83031 (Globalization Strategy of Nokia), страница 2

When Nokia phones were first introduced they required a lot of promoting and advertising as they weren't established enough to sell based on their quality and what they offer to the consumer, so this is where Nokia spent the largest amount of money promoting their products and establishing their brand as a leader in the communications market. Also when mobile phones were first available there were only a few companies as well as Nokia in the market (Sony est.) so they could charge higher prices then they can at the present time in the product life cycle because no companies would dare to enter a price war with such a new product.

Growth- This stage of the life cycle also has high promotion costs involved in it, this is due to the fact that mobile phones are becoming established as a consumer necessity and lots of other companies decide to enter the growing market, although companies do not need to assure customers that they need a mobile phone, Nokia have to assure the customers that they want a Nokia phone and this is where the high promotional costs come from.

Maturity- In this stage the promotional costs do decrease as the more popular brands, such as Nokia and Samsung, have gathered the majority of the market share and only have to show customers that they have a new model out and it will sell well, as they have been established as a quality brand and customers no-longer need to be persuaded to buy Nokia brand technology.

Decline -This is the stage that the mobile communications market, including Nokia, have recently entered, and companies are promoting, heavily, their new products to the market in an attempt to get out of decline and back into growth, with a new generation of technologically advanced phones that offer motion picture capture, camera technology and the opportunity to watch television on your handset.

Today Nokia has captured the markets of over 60 countries in the world where China, India, USA, Europe, Middle East, Africa, Asia, Australia and New Zealand having largest market shares. There are two interesting cases of entering strategy of Nokia: Indian market and Chinese market.

Nokia entered India in 1995. Since then the Nokia brand has been steadily growing and has gained wide acceptance in the Indian market. India is the third largest market for Nokia, in terms of its net sales as of 2006. Nokia is one of the most trusted brands in India and leads other cellular phone brands in terms of market share, advertising and customer service. The innovative technologies, user-friendly features and affordable prices contributed to Nokia's success in India. The case facilitates discussion on Nokia's brand building strategies in India. It also allows for discussion on the future of the Nokia brand and the cellular market in India.

Since 1985, Nokia had been fighting hard to establish a strong presence in the Chinese cell phone market that had grown significantly during the 1990s. Despite investing heavily in research and development and manufacturing facilities, Nokia had been facing tough competition not only from foreign companies like Motorola and Samsung but also from domestic players like TCL and Ningbo Bird. The market share of domestic players had increased from a mere 5% in 2000 to 56% in 2003.

There are six types of entry barriers to international markets according Michael Porter. They are listed below (Porter, 1980). (1) Loyalties among buyers and sellers established previously. (2) Customers’ switching costs (any customer who wants to switch from one Supplier to another faces varying costs). (3) Access to distribution channels (available channels might not be imaginable or they may be controlled by competitors). (4) Scale effects (the entrant may need large volumes and low costs). (5) Extensive need for resources (e.g. management capacity and capital) in order to be firmly established. (6) Important costs independent of scale.

In order to overcome the above barriers Nokia adopted strategies such as mergers, acquisitions and partnering or collaborating with market leaders in those specific countries/industries.

4. Foreign Direct Investment

This section analyzes what kind of strategy Nokia took in terms of FDI.

Foreign direct investment (FDI) occurs when a company directly invests in production and/or marketing of products in a foreign country. FDI can be categorized in to two. 1. Greenfield Investments, when established as a new operation in a foreign country. 2. Acquiring and merging with existing firms of a foreign nation (Joint Ventures).

Horizontal FDI is when the company is starting business in the same industry in the foreign nation. Dubai based Telecommunication Corporation buying over Tigo Sri Lanka in Oct 2009 to enter into the Sri Lankan market is a good example (Arab News, 2009).

Vertical FDI takes place when a multinational corporation (MNC) owns some shares of a foreign enterprise, which supplies input for it or uses the output produced by the MNC (Hill & Jain, 2007).

In terms of motives, Foreign Direct Investment can be categorized as: 1. Market seeking FDIs 2. Resource seeking FDIs 3. Efficiency seeking FDIs

FDIs that are undertaken to strengthen the existing market structure or explore the opportunities of new markets can be called 'market-seeking FDIs.' 'Resource-seeking FDIs' are aimed at factors of production which have more operational efficiency than those available in the home country of the investor. FDI activities may also be carried out to ensure optimization of available opportunities and economies of scale. In this case, the foreign direct investment is termed as 'efficiency-seeking.

For Nokia it was more or less a mix of all of the above three motives. Some of the key examples for NOKIA can be listed as follows: Mergers, Collaborations and Acquisitions by Nokia • Nokia Siemens Networks (NSN) - To develop a portfolio of products and service solutions to help operators run their networks more efficiently. • NAVTEQ acquisition. To get in to the Maps and navigation technology, which have become tremendously popular services on mobile devices. (NAVTEQ’s advanced map capabilities are critically important, as we believe that the next phase of Internet services will be defined by local relevance and your "social location". Nokia is well-positioned to take leadership here). • Collaborate with The Symbian Operating System to broaden the definition of the smartphone, by expanding smartphone features into the mid-range, and into new categories. • Working together with certain competitors, new players and partners in new ways to tackle global environmental issues. • Agreements with Microsoft and IBM for corporate e-mail services. • Collaborate with Qualcomm to develop smartphones for the North American markets. • Nokia and Broadcom are cooperating on technologies a next generation 3G baseband, radio frequency (RF) and mixed signal chipset system supplier for worldwide markets., including Nokia modem technology (Tolkoff, 2009).

In the 1990s, Nokia internationalized its R&D function, by setting up research centers abroad. By 1998, half of the company’s R&D was conducted outside of Finland. Some of these centers, located in regional clusters of scientific excellence (e.g. Silicon Valley), have helped Nokia tap knowledge from rivals and foreign markets. In addition, Nokia has forged collaborations with leading universities in Finland and abroad (e.g. Massachusetts Institute of Technology) and has participated in various international R&D projects, in view of expanding the scope of its long- term technology development. By the end of the 1990s, co-operation with other companies, research institutes and universities had become a central part of Nokia’s global R&D strategy. This approach triggered two-way knowledge transfers, enabling Nokia to exploit external expertise and technology.

Furthermore, by end 2000 Nokia had set up ten plants for the manufacturing of its mobile devices in nine different countries. These plants have handled huge amounts of parts (e.g. more than 100 billion in 2006). The challenges of managing such huge volumes are enormous, but Nokia has turned high-tech manufacturing, supply chain management and logistics into one of its core competencies. In addition, the company has also been working with a selected number of external suppliers in Finland and abroad to procure electronic and mechanical components, and software. Collaborating with such a diverse base of suppliers worldwide through a horizontally-integrated supply chain model has generated (two-way) knowledge and technology transfers between Nokia and its partners, helping it to multiply its technological capacities. Moreover, Nokia’s long-term supplier relationships have functioned as a growth engine for the entire Finnish ICT (information and communication technologies) sector as it served as an international marketing channel for many smaller Finnish companies. The increasing significance of Nokia’s foreign operations in the company’s global business strategy has however implied potentially greater risks and higher costs from changes in tariffs and other obstacles to trade affecting the import and export of mobile device components.

Finally, in the early 1990s, Nokia adopted an export-based sales strategy. As a result, between 1990 and 2006, Finland’s position as Nokia’s dominant geographic market declined dramatically at the expense of other European countries, the Asia-Pacific and the Americas. In recent years, emerging markets (e.g. China, India and Russia) have been Nokia’s main markets. In addition to the changing composition of key markets, the volume of net sales also dramatically increased (+ 209% over eight years, increasing from a total €13 326 million in 1998 to €41 121 million in 2006), which enabled Nokia to recoup its R&D investments more easily. Today Nokia is ranked 85 in top 500 companies in the world (Lesser, 2009).

5. Foreign Exchange Market Impact over Nokia

"The foreign exchange risk usually affects businesses that export and/or import, but it can also affect investors making international investments. For example, if money must be converted to another currency to make a certain investment, then any changes in the currency exchange rate will cause that investment's value to either decrease or increase when the investment is sold and converted back into the original currency" (Investopedia, 2010). This way unfavorable market volatility will have a huge negative impact in Nokia’s profitability.

Large companies such as Volkswagen, Airbus and Philips, among others, have experienced a foreign exchange loss on profit arising from unhedged sales in dollar countries. Moreover, some companies, such as Heineken, Nokia and again Airbus, have already announced that the weakened dollar will keep affecting returns, due to mere short-term hedges in previous years.

The most common of these solutions are conversion of contracts into domestic currency or transferring the production abroad. The foreign exchange risk for a company will increase with the length of its foreign commitments. Relative small changes in the foreign exchange rates can have a huge impact on the profit and solvency of a company (Wijckmans, 2005).

According to the foreign exchange policy guidelines of the Group, material transaction foreign exchange exposures are hedged. Exposures are mainly hedged with derivative financial instruments such as forward foreign exchange contracts and foreign exchange options. The majority of financial instruments hedging foreign exchange risk have duration of less than a year. The Group does not hedge forecasted foreign currency cash flows beyond two years. One example from Nokia is KongZhong Corporation, a leading mobile Internet company in China, reaching a non-binding agreement with Nokia Growth Partners (NGP) to receive an investment of about US$6.8 million in 5-year convertible senior notes. NGP would also receive warrants to purchase an additional 2.0 million American Depositary Shares (ADS) at US$5.0 per ADS, exercisable within five years (PR Newswire Association LLC , 2009).

Nokia uses the Value-at-Risk ("VaR") methodology to assess the foreign exchange risk related to the Treasury management of the Group exposures. The VaR figure represents the potential fair value losses for a portfolio resulting from adverse changes in market factors using a specified time period and confidence level based on historical data. To correctly take into account the non-linear price function of certain derivative instruments, Nokia uses Monte Carlo simulation. Volatilities and correlations are calculated from a one-year set of daily data. The VaR figures assume that the forecasted cash flows materialize as expected.

6. Culture and Environment

Culture of a MNC is very vital when conducting business. Colleagues of different ethnic groups should be clear in communication as well as in interaction. While understanding the core cultural competencies within MNC it is equally important to apply them in the local contents (Smedley, 2008).