Emerging Nokia?

Case Analysis | Strategic Management

GROUP 11 | SECTION 2
Keerthi P.

DM 15267

Rachit Bhatnagar

DM 15244

Sarvagya Nayak

DM 15250

Seerat Ghuman

DM 15251

Vaibhav Agnihotri

DM 15262

Strategic Management Case Analysis

Group 11

Section 2

Case Background
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 Nokias
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 highend 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.

Strategic Management Case Analysis

Group 11

Section 2

Case Background
Key Success
Factors

Developed
Markets

Emerging
Markets

Innovation & Design

Advanced technology and

services such as 3G - first
movers have a big advantage

Products with functionalities

such as longer battery life,
flashlights, etc. that meet
needs of specific segments

Distribution method

Sold through carriers like

Vodafone and AT&T on
contracts

Sold directly through

distribution channels.

Services

Advanced technologies
offered through latest
software, apps, games, etc.

Relevant and useful services

like life tools, Nokia money
that cater to the needs of
the market

Image of the product

A stylish or attractive image

is very important for the
success of product

Not very relevant in the lowprice phones

Price

Handsets are subsidized due

to contracts with carriers

No subsidy and price is very

important due to price
sensitivity and low
disposable income

Strategic Management Case Analysis

Group 11

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).

Section 2

Resource Based View

Resource

Valuable (Adds value as perceived

by customers)

Rare

Hard to imitate

Non substitutable

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

Strategic Management Case Analysis

Group 11

Implications

Section 2

Exhibit Analysis
R&D/Sales
Return on sales

1985
5%
3%

1990
5%
3%

R&D/Sales V. Return on Sales

2000
2005
8%
11%
13%
11%

1995
5%
5%

2006
10%
11%

2007
11%
14%

2008
12%
8%

2009
14%
2%

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.
Devices and Services
Million Euros
Revenues
Operating Profit

2007
37,668
7,931

2008
35,084
5,816

2009
27,841
3,314

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.

PE Ratio

Nokia
14.56

LG
27.5

Samsung
20.06

Apple
32.34

RIM
19.89

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.

Strategic Management Case Analysis

Group 11

Section 2

Financial Projections Analysis

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

Projections for 2010-2013

Middle
East/Africa

Americas

In $ Thousands

Asia-Pacific

Europe

N.America

LatAM

AP excl. Japan

Japan

W.Europe

E.Europe

18,52,143

6,26,640

10,05,549

90,93,612

115

4,26,780

12,54,000

Enhanced Phones
Smart Phones - Entry
Level

73,54,350

1,05,13,327

1,01,31,660

3,74,84,321

43,88,768

91,26,432

52,58,496

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

29,24,176

Emerging
Markets

Developed
Markets

Total

98,73,488
Developed
Market %
contribution
to increase

2,39,26,650

Expected increase in
Handset Market

1,32,30,334
Emerging
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
Smart Phones - Entry
Level

6,02,28,827

2,40,28,527

8,42,57,354

71.5%

28.5%

100.0%

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

22,23,05,48
6

51.7%

48.3%

100.0%

Basic Phone

Strategic Management Case Analysis

Group 11

Section 2

Conclusion
Alternatives available:

Do Nothing

Exit Developed Markets

Compete in both markets with different strategies

Recommendation: 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.

Strategic Management Case Analysis

Recommended 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 highend 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

Group 11

Section 2