Nokia Case Study 1

Nokia Case Study

February 27, 2011

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I. Introduction

This case study will examine the development and implementation of corporate

strategy of the Nokia Corporation. This case study will examine in particular recent

events involving Nokia’s cellular phone business.

Nokia is a Finnish company that is the world’s largest manufacturer of mobile

devices. In addition, Nokia offers communication services, software, as well as, phone

and internet based content. Nokia includes a network management segment called Nokia

Siemens Networks which offers network based products and services. This case study

will focus primarily on the mobile device market.

II. Porter Five Force Analysis

Rivalry Among Existing Competitors

Nokia has the largest piece of the mobile device market but has seen very strong

challenges by RIM’s Blackberry, Apple’s iPhone and a myriad of smartphones running Google’s

Android. Nokia’s Symbian operating system is showing its age compared to these newer

smartphone offerings. During 2010 Nokia went from 36.6% of the mobile phone market to

27.1%. In the fourth quarter of 2010 Nokia’s Symbian OS was replaced by Android as the most

widespread platform (Nagamine, 2011). The top three competitors to Symbian are beginning to

take a serious bite of Nokia’s smartphone market share. Table 1 below shows a comparison of

2009 vs. 2010 smartphone OS market sales. Nokia took a big hit to its market dominance to due

increased competition from Android and Apple (iOS) sales (Sandstrom, 2011).
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Table 1: 2010 smartphone sales by Operating System, units in thousands

OS 2010 2010 Mkt Shr 2009 2009 Mkt Shr Chg

Symbian 111,577 37.6% 80,878 46.9% -9.3%
Android 67,225 22.7% 6,798 3.9% 18.8%
RIM 47,452 16.0% 34,347 19.9% -3.9%
iOS 46,598 15.7% 24,890 14.4% 1.3%
Microsoft 12,378 4.2% 15,031 8.7% -4.5%
Others 11,417 3.8% 10,432 6.1% -2.3%

Threat of Substitute Services

Threat to the mobile device industry is low as an untethered communication

device is a growing choice of phone users across the world. Although the mobile device

market saw declines in 2009, there was significant growth in 2010. It is anticipated that

the largest market segment, Asia-Pacific, will see a volume growth of 98.7% by 2014

compared to 2009. This equates to a market value of almost $97 billion (Nagamine,

2011).

Threat of New Entrants

The mobile device market is made up primarily of large multinational companies

with a few smaller domestic competitors. There is a high cost to entry as the mobile

device industry is putting out new and increasingly more advanced products quarterly

(Datamonitor: Mobile Phones, 2010). These new devices require a significant amount of

investment capital to develop and support. In addition, mobile devices require access to

networks. A company either has its own network or must enter into partnerships with

network providers. Both avenues are costly as well.

Bargaining Power of Suppliers

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The bargaining power of suppliers is low with respect to Nokia. As cellphone and

smartphones become more prevalent the number of hardware and component vendors is

increasing. The suppliers are primarily in China which means buyers can solicit multiple

component vendors without expending significant resources. There are few single-source

commodities so it is difficult for individual vendors to apply significant pressure to

buyers (Doz & Kosonen, 2008). One discriminator when doing business with a company

the size of Nokia is the ability to provide the volume of product required. This can give

an edge to on particular supplier. Conversely, there is opportunity to use multiple vendors

to product one type of component which reduces supplier power.

Bargaining Power of Buyers

The bargaining power of the buyer is fairly high. There are many options with

regard to mobile device providers. In addition, service carriers, such as AT&T, Sprint and

Verizon are the entities that put the various products before the end-user. This requires

that Nokia provide incentives to carriers. This is particularly true in the United States

where Nokia does not have as strong a presence as in Europe and Asia (O’Brien, 2009).

III. Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis

Table 2: Nokia SWOT

Strengths Weaknesses

• Strong brand reputation • Weak penetration in US market

• Sizeable market
Opportunities
• Partnerships and acquisitions
• Growth of 3G and broadband demand
• New technologies and services
• Aging product operating system
Threats
• hyper-competition
• legal challenges from competitor
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Strengths

As the industry leader in mobile devices, Nokia’s name carries a lot of weight.

Nokia has a reputation for quality and innovation. In 2009, Nokia’s brand was rated the

fifth most valued brand in the world (Datamonitor: Nokia, 2010). In the Asia Pacific

sector Nokia ranks in the top 20 of most trusted brands and in India specifically it ranked

number 1. Nokia’s name is practically gold in the largest emerging markets. Nokia’s

name recognition and reputation allows it to command a higher price and carry that into

the largest markets in the world. As noted in table 1, Nokia hold 37% of the world market

which is almost 20 points higher than its next closest competitor Samsung. Nokia also

has the edge with respect to its Symbian operating system (Sandstrom, 2011). Even with

aggressive competitors in the market Nokia has a fairly large buffer.

Weaknesses

Although Nokia has the largest mobile device market share in the world it has a

rather small presence in the US market. The US market made up only 4.2% of Nokia’s

2009 revenues equaling $2.4 billion compared to its main US competitor Motorola which

garnered $11.8 billion and RIM bringing in $8.6 billion (Datamonitor: Nokia, 2010).

With the success of the iPhone and Android based phones Nokia will have a difficult

time grabbing market share in the US in the future. In addition, being a second-rate

competitor in the US could tarnish Nokia’s reputation as a key innovator when compared

to RIM, Motorola and Apple (Yoshida, 2010).

Symbian is an open standard OS that Nokia has only so much control over. It is

managed by a meritocracy which makes it less than flexible and innovative. It looks

dated when put up against Android and iOS and is not as enterprise friendly as RIM’s
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offerings. Nokia’s CEO, Stephen Elop indicated that Symbian was not the platform that

Nokia needed to meet the challenges in the future (Sorrel, 2011). Although outdated,

Symbian has been a solid product. Nokia will need to be careful in how it replaces its

flagship OS.

Opportunities

Partnerships and acquisitions will be key to future growth for Nokia. With a

hyper-competitive environment and strong players like Samsung, Apple, Motorola, RIM

and HTC; Nokia will need strong business partners to stay on top of the market. Nokia

has made several moves of late forming alliances with Yahoo!, SAP, Intel and New

Alliance. These partnerships will strengthen Nokia’s services. The most watched

partnership will be Nokia’s deal with Microsoft to run Windows Phone 7 on the next

generation of smartphones. It is a big gamble for both companies as Nokia needs a new

OS and Microsoft needs a respectable and dedicated platform (Sorrel, 2011).

The demand for 3G and broadband (3G/BB) connectivity is projected to grow

significantly or the next several years. In the US it is expected that the3G/BB consumer

base will increase from 43% (2009) to 60% by 2013 (Datamonitor: Nokia, 2010). With a

basic cellphone market that is fairly well saturated the 3G/BB market has significant

opportunity for growth. It is also a way for Nokia to make inroads to the US market.

Along with 3G/BB growth Nokia can continue to bring new and innovative

technologies to market. Nokia announced it was adding near-field communication (NFC)

chips into future device offerings. This short-range communication capability allows

devices to support mobile ticketing, mobile payment, electronic identification and

electronic keys (Hernandez, 2010). The prospects are fairly broad and highly marketable
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to both consumers and retailers. This is just one area where Nokia is ahead of the pack

and can leverage its innovation to differentiate itself.

Opportunities

As mentioned previously, there is a lot of money to be made in the mobile device

market. With few exceptions, Nokia’s competitors are large, are well capitalized and

have reputations as innovative companies. With a potential market of $97 billion dollars

in the Asia Pacific segment alone and a US market that can’t seem to get enough

smartphones, it may seem a bit like a feeding frenzy. With competitors coming out with

new products with improved capabilities every 6 months it will be difficult for Nokia to

roll out a new generation of phones while at the same time taking on a new OS via

Windows Phone 7 (Parker & Ward, 2011). If not executed cleanly it could spell the end

of Nokia as a player in the smartphone market, particularly in the US.

Nokia has been in a legal battle with Apple over patent infringement for several

years. It has been the clash of two titans over intellectual property. Should Nokia lose the

cases filed by Apple it could result in huge damages and a black eye. Patent litigation is a

strategic business practice today but it is a significant drain on company resources

(Bradley, 2011).

IV. Evaluation

Nokia is at a crossroads. It has been the market leader of mobile devices for quite

a few years. So much so that it is a significant portion of the Finnish GDP. Over the last

two years significant technological breakthroughs have allowed other companies to begin

challenging Nokia’s position. Nokia evaluated its mobile device offerings and identified
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that the Symbian OS was no longer the innovative product needed to move forward.

Nokia, in an effort to inject effective leadership into its mobile business during turbulent

times, hired ex-Microsoft head of the Business Division, Stephen Elop as CEO. Mr. Elop

quickly shook up Nokia’s management which upended its corporate culture.

Next Mr. Elop publically stated that Nokia would continue to support Symbian

primary OS. This was viewed as a defensive move by Nokia to protect its current install

base. However, shortly after Elop announced an agreement between Nokia and Microsoft

to drop Symbian as the ongoing platform and adopt Windows Phone 7 as the new Nokia

OS. This could be considered a strike where your competitor least expects it. Nokia had

been making overtures to Google regarding adoption of Android (Lawton, Lublin, &

Sandstrom, 2011). Then Mr. Elop publically announced Symbian as the way forward

only to announce later a Microsoft deal. This agreement between Nokia and Microsoft

could be a marriage made in cyberspace or the death-knell for Nokia. Nokia must make

gains in the US market and Microsoft needs a solid hardware platform for its Windows

Phone 7 OS. With Nokia’s hiring of Stephen Elop as CEO it gave the company the ability

to move more quickly to establish a partnership with Microsoft and keep Google and the

others off balance and less able to respond. In addition, Mr Elop speaks Microsoft. He is

part of the Microsoft culture and understands what is needed for the two entities to work

together.

With regard to Apple’s patent infringement cases against Nokia, with the adoption

of Windows Phone 7, Apple will be less likely to take on Nokia knowing that Microsoft

now has a vested interest in the outcome of the suits. This partnership gives Apple a

reason to drop the suits gracefully and it frees up Nokia’s resources for other battles.
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V. Conclusion

Nokia has been an industry leader for many years however the market has

changed quickly and Nokia must right itself. It is doing so with strategic partnerships,

technological innovation and leveraging its brand recognition. Its relationship with

Microsoft will be critical to its success. There is significant risk for Nokia as Microsoft

must deliver a world-class OS or customers will turn to Apple, RIM and Android which

are already world-class OSs. Microsoft, on the other hand already knows Nokia will

provide world-class hardware. Conversely, Microsoft has a huge reputation at stake

which has already been tarnished by previous mobile OS offerings. This is an aggressive

move for Nokia but one that could be hugely beneficial in the long run.
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References

Bradley, T. (2011, February 11). Nokia-microsoft alliance could end patent war with apple. PC

World, Retrieved from

http://www.pcworld.com/businesscenter/article/219431/nokiamicrosoft_alliance_could_e

nd_patent_war_with_apple.html

Datamonitor: Mobile Phones. (2010). Mobile Phones in Asia-Pacific, 1-39. Retrieved from

EBSCOhost.

Datamonitor: Nokia Corporation. (2010). Nokia Corporation SWOT Analysis, 1-10. Retrieved

from EBSCOhost.

Doz, Y., & Kosonen, M. (2008). The Dynamics of Strategic Agility: Nokia's rollercoaster

experience. California Management Review, 50(3), 95-118. Retrieved from EBSCOhost.

Hernandez, W. (2010). Nokia to Add NFC Chips to Its Phones in 2011. American Banker,

175(95), 11. Retrieved from EBSCOhost.

Lawton, C., Lublin, J. S., & Sandtrom, G. (2011, February 10). Nokia, Microsoft talk cellphones.

Wall Street Journal - Eastern Edition. pp. B1-B5. Retrieved from EBSCOhost.

Nagamine , K. (2010). Mobile Phone Recovery Continues with Nearly 22% Growth in First

Quarter. IDC Corporate USA. Retrieved February 25, 2011, from

http://www.idc.com/about/viewpressrelease.jsp?

containerId=prUS22322210§ionId=null&elementId=null&pageType=SYNOPSIS

O’Brien, K. (2009, October 19). Nokia struggles to regain market share in the U.S. The New

York Times. Pp. B4. Retrieved from LexisNexis.

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Parker, A., & Ward, A. (2011, February 25). Downwardly mobile. Financial Times,9. Retrieved

February 27, 2011, from ABI/INFORM Global. (Document ID: 2276441441).

Sandstrom, G. (2011, February 09). Nokia market share slides - gartner . The Wall Street

Journal, Retrieved from http://online.wsj.com/article/BT-CO-20110209-705792.html

Sorrel, C. (2011, February 11). Nokia kills symbian, teams up with microsoft for windows phone

7. Wired, Retrieved from http://www.wired.com/gadgetlab/2011/02/microsoft-and-nokia-

team-up-to-build-windows-phones/

Yoshida, J. (2010, February). Symbian lacks 'newborn' cachet in U.S. market. Electronic

Engineering Times,(1576), 4,6. Retrieved February 27, 2011, from ABI/INFORM Trade

& Industry. (Document ID: 1994260201).