Strategic Analysis Of Nokia: External & Internal Environment, Value Chain, Business Strategy, Ansoff’s Matrix

External environment analysis

In the modern day business, understanding the environment and the capabilities that a firm has is very much important. Both Internal and external analysis can be done with the help of strategic tools.

Nokia is one of the biggest Finnish mobile manufacturers in the world. It also deals in the business of consumer electronics, telecommunication and information technology. It was founded in the year 1865 and right now it has operational business in more than 130 nations. Nokia currently has more than 102,000 people working under its name with annual revenue of 23 billion Euros. It is public listed company and is listed in New York Stock Exchange and Helsinki Stock Exchange. It comes in the list of Fortune 500 companies (Vuori and Huy, 2016). Nature of the Nokia’s international business is competitive where they are highly dependent on the research. The nature of their business at the global level is understood by the fact that they have put innovation at their first preference.

This report analyses the external and internal environment of the company by taking use of different strategic tools. It also illustrates about the strategy that is made by the organisation so as to improve its performance. At last it evaluates about the strategic options available with the firm for its growth.

For doing the external environmental analysis of the organisation, the tool that can be used is PESTLE analysis.

• Political: The political environment of Nokia is said to be a bit uncertain. This is due to the reason that recently the company faced one its biggest economic crisis and the government has refused to give it any kind of economic aid in the form of special favours or bailout packages. It also did not receive any kind of help from other European nations (Aspara, et al. 2011).
• Economic: The economic challenges for Nokia have increased considerably. This is the reason that they had to make alliance with Microsoft in order to come out the problems they are facing. Due to innovation, many companies emerged in the market especially in China and America (Aspara, et al., 2013). These companies captured the larger part of the market share which has resulted in loss for the company.
• Social: Society has changed and so is their demand. There are people from the different sections of the society and they have different kinds of demands. In order to fulfil these demands company needs to bring more innovation in their products. Positive fact is that there is increase in the numbers of mobile phone users and in the coming time developing and developed nations will capture the major part of the market base (Rusko, 2012). It also has a customer’s base that is highly loyal towards their brand.
• Technological: In the last few years company’s officials were not ready to user Android as their operating system. This become a problem for the company and their sale decreased considerably but in the last few years they started to work on the platforms such as Android and Windows. This gave them a boost to the sales (Chikezie, 2011).
• Legal: The legalities in the world have changed especially the ones that are related to the customer satisfaction and environment related concerns. The mobile equipment generated huge amount of radiation which is not good for the health of the people (Willigan, 2016). Their competitors like Google have faced legal compliances in the European Union which is again a matter of challenge for the organisation.
• Environment: They have faced problems related to economical and safe disposal of waste products. The uses of lithium batteries have again increased the concerns for them. They have to look for the improving their supply chain that will help them in reducing the waste that is generated in the packaging, transportation and logistics of the company (Dedrick, Kraemer and Linden, 2011).

In order to understand the industry environment, it is crucial that porter’s five forces analysis can be beneficial.

• Bargaining power of suppliers: Since there are large numbers of suppliers available in the European region hence the bargaining power of the suppliers is on the lower side. With their new partnerships in different areas this power has further decreased (Pai, 2015). Partners like Microsoft have given them new opportunities to do their business.
• Bargaining power of consumers: Bargaining power of the consumers is on the higher side as they have lot of options to purchase from. There is an immense increase in the numbers of mobile phone producers which has given them with choices to select. This is a serious threat to their business as people can switch their loyalty.
• Threat of new entrants: There are many new companies emerging in this industry as the investment that is required for setting the business is on the lower side (Singhal, 2015). On the other side making its name in the industry is not easy and highly innovative products have to be launched so as to gain competitive advantage hence this threat is at the moderate levels.
• Competition: There are many companies in this industry. Big names such as Apple, Samsung and MI have captured the major part of the market share. They have the capacity to change the demands in the industry. This is one of the major reasons why it has become a much larger threat for Nokia.
• Threat of substitute: This threat is on the lower side as there are not large amount of threat available that replaces the mobile phones. The other gadgets can be replaced. But the substitution is available within the selection of phones as large amount of phones are available in the market (Crespo, Suire and Vicente, 2015).

In order to understand the internal analysis the analysis that can be beneficial is VRIO framework.

• Value: This Company has created a strong brand recognition based on the value that it gives to its customers. It is one of the oldest mobile manufacturers of the industry. This company has lost its market due to less innovative culture at the workplace.
• Rarity: Before 2012, it was known to be one of the rare companies that have high value in its products. After that many innovations took place and many of them have copied each other’s idea hence rarity is one of less common things in the industry.
• Inimitability: Because of the research and patents they have become power in GPS system and mobile network infrastructure but at the same time the mobile devices are not so much effective due to different factors (Lee, 2013).
• Organisational support: This has been one of the weak points of the firm as they lacked vision in terms of innovation. This made Nokia unsuccessful especially at designing innovating products.

Resources and capabilities	Does it have value	Is it rare?	Is it inimitable?	Organisational support	Competitive implication
Brand	yes	yes	yes	yes	Competitive disadvantage
Merger and Acquisition	Yes	Yes	Yes	Yes	Competitive Parity
Research and Development	Yes	Yes	No	Yes	Competitive advantage for temporary period
Innovation	Yes	No	Yes	No	Sustainable competitive advantage

Primary activities

• Inbound Logistics: Nokia has a good inbound logistics where it stores Hardware, software and other type of equipment. The warehouses are present in many parts of the world. This is because the company manufactures mobile phones in some of the countries while it serves in more than 130 nations.
• Operations: Its operations include research and development so as to bring the best products in the market. Its major operation includes assembling of components (Shaughnessy, 2013). Their operations include sales, marketing, manufacturing, sourcing and logistics for Mobile phones.
• Outbound logistics: They have an excellent supply chain management. Their transportation management ensures that they deliver to the supplier on time as well as ensures that it reaches to customers in the given time. Ensuring the timely delivery of product is NOKIA’s priority.
• Marketing and sales: They are using all the types of mediums so as to promote their products. In this internet mediums are highly used by them. Their promotion and sales force ensures sale of the company increase timely.
• Service: They also provide support services to the customers so as to ensure that any problems related to product delivered by the company can be handled effectively (Fakhrutdinova, et al. 2015).

Support activities

• Firm infrastructure: It is having technologically advanced production and assembling plant. They have made different distribution centres that are also technological equipped.
• Human resource management: They have a high quality human resource present at the workplace that is highly capable. On the other hand it has been its weakness in terms of their approach towards innovation.
• Technology development: Previously it has been their weak point for several years when compared with their competitors (Bala and Singh, 2016). They have been investing in the technology development heavily in the last few years. They prefer mass hiring.
• Procurement: For making their devices effective, they purchase best of components from their suppliers. At the same time they also develop some of the components. They have a huge network of partners that provides them with hardware and software which gives them edge over the rivals.

Business strategies must be developed as per the requirement of the firm. The generic strategy that is used by Nokia is cost leadership strategy.

Nokia tries to win the price war in different markets. Due to this Nokia is using low cost pricing strategy so as to reduce the cost of their products. It continued this strategy till 2009 and 2010. Then it started to face economic challenges as stated above. This company never left its low fixed cost business model which can be seen in their balance sheets of different years (Rusko, 2017). They have also used skimming pricing strategy where decrease in the cost of the products occurs at much faster rate. Since loyalty in the industry is at very lower levels hence people can easily switch to other brands. The cost leadership has helped them in gaining control over the niche markets. But after 2012, many things changed as the Chinese companies with the help of better advanced technologies gained larger market share. After their emergence in the industry, it was not easier for them to carry on with this strategy still they stood with their strategy. In the maintenance of their strategy the roles of their suppliers have been very effective as they have ensured continuous supply of raw materials to the company at low cost (Grimmer and Bingham, 2013).

Different strategies are used by Nokia ensuing in success in different fields. Company’s success can be understood by using TOWS analysis.

Internal/External	Strength (S)	Weakness (W)
Opportunities (O)	S-O In order to grab external opportunities company is using the internal strengths. Nokia has strong financial partners but still it is losing its market share. They can invest in the innovative products so as to regain the market.	W-O This company has large amount of opportunities in the developing nation especially in the Asia pacific region but due to its lack of innovative approach and lack of any disruptive innovation they have not been able to do so.
Threat (T)	S-T This company has an effective legal management team. This team can help them to avoid any legal compliance. At the same time it also reduces the chances of stealing the product’s idea, patented projects and innovations. Other than this company has strong quality products but it might fail in front of low priced products of competitors. It is using mass production so as to reduce the overall cost of operations.	W-T This company also utilises strategies that are defensive like its defensive financial strategies are a challenge for its weaker financial position (Majanoja, et al. 2014). Demand of the products is also on the lower side hence it needs to use mitigation strategies such as merger or selling its stocks for improving the financial condition of the company.

Porter’s five forces

Ansoff growth matrix: In order to illustrate the growth strategy used by Nokia, the framework that it can use is Ansoff’s matrix.

Market penetration: Using this strategy company uses its existing products to excel in the market. For implementing this strategy company can do is:

• Introducing discount offers.
• The pricing scheme should be reasonable (Kolk and Rungi, 2013).
• Change the marketing advertisement campaign.
• Better quality services for the customers.

Market development: For using this strategy they are doing things such as:

• Researching and selling in different markets if there is poor or saturation in market share.
• Lower product prices that could assist the firm in creating bigger product appeals.

Product Development: For this strategy, there are following things that this company can do.

• They are investing in the new types of technologies so as to build the products that are long lasting and aims to attract new set of customers towards their business.
• Disruptive technologies are built within the firm so as to capture the opportunities that are present in the market (Chakravarthy and Coughlan, 2011).

Diversification strategy: For following this strategy, things that are done by Nokia are:

• They are developing technologies that offers people with some additional value.
• Company is enlarging their areas of business so as to capture larger market share (Muller and Bevan-Dye, 2017).

Financial performance of Nokia is very much poor and the company will have to concentrate on reducing the operating expenditures. Efficiency position of the company has improved due to the less working capital requirement as creditors’ turnover days and inventory turnover days of the company had been improved (Chen, 2013). This fact is illustrated in the profitability analysis table given in the Appendix.

In order to gain advantage, the best strategic option that this company could use is merger. This is one of the strategies that can be used by Nokia so as to avoid any further financial loss. This merger would help the company in gaining their lost strategic position in the market (Vuori, 2012). At the same time it would also help the firm to pace up their innovations as they would use each other’s capabilities to regain their market. It is often better than selling their company to some other giants like what they did with Microsoft. It is because merger will help the company to gain new innovation culture at the same time it will also help the firm in infrastructure development as well as investing in different finance related projects. In later stage of the strategy implementation, company could come out of the partnership and hence could secure their position in the market.

Conclusion

From the above based report, it can be concluded that Nokia has been leading the telecommunication and mobile manufacturing industries for many years. After 2012 company faced huge amount of loss due to increased number of mobile companies having different types of capabilities. The external environment of the company is not in the favour of the firm at the same time due to lack of research and innovation, their internal environment is also not so satisfactory. They have to concentrate on their support activities so as to strengthen their primary activities for gaining their position in the market. Their cost leadership strategy had helped them in gaining larger market share which they will have to follow in the years to come. Their financial condition is poor and they are facing huge loss from last few years. For this they will have to reduce their operational cost. It is recommended that company use merger as a strategy for improving their performance.

References

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Chikezie, F., 2011. The Triumph of a Global Corporate Brand: The Case Study of Nokia. ISM Journal of International Business, 1(3).

Crespo, J., Suire, R. and Vicente, J., 2015. Network structural properties for cluster long-run dynamics: evidence from collaborative R&D networks in the European mobile phone industry. Industrial and Corporate Change, 25(2), pp.261-282.

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