by: Daniel Sroda

There are many macro and micro environmental forces that effect Nokia’s ability to serve its customers. Over the next 1-5 years, the competitive landscape may be shaped by four major market drivers.

Growth in developing markets

China is the largest market by sales and India is predicted to become the second largest market by 2010 (BBC website, 2007). Africa, South America and Eastern Europe are also growth markets. Nokia’s experience in developing markets may provide a competitive advantage over competitors who are only just beginning to venture into what is relatively unknown territory. The fact that Nokia has existing distribution channels (Ewing & Lakshman, 2007) combined with competencies such as knowledge, understanding and experience of these markets (India, China and South America for example) will provide a competitive advantage over their competitors. Further, Nokia’s ability to keep costs down through economies of scale and effective operations means that high margins can be maintained even in the face of price competition. This is important for developing markets as the demand will be for low-cost entry-level handsets until the mobile industry has been established and customers upgrade a s they become more sophisticated (Virki, 2007). Nokia’s ability to cater for the demands of the market whilst maintaining profits provides a significant competitive advantage and acts as a barrier to potential entrants.

Changing technology and digital convergence

According to Nokia (2008) mobile communications, music, media and information technology are converging in to one industry. Ojo (2009) notes that the threat of substitutes from net-books and other computer based products is increasing as phones and PC’s become more homogenous. This rapid technological change increases customer sophistication and heralds the threat of companies such as Microsoft entering the market. These companies may have more experience and resources in areas of relative inexperience for Nokia which may mean that Nokia are at a competitive disadvantage. One means of reducing this threat is through merger and acquisitions (M&A). The economic climate may provide an opportunity for Nokia to take advantage of financially weak rivals (Ojo, 2009. This provides a route for Nokia to gain market share and experience in new industries. Acer who have an 11.9% share in the notebook market (Kwong, 2009) are a possible target and Nokia’s relative financial position may facilitate this, although there may be competition for the acquisition by companies such as Siemens and HP.

Economic climate

Nokia’s large market share in developing markets such as India, which have been insulated against the full extent global economic recession (Parker, 2008), has provided Nokia with a financial advantage over its competitors. However, according to Nokia (2008) 37% of sales originate from the European market which is heavily affected by the global economic crisis. This has affected the ability of customers to purchase reduced profits and has lead to reduced R&D budget (Wearden, 2009; Ojo, 2009). This may lead to a loss of competitive advantage for Nokia as technological innovation is a core competence (Prahalad and Hamel, 1990) and may signal a move from differentiation – a key outcome of Nokia’s R&D activity – to cost leadership. Porter (2004;35) describes cost leadership as yielding “above average returns despite the presence of strong competitive forces” and it could be argued that Nokia has enjoyed the benefits of being the cost leader whilst also having a strongly differen tiated brand and product. Porter (2004) notes that these two strategies are usually incompatible as differentiation is capital intensive and trade offs with cost savings may be inevitable. Increased competition via the introduction of the Iphone, flip phones, RAZR etc has diminished Nokia’s product differentiation and, when combined with the effects of the economic climate, may precipitate a revised strategy.

Increasing competition in developed markets

Increasing price competition in domestic markets (Laurent, 2008) and the maturing industry (Nokia, 2008) has eroded profits (Ojo, 2009). Further, Apple has entered the market and Microsoft is on the competitive horizon, both of whom have huge budgets and perhaps more importantly, greater competence in computing technology. Therefore, to remain competitive in traditional markets may require increased spending on marketing and R&D and an effort to develop competencies in these new technologies before market share, profits and ultimately shareholder value is eroded. However, with R&D cuts announced, there may be a dichotomy. Increased spending on R&D is needed to maintain market share but fewer funds are available. Nokia need to find a way to develop the competencies in new technology that will fend off competition from Microsoft and Apple. R&D may not provide the best return on investment (ROI) in the current climate and M&A may be a more prudent strategy.

References

BBC website. 2007. India now Nokia’s second market. [Online] Available from http://news.bbc.co.uk/1/hi/business/6960520.stm. Accessed 4th March 2009.

Ewing, J. and Lakshman, N. 2007. NOKIA LESSON LEARNED, REWARD REAPED; Offering products for every corner of he market is paying off for the mobile-phone maker. Business Week. p32.[Online] Available from http://find.galegroup.com/ips/start.do?prodId=IPS (Gale Document Number:A173253571) Accessed 23rd February 2009.

Kwong, R. 2009. Acer unveils cheapest ultra-thin notebook. Financial Times. [Online] Available from http://www.ft.com/cms/s/0/a97c892e-244b-11de-9a01-00144feabdc0,dwp_uuid=aece9792-aa13-11da-96ea-0000779e2340.html Accessed 10th April 2009.

Laurent, L. 2008. Nokia Losing Price Wars. Forbes website. [Online] Available from http://www.forbes.com/2008/10/16/nokia-apple-technology-markets-equity-cx_ll_1016markets09.html. Accessed 4th March 2009.

Nokia. Form 20-F. 2008.

Ojo, B. 2009. Analysis: Nokia vulnerable to maturing mobile market. Electronic Engineering Times. 23 March, 2009. p8

Parker, A. 2009. Nokia vows to exact revenge on rivals. Financial Times. [Online] Available from http://www.ft.com/cms/s/1c7540a4-d831-11dd-bcc0-000077b07658,Authorised=false.html?_i_location=http%3A%2F%2Fhttp://www.ft.com%2Fcms%2Fs%2F0%2F1c7540a4-d831-11dd-bcc0-000077b07658.html&_i_referer=http%3A%2F%2Fsearch.ft.com%2Fsearch%3FqueryText%3Dnokia%2Bvows%2Bto%2Bexact%2B Accessed 7th February 2009.

Porter, M.E, 2004, Competitive advantage: Creating and sustaining superior performance, Free press, USA.

Prahalad, C. K. and Hamel, G, 1990. The Core Competence of the Corporation, Harvard Business Review. Vol. 68, No 3, pp 79-91.

Virki, T. 2007. Nokia leads race for next billion mobile users. Reuters. [Online] Available from http://uk.reuters.com/article/technologyNews/idUKL228063620070625 Accessed 23rd February 2009.

Wearden, G. 2009. Nokia to shed another 1,700 jobs. The Guardian website. [Online] Available from http://www.guardian.co.uk/business/2009/mar/17/nokia-mobiles-telecoms-recession. Accessed 25th March 2009.

Daniel Sroda is a personal development and management trainer and owner of Coloursave Printer Cartridges.

The author invites you to visit: http://www.coloursave.com