1. What strategy would you recommend for Nokia going forward? Please develop a complete strategy that addresses the following issues: Choice of scope: does it make sense for Nokia to be in both emerging and developed markets, or should they choose not to play in certain markets? How integrated should it be into manufacturing, services (apps), software development, sales, etc? Answer1: Choice of scope: With dwindling sales in developed countries like USA, UK, Germany, Russia and Italy and even in emerging markets like India, Indonesia and Brazil (as per Exhibit 1) despite previously having a stronghold, Nokia now had to decide if it should continue its focus on emerging markets or attempt to salvage the sales even in the developed markets. Status in developed markets:
1. The operators usually have more power but this was changing since the emergence of iPhone. It is a replacement market with users looking for up gradation 2. Competition- Growing competition from companies like Motorola, Samsung, LG and Sony Ericsson. The RIM‘s launch of Blackberry(2002) and Apple’s iPhone (2007) was a further set back 3. New Operating System- Emergence of new user friendly operating systems such as Google‘s Android and Microsoft’s Windows mobile further put Nokia on the back foot 4. Inability to understand demand- Nokia failed to identify the growing consumer need for touch screen phones 5. Target – Nokia operated at all price points where as competitors like Apple (high-end segment) and Samsung( mid and high end segment) had a clearly drawn up strategy
Slowdown in some emerging markets:
1. Reverse bundling allows the manufacturer to wield more power than the operator 2. There is lower cost of production which helps produce inspirational products at low rates 3. The growing competition from companies like Samsung that were offering the latest technology at competitive prices 4. Therefore, Nokia lost out on the middle and high segment but continued to grow in the low-end mobile segment as it had identified the gaps in emerging markets and customized services to suit the local consumers Nokia must recognize the difference in the different market segments and take the challenges head on to be able to operate in both markets. It must clearly identify the segments it wants to operate in and also change its positioning based on the data below. Data from Exhibit 11:
Percentage of phone sales by segment
AP w/o Japan
Smart Phones- E. level
Smart phone- Feature
Nokia Market Share
In emerging markets, Nokia must focus on Basic and Enhanced phones, as that is the largest segment as the market is still evolving and low cost handsets coupled with customized services will help further grow its footprint. In developed countries, Nokia should look at development of high end- high technology driven models in the Smart Phones Entry Level and Feature segment. At the same time when it comes to Japan, Nokia should look to divest as it is largely smartphone driven market and Nokia has very little market share and does not have the requisite technology to successfully compete in that segment yet. It is essential for Nokia to follow the innovations in developed countries especially USA and adapt them to developing markets if it wants to stand up against competition in both the markets.
Mobile phone industry has followed the International Product Life Cycle but now they have reached a stage where different approach is required for innovation to take place in developed and developing markets to meet their specific needs. Another key thing that Nokia must do is to reconsider its Transnational Strategy and adopt a Multi-Domestic Strategy to be able to cater to the distinctive needs of both the developed and emerging markets and to be more locally responsive.
Level of Integration:
Manufacturing- It should continue to be highly integrated as that is its core competency and contributed to operating profits with a CAGR of 13%. It helps in cost control especially in price-sensitive emerging markets. Operating System- Low integration. The future of Symbian isn’t very bright as competitors like Android of Google and Apple already have a lot of applications to offer on their OS. hence, it must look to finding a partner for a better OS as has been shown by its adoption of windows OS. Service (Apps) – Low integration. This can also be outsourced since it is not a core competency of Nokia and customer Value given to third party applications is on the rise (as per Exhibit 6) Sales and Distribution- Should be highly integrated as it has already developed a vast distribution and achieved great penetration in emerging markets which has been a source of higher margins by direct selling to consumers and is also a core competency.
2. What products should it offer – smart phones, low end phones, etc? Source of advantage: what will be the distinctive competitive advantage that Nokia will offer? Choice of activities: what choices should Nokia make in all its key activities, and where will it locate those activities – for eg., HR policies, manufacturing, R&D, software development, sales and marketing, etc. What is the justification for your strategy recommendation?
Addressing the consumer needs should be the strategy for Nokia in both emerging and developed market. In the emerging markets where Nokia is already a leader, it should focus on catering to the growing bottom of the pyramid consumer. The biggest advantage that Nokia offers is its reach. It should focus on its complimentary telecom industry trend, specifically in India, telecom players are involved into price war and which gave customer a higher bargaining power to switch. In such case coming up with dual sim phone would cater to the primary need of market. The applications in the phone should be in sync with local leisure such as music, newspaper and such more. Instead charging user for Life tools, revenue generation should be from advertisers. Provide time bound high end test features in low end phone during successive OS updates; this will generate user awareness and need for high end smart phone.
On the other hand, in developed markets, Nokia has lost its share to other players. Customer demands smartphones with high quality user interface experience and applications and data security (RIM’s competency), Nokia need to target it. Nokia’s target should be the esteem need of user. Developing an OVI ecosystem with third party app developers, advertisers through more free and few paid applications for users. This will give Nokia a distinct advantage in the market if acted as 1st mover. More investment and development for user data security will generate trust among the users. In the mobile phone industry, the product life cycle is very short. Every year a new product is available on the shelf. Hence responsiveness to the consumer’s need is a must. Nokia failed to do that this with the clamshell model in China. By the time it came out with the product, the trend for clamshell models had faded and Nokia lost out to competition.
Key advantages of Nokia
a. 3 distinct operating system platforms that can offer the base for wide range of products catering to all user segments. b. Longest and complex supply chain in the world. It has the most efficient sourcing, logistics, manufacturing, and distribution of any company in the world. c. Nokia offers the OVI Store: the second largest app store in the world which is growing 70% per month as per Tero Ojanpera, Nokia’s EVP for the Services. d. With the acquisition of Navteq Corporation, it has a strong presence in the GPS world and provides a wide range of geographic image support covering almost more than 180+ countries. e. In India. Nokia has a strong hold of rural market with their distribution system handles by HCL Info systems. In Latin America, it has a dedicated team to manage the relationship with America Movil and Telefonica and to co-ordinate sales and services across the region.
Choice of activities
a. HR policies should be locally controlled by subsidiaries to keep local culture intact. b. Manufacturing should be done on a global scale to utilize cost and resource arbitrage. Core product R&D should be centralized with satellite R&D in each market to add local flavor to the product. c. Software development centers have to be installed in countries like India or Philippines to utilize local talent and expertise in software development. d. Sales and marketing should be again localized. Country specific distribution channel should be adopted.