Nokia as an International Company - Essay Example

NOKIA’ mobile phone – as the International Company Introduction: Within the context of International business it is important to that organizations can pursue international growth while pursuing other growth strategies. Entry into foreign markets inevitably offers the following advantages to companies in terms of business growth: Potential for increased revenues. Achievement of lower costs and enhancement of company’s market competitiveness. Enables companies to maximize the advantage on their core competencies. Helps spreads its risk of doing business over a wider market area, thus making up for the business risk that companies might face in domestic markets. Nokia as a Global telecom giant and world leader in mobile phones business has adopted internationalization or foreign market entry as its core growth strategy with a fair degree of success. The study appraises how and to what extent Nokia achieved this feat. Background of the Company Historically speaking, Nokia was a multi product company till 1990. The main lines of production were cables, rubber and paper, while electronics unit was still relatively small. However, all this changed with the International acquisitions of several European electronics companies. Thus Nokia strengthened its position in the consumer electronics and telecommunications market. A. Modes of Internationalization: Nokia’s overall strategy: Nokia has moved on since then to become a global leader in the mobile phone business. It now is internationally the best known brand for mobile phones. Nokia has used Internationalization or foreign market entry as a strategy to: Gain access to new markets Achieve lower costs and increase its market competitiveness. Among the various modes of internationalization, Nokia has adopted a mixed bag strategy, which is as follows: Nokia- Collaborative Ventures Nokia has used collaborative ventures as a strategy particularly in Europe and in Asia, especially in China. Europe being a developed market, it made sense for Nokia to enter into joint ventures to build upon the expertise and the knowledge base of the existing companies. By 1991, the bilateral trade agreements between Finland and Soviet Union were abolished and Nokia started looking for intermediaries. This led Nokia to enter into indirect exports through joint ventures in Europe. China was a promising but unfamiliar overseas market. Thus Nokia entered into joint ventures with Chinese and other Asian companies and Government to achieve the following objectives: To gain access to unfamiliar overseas markets acquiring expertise and distribution channels in those markets. To gain access to Chinese markets where local legislation required local participation to gain entry into foreign markets. To enhance sales prospects in terms of Government and public sector contracts. Nokia has been using networks based on innovative ideas to keep pace with a dynamic technological environment, which evolved into mobile telephony. Nokia used mainly international innovation networks in becoming a world leader in the mobile phone industry. This is the best example of Nokia’s collaborative venture strategy as an internationalization mode. Although Nokia has been using Collaboration through joint R&D, outsourcing and other innovation networks; it has at the same time managed to develop and maintain a strong name and identity for itself. Nokia-Exports Nokia’s international business strategy gradually moved from collaborative ventures to more of exports as it gained foothold in the overseas markets. However, instead of making the home country Finland its export hub, it chose Countries like China and India as their export hubs to the rest of the world. Thus Nokia’s Export policy could be seen as a furtherance of its collaborative ventures. From China alone, where Nokia earlier pursued primarily the policy of Collaborative ventures, its exports grew by 50% to a record level in the year 2001. China, which had acquired the position of the second largest market for Nokia by 1991, in terms of net sales, accounted for around 10% of Nokia’s revenues. The establishment of the manufacturing facility in Beijing and an R&D center in Hanzhou contributed in a major way towards the meteoric rise in exports from China. The cost advantage and ease of business achieved, coupled with the strong business presence in an overseas market like China further enhanced Nokia’s position as a telecom leader. (Helsingin Sanomat, 2009) Nokia’s International business policy led it to the Indian Branch reaching a staggeringly high figure of Rs.16, 500 million from its Chennai facility. The total turnover of the Nokia facility for the year touched Rs. 61, 180 million. (Business standard, 2009) The facility was inaugurated in March 2006 and is Nokia’s 15th Global production facility. The unit has produced more than 25 million handsets in its first year of operations. Nearly 20 percent of the said produce was exported to South east Asian countries and a few countries in the Middle east and Africa. Nokia’s India Business is no less exciting than its Chinese counterpart. The Chennai facility in India is already manufacturing to 58 countries worldwide. Nokia plans to make it its Global export Hub. India has already taken over the US as the world’s largest market for Nokia Handsets just behind China. The rising middle class incomes and low tariffs have made India one of the fastest growing mobile phone markets in the world. Nokia – Licensing Licensing as a means to enter foreign markets is desirable when a company does not have the resources or capabilities to enter foreign markets. Nokia never had a dearth of the above two abilities. Thus Nokia did not use Licensing as a major Internationalization strategy. However, wherever it did require Licensing to gain rapid entry into foreign markets, it had a clear policy position regarding the same. The policy of Nokia takes care of the volume discounts allow manufacturers to benefit from the same. The licensing policy is premised on the principle of reciprocity between the licensing company and the manufacturer. Under the policy, the licensee needs to agree to use the same principles as Nokia does in its licensing to Nokia products. The policy is based on the Open standards being evolved in the industry encouraging licensing arrangements. Nokia had some problems though with its licensing partners. Notable is the Qualcomm, which is the global leader in the CDMA technology. They already have a series of lawsuits against each other over the licensing differences. The licensing arrangements usually provide for possible disputes to be settled within their framework and minimizing the need for lawsuits. For example, Nokia entered into a patent license agreement with Kyocera in 2004 and since have been involved in several disputes which have amicably been resolved within the licensing framework. Any pending litigations were also brought within the purview of the licensing arrangement and taken care of. (EE Times, 2006) Nokia has mostly signed licensing agreements with software and technology majors like America Online, Macromedia and Microsoft. Foreign ownership issues and trade barriers are two important factors that prompt such licensing arrangements. Nokia-Franchising Nokia as part of its internationalization efforts, has adopted franchising as an emerging way to do business. Franchising is currently the most rapidly growing method of gaining entry into foreign markets. In order to maximize sales and strengthen its distribution and service networks, Nokia launched its mobile phone and telecom stores in various parts of the world. Besides enhancing sales, franchising is a major brand building vehicle. For example, Nokia India launched its first concept store in New Delhi, displaying a complete range of its mobility product line. The aim was to improve customer experience with Brand Nokia. It facilitated an interactive and informative shopping experience. Nokia entered into an agreement with Faithful Gould to create a global framework and the latter agreed to deliver 18 flagship stores worldwide. The project comprised of new and innovatively designed stores using latest multimedia and LED technology. The focus is on customer service and enhanced experience. As a continuation of its Franchising policy, Nokia has started the ‘Nokia for Business Channel Program’. This world wide program gives access to potential channel partners to its network security products and services. Inviting investments and expertise to manage its business as business partners, Nokia’s program is an excellent exercise in brand and business building worldwide. This could be seen as a more flexible form of Franchising aimed at B2B customers as it brings in fresh business ideas and innovation into Nokia’s business. The sources of Nokia’s Competitive advantage in International Business: Nokia being a world leader in mobile communications drives the growth and sustainability of the broader mobile industry. The easy to use and innovative products coupled with equipment solutions and services for network operators puts Nokia at an advantage vis-à-vis its competitors. Superior Supply Chain network: Nokia’s superior Supply chain network in the form of overseas subsidiaries, Franchises, export networks and license partners with emphasis on Nokia’s brand building exercise is another major source of competitive advantage for Nokia. As per AMR Research (2005), Nokia’s Supply Chain network was rated as second best- both in size and quality, across different industries worldwide. For example, in terms of size, by the year 2005, Nokia was delivering more than 250 million mobile devices from a combination of 10 owned manufacturing facilities and an extensive network of outsourced manufacturing facilities worldwide, consuming over 100 million components from as many as 60 strategic suppliers. Four full 747 cargo freighters were operating on a daily basis. In terms of quality, Nokia was able to achieve the following as compared to its competitors like Motorola and Siemens: Better End to end integration of the Demand and Supply network through system integration tools like ‘Rosettanet.’ End to End efficiency and clarity through process integration and web based process integration tools like extranet. While through the efficiency and size built into its network, Nokia has achieved the Cost advantage, the qualitative improvements characterize the differentiation efforts and the resultant competitive advantage. Competitive advantage through embedded Brand enhancement exercises: Nokia has made successful efforts to increase its brand experience and brand awareness among customers through new channel partner development programs as well as through its concept stores providing superior shopping experience to the end user. Even while entering into collaborative ventures of various kinds, Nokia ensured that it kept scoring points on the brand building front. It positioned itself. Nokia’s brand enhancement exercises clearly fall into the category of differentiation advantage achieved vis-à-vis its competitors. Early entry into foreign markets as a source of Competitive advantage: The early foothold that Nokia gained in major and emerging world markets is one of the major sources of competitive advantages for Nokia. The Early mover advantage due to Nokia was enriched by simultaneous efforts to push through the new markets its brand awareness and image and the constant efforts towards technological innovation and superiority. For example, Nokia developed superior mobile phone software, which gave it much needed first mover advantage through automation of their software design work (Meta case, 2007). This has made them better positioned compared to their competitors in terms of entry into foreign markets for the next generation phones. This advantage manifests itself as a cost as well differentiation advantage to an extent since by the time competition catches up with Nokia, it has already moved into better and newer supply and demand side technologies. Conclusion Nokia’s business success is really a measure of its International business strategy which in turn is based on creating superior value through the International efforts like Collaborative ventures, exporting, licensing and franchising used as an appropriate mix in the emerging and attractive markets of the world. The strategy itself has made Nokia gain significant competitive advantage in the process. Nokia has become the world’s largest mobile phone manufacturer through the strengthening of its International business practices and placing its International business strategy at the core of its operations. The focus of its International Business strategy has been more on Collaborative ventures, exporting and lately more of Franchising. Nokia did use Licensing in its International business Operations for entry into markets wherever it was necessary. At the same time Nokia has built and retained brand value by building superior technological advantages for itself through R&D as well as collaborative efforts. Nokia has created a value chain characterized by both cost and differentiation advantages as compared to its competitors in different markets. Usually Nokia focused on cost leadership in many international markets and moved on to gain differentiation advantage later on such as in China and India. References Business Standard (2009) Nokia exports touch Rs 1650 cr. Accessed on April 22, 2009 EEtimes India (2006) Nokia, Kyocera licensing agreement resolves patent disputes.Accessed on April 22, 2009 Helsingin Sanomat (2009) Nokia celebrates two decades in China - company expects further growth. Accessed on April 21, 2009 Metacase (2007) Nokia Case Study. Accessed on May 4, 2009< http://www.metacase.com/papers/MetaEdit_in_Nokia.pdf > Read More