Nokia Company from 2003-2008 - Case Study Example

Table of Contents Table of Contents 1 Management structure 2 Business Competitors 3 Business Particulars 3 Motivation to operate as a MNC 4 Foreign exchange exposures 4 Hedging foreign exchange exposure 5 Reference 7 Operations of the company The company’s aim is to provide high-quality and innovative products and services that helps the people to connect. A majority of its products are sold through network operators, distributors, and its branded stores. These stores are owned and managed by the retail partners of the company. This constitutes the main customer base of the company. Along with this the company also sells to few independent retailers. Some of the company’s sales are made directly through “Nokia Online” (Nokia-a , 2010). Management structure The management structure of the company is not too much hierarchical. Importance is given to teamwork and mutual respect (Nokia-b, 2010). In the beginning of 2008 the company announced a new “company structure”. It aims at aligning the opportunities in the company with future growth prospects. Nokia also plans to increase the efficiency of the working ways across the company. Corporate governance in the industry According to the Articles of the company and Finnish Companies Act the management and control of the company is divided between the company shareholders, the Board of Directors,, President and Group Executive Board headed by the CEO. The Board gives decisions relating to the activities of the Group including crucial investment decisions, approval of plans and divestments. The Group Executive Board of the company is in charge of managing company operations (Nokia-c, 2010). Business Competitors The competitors of the company are LM Ericsson Telephone Company, Motorola Inc. and Samsung Electronics Co., Ltd. Nokia has the highest market capitalization out of all the above mentioned competitors. In terms of sales the company ranks first among its competitors. Business Particulars Nokia has operations across China, Finland, India and Germany. In these countries the company offers Networks Technology. Nokia offers “mobile devices and technology” services in China, Brazil, Great Britain, Finland, India, Hungary, Mexico, South Korea and Romania (Nokia-d, 2010). The devices unit of the company is in charge of managing and developing its mobile services portfolio. Nokia Siemens Network offers fixed network infrastructure, wireless, networks and communications service platforms and professional services to service providers and operators. NAVTEQ is a major provider of “digital map data” for mobile navigation devices, internet based applications and business & government solutions. The map data of NAVTEQ is a significant part of the map services of Nokia which provide downloadable maps and voice-based navigation (Nokia-f, 2009). Motivation to operate as a MNC The vision of the company is based on the principle “Connecting the "we" is more powerful than just the individual”. Nokia thrives on this ideology to make this world emerge as a better place. To achieve this, company wishes to become a leading service provider of mobile services. The strategy of the company is based on their outstanding assets devices portfolios that offer unparalleled geographic reach and scale. The differentiation in the offering of the mobile solutions is based on an understanding of the consumers, with social place as the main focus (Nokia-e, 2010). Foreign exchange exposures The foreign exchange exposures arising due to fluctuations in the foreign exchange rates are translation exposure, economic exposure, and transaction exposure. Translation exposure arises as a result of conversion from the overseas to the domestic currency at the time of consolidation of the financial statements. Transaction exposure arises when there is a change in the value of the contracts denominated in foreign currency due to exchange rate fluctuations. This kind of exposure can be harmful for a firm whose business primarily comprises of international trade. Operating exposure arises due to the impact of exchange rate fluctuations on the future costs and revenues. The economic exposure includes the Transaction and Operating exposure (Bangor Business School, n.d.). The extent of translation exposure depends on the contribution of the foreign subsidiaries in the business of the MNC. Higher this proportion more is the translation exposure. The gains or losses from this kind of exposure depend on the governing rules of translation. There are four methods for the purpose of translating foreign “foreign currency financial statements”-Current/Non-Current Method, Monetary/Non-monetary method, Temporal Method and Current Method. Based on the method adopted, the amount of translation exposure as well as the decision-making will vary (School for Business and Regional Development, n.d.). Hedging foreign exchange exposure The sales of Nokia are denominated in UK pound, US dollar and Australian dollar. The costs of the group are in sterling as well as US dollar. The foreign exchange exposures of the company are consolidated on a global basis and then settled through netting. This eliminates the need of entering into external forex dealings by the operating companies of the group. The Group uses options and forward contracts for hedging the exchange related exposure (The Association of Corporate Treasurers, 2004). Options are exchange traded derivative instruments that give the right to buy or sell an underlying asset without any obligation to do so. The business can buy currency options i.e. buy a call option for hedging the value of payables and buy put option for hedging the value of foreign receivables (Bangor Business School, n.d.). Forwards are over the counter derivative instruments that give the right to buy an asset at a future date. Unlike options the forwards are binding to the company. This means that in the event of any favourable market movements too the forward contracts have to be honoured. Transaction exposure can be hedged through Forward market hedge, Money Market Hedge, Options, Back to back Loans and swaps. The operational techniques of hedging are Choice of the Currency of invoice, Lead or lag strategy, Netting, Currency diversification and Reinvoicing Centers. Under money market hedge the business can hedge its foreign currency receivable by borrowing in the foreign currency. Similarly it can hedge its foreign currency payables by lending in terms of foreign currency. By way of this the business can match the value of its foreign currency denominated assets with the foreign currency denominated liabilities. Under the operational strategies the company can choose the domestic currency for invoicing thereby shifting the exchange related risks to the other party. If the manager of the company anticipates the value of the foreign currency to depreciate, then the business can lag the payables and lead the receivables. Similarly if he expects the foreign currency to appreciate then the business should lead the payables and lag the receivables. (Bangor Business School, n.d.). Reference Bangor Business School. No date. Scope of Lecture 4. Nokia-a, 2010. Our customers. Corporate Responsibility. Available at: http://www.nokia.com/corporate-responsibility/ethics/our-customers [Accessed on March 29, 2010]. Nokia-b, 2010. What is it like to work at Nokia?. Available at: http://www.nokia.com/about-nokia/company/faq [Accessed on March 29, 2010]. Nokia-c. 2010. Corporate Governance. Overview. Available at: http://www.nokia.com/about-nokia/corporate-governance/overview [Accessed on March 29, 2010]. Nokia-d. 2010. Production units. Company. Available at: http://www.nokia.com/about-nokia/company/production-units [Accessed on March 29, 2010]. Nokia-e. 2010. Vision and strategy. Company. Available at: http://www.nokia.com/about-nokia/company/vision-and-strategy [Accessed on March 29, 2010]. Nokia-f, 2009. Structure. Company. Available at: http://www.nokia.com/about-nokia/company/structure [Accessed on March 29, 2010]. The Association of Corporate Treasurers. 2004. The Treasurer December 2004. Available at: http://www.treasurers.org/thetreasurer/200412 [Accessed on March 29, 2010]. School for Business and Regional Development. No Date. Methods for Translation Exposure. Scope of Lecture 5. Read More