Magoosh GRE

Microsoft strategic alliance with Nokia

| February 8, 2017

Abstract

Nokia is a very big telecommunications company that has experienced serious brand and financial issues in the recent years, and lately forged an alliance with Microsoft to try and save the situation. This paper is going to examine the strategic alliance between the two giant companies by evaluating their external and internal environments. It will also examine three different growth strategies and then select the most appropriate one. From the evaluation of the growth strategies in the paper, product development has been selected and it is the only way that the company can attempt to come closer to its competitors or even beat them in the market.

Introduction and Company Background

Nokia, which is a Finish Company that manufactures mobile phones, has been in existence since the creation of the earliest mobile devices, and the corporation has managed to take the world by storm by domination of the mobile industry (Roy, 2011, p. 23). The company has a large market and has been producing the best mobile phones over the years. However, things have not been smooth for the company in the North American market where penetration has been an uphill task. This is particularly bad news for the company because it is a region where smartphones have become a necessary commodity for every individual, regardless of their standards of living. The smartphones market went up by as much as 50 percent in the year 2011 and Google has been in the lead in the industry with their

Android, a young operating system.

The company is well aware of their problem all over the world, and the United States of America in particular. This forced them to hire Stephen Elop, who became the first person from outside Finland to head the company. This new chief executive officer joined the company from a high-ranking position at the Microsoft Corporation in the year 2010. He had a primary task of increasing company’s market share cap on the Asian and North American markets. Being the first person from outside Finland to head the company, he became under a lot of pressure to ensure that the share losses of the market of the company are reversed. Nokia found it difficult to perform in the market for smartphones and that is why they decided to have an alliance with the Microsoft Corporation to try to save the situation (Saylor, 2012, p39). This was the first major step that the new CEO took. The unexpected cooperation with the Microsoft Corporation elicited several debates regarding Nokia as well as about the general smartphones market (Schwarzinger, 2012, p.53). The IDC (International Data Corporation), which is a company for market analysis, and monitors the smartphones market, predicted that the Windows Phones would become the second largest provider of software for smartphones globally (Grant, R 2010, p. 31). The analysis and prediction is based on the strategic alliance between Nokia and Microsoft Corporation. Combined with the projected growth in the sales of smartphones and the predictions given by the ICD, then why is it that there was negative action by the financial market when he news of the two giant companies collaborating came out? This is one of the questions that many financial analysts have been asking themselves. This paper examines the strategic alliance between the two giant companies by evaluating their external and internal environments. It will also examine three different growth strategies and then select the most appropriate one.

External Analysis

The Five Forces Framework of Nokia

The present competition that Nokia is facing in the phone industry has greatly affected its market share. However, it still holds a considerable share of the market in the industry that is ever changing. The microenvironment is the internal factors that affect the customers, staff, competitors and the shareholders (Henry, 2008, p.24). The five forces model is the most appropriate for the evaluation of the microenvironment of Nokia as it takes into consideration the clients, suppliers, competitors as well as the new entrants.

The power of suppliers: moderate

Although the company relies on its suppliers to provide equipment, there are numerous large manufacturers of equipment that they can turn to (Baron, 2008, p53). Currently, Microsoft is the supplier of software for the company and they have a high bargaining power together. In addition, the company is in a good position to bargain as well as negotiate with any mobile phone hardware producer because there are a large number of the suppliers of equipment, which are readily and easily accessible should their current suppliers attempt to ask for more money with them. Moreover, the alliance with the Microsoft Corporation is regarded as a coup for Nokia and not Microsoft. The Microsoft Corporation may have more power in the negotiation of price along with the share as the pact is of more significance to Nokia that the Microsoft Corporation.

The power of buyers: high

The customers have an increasing power because of increasing variety of alternatives available in the sector of mobile telecommunication. Majority of Nokia’s competitors also offer the same packages and the sector is very sensitive to matters like the prices with clients seeking the best value for their money. Majority of the customers are also tied into the long-lasting contracts and thus having to change from one mobile phone to another is hard and costly for consumers. The sector has a very competitive market that has a variety of choices, which makes the customers to have much power as they can choose to go to the various competitors of Nokia if they are not contented with what the company is providing.

The threat of new entrants: low

The market of mobile phone is well-established and a lucrative one, and there is a relatively low threat of new entrants, as the technology that is needed to rival the devices that are already existing is very advanced. This is something that cannot be achieved easily by any company. The barriers to entry into the market are very high, as any potential new entrants need a lot of investment in marketing and technology so that they can be in a position of challenging the companied that are already established (Hill, et al, 2009, p.53). The threat of any potential new entrants is not probable as the initial cost that is required to enter the industry is very high and requires a lot of investment in time to be in a position of competing against the organizations that are already established.
Currently, Nokia has a 29 percent of the entire global mobile telecommunications market and for any new entrant to get a little bit of their market needs a long-term scheming or even products that are highly innovative as compared to any other seen in the market (McGuigan, et al 2010, p. 41). For this to be possible, the new competitor needs very high investment for marketing and R&D, in order to get positive result.

The threat of substitutes: Very low

It is beyond reasonable doubt that mobile phones are an everyday essential in human being’s lives presently and they would not find it easy to replace, as consumers will not be in a position of having constant contact when they are not near their houses, family members or even friends (Baron, 2008, p.53). Nonetheless, the consumers may make contacts with individuals through other forms of media like email address, home telephones and social networks. However, it will not be easy for people to keep in contact in their daily lives, as the forms of communication are not convenient. Contrary, smart phones come with several functions and specifications, meaning there are many substitutes offered that focus on just a single function.
Presently, mobile phones are an everyday requirement in the lives of human beings because of the fundamental functions they are capable of performing and can all be found in a single handset. Only smart phones have the ability to make phone calls, send messages, and browse the internet in a single device. Another thing that makes them an extremely critical device to human beings is the fact that it enables them to communicate constantly and at any place. Thus, the threat of alternatives is very low because a mobile phone is not only for making calls or for sending messages but many some other functions. Without the mobile phones, people will find it very difficult to have a replacement, since it can provide a lot to them all in one device. People also rely on the mobile phones greatly and might not easily find an alternative that has the whole functions of a mobile handset.

Competitive rivalry: low

The competitors of Nokia turned to smartphones and androids early enough while Nokia delayed in releasing their first smart phones, and hence lagging behind competitors like Apple and HTC (Hahn, and Kibora, 2008, p. 12). Their strategic alliance with Microsoft, though offers some lifeline, still needs some time before catching up with the rest. There is high competition from big corporations like Blackberry, LG and Sony Erickson. The industry of mobile phone has very high rivalry and needs huge amounts of investment in marketing and the R&B to be able to compete with the established companies (Stonehouse, et al, 2007, p.43). Nokia had a slow shift into the market of smartphone, and this has left them trailing their competitors. Therefore, there is extremely high competitive rivalry and the company needs to be alert of their rivals’ threat on their business especially with the Apple iPhone and RIM Blackberry’s rising popularity. Competitive rivalry in the industry is the principal threat to the Nokia Company because they are seriously behind in the market of Smartphone and it really needs a lot of efforts to raise their market share.

Internal Analysis

SWOT Analysis

SWOT analysis is the most appropriate tool for the strategic planning analysis by companies’ management. It is a critical tool to the improvement of business because it embraced or followed the concept that success in the digital economy is the deployment of an incorporated value chain that extends beyond and across the business Saylor (McGuigan, et al 2010, p. 17). Nokia is a leading company in the mobile phones industry and its strategic alliance with Microsoft is expected to be a game changer. It is therefore important to look at the company’s internal environment.

Strengths

Grant (2010, p.55) says that Nokia currently enjoying more that 32 percent market share in the mobile phone industry, and this is expected to even increase following the new pact with Microsoft as they will be provided with operating system affordably and sufficiently. Both Nokia and Microsoft are well respected and trusted brands as they have been there since the start of the mobile phones and have been able to retain the trust of customers. Now in their association with Microsoft, they have regained strength in the market of smartphone, as it is a pact that has brought together two giants in their respective sectors. Having a strong brand name is an advantage since it enhances consistency; however, it is no secret that their brand name has had some wavering and now considered promotion of brand (Grant, 2010, p.43). The alliance between the two companies also means that Nokia has a secure and steady supplier market in Microsoft, where there will be enough time to concentrate on innovation, production and marketing. The company has a strong internal R+D. Nokia became one of the first companies to the market despite not dominating the market of Smartphone, the company became one of the because of their exceptional R+D program. The new chief executive officer has brought some new ideas to the organization and influenced its entire image.

Weaknesses

Nokia has had its market share drop from the end of the last year in the industry of Smartphone. They have not been able to realize that Smartphones are a way of life amongst the users currently, with support software for the mobile phones that are very low. These are in the forms of applications, contrary to Blackberry and Apple that both have their individual App World. Nokia has an insight of only building phones that are brick shaped, which gives them lack of prestige in the present market of (Smartphonen, 2011, p.35). There are weak subdivisions in the company; they own as well as manage the Symbian but have abandoned it and instead gone for the windows 7, meaning than Symbian is now making losses (Saylor, 2012, p.54).

Opportunities

The corporation has the chance of developing their own version of the App store OVI, since their new mobile phones are being launched and hopefully accepted in the market. The company also has an opportunity of developing more products with the Microsoft Corporation and explores more opportunities that might come up from the deal. Diverse self-sufficient and valuable portfolio; Microsoft could also do diversification of their immense portfolio and dispose parts of it that is not profitable in the probable future.

Threats

If further loss of the share of market for Nokia continues being lost to the other big producers of Smartphones, they would actually consider withdrawal from the industry of Smartphones. The industry of mobile phones is not different from that of fashion with a quite quick turnaround. Nokia are investing lots of funds in trying to have a successful penetration into the market. By the time they succeed in doing so, the market could possibly have again shifted and had another serious breakthrough into another kind of mobile phone (Saylor, 2012, p.57). With the mobile phones software in the present day industry being as critical as the hardware, it is important that the Microsoft Corporation do not have excessive power as if the novel devices are a great success. It would not be good for the Nokia Company if Microsoft chose to raise their price on the pact or even walk out of it all together.
Issues and challenges facing the company
The challenges for Microsoft and Nokia alliance are overwhelming. Microsoft has still not been able to rise above the minuscule share of the market in the United States or even globally, even despite joining forces with Nokia. The Blackberry’s implosion was actually the best chance for Microsoft to get hold of its market share, but that did not happen. The company has to put in a lot of effort to carve out its niche in a world that has been dominated by the Android and iOS (Saylor, 2012, p.59).

Missing apps

The Windows Phone still has the same old problem despite now being with more Nokia; that is the lack of a sufficient app ecosystem (Donner, and Steenson, 2008, p.35). Microsoft is not getting anything from Nokia in terms of software that was not already in the Windows Phone. This is because the strongest mobile software asset of Nokia, which is its maps business, was not part of the agreement. After more than three years into the deal, Windows Phone still does not have table stakes apps as such like the native customers of Instgram and YouTube. The stance in the tablets is excessively bleaker. The Windows RT, which is the version designed for tablets specifically, is a very big flop and the Window 8 applied on tablets has not done any better in the market. The iPhone has successfully turned mobile phones, together with business mobile phones into a wholly consumer business (Saylor, 2012, p.70). This has an implication that the acquisition of Nokia has dragged the Microsoft Corporation into a sector that it should have avoided as much as possible. In other words, Microsoft is not a good consumer organization. Still it is not easy to see what the new CEO who has a good record of accomplishment in the companies he worked before has brought into the Nokia Company.

The Xbox Problem

The Xbox is a one consumer bright spot of Microsoft. Even without taking into account, the Xbox’s sunk cost and the fumbled Xbox One’s release, the segment of Devices and Entertainment is too small, particularly in the profit share that cannot make any significant difference (Goggin, 2011, p.23). With very little expectation for immense growth in the game console and set top box industry, the Xbox is going to make no difference for the company.

Reinforce success

Every business requires reinforcement and mobile phone industry is no exception. Another area of power or strength is the web services, especially those serving business and not the ones that are consumer-facing. Although Microsoft is behind Google in several aspects, it is much ahead of Apple, which usually appears as having very little idea about the web services as it is much into the devices (Saylor, 2012, p.73). This is something the two companies have not taken advantage of, and they might realize it a little bit late if the other companies have realized their shortcomings and countered them accordingly.

Brand image

For any business to be successful in the market, brand image must be at its best because it is what consumers will be looking for. This is because everyone wants to consume a product they are well familiar with. For the Nokia Company, its brand image has dwindles constantly to a great deal such that people are no longer comfortable buying and using its products. This is something that might make it difficult for them to regain their initial status as the leading mobile phone maker, despite alliance with Microsoft (Saylor, 2012, p.79). They might pump in a lot of money in an attempt to save the situation but may as well flop if proper marketing and investment in technology is not done to win back its customers. If things do not work out for the company as expected, then it will be a big loss for Microsoft as it entered into a partnership with a company that was already going down.

Generation of Strategic growth options

Every section of an organization is affected by a marketing strategy. It is all about the use of everything at the business’ disposal in creation of value for others. Customers are also included in this but workers as well as shareholders benefit. The marketing strategy’s major purpose is setting out the means by which the marketing objectives that are agreed are to be accomplished. One of the most appropriate ways to analyze the different strategies that can be used by an organization in growing the business is with the ANSOFF Matrix (Schwarzinger, 2012, p. 42). The model takes into account the opportunities of providing available and new products and services within the present and new markets together with the levels of risk that come with them. Below are possible three strategic options that can be employed by the company:

Market penetration

The aim of this strategy is selling products to a market that already exists. This has been proposed because Nokia has an already existing market even though it seems to be losing it at a higher rate.
Market development
This strategy refers to the completion of market development successfully (Hahn and Kibora, 2008). The method has been proposed because the Nokia Company appears to have lost touch with the huge client base that it enjoyed when it was performing still well.

5.3. Product development

This section of the Ansoff matrix aims at being updated as regards the latest technology in the industry. The strategy has been proposed because the company appears to be lagging behind in terms of innovation, and this is where their competitors have fully taken advantage of to win the game (Kovvali, 2011, p.73).

Evaluation of strategic growth options

Market penetration

The aim of this strategy is selling products to a market that already exists. Nokia has an already existing market even though it seems to be losing it at a higher rate. For the company to be able to achieve this, there are several things that needs to be done such as: changing the pricing plan; this should be done in a manner such that it is competitor or penetration based. Changing the pricing plan means that they will be reducing prices of their products in an attempt to attract more customers or even maintaining the existing ones. However, in doing so, the quality of the products must also be high as consumers do not only go for the price but they want to enjoy the value for their money. For the prices to be reduced as much as possible and to ensure sustainability, a lot of resources needs to be pumped in, which the company may also not be having, considering the financial crisis that it faced (Kovvali, 2011, p.63). Introduce discounting; the company can also introduce discounting services whereby customers pay certain amount of money in buying a particular product or quantity. Starting up a different promotion campaign or considering changes on the present one; shifting from one campaign strategy to another or improving on the available one may also help the company in getting the message home, thus attracting more customers.

6.2. Market development

This strategy refers to the completion of market development successfully. Nokia Company appears to have lost touch with the huge client base that it enjoyed when it was performing still well. The company has an option of penetrating or developing new markets that its products has not reached. This can be done through targeting a completely new client base and carrying out vigorous product promotions in order to attract them. Some other means through which this can be achieved is researching and selling the products to a different market segment in instances of poor market share and saturation (Kovvali, 2011, p.79). They can also change the periods that adverts are run on television and change the places in which the display of print adverts happen. This is the best way of ensuring that the products appeal to a completely new market. The company can also reduce the present prices of its products to help in attracting a wider range of clients.

6.3. Product development

This section of the Ansoff matrix aims at being updated as regards the latest technology in the industry (Bull, 2007). The company appears to be lagging behind in terms of innovation, and this is where their competitors have fully taken advantage of to win the game. The mobile phone industry is just like fashion where trends come up each day and players in the market try to beat each other by being creative and innovation in an attempt to win the customers as much as possible. Companies like Samsung have rose to great heights due to their technological inventions and they are really doing well in the Smartphone market. They have been coming up with new applications that have been appealing to customers and that are why they are really selling (Kovvali, 2011, p. 34) Nokia should pump in a lot of cash and invest heavily in technology because it is the only way to succeed in the business.

Description of selected strategy

Product development

The selected strategy for at Nokia is product development. Nearly everyone knows that this has been the biggest undoing of the company as they have not been able to keep up with the pace at which technology is growing. Just as said earlier, the mobile phone industry is just like fashion where trends come up each day and players in the market try to beat each other by being creative and innovation in an attempt to win the customers as much as possible. Therefore, the company has no option but to invest in technology if at all they are serious about regaining the lost market share. They should produce some high-tech products with a lot of features that fit specific market segment.
With the strategic alliance with Microsoft, the company stands a good chance of recovering as this is an opportunity to get a source of finances that they require to keep up with the new technological development (Saylor, 2012, p.89). Microsoft is also known for its creativity and this alliance puts Nokia in a good position because they will be able to get the best operation systems that are updated to meet the current market requirements. Moreover, the alliance will enable the company to have a pool of new ideas as together two giants that have been leaders in their respective industries for several years.

Conclusion

It is no doubt that the alliance between Nokia and Microsoft is the best decision ever made by the management because it is a chance of recovering from the fall to try to catch up with the current industry leaders. Pundits see it as a major coup for Nokia, but Microsoft also stands to gain from the pact. Nokia should use this opportunity to venture fully into the Smartphone market by doing product development. They should invest heavily in technology and even employ more staff that can bring meaningful changes. The company has been doing well in the other growth strategies such as market penetration and market development, but has not been doing product development. From the evaluation of the growth strategies above, product development is the only one that has remained and it is the only way that the company can attempt so as to come closer to its competitors or even beat them in the market. The Smartphones market is still growing and there are several opportunities that are yet to be exploited and with Microsoft on board, it only needs proper strategies to conquer the market. However, if proper measures and strategies are not in place then the highly hyped alliance might as well be a waste of time and resources as other companies will continue steadily while Nokia continue to fall steadily.

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