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1) Overview of Nokia Corporation In 1967, three Finnish companies merged to form the Nokia Corporation; entering the telecommunications

market and establishing a corporate position of innovation; aesthetically-pleasing products and high technology development. During the 1980s, Nokia strengthened its position in the telecommunications and consumer electronics markets through the further acquisitions of French, Finnish and German firms operating in consumer electronics operations which provided the basis for the long term acquisition growth strategy (Steinbock, 2001; www.nokia.com) The cellular industry is tpically divided into two parts: cellular infrastructure and mobile handsets. Nokia has operated in both of these segments but most of its recent success derives from handsets (Steinbock,2001) The company includes four business groups: mobile telephones; multimedia; enterprise solutions and networks. The mobile device business accounts for 80% of Nokia's revenue and 82% of its profit, and despite recent declines, Nokia still controls nearly a third of the global handset market (Schwartz, 2005) Nokia has production in 11 countries and a global network of distribution, sales, customer service and other operational units (www.nokia.com) 1.1 Current Position Nokia is ranked as the fifth most valuable brand in the world earning $40 billion in sales within 140 countries. With 55,000 employees worldwide and a focus on a global mindset, innovative corporate culture, R&D and high market segmentation; Nokia has built a strong global market position. In the past 3-5 years, Nokia has been losing market share to its major handset development rivals: Motorola, Siemens and Sony-Ericsson. The steady decline has been a result of internal factors such as the future-orientated strategic focus that has not responded to the present and recent changes in the market and consumer preferences. 1.2 Corporate Objectives Mission Statement The stated mission statement reflects and enforces the consumer focus of Nokia, and the objectives to bring technology and communication to more people: By connecting people, we help fufill a fundamental human need for social connections and contact. Nokia builds bridges between people- both when they are far apart and face-to-face and also bridges the gap between people and the information they need (www.nokia.com) Corporate Goals and Objectives

The Nokia strategy continues to focus on three activities to expand mobile communications in terms of volume and value: Expand mobile voice Drive consumer multimedia Bring extended mobility to enterprises 2) External Environment 2.1 Industry Analysis Global Industry Trends The mobile communications industry continues to undergo significant changes as more users in growth markets gain access to mobile communications, enterprise becomes increasingly mobile, the importance of end-to-end solutions increases, and technology continues to evolve. Another trend is an increased emphasis on the role of customisation in mobile devices. These changes have demanded flexibility from handset developers to adapt to new market conditions and shifting consumer trends. The current global industry trends include: Convergence of products and technologies to add maximum value to handsets. The mobile communications, information technology, media, and consumer electronics Industries are converging in some areas into one broader industry. Some of the first examples of this convergence include camera phones, as well as the use of mobile devices for email, web browsing and applications, and music downloading. It also includes Multiradio solutions and devices, which automatically transfer connectivity among cellular networks and complementary access technologies. Global cross-industry partnerships to capitalise on technology and knowledge sharing to provide competitive advantage; Shifts in consumer demands towards more attractive and fashion-orientated handsets; High fragmentation of markets (www.accenture.com, Steinbock,2001) Development of ?End-To-End Solutions: A solution is considered end-to-end when it provides the hardware and software elements, including infrastructure, applications or service platforms and mobile devices. The ability

to offer tailored end-to-end solutions is becoming increasingly important to meet the needs of operators, enterprises, and consumers. PESTLE model Political Domestic Government Support The Finnish government has long been supportive of the telecommunications industry, resulting in the number of cellular phone subscribers as well as the number of Internet connections per capita in Finland used to be the highest in the world. Future plans include further support for the industry involving a high-level Information Society Committee, led by the prime minister, to drive active national IT policy. Future Issues: Industry Clusters Western Europe and Scandinavia are carrying out strategic efforts to attract different industry segments to specific regions. The European Commission is striving to make Europe the "world's most competitive and dynamic knowledge-based economy" Nokia is involved in the cluster development process, including establishing research in Sweden, clustering with other international IT companies to focus on wireless technology; these include Compaq, Ericsson, Hewlett Packard, IBM, Intel, Motorola and Microsoft. Economic Market Trends Based on volume developments during the first quarter 2005, Nokia now expects the overall mobile device market for 2005 to reach about 740 million units, compared with the previous estimate of approximately 10% annual growth, from an estimated 643 million units in 2004. The overall market is also expected to grow in value, but to a lesser extent. Telecommunications in the Global Economy Nokia and the other leading network providers/handset developers will continue to play a strategic role in the emerging global economy. Telecommunications helps the rapid movement of information from one country to another and allow optimal utilisation of available technology, products and services around the world, thus helping to improve the global economy. International telecommunication networks can improve the global economy in many other ways. The speed of transmission of technological knowledge and other information depends on the quality of information connecting channels among different countries and the degree of absorption capacity of different countries. Modern telecommunication helps the coordination of different countries and increases the division of labour at the global level. International communications also increase the

opportunities for many small potential traders in different countries and increase the efficiency of international capital markets. However, the expansion of global telecommunications can benefit different countries very unevenly due to their differences in political and economic powers as well as the differences in social and cultural backgrounds. Social The shifting consumer product demands and trends includes: The creation of flip ?clamshell; designs which are more compact; Continued growth in the market segment of consumers replacing and upgrading existing handsets in more developed markets as new designs and technologies become available; Decreasing age of first-users; Increase in disposable income in Western economies; High technology products seen as a necessity not a luxury item; Change in consumer behaviour Global research conducted for Nokia, has identified a strong trend for consumers to move from their fixed line phones to use their mobile handsets for all or most of their voice calls. Fixed-to-Mobile Substitution is occurring across the four major markets surveyed - Great Britain, USA, Germany and South Korea - with upwards of 45 million consumers estimated to now make all their voice calls from their mobile phone in these markets alone. Technological Development of third-generation technologies that incorporates a variety of applications Industry convergence to produce multi-use applications and products Legal There is a lack of global consumer welfare anti-trust laws; Widespread permissive licensing without universal service obligation; Intellectual Property Management

The creation and ownership of relevant intellectual property rights, or IPR, are essential to maintaining competitiveness and to creating profitable products. For Nokia to continue technology leadership, it will depend on the ability to build a solid IPR portfolio through strong research and development capabilities. Opportunities and Threats Opportunities include the convergence of applications which provides industry leaders to gain large market share through high level strategic relationships to create next generation products. The threats to Nokia includes the loss of market-share to its main rivals, and the potential to lose its position within the industry. 2.2 Global risks affecting Nokia Market risk is reduced by Nokias globalisation strategies as its dependence on its home/local market and also the European markets is minimised. Financial risks are minimised by the centralised management of currency exposures however, Nokias sales, costs and results are affected by exchange rate fluctuations, particularly between the euro, which is their reporting currency, and the US dollar, the UK pound sterling and the Japanese yen Political risks- Nokias sales are derived from, and assets located in, emerging market countries which may be adversely affected by economic, regulatory and political developments (www.nokia.com, Hill, 2005) 2.3 Porter Industry 5 Forces model As seen in the analysis contained in Table 3.1, the global mobile handset industry is moderately concentrated, with high industry rivalry which will increase in the future. A strategic concern for Nokia is the potential increase in supplier power. Nokia has opted not to possess its own semiconductor production, choosing to buy its components. While this strategic decision has enabled Nokia to avoid the heavy expenditures and significant risks involved with semiconductors, it has rendered the company more vulnerable than its cellular competitors to distribution and market fluctuations (Steinbock : p202) In addition, the high buyer power and level of substitutes will continue to force Nokia to further develop its product portfolio and design capabilities. Table 1 Global cellular telephone industry analysis Threat of new entrants (Defined as mobile handset developers)

Low to medium threat of new entrants based on high barriers to entry including: - Existing firms have existing high economies of scale within production and R&D; - Established strong brand identities within in the industry; - Unique product and technology differentiation; - High investment capital needed. There is also potential retaliation through measures such as price wars towards new entrants from the existing market leaders. Bargaining power of suppliers (Suppliers defined as firms providing hardware components for handset products) Supplier power has only a low-medium impact on the industry due to factors including: - core component of semi-conductors is relatively widely produced; - core product value is added through software developed within handset firms; - competitive advantages are mainly derived from product and software design and development; - medium impact of input cost on cost of production; - low supplier concentration compared to industry concentration; - supplier switching costs are relatively low; - the threat of forward integration from component suppliers is low. Bargaining power of buyers (End consumers) The high presence of substitutes and product differentiation results in medium-high bargaining power of end consumers. However, the switching costs for consumers can vary depending on the partnerships between product developers and network providers which may result in contractual obligations making switching handsets difficult. Power of substitutes (other mobile telecommunications products)

The high to very high power of substitutes results from the high price and performance levels relative to the existing handset technologies. Most firms have the ability to create or copy unique product advantages. There is a high buyer propensity to substitutes that offer better and more recent technologies and value-added components. Intensity of industry rivalry Rivalry within the international handset industry is high. Industry growth rate is currently under 10% within the global industry. This increases the industry rivalry as the industry has shifted from the initial boom period and is in steady growth before the next wave of technology development and product convergence. This has caused existing firms to achieve growth at the expense of other firms losing market share. Fixed costs are moderate, but still provide opportunities for firms to reduce product prices to increase market saturation when necessary. Product differentiation is high-very high within the industry causing high rivalry between firms and a fragmented market. Brand identity and consumer awareness of brands is very strong within the industry. Switching costs is a moderate factor on industry rivalry but will become more important as the handset upgrade market segment increases. Source: (www.nokia.com; Steinbock, 2001; Hubbard, 2004) 2.4 Competitor Analysis Nokias major competitors in the cellular handset development sector include: Motorola (16.7% market share); Sony-Ericsson (5.5% market share); and Siemens (5.4% market share). While Nokia is the clear market leader, there are marked differences between the rivals. Motorola and Ericsson have excelled in upstream innovation and Nokias focus has been on downstream innovation (Steinbock, 2001). Motorola Current position: Motorola is the number two handset producer in the global and has recently benefited from its recently launched super- thin, high-end model of handset. While Motorola's core business is operating well, the company faces several large challenges, including the up-coming expiration of major royalty contracts.

Strategy used: Motorola has segmented the market further than Nokia, creating product designs and value-added services for varying consumer needs and tastes. Threats to Nokia: As Motorola is Nokias closest competitor, there is relatively high threat in the future. Motorola and Nokia will continue to compete in the new generation technologies segments, with Motorola planning to present 10-15 thirdgeneration (3G) phones in the near future- a similar level to Nokia (www.wired.com) Sony-Ericsson Current position: Sony-Ericsson is the mobile phone joint venture of Sony and Ericsson and has recently reported net income fell by 61%, due to price declines and a weak product portfolio. Strategy used: The strategy is focused on the production of only expensive models of the high class segments. Currently it has models in the middle and high price segments but lacks products in the low-end segment. They develop high-end models which have only a one-year life cycle, then their price will fall down and they will become mass products for the lower segments (www.forbes.com) Threats to Nokia: There is potential for Sony-Ericsson to gain further market share in relation to the high-end segments and future combined technology products, given the alliance with Sony and the competitive advantage that brings in future phone-music technologies (www.wired.com) Siemens Current position: mobile handsets account for only 7% of Siemens's 75 billion euros in revenue and occupy only a small corner of Siemens's vast empire of 12 divisions. Strategy used: Despite the small amount of revenue and market share, handsets have been at the centre of the company's efforts to build a global brand around innovation and technical expertise. Threats to Nokia: Siemens provides little threat for Nokia at this time and most likely will not be a threat in the future. The company is only planning to release two 3G phones, thus potentially reducing their limited market share (www.wired.com) 2.5 Market Analysis In 2004, Europe/Middle East/Africa accounted for 55% of Nokia's net sales (56% in 2003), North America 12% (16%), Latin America 8% (6%), China 10% (8%), and Asia-Pacific 15% (14%). The 10 largest markets were the US, China, UK, Germany, India, Brazil, Russia, United Arab Emirates, Italy and Spain, together representing 54% of total sales. Total global subscriptions increased to 1.8 billion by the end of the 2004 quarter, backed by

the ongoing strong momentum in new growth markets such as India, Russia, China and Brazil. Chart 1- Net Sales Existing and future markets Nokia has traditionally focused on mid range handsets incorporating standardised technologies with segment-related customisations. The markets on which Nokia intends to continue to focus on include markets with the following characteristics: low mobile subscription rates relative to the size of the population; geographic areas where it is more cost-effective to build wireless infrastructure than fixed-line networks; and heavily populated areas, where factors such as poor housing infrastructure or theft of materials favours wireless solutions. markets where the need for network capacity is growing as a result of mobile network operators promoting the replacement of fixed networks with wireless. Nokia has continued the strategy of entering market segments that they believe will experience rapid growth or more aggressive growth than the mobile telecommunications industry as a whole (www.nokia.com) Market Characteristics The global handset market has a growth rate per annum of approximately 10%; with cyclic high boom periods due to new technology developments and product designs. In the low to mid range market segments, there is a moderate to high sensitivity to price variations, however in the high end segments, price is less important over style, value added features, innovation and convergence with other technologies. The buyer decision process does include the assessment of usability with existing technologies and cross-function capabilities. Regional Market Development As the industry continues to evolve, the development of segmentation by regional markets will become more important to Nokia. Specifically, regional markets will have differing consumer demands in respect to price and features. Nations such as China, India, Russia and Latin America and the Middle East will require products in the mid-to low-end market segments.

In mature markets, such as Western Europe and the United States, future growth will be driven by replacement of existing handsets and the convergence of technologies. Product design, user interface and pricing capabilities together with a short cycle from development to market entry, strong brand value and the ability to respond flexibly to network operators requirements will be key success factors for Nokia. These two distinct markets will provide opportunities for Nokia to increase the development of regional-specific strategies, differentiating operations between the low-cost basic segment and the high-end, highly customised segment. While Nokia continues to dominate the market for cheaper phones, it is substantially weaker in the mid- to high-end segments in Asia, Europe, and North America, which is where most industry handset profits come from. The regionalisation of the high end segments will potentially provide strategic focus for Nokia (www.accenture.com, Schwartz, 2005) 3) Internal Environment Strengths Established brand identity and high consumer awareness of Nokia image; Streamlined and highly efficient operating strategies; Economies of scale from worldwide input sourcing and production; Large capital available for future investments; Weaknesses Loss of market share due to limited scope of vision and slow reaction to consumer trends; Loss of image, Nokia is no longer seen as cutting edge technologies and products Nokia is currently promoting the majority of products to a market that is verging on saturation. To overcome this, Nokia should expand the system of re-launching older models to the emerging markets and developing economies. 3.1 Organisational Structure On January 1, 2004, Nokia restructured into four business groups Mobile Phones, Multimedia, Enterprise Solutions, and Networks -- to better focus and capitalise on the opportunities in each of these areas. Throughout all these, the Networks business group provides the infrastructure backbone and enables end-to-end communications. Chart 2- Nokia Business Group Structure

3.2 Management Evaluation The recent product issues can be attributed to the management focus toward phones with far more video and media content, where software within the phone would become as important as the technology to make telephone calls. However, the shift from traditional comparative advantage and natural resources to sustained and renewing competitive advantages through human capital will provide future strategic benefits. Nokia is becoming a knowledge company where human capital is critical in value creation and value extraction (Steinbock, 2001) The recent product issues can be attributed to the management focus toward phones with far more video and media content, where software within the phone would become as important as the technology to make telephone calls. CEO : Jorma Ollila Mr Ollila joined Nokia in 1985 and held a variety of key management positions before becoming CEO in 1992. As CEO he presented an ambitious strategy that successfully restructured the former industrial conglomerate and, along with his team, has accelerated the growth of Nokia, turning it into one of the most successful firms in both the mobile phone and telecommunications infrastructure markets. Under Jorma Ollila, Nokia has moved from a ?European company to a global company (Steinbock, 2002: 154) Examples of his radical global focus and innovative style of leadership is seen in the recent management of changes to Nokias top management sectors. Nokia's management team discussed the importance of generational change, as part of a broader plan to reorganise the company in the face of changes in the market. The outcome has been the departure of three top management positions. However, the rationale for Ollila is that Nokia is a global company and he wants this to be reflected, over time, on the executive board. Only four out of the 12 members of the new board are non-Finns. It is this commitment to the vision of Nokia as a truly global firm that is responsible for a lot of its success in the 1990s. In the past year, Mr Ollila has added two new business units: a multimedia unit, concentrating on more advanced handsets with imaging or music capacity, and an "enterprise solutions" unit.The thinking behind the realignment was straightforward. "The aim has been to get scale advantage in the handset business at the same time as being better focused on the new niches of the market-place - to capture the value added through multimedia and enterprise solutions,". 3.3 Corporate Culture Nokias corporate culture is one of the company's strategic and competitive advantages. The company prides itself on four core values and principles which it places at the centre of its corporate philosophy: customer satisfaction, respect for the individual,

achievement and continuous learning. Management seeks to create opportunities for the fluid exchange of ideas and empowering of employees, customers, suppliers and partners. The catch phrase used by Nokia, `Connecting People' is symbolic of the culture, and helps define the purpose of its physical facilities. The company's buildings (both HQ and internationally)feature natural wood, large windows, warm colours and areas designed for recreation, fitness centres and saunas. A universal plan was created for the office workspaces, allowing the company to quickly change departmental layouts in response to fast-moving business needs. Visual and physical barriers are minimal, and the predominance of team areas for meetings and collaboration contributes to the sharing of ideas and information. Employees and management are able to further develop and expand relationships. 3.4 Human Resource Management Nokia is becoming a knowledge company where human capital is critical in value creation and value extraction, and a ?feedback culture of employee input is vital. There is a shift from traditional comparative advantage and natural resources to sustained and renewing competitive advantages through human capital will provide future strategic benefits. Strategic Employment Nokia has established an innovative and entrepreneurial culture almost unparalleled in the telecommunications sector. To retain this entrepreneurial spirit, Nokia has established a set of values and behaviours across all business units and incorporated them directly into its screening and selection processes as well as its performance management system. A key component of its values-based strategy is the focus not solely on technical skills but also on attitudes and behaviours critical to the creative spirit of the company. These core values include: Customer orientation: seeing the customer as the basis of all Nokia activities. Respect for the individual: treating employees, business partners and customers with respect Achievement: working toward a well-defined common goal and strategy. Continuous learning: constantly looking for ways to improve performance and having the courage to pursue new ideas. In addition, Nokia encourages and seeks to hire staff with entrepreneurial behaviour shown by traits such as: analytical and practical abilities; creativity and openness to new ideas; initiative and risk management.

In the final stages of the selection process, the focus on these values and behaviours becomes much more important. Nokia believes that technical skills are easier to assess and to learn than personal skills, which play a critical role in the company's team-driven culture. The company relies heavily on behavioural interviewing to identify people it believes will thrive in its entrepreneurial, creative environment and uses non-traditional screening techniques including role plays, group exercises and one-on-one behavioural interviews. Knowledge Management Traditionally, Nokia, with a workforce of 51,750 of which 19,580 are employed in research and development, has hired approximately 1,000 researchers and engineers every year, mainly because they come from the universities with entirely new skill sets. International HRM Issues Chart 3 Personnel, December 31 2004 2003 Change % Mobile Phones 2 558 2 764 Multimedia 2 738 2 777 Enterprise Solutions 2 234 1 986 Networks 16 595 15 301 Common Functions 31 380 28 531 Nokia Group 55 505 51 359 10 major countries, personnel, Dec. 31 2004 2003 Finland 23 069 22 274 USA 6 706 6 636 China 4 788 4 595 Hungary 3 778 2 571

Germany 3 522 3 486 Brazil 2 640 1 497 UK 1 903 1 947 Denmark 1 296 1 270 Mexico 1 160 1 290 Singapore 713 717 Nokia has been involved in creating the paradigm shift away from traditional views of human resource management to a focus on talent management. Nokia CEO Ollila has appointed dynamic young leaders as key motivators in two critical business areas --telecommunications and mobile phones to promote the concepts of empowerment and taking initiative. They are systematically spreading the message that leadership is everybody's role, that using imagination is a condition for success and, finally, that implementation must be swift and effective One issue for functional level management review is that Nokia's standardised performance management system does not take into account variations that exist between different types of expatriate workers since they are under different pressures, and have varying amounts of responsibility and autonomy. 4) Strategy Analysis 4.1 Corporate Strategy Nokia uses three main corporate strategies to lead the development and commercialisation of high capacity products and networks: 1) Continue to expand mobile voice by capitalising on demonstrated core competencies of efficiency and skill in execution and demand-supply chain management and a history of innovation. 2) Drive consumer mobile multimedia development through entering emerging product and service niches created by the present and future convergence of technologies. 3) Bring extended mobility to enterprises and capture profitable segments of the corporate market by offering products and services that will benefit companies and individual business people. This will include both handset product development and customised secure and seamless mobile operations for this segment. The long term strategy of pursuing emerging segments of mobile technologies has resulted in the strong corporate strategy of cultivating a strong local presence in all growing markets

and pursuing collaboration and investment opportunities in order to obtain complementary technologies and a strong market position. 4.2 Business level Strategy Nokia has positioned itself with a differentiation strategy with some segmentation focuses. According to Porter, firms that succeed in using the differentiation strategy have the attributes of: access to leading scientific research; highly skilled and creative product development team; and a corporate reputation for quality and innovation. Nokia relies on strong brand awareness and customer loyalty to their products over a cost leadership position, with the rationalisation that consumers will pay premium prices for quality and value-added services within their products. Nokia also has created a global strategy focus, with often limited customisation. The company's business model relies on churning out huge volumes of standardised phones in its own factories around the world. As shown in the diagram below, Nokia has utilised a technology generic strategy of a full line technology leader. This is shown in the firm where technology has a significant and/or dominant role in business strategy and is a source of competitive advantage(Porter) This also includes the creation of a firm owned R&D concerning the whole technological field. By creating a generic strategy utilising the leadership position, Nokia has in the past and can benefit from in the future, industry pioneering advantages including: capturing large market share; impeding competitor activities; and influencing consumer trends and behaviours. A large amount of Nokias success has been as a result of positioning itself as an industry leader with a large scope of production. Table 2- Technology Industry Leadership model Scope Full Selective Leader Leadership Full Line Technology Leader * Nokia Niche Player Follower Technology follower

Technology rationalizer Diversification Strategy Nokia has its origins in unrelated diversification including rubber and cable production. From the mid 1950s onwards, the high cost of imports forced Nokia to increase operations into electronics and inputs. Nokia continued un-related diversification particularly through mergers and acquisitions. By the late 1980s, the investment strategy was more focused on related industries, with heavy divestment of the unrelated subsidiaries as part of a larger restructuring strategy. Since the beginning of the 1990's, Nokia has concentrated on its core business, telecommunications, by divesting its information technology and basic industry operations. To meet these objectives, Nokia has been divesting businesses which have not a critical component to the long-term global vision. This strategy has enabled Nokia to focus on shareholder value by concentrating on the core competencies and business areas where we see the most value added and the best growth opportunities (www.nokia.com) Currently, the strategy used is related diversification to support the core operations and competitive advantages of Nokia and allows the firm to concentrate on its core competencies. The company is continuing to push a long-term plan to move beyond mobile phones into more consumer- and business-communication devices. The recent reorganisation of Nokia into four business units intended to reflect -- and accelerate -- its diversification strategy. International Market-Entry Strategy Nokia operates on a mostly global strategy, selling to most countries in the world but has a concentrated number of production operations to maximise economies of scale. The main role of international country locations is sales and customer service with some R&D facilities. The global strategy of Nokia differs in the moderate product and marketing customisation for local markets. However, as the industry continues the global strategy will no longer customise according to regions but continue to segment the market in terms of product characteristics and consumer demands. 6) Operations Analysis Competitive Advantage through Innovative Operations Nokia has sought optimal allocation of resources by concentrating on industry differences in branding, design and marketing. It has seized downstream processes as bases for competitive differentiation and invested in regional downstream activities. Nokia has focused on its core capabilities by outsourcing the majority of its upstream operations. Upstream Innovation Because Nokia has not integrated into semi-conductors, it has nurtured solid and efficient long term supplier relationships over two decades. In turn the suppliers have significantly benefited from Nokias rapid growth. Nokias strategy has ensured that its

suppliers extracted more value than suppliers for other industries. In contrast to Microsoft, Nokia has invested in co-operation, strategic coalitions and open standards. It has nurtured suppliers through procurement which has contributed to its growth. Nokias suppliers have been forced to adapt cost-focus strategies and as a result, have attained high operational effectiveness. By 2000, Nokias subcontractors consisted of: electronic contract manufacturers, component suppliers, software and product development companies, production equipment suppliers and service companies. Downstream Innovation Since the early 1990s, Nokias focus strategy has been global and has taken advantage of global segmentation. This strategy initially complemented the core capabilities of Nokia, as its upstream operations were relatively homogenised and therefore standardisation could work easily and effectively. Nokia captured market share through downstream innovation and the development of branding and image. However, in light of the shifting consumer customisation requirements, this heavily standardised approach is no longer providing competitive advantages for Nokia and will result in declining market share if continued to the extent in the 1990s. Use of Clustering Nokia uses R&D to tighten key relationships. For example, the United States head office and R&D centre is locates strategically close to its American semiconductor chip supplier to assist in product capabilities development. In addition, the key R&D resources are located close to Nokias most important production sites worldwide. This has been established to exploit local-market knowledge and trends (Steinbock, 2001) 7) Financial Analysis As seen below, Nokia has experienced declining net sales in the period 99-04 due to factors including the changing trends in consumer behaviour and lack of product design change to meet these trends. more According to Nokia CEO, Mr Ollila, Nokia sales had been affected by "a product mix more weighted towards the low-end", and that the benefits of the companys new product launches aimed at stabilising its market share would not have an impact on sales for 1-2 quarters. Nokia mobile phones and multimedia device divisions came in below company expectations in recent financial periods, but its enterprise and infrastructure businesses have performed better than anticipated. This has been a result of heightened competition from competitors including Samsung and Siemens, combined with falling prices for terminal equipment saw total sales decrease by 2% to EUR6.625 billion, compared to the corresponding period of 2003, with net profits falling by 15% to EUR816 million. Data as at January 2005 2004

EURm 2003 EURm Change % 2002 EURm Net sales 29 267 29 455 -1 30 016 Operating profit 4 330 5 011 -14 4 780 Profit before taxes 4 709 5 345 -12 4 917 Net profit 3 207 3 592 -11 3 381 Research and development 3 733 3 760 -1 3 052 2004 % 2003 % 2002 % Return on capital employed 31.6 34.7 35.3 Net debt to equity (gearing) -78 -71 -61 Current Financial Position - 2005 As at 21 April, 2005, Nokia has reported an operating profit of EUR1.12bn on net sales of EUR7.40bn for the financial quarter January-March 2005. Both operating profit and net sales for the three-month period increased, respectively from EUR1.02bn, or up by 10%, and EUR6.35bn, or up by 17%, as compared to the corresponding period in 2004. Operating profit for the Mobile Phones division decreased by 16% to EUR869m while net sales increased by 11% to EUR4.53bn. Operating profit and net sales for the Networks division increased, respectively by 44% to EUR221m and by 6% to EUR1.43bn.Earnings per share (EPS) increased to EUR0.19 from EUR0.16 in January-March 2004. The total mobile device sales amounted to 53.8 million units, an increase of 20% year-onyear. Overall market volumes for the same period reached an estimated 170 million units, representing 20% annual growth. In smart phones, the total industry volume for the first quarter reached an estimated 10 million units, while Nokia's smart phone volumes increased to 5.4 million units, an increase from 1.8 million units in the first quarter of 2004. Nokia's estimated market share for the first quarter was 32%, flat year-on-year and down from 34% in the fourth quarter 2004.

There has been a high increase in net sales from emerging markets including India, Russia and Brazil. Emerging markets will continue to grow in mobile phone usage and ultimately net profits for Nokia. Top 10 major markets by net sales 2004 EURm 2003 EURm 2002 EURm USA 3 416 4 475 4 665 China 2 660 2 013 2 802 UK 2 261 2 693 3 111 Germany 1 730 2 297 1 849 India 1 364 1 062 539 Brazil 1 091 805 773 Russia 938 570 UAE 909 1 886 925 Italy 884 1 003 1 342 Spain 768 748 531 January 2005 2004 EURm 2003 EURm Change % Mobile Phones

Net sales 18 507 20 951 -12 Operating profit 3 768 5 927 -36 Research and development 1 189 1 022 16 Multimedia Net sales 3 659 2 504 46 Operating profit 179 -186 Research and development 855 725 18 Enterprise Solutions Net sales 830 529 57 Operating profit -199 -141 Research and development 298 235 27 Networks Net sales 6 367 5 620 13 Operating profit 878 -219 Research and development 1 178 1 540 -24 8) Analysis of Core Competencies Nokia began a strategic core competency project in 1995, with the idea that the competitiveness of a company in the long term depends on its ability always to create new products and services bringing excellent value added to its customers. Core competencies were defined to understand, systematically exploit and develop the competence that was the supporting pillar of the companys competitiveness. At the early stage Nokia concentrated merely on technical competence.

Nokias stated and actual core competitive advantages include: superior products and product usability; brand; fast creation of systems and products to selective market needs; the demand supply network; technology leadership including Digital signal processing, radio technology, telecommunications software platforms and architectures, mastering telecommunications networks; cost efficiency; global customer service. During the late 1980s, in order to respond to the increasingly rapid pace of technological change in the industry, the Finnish telecommunication industry had to develop new competencies and resources in the area of digital mobile technologies. The development of the GSM telecommunications standard was based on open interfaces, which allowed other than established manufacturers to provide telecommunication equipment. This encouraged new entry of suppliers and facilitated experimentation by forcing suppliers to differentiate their products while competing within a common industry standard (NMT). This allowed systems firms to focus on only those elements of the product, in which they had specialised skills, purchasing all other components externally. Major firms in the industry, such as Nokia, were developing their competencies and resources by building up innovation networks. By focusing on their core competencies and purchasing the remainder from specialist suppliers, they created a network system that spread the costs of developing new technologies, reduced product9) Nokia ?Gap Analysis The recent loss of profit and market share in some segments is a result of the internal organisational strategies not responding fast enough to the changing external factorsnamely the change in consumer tastes and further fragmenting of the market. Limited Strategic Vision in Product Design One of Nokias objectives has been global segmentation to maximise exploitation of global market opportunities with a product that has universal appeal. This has resulted in Nokia engineering its phones so that the same models could be adapted to the varying frequencies and standards around the world. They sought to produce a dominant product design to capture the allegiance of the marketplace. However, this strategy which initially

created market share for Nokia is no longer providing a competitive advantage in the recent and current market environment. Nokias current product portfolio is targeted at the low-end market, which leaves a big gap for enticing medium-priced products in Europe and North America from competitors including Samsung. Nokias major competitors have increased their market share based on the development of new and innovative styles and designs. The market is becoming more fragmented and driven by style and fashion tastes rather than being primarily focused on functionality. Recently, there has been a period where Nokia has not offered mid-range and the latest ?clamshell design of phones demanded by consumers. While Nokia was focused on functional advantages like phone size and ease of use, its competitors have emphasised factors such as colour richness and screen size (Schwartz, 2005) For example, responding to the tastes of the Asian market in preferring the folding phones; Nokias Korean competitor Samsung has increased its competitive advantage in design and functionality, which has challenged Nokia at the high end of the market. Despite the loss of market share from product development, Nokia has still been generating more profits than its competitors from its mobile phone division because of its unrivalled economies of scale. Thus, aggressive product development and increased customisation of style and design can renew Nokias market position and provide future increased market position in the high-end segments (Schwartz, 2005) 10) Future Strategic Developments Marketing Directions Targeting End Customers A recent development that Nokia intends to utilise in more markets is the establishment of ?Nokia Experience Centres. Unlike traditional wireless retail stores, Nokia Experience Centres don't actually sell devices, but provides a service of featuring Nokia's full line of products and then referring customers to nearby retailers if they wish to purchase the devices. All of the Nokia devices displayed at the centres are operational to allow consumers to try out new features such as cameras, Bluetooth connectivity, e-mail support and wireless games. Interactive Marketing Companies such as Nokia ?know they have a group of enthusiastic consumers, who are advocates of the product. Nokia seeks to use interactivity to reward them by creating content they will want to show their friends. In the past it has been hard for firms to determine the consumer rationale for the expense of interactive marketing. However, the development in 2005 of the Nokia ads for its 6630 videophone are creating promotional

advantages and reaching additional market segments. Nokia asked consumers to shoot a video on their phone and send it in for inclusion in the ad. The interest in the content ensures repeat visits to the interactive areas and a willingness to tell others about the ad. This means the interactive element has succeeded in taking a logical role in the complex mix of communications objectives. The Chinese Market China is a major target for Nokia. The firm is aiming to significantly increase its global market share, while focusing on GSM handsets; it has extended its business to CDMA mobile phones to boost phone sales. This however may prove to be harder than it appears, as independent Chinese and Taiwanese handset vendors are able to offer cheaper options. Nokia is facing threats from Chinese mobile phone makers such as Ningbo Bird and TCL, and both sold 9.68 million and 7.65 million handset units respectively in last years first 10 months, overtaking Nokias 7.38 million and Motorolas 7.35 million for the first time. However, Nokia is setting up a new joint venture in the Chinese national capital one year into reorganising its China business for obtaining top handset sales in the country. 3G Technology The continuing development of 3G technologies that will combine multiple uses and technologies within single products will provide opportunities for Nokia to gain further market share. Such examples of future industry convergence is that the mobile handset is poised to replace the entire low- to mid-range of digital cameras (www.accenture.com) The future industry will consist of global leaders, low-cost competitors, and niche vendors (Steinbock, 2001) In 2004, Nokia announced a total of 36 new mobile devices in a wide variety of designs and technologies for all segments and at all price points. Of the products launched, 34 had colour screens and 23 were camera phones. In 2004, Nokia sold 10 million phones with integrated music players. Nokia must sustain this combining of technologies to remain the market leader (www.forbes.com) Strengthen B2B Relationships The recently launched Nokia 6101 is the company's first mobile phone to offer hardware design customisation for key operators, which includes exclusive colours, logos, industrial design alterations and product numbers. Customisation in the mobile infrastructure and mobile devices businesses is an important element in Nokia's commitment to greater customer satisfaction. Nokia plans to release 90% of its new phones in 2005 with this industry customisation feature which must become an ingrained part of operations to further increase the opportunities for cross-promotion. As well as continuing traditional

supplier/technology/value chain relationships and strategic alliances, Nokia has followed the lead of its Asian rivals and is prepared to customise phones to meet the needs of service providers. Dedicated internal teams have been set up to deal directly with Vodafone and other providers that have a big say in what brands consumers see when they sign up for mobile service. Strategic Alliances As well as continuing traditional supplier/technology/value chain relationships and strategic alliances, Nokia has followed the lead of its Asian rivals and is prepared to customise phones to meet the needs of service providers. Dedicated internal teams have been set up to deal directly with Vodafone and other providers that have a big say in what brands consumers see when they sign up for mobile service. In response to the increasing convergence within the mobile phone industry combining technologies such as music storage, Nokia is still working with Microsoft to develop a music download service for mobile devices (www.forbes.com) As part of the youth-orientated focus on product positioning and promotion Nokia is establishing an agreement with Yahoo!, the number one global internet brand that will allow millions of Nokia smart phone users to stay informed, entertained and in touch through Yahoo!'s rapidly developing internet services including Yahoo! data communications services such as e-mail, Yahoo! entertainment services such as ring tones, wallpapers and downloadable games. Nokia is the first handset manufacturer with Symbian-based products to distribute Yahoo! services for consumers in such a large number of European and Asian markets, including Australia, In response to the increasing convergence within the mobile phone industry combining technologies such as music storage, Nokia is working with Microsoft to develop a music download service for mobile devices (www.forbes.com) 11) Recommendations 1) Increase the corporate focus on changing customer tastes and demand for customisation to regain lost market share; 2) Increase product development for high-end segments and previously overlooked niche segments, including the acquisition of firms with core compentices in product design; 3) Overall corporate strategy shift from broad cost-leadership strategies towards more niche segments in the increasing fragmented market.

4) Long-term strategy of viewing regionalised markets in terms of product requirements to maximise economies of scale and scope in targeting all segments of the market. 5) Increase cross-industry strategic alliances and relationships to take maximum advantage of the converging industry such as: banking/shopping sectors; GPS and motor vehicles; camera technology developers and personal organisation technologies; 6) Target the handset replacement segments and establish a ?trade in price reduction system and incentives for long-term/lifelong consumers; 7) Evaluate the need for potential backwards integration of components to reduce supplier risks; 8) Develop relationships with key network providers; 9) Continue to develop strategically located R&D facilities, however increase the exploitation of localised resources such as Indian software development capabilities.

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