’s and required support

Have decent number of third party applications in companies OVI store

Reason for perceived value difference between Nokia and other China made low end phones - Nokia enjoyed tremendous reputation of providing high quality phones, especially in price sensitive markets, because of which their perceived value was higher than that of other phone makers.

STRATEGIC ALLIANCE BETWEEN NOKIA AND MICROSOFT Microsoft and Nokia announced a strategic alliance that will see the two companies come together to create a global ecosystem in the mobile space. With this, Nokia will be transitioning to Windows Phone as its main operating platform and as part of a broad strategic alliance with Microsoft, ushering in new and engaging experiences for both consumers and advertisers. This announcement would sideline both Meego and Symbian technology platforms over time. As per the deal Microsoft will provide Nokia with access to services, apps, and monetisation opportunities. In return Nokia will provide Microsoft with the global scale that it needs to compete in established and emerging markets. Nokia is bringing years of experience in building hardware, a proven distribution system, and customer services that few global companies can boast. Both companies realise the mobile landscape is moving from a "battle of the devices" (i.e., model x vs. model y) to a "war of ecosystems" (i.e. Apple's iOS vs Google's Android platforms). The goal is to set the pace of innovation, regain the share lost to Apple and Google, and above all, to drive revenue streams from the lucrative smart phones segment. This announcement follows concerns about Nokia's capacity to recover ground in the highend device segment. Nokia's share has decreased from 40% in Q4 2009 to 31% in Q4 2010 while Google and Apples' reached 33% and 16% respectively. At the same time, with total smart phone unit sales growing by 74% year-on-year, Microsoft needs to quickly garner critical mass to justify its "second act" in the mobile space. Estimated Benefits Nokia consumers will enjoy the same world of apps, stores, maps, and location based services hyped by Apple and Google. Likewise for advertisers, the long term strategic partnership could open up a range of opportunities covering social, entertainment and mobile search. Location-based services could be at the core of the new proposition, which will provide advertisers new and innovative opportunities to connect with users on the go. When the Microsoft/Nokia alliance achieves scale, we can expect to see new features such as the integration of a mobile Xbox Live product integrated into the experience. Innovations like these could bring real value to the users and also provide advertisers with exciting new avenues to explore. In addition, with Nokia's reach in emerging markets and the plan to extend the partnership to all device segments, an opportunity exists for advertisers to reach a considerable mass of users in Asia. Finally, with new incremental reach via Nokia developers may have a stronger reason to develop applications for the Windows Phone platform. Accordingly the Microsoft / Nokia partnership aims to bring a new set of development tools and consolidated services to Nokia smartphones.

Possible Repercussions 1. The partnership with Microsoft might not be able to save Nokia from the perils of commoditization. Windows Phone is a very attractive product, but it arrived to the market two years late. Apple and Google had enough time to establish strong network effects for their iOS and Android platforms. These network effects between users and app developers ensure explosive growth, user lock-in and multi-billion dollar investments by developers. In these hyper competitive conditions, Windows Phone devices will be challenged to command premium prices – like it or not, Nokia will have to compete on price with Android devices. In retrospect, Nokia associated itself with a fledgling software ecosystem that is yet to build strong network effects. With both profitability and volumes in question, Nokia finds itself in a one-way street, depending on Microsoft to help support its Smartphone business 2. Nokia’s real competition is not Android, but Samsung. Talking about the current market scenario, Samsung is not only the largest, but also the most profitable Android OEM. Its true competitive advantage lies in its vertical integration across the most expensive Smartphone hardware components: the display, application and baseband processors and memory. Samsung even owns the fabs that manufacture many of these components. Samsung’s superior business model has launched the company to the second place of the industry in terms of profit share, second only to Apple. 3. Nokia’s dependency on Windows Phone is a weakness. Nokia would be much better off, if the company manufactured both Android and Windows Phone devices. Nokia, with its economies of scale and strong brand name, could leverage these factors and auction placement of either OS to the highest bidder on its devices. As Samsung and HTC also using Windows OS, Nokia specifically does not have any competitive advantage over other OEM’s. 4. Nokia is running out of time and Samsung is gaining market share eagerly. It depends on how fast Nokia responds to the Samsung challenge which will determine whether Nokia can sustain in the market.

Recommendation: Collaboration with Android 1. Visibility in Low-Mid segment (+) 2. Access to wide range of android apps from “google play” (+) 3. Option of customizing open source software (+) 4. Leverage large community of android developers (+) 5. Risk Mitigation by diversification (+)

1. Android – open source (unstable) (-) 2. Android – open source security issues (-)

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