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The Nokia Group (Nokia) is the world’s largest mobile manufacturer and a leading
supplier of digital mobile and fixed networks. The company’s increasing focus on
cellular products and wireless services is responsible for the Nokia success during
the last decade. Headquartered in Helsinki, Nokia is the largest and most successful
organization in Finland.
The Organization
The Nokia Group has during the last decades experienced major organizational
changes and shifted its focus to new market and product segments. In 1994 Nokia
consisted of five business groups; Consumer Electronics, Telecommunications,
Cables and Machinery, Mobile Phones and Other Operations, with its core focus
towards telecommunications. Later Nokia merged the Consumer Electronics and the
Cables and Machinery business groups with the Other Operation business group
(Nokia 1997).
There are many elements and organizational factors in the company’s outstanding
success. The company was established in 1865 and has over a long period
established strong relations with different vendors and manufacturers in different
parts of the world. From the early days of the mobile industry, Nokia produced and
manufactured multiple standards and cellular products. The firm acquired a wide
base of knowledge and with its continued research and development (R&D) effort,
the result was production of superior cellular products and wireless services.
The Nokia Group is represented with sales in 130 countries. Most of the company’s
executive management and board are with Finnish origin. In each country the
company is represented with a local management, which is responsible for various
operations in its country. Due to the majority of Finnish leadership, it resolves
similarities to an organization with polycentric management with geocentric
operations (Keegan 1998:11-16; Rahul 1996).
Nokia has increased total sale with more than 60 percent since 1994. The mobile
phone group’s share of the total sale has increased from 35 percent in 1994, to 56
percent in 1997. The profit from the group has increased from 44 percent, to 61
percent the same period. The net profit of the total sale has more than doubled
since 1995, to 12 percent in 1997. The R&D costs have increased 2 percent for the
same period, to 9.3 percent of the total sale in 1997.
The Nordic markets
Today, Norway is the only Scandinavian country that not is a member of the
European Union (EU). The other Scandinavian countries, Sweden and Denmark,
have been members since 1995 and 1974. Finland became a member in 1994. The
importance of Finland’s participation in the EU is obvious to the global localization of
the Nokia Group today. Nokia is represented with sales offices in every European
country, US and in Asia. Nokia has production facilities in Europe, Asia and the US
and R&D departments in 11 counties. The organization’s economic development
resolved in heavy foreign capital investment and is today represented in European
and US stock exchanges. In some respects, Nokia as a Finnish company could be
identified as a Baltic country, rather than the belongings to the western European
culture and economy (Guttman 1994; Rahul 1996; Nokia 1997).
Part of Nokia’s core competence is the knowledge and experience in the wireless
cellular and network services industry. By focusing on superior products and
services, Nokia has gained several national and international awards. Introducing
new product modifications and technological enhancements is part of the
company’s product leadership. With a wide range of products, Nokia has applied
products independently of technical standard or geographical location. Nokia also
participates in developing new global standards for future telecommunication needs
and trends. With its leading position as mobile phone manufacturer and supplier of
digital mobile networks, Nokia’s participation in development of future technologies
enables them to deliver excellent products for the next decade.
The Nokia products are targeting to specific market segments. The Nokia design on
portable cellular phones is characterized by lifestyle, freedom, opportunities of
choice, technology and urbanization (Nokia 1997). The product design both
emphasizes consumer behavior and technical industry standards.
Nokia was the first cellular mobile manufacturer who adopted models for new ways
of thinking into their marketing operations. The general management urged
marketing managers to think of companies as repositories of skills, rather than
portfolios of products. A marketing team from Nokia went to Venice Beach in
California and the King’s Road in London, to observe the way that mobile phones
were becoming fashion accessories (Economist March 1997:77).
Nokia saw that the customer preferences were starting to change, and applied
these changes to their products. To spot the needs in the market, and to tell the
customers that this is the phone they need, are some of Nokia’s strengths.
Nokia has for many years had a focus on design, customer adaptation, and user
friendliness. This has turned out to be a success, as they passed Motorola in 1998
as the world-leading supplier of mobile phones (Nokia 1998).
The unique value seen by consumer’s is identified in the products unique value. The
unique value can be viewed as the customer’s perception on its benefit preferences
divided by actual price
A Global Winner
The outstanding growth and success of Nokia can be summarized as the overall
performance, focus and strategic decisions made in the early days of the mobile
strategic decisions made in the early days of the mobile cellular industry.
Product leadership
As the company grew, they identified new need, for a maturing markets and created
customer needs as the products where launched (Lamb et al. 1994:728-740).
The global mobile phone industry is based on many different manufacturers and
operators. The industry is based on advanced technology and many of the
manufacturers are operating in different industries, where they use their
technological skills, distribution network, market knowledge and brand name. Three
large manufacturers of mobile phones are today dominating the global mobile
phone industry; Nokia, Eriksson and Motorola. In addition to these companies there
are many manufacturers that operate globally and locally. This report focuses on the
competition among these organizations.
When operating in a global market, there are a lot of elements to consider, like
boundaries and barricades, legislation and regulations. In Europe many countries
have joined the European Union (EU). EU founded the Single European Market in
January 1993, which allows mobility of goods, people, services and capital between
the countries. Another trade organization in Europe is the European Free Trade
Association (EFTA). This organization was founded as an alternative to the EU to
ensure the negotiation power with EU and to agree on common tax and tariff rates
among the members. The United States, Canada and Mexico signed a free trade
agreement (NAFTA) to establish an open market between the countries. South and
Central America (El Salvador, Guatemala, Honduras and Nicaragua) signed the
Central American Common Market (CACM). The Latin American countries
(Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru,
Uruguay and Venezuela) formed Latin American Integration Association (LAIA,
formerly the LAFTA). In Asia the ASEAN (Association of South East Asian Nations)
countries has signed the Agreement on the Common Effective Preferential Tariff
(CEPT) scheme for AFTA, but this will not be in use until the year 2008.
These new open markets are made to protect manufacturing and business within
the area. For global companies located outside these markets, this may lead to
higher import tariffs (Bradley 1995:172-173). It is estimated that 60 % of the world
trade is going to be tariff free early in the next century (World Trade Organization
1997).
131 governments are members of the World Trade Organization (WTO), which
succeeded the GATT in January 1995. WTO emphasizes an effort order and
predictability in international relations, based on three principles; nondiscrimination,
open markets and fair trade.
In many countries, the fixed telephone service is still a public sector monopoly. Last
year WTO agreed on that the monopolies should be removed to ensure competition
in these markets. This resolution is a result of the agreement by the countries of the
EU to create a single market for telecommunication services (The Economist,
September 13th 1997). The step away from monopolies will probably lead to lower
prices on using the mobile phones. A decrease on these prices will again lead to
increased demand for mobile phones (Parkin and King 1995:327-331).
The trade unions and organizations are often responsible for defining technological
standards for its area. The World Intellectual Property Organization (WIPO) and the
WTO have agreed on a joint initiative to provide technical cooperation for
developing countries. Good timing and early innovation combined with better
knowledge about customers, competitors and markets than other players in the
industry, may lead to a competitive advantage (Larsen 1998). The increased
importance of being the innovator or having the best technology may lead to more
focus on affecting the decisions on defining technological standards (Porter 1985:5;
Porter 1990:35)
The sales of mobile phones in the South and Latin America have increased rapidly,
but it is estimated that half of the regions 490 million people have never used a
phone. The region is benefiting from an improved governmental stability and a
trend towards privatization (Motorola 1997:10). The market for mobile phones in
Asia is also increasing rapidly, and the potential sale is enormous due to the number
of people living in the area. The local operators have to develop the infrastructure
for mobile phones to ensure the application and sale of mobile phones in the area.
The crises in Asia this year has spread to most of the world. It has been reflected in
stock markets world wide, and many branches, markets and companies have been
through a rough period (Appendix II). The result is governmental changes in many
countries. This lead to a more uncertain political arena on the global mobile
manufacturer market. Even though the price is low, the risk for large investments in
these countries is considerable.
Mobile manufacturers have invested a lot of time and money in R&D and product
development. This is their core strengths when facing possible entrants to the
industry (Thompson and Strickland 1995:42). There are, at the time, no substitutes
to the mobile phones. The potential sale is sky high, especially in un developed
countries like China, India, Brazil, Indonesia, and other 3rd world countries with high
population rate (Bradley 1995:242-250).
Generally the global market is moving from an analogue system towards different
digital systems or platforms. Europe and parts of Asia are based on the GSM
technology. North America is primarily based on the CDMA technology, but small
local installations of GSM technology are in service and future investments of
satellite networks are in progress. With coverage in Europe, Asia and North America,
GSM has a widely coverage in global cellular phone markets.
There are two new types of systems in development, each of which will provide a
range of innovative services (Evans et al. 1998);
Global Mobile Personal Communication Services (GMPCS) that will offer voice, fax,
low rate data, and messaging services to mobile handsets similar to those used
today. Iridium, Globalstar and ICO are the main GMPCS systems. All are expected to
be in full service by early 2000.
Motorola
Motorola is one of the leading supplier of wireless communication, semiconductors
and advanced electronic systems. Since 1993 they have been the worlds largest
mobile manufacturer, as a result of their strong position in their large home market.
Motorola has lost their leading position in their home market to Nokia, which in fact
has become the world’s largest mobile manufacturer this year (Nokia 1998). The
American company is decentralized with six sectors reporting to the office of the
CEO. Motorola employs more than 150.000 people worldwide (Motorola 1997).
Strategic Cost Analysis (Thompson & Strickland 1995) shows that Motorola has
problems with their productivity compared to their main competitors (Appendix V-
VI). Motorola is facing a stagnation of the sale per employee and the net profit in
percent of sale has decreased from 7 % in 1994 to 4 percent in 1997 (Appendix VI).
The customers preferences and needs have changed during the 1990’s. Motorola
has failed in adopting to these changes in their product development and design,
and in their communication towards the market.
L.M. Ericsson
Ericsson is another leading supplier of analog and digital mobile systems, mobile
phones and terminals, energy systems and defense electronics. The company has
more than 100.000 employees, but according to Dagsrevyen (1998) the company is
dismissing about 10.000 of its employees. Ericsson’s small home market made
them look towards the international markets. Their sales of ordinary
telecommunication equipment made it possible for them to build a global
distribution network at an early stage. This has become an important strength for
the company. Ericsson has been able to integrate their overall knowledge with the
future development of the mobile phone industry. This has lead to a 27 % average
annual growth in total sales since 1994, with a 35 % growth in 1997. Even though
they have grown fast the recent years, they have managed to improve their
profitability from 8 % in 1994 to more than 11 % in 1997 and increased their sale
per employee from 154 to 237 the same period (Appendix V-VI).
In the early days of the digital mobile development, Ericsson was the main provider
of the TDMA system in the US, and does not supply mobile phones for the
competing CDMA standard (Finstad 1998). Due to this, they have lost potential sale
in the US market.
"Global Marketing Strategy" has achieved great attention all across the world, both
among the academicians and practitioners. It has been argued that worldwide
marketplace has become so homogenized that multinational organizations can
market standardized products and services all over the world, with identical
strategies, that leads to lower costs and higher margins.
"The railroads did not stop growing because the need for passenger and freight
transportation declined. That grew", Levitt (1960) explores the blindness of major
business industries caused by narrow industry identification. The cellular phone
industry is facing similar challenges today. There are hardly any cellular devices that
only enable a phone conversation. New cellular devices are launched into the
market with capability to collaborate information, exchange text messages, connect
to corporate information sources etc. The railroad example and the cellular phone
industry face similar identification threats, as the industries continues the rapidly
expansion. The Marketing Myopia (Levitt 1960) is often refereed to as the marketing
disciplines most quoted and reprinted paper that demonstrates the need for a broad
interpretation of the marketing function. The article strongly argues for avoiding the
myopia of narrow, product oriented industry definition.
During the 1970s, the globalization of world business started for full (Jain 1989).
American, European and Japanese organizations established subsidiaries and joint
ventures all over the world. Theodore Levitt (1983) followed the globalization of
business and emphasizes the focuses on the technology as a driving force towards a
converging commonality in proletarianized communication, transport and travel.
"Almost everyone everywhere wants all the things they have heard about, seen, or
experienced via the new technology" (Levitt 1983:1). The new reality forces
organizations to emergence the global markets, but the multinational and the global
organizations are not the same. The globalization of markets (Levitt 1983) explains
how the same standardized product needs different analysis in different
geographical segments in the global marketplace. The different analysis approaches
are reflected in the organization’s orientation towards a multinational or the global
company.
Before the classic article of Buzzel (1968), "Can you Standardize Multinational
Marketing", natural entry barriers related to culture were seen as very high,
commanding adaptation to national markets and offsetting the potential
advantages of scale economies. Buzzel clearly showed that with the decrease of
purely artificial trade barriers, large international organizations could create natural
entry barriers unrelated to culture through economies of scale. There have been
numerous texts, which have sought to advice business people and academicians
how to make the best choices between standardization and adaptation of marketing
policies to foreign markets (Solberg 1997; Hout et al. 1982; Hamel and Prahalad
1985, Quelch and Hoff 1986; Ghoshal 1987).
During the 1970s and 1980s the debate on centralization versus decentralization of
multinational organizations intensified. Organizations began to think that there
would be a trend towards more standardized products which was delivered by
standardized organizations. It soon became evident that any large-scale
centralization of assets, resources and responsibility would be both organizationally
difficult and strategically difficult (Buzzel et al. 1995).
The globalization of consumption was presented as unquestionable postulate,
because it was much easier to adopt to the recentralization policy within the
organization.
Kashani (1989) gives the example of Lego, the Danish toy company facing a leading
competitor in the US, Tyco, which sold its toys in plastic buckets instead of Lego’s
elegant see-through cartons, standardized worldwide. When asked by the US
management to package in buckets as the competitor, who was gaining market
share, the head office rejected the request. After two years and massive loss of
share on the US market, Lego’s headquarters in Billund decided to create a newly
designed bucket. Not only was the share erosion in the US stopped, the bucket was
introduced worldwide and proved to be a great success. This case demonstrates
that the relationship between the headquarters and subsidiaries for defining
marketing strategies is complex. Too much autonomy results in purely local
solutions with little economies of scale and an absent of worldwide coordination,
especially when strong actions are needed.
Countries can be grouped into regions for administrative convenience. This grouping
sometimes makes a difference. One American company worked on an Asian
strategy, without acknowledge the vast differences existed between Hong Kong and
Malaysia or Indonesia and India (Kanter 1994). Similar assumptions where made in
Europe and companies gained efficiency by creating "Eurobrands", but they still
have to deal with many jurisdictions and local distributors (Bartlett 1983; Keegan
1998:86-107; Ohmae 1995:119-125).
The balancing acts required for effective execution of global strategies represent
one more force for organizational change. Less bureaucracy and more
communication will characterize the global competitor of the future. Vertical control
and a hierarchy command will be replaced by more horizontal, peer-oriented
relationship building across borders and boundaries (Day 1992; Kashani 1989:96;
Mintzberg 1991; Yip 1992; Bartlett and Ghoshal 1997; Keegan 1998:545-558 and
562-564)
Global marketing strategy is about thinking in an integrated way about all aspects
of the business - its suppliers, production, markets and competition.
As we are moving into the next millennium, the world has become a global
playground. People, markets, governments and organizations are continuously
communicating across borders and exchanging information. The liberalization and
technological invention is the main driving forces in the wireless telecommunication.
Mobile cellular devices are widely accepted in the main markets; Europe and North
America, with over 120 million subscribers and units sold, and still growing rapidly.
Since 1989, Nokia has reorganized its organization from providing everything from
electronics, cables and machinery, paper and chemicals, rubber and floorings to a
lean a focused organization in the telecommunication industry (Lipasti 1989 and
Quelch 1989). This organizational change enabled Nokia to focus on its core
competence and be the superior manufacturer in the telecommunication industry.
Nokia identified the opportunity trends in the market development of mobile cellular
products at an early stage of the wireless revolution.
Mobile cellular devices are today an integrated peripheral of our daily surroundings.
In the Nordic countries the mobile devices are almost as natural as personal
watches.
The connection between consumer fashion and high technological mobile phone
devices made wireless communication devices more available.
Nokia has established the "Nokia Mobile Phones Group" as a leading company
delivering consumer oriented cellular devices. The products relate to customer
lifestyles, freedom, and independence with the newest technology available.
Following the trends in the different local markets enables Nokia to understand
consumer preferences and develop superior products.
To follow the rapid changes in the industry, several leading organizations are
preparing for the new reality. Several joint ventures are established among the
world’s leading manufacturers of mobile cellular devices, telecommunications
operators, database operators and content providers.
Many of the world’s biggest companies will challenge Nokia in the future.
Organizations like Microsoft, CNN, SUN Microsystems, AT&T, Cisco and 3Com among
others, are all players in the new era of telecommunications and wireless
information exchange (Evans et al. 1998:13; Eugster et al. 1998:92). The key issues
for further success is; 1) the establishment of the core network, where data and
voice networking do not reside on functionality; 2) creating the unique product
platform, not just offer the unique platform, but also bundles with partners to
provide and influence the "killer" applications; 3) delivering the platform, enable
solutions based products I.E e-commerce and management information systems; 4)
increasing organizational skills among employees and partner alliances.
Given the stability of the Internet standard, this consolidation is likely to continue,
meaning that ultimately there will be fewer seats at the table for today’s
organizations and a higher demand in personal sectors. At the same time,
networked applications will drive the growth.
Finally, the battle for the edge will be reached by stable focus on the superior
solutionsand customer relationship.