Porter’s Five Forces Analysis of Nokia

porteranalysis.com/porters-five-forces-analysis-of-nokia

adamkasi June 12, 2017

Nokia is one of the largest manufacturers of cell phones in the world. It was found in
Finland over 140 years ago and is currently operating in 120 countries worldwide.
Although, still one of the market leaders in the mobile phones and smartphones industry,
recent competition has decreased the market share of Nokia. In order to evaluate the
micro-environment that Nokia operates in, its Porter Five Forces Model is done which
takes into consideration customers, suppliers, substitutes, rivals and new entrants. The
analysis is as follows:

Threat of New Entrants

The threat of new entrants into the mobile phone industry is not very high. There are a
number of reasons for this. The first reason is that the technology needed to produce the
latest generation of smartphones is very advanced, making it difficult for new entrants to
differentiate themselves. The second reason is that any new entrant will be required to
spend a huge capital on research and development, technology, and then marketing in
order to become at par and compete with the established players. The third reason is that
companies like Nokia hold major shares of the market making it very difficult for new
entrants to grab onto market share. They will need a lot of time or something
extraordinarily innovative and new to attract market share. In the past couple of years,
new entrants such as Q Mobile, Xiaomi and OPPO with the help of huge investments and
decreased production costs due to economies of scale have been able to enter the market
successfully.

So overall for Nokia, this threat of new entrants is high.

Bargaining Power of Suppliers

Nokia holds a significant amount of bargaining power over its suppliers especially in the
case of hardware. There are a large number of suppliers that are willing to supply the
parts required by Nokia for the manufacturing of their products. In case a supplier
attempts to bargain with Nokia for higher prices, Nokia can easily switch to other
suppliers. Nokia holds a significant market share in the mobile phone industry making it
very attractive for suppliers. Therefore, no hardware supplier would be in a position to
bargain with Nokia and be lucky to have such a huge purchaser. Some of the hardware
suppliers include Ericsson, and Cisco Systems. On the other hand, for their software
requirements, Nokia has recently come into an alliance with Microsoft to supply them
with their required operating system software. However, in this case, Nokia is at the lower
end. Microsoft has a higher power of bargaining over Nokia as this deal is more beneficial
to Nokia than Microsoft. There are almost no other organizations that can rival Microsoft
in software creation (ToughNickel, 2017).

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Therefore, Nokia has a moderate threat from the bargaining power of suppliers. Almost
no threat from hardware suppliers but a significant threat from software supplier.

Bargaining Power of Buyers

Due to extensive growth and development in the mobile phone technology, the bargaining
power of the buyers in this industry has increased a lot. Same is for Nokia. It has become
a very competitive market where there are many choices for the buyers; making them very
powerful as they can choose to easily go to any of the rivals of Nokia if products are not
good enough for them. As Nokia does not make direct sales and relies heavily on
intermediaries, electronic shops and carrier stores e.g. Orange have an array of options
from different brands for their customers making it difficult for Nokia to impact their
sales. The primary reasons behind buyers switching is delayed adaption of new
technologies, operating system is less user friendly, smartphones with very insignificant
specifications as compared to competitors smartphone of similar price range and limited
applications available on the Windows app store. There are a number of other options
available for buyers other than Nokia.
Thus, mobile phone industry has become very price sensitive giving very high bargaining
power to buyers over Nokia.

Threat of Substitute Products

The threat of substitute products is very low for Nokia. This is because mobile phones are
no longer just used calls and texts. There are many other functions that are now expected
from a mobile phone such as a camera, FM radio, organizer, music player etc. Therefore, a
substitute would be to buy all of these gadgets individually and keep them in your pocket
at all times. This is not plausible. Since mobile phones today offer so much to the buyer,
their substitution is almost impossible.

Thus, the threat of substitution is very low for Nokia.

Competitive Rivalry
The level of competition is extreme in the mobile phone industry. Huge players have
invested greatly in R&D and in marketing to retain their market share. Due to the slow
move of Nokia into the smartphone market, it is expected that the market share of Nokia
will continue to fall. Another reason is that competitors are using much better and more
liked operating systems such as iOS and Apple, while Nokia is using Microsoft Windows
which has not received much of an appreciation (Linda, n.d.). Also, competitors are
introducing new advanced models very regularly by adding more and more features in
each model while Nokia has only a few models so far which are unable to compete.

Conclusively, the threat of competitive rivalry is very high for Nokia as they are
considerably behind others in the smartphone industry.

References

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Linda, n.d. [Online] Available at: http://www.essay.uk.com/essays/business/essay-nokia-
pestle-analysis/ [Accessed 12 June 2017].
ToughNickel, 2017. A “Porter’s Five Forces” Analysis of Nokia. [Online] Available at:
https://toughnickel.com/industries/A-Porters-5-forces-analysis-on-Nokia [Accessed 12
June 2017].

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