The Finnish firms current situation
Nokia has sold a total of 97. 9 million mobile units in the second quarter of 2011. While this may sound impressive, this is down from 111. 5 million units from the second quarter of 2010. This resulted in a decrease of global market share from 30% to 22. 8%. Also, their Symbian operating system decreased from a global market share of 40. 9% to a 22. 1% (Rooney, 2011). Although the third quarter results in 2011 exceeded analyst expectations, Nokia reported net losses. They also reported net losses for the second quarter (Lawton & Moen, 2011).
Despite the poor performance of Nokia, a few of their competitors have achieved growth in recent years. Nokia’s new strategy is to revitalize their product portfolio and also re-establish itself in the North American market. Earlier this year, Nokia announced a partnership with Microsoft. They are to co-develop Nokia smartphones that run on a Microsoft mobile operating system. At the time, their market share in the U. S. for smartphones was only 3%. By August 2011, that number has dropped below 2% due to consumer interests in Android smartphones and iPhones.
Nokia’s focus on the Microsoft operating system has also led them to discontinue development
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Reviews of the new phones have been mixed. While Nokia has been praised for their excellent engineering and design, the general consensus is that it may not be differentiated enough. The main issue remains that there are not enough applications on the Windows platform, and developers are hesitant to develop applications because there aren’t enough Windows phones out there (Rooney, 2011). The global smartphone market is expected to continue growing in the near future. Nokia is trying to capitalize on this trend by producing a brand new portfolio of smartphones.
The products have already been revealed, but the success of their new strategy will be exposed in 2012. The next section of this paper presents a detailed description of Nokia’s current situation, as well as a quick snapshot of its history and corporate culture, to give the reader a better understanding of how the big Finnish handset manufacturer operates. The sections that follows present an analysis of the U. S. mobile phone industry and the big four operators which dominate the American market. Finally, the paper provides some necessary strategic goals that Nokia must achieve in order to succeed in the U. S. smartphone market, market that it once led. Nokia Nokia is a multinational communications corporation based in Keilaniemi, Espoo, in Finland.
Nokia is in the business of manufacturing mobile phones and other mobile devices. In addition, Nokia is engaged in converging internet and communication industries across the globe. Nokia has over 139,000 employees in around 160 countries, and manufactures approximately 500 million handsets every year (Nokia, 2011). In the mobile phone industry, Nokia is one of the best brands and has many loyal consumers around the world.
In fact, according to the Interbrand BusinessWeek “2011 Ranking of the top 100 Brands”, the Nokia brand is listed as the 14th most valuable brand globally and its brand value is estimated at $25 billion (Interbrand, 2011). In the global smartphone rivalry, Nokia held 3rd place in the second quarter of 2011. They trailed behind Samsung and Apple (Ward, 2011). History Over the past 150 years, Nokia has evolved from its origins in the paper industry to become one of the world’s largest mobile devices manufacturer. In 1865 Nokia was established as a lumber industry enterprise in Finland by mining engineer Fredrik Idestam.
In 1967, the Finnish Rubber Works Ltd, Finnish Cable works, and Nokia were finally merged to form Nokia Corporation (Nokia, 2010). Nokia positioned themselves in the telecommunications and consumer electronics markets in the early 1980s. Nokia’s operations rapidly expanded to new products and business sectors. In the late 1980s, Nokia became the largest Scandinavian information technology company through the acquisition of Ericsson’s data systems division. In 1989, Nokia conducted a significant expansion of its cable industry into Continental Europe by acquiring the Dutch cable company NKF (Nokia, 2011).
Since then Nokia has concentrated on their core business, the telecommunications. Culture Nokia’s culture emphasizes the speed and flexibility of decision-making in a flat, networked organization, although the corporation’s size necessarily imposes a certain amount of bureaucracy (Nokia, 2011). Nokia`s Values were Customer Satisfaction, Respect, Achievement, and Renewal (Nokia, 2011). Nokia’s culture allows them to quickly react to changes in the market. This culture encourages their employees to achieve their goals together and inspires their passion for innovation.
In order to do that, Nokia has been spending millions in research and development. Nokia has a R&D presence in 16 countries. In addition, over 35,870 people work for Nokia’s research and development, which is approximately 27% of the entire Nokia workface (Nokia, 2011). Such an enormous R&D force enables Nokia to quickly detect and react to changes in market environments and consumer behavior. Moreover, the wide spread of their R&D departments enhance their product localization which further satisfy their customer needs. Market & Position
Recently China has overtaken the United States to become the largest smartphone market in the world (Reuters, 2011). Indeed, China is one of the fastest growing economies and its market has great potential. Nokia understands the Chinese market and their unique customer needs. As a result, Nokia is the leader in the mobile device industry in China with a 28% market share (Reuter, 2011). In addition, Nokia has also been strong in other emerging markets such as India and Russia for example. Over the past few years Nokia has captured around 60% of India’s mobile phone market and generated over $5.
6 billion in revenue. Nokia provided low-cost and highly localized products which satisfied the consumer needs very well. The chart below indicates China and India as the two largest markets for Nokia. Combined, they generated over 10,000 million EUR in sales. However, in the U. S. market Nokia had a decline in sales of about 5. 8%. Sales in Nokia’s 10 major Markets Source: adapted from Nokia Retrieved December 4, 2011. From http://www. nokia. com/global/about-nokia/investors/financials/financials/ Indeed, Nokia has been performing poorly in the U. S.
and their biggest competitor, Apple has taken a major lead in the smartphone business. Also, Samsung is another major competitor in the U. S. and they also have a larger market share than Nokia. Samsung provides both smartphones and low priced phones and are one of the biggest threats to Nokia. Nokia places itself as a low cost function phone provider and target mainly the emerging market. The U. S. Mobile Phone Market In 2009, the U. S. market’s 307 million consumers derived total revenues of $10. 4 billion from purchasing 125 million mobile units.
This results in an average phone price of $83. 2 and average spending per capita of $28. 1. In contrast, the Asia-pacific area had revenues of $52. 8 billion, a population of 3. 9 billion, and sold 399 million units. That equals an average phone price of $132 and average spending per capita of $13. 5. Europe generated $25. 7 billion in revenue and has a population of 738 million. It sold 260 million units with an average price of $98. 8 and an average spending per capita of $34. 8 (DataMonitor, 2009).
Sophisticated market Although the U. S.mobile phone market represents only 10. 8% of the global mobile phone market, it is one of the most important markets in the world. The U. S. market has very sophisticated consumers that both demand innovations and are cautious in selecting models. Mobile phone margins in the U. S. are low and average spending is relatively low also. The U. S. mobile market saw a compound annual growth rate (CAGR) of 5. 8% for the period spanning 2005-2009, while the compound annual rate of change of the market volume (measured in units) in the same period was -0. 6%.
This reflects that although U. S. consumers were paying lower prices for mobile phones compared to consumers in other markets, they are gradually willing to pay more (DataMonitor, 2009). Trend for smartphones In the U. S. , smartphones volume increased 63% in 2010, and sales increased 44% to $9. 3 billion. Although unit prices for both feature phones and smartphones dramatically decreased, the percentage increase of smartphones in total phones caused the average phone price to increase. At the same time, feature phones’ share diminished by 22%.
The U. S.phone market penetration rate is close to 100%, which will slow down the growth. However, more and more feature phones are being replaced by smartphones. This will maintain the rapid growth in the smartphone category (EuroMonitor, 2011). U. S. Operators Business dynamics in the U. S. mobile phone industry is directly affected by the way their wireless telecommunication industry operates, which is quite different with many other markets in the rest of the world. Whether Nokia can adapt to U. S. ‘s different industry dynamics will be the key to Nokia’s future success.
Subsidies The U. S wireless telecommunication market is relatively uncompetitive with only four carriers serving a population of 300 million, compared with Europe’s 60-70 carriers serving 350 million households (EuroMonitor, 2010). The four carriers, by numbers of subscribers in Q3 2011 are: Verizon (107. 7 million), AT&T (100 million), Sprint Nextel (53. 4 million) and T-Mobile (33. 7 million) (Wikipedia, 2011). Carriers play a big role in cell phones business because the hefty subsidies they pay to retailers often determine the sales of a model.
When phone users purchase wireless service, they often sign up contracts (subscriptions) with carriers. With subscriptions, phone users can purchase phones for hundreds of dollars less than the market price. With the discount financed by carriers and the “locked” phones, carriers can ensure consumers will not leave for competitors. Carriers do not offer subsidies to all models, and the models not selected for subsidies face a great price disadvantage. The importance carriers play gives them very strong bargaining power when phone makers bid for contracts. Locked/unlocked phones All phones sold by carriers are “locked” phones.
“Locked” phones are pre-programmed phones that can only work under a specific carrier’s service. Some unlocked phones exist in the market prior to 2010, but the amount is small. According to CNET, only five percent of cell phones sold in US in 2009 are unlocked (CNET, 2009). After 2010, Nokia and Sony Ericsson began to sell legitimate unlocked phones, and unlocked phones became slightly more popular in US. EuroMonitor’s report indicates that 82% of the cell phones in use in 2011 are locked phones from subscription (EuroMonitor, 2011). The “locked phones” also shows the influence of carriers in US market.