Global management practices at Nokia

¶ … Future of Nokia

Nokia is the leader in cellular market but despite its strong position and solid global presence, the company is now struggling with maintaining its domination in the cellular market. The reason is a) innovative cell phone designs by competitors including the clamshell designs, b) low cost manufacturing that has been discovered by competitors too and c) saturated market in developed countries. Even though it would be wrong to say that there is no more expansion possibility in developed countries, it is true that rapid growth has made it tougher to gain bigger share of the consumer market or to expand the current base. Competition has been very tough, more than anticipated by Nokia and hence Nokia has been desperately looking for changes that would help it make low cost phones and still expand its market share.

Cellular industry is more diverse and global than most other industries and manufacturers from almost all corners of the world enjoy a strong presence of the world scene. These manufacturers come from countries as diverse "United States, Korea, Germany, Japan, and Europe."

The fact that this industry is highly competitive has given rise to other challenges as well including the ever increasing demands made on the manufacturers. The customers are looking for add-ons in every new design. Old designs go out of fashion so fast that manufacturers have to stay at the top of their game to come up with the best technological changes in their phone designs. "There is much pressure from consumers for each manufacturer to offer the latest in technology and features, such as color screens, camera phones, customizable ring tones, clamshell phones, etc."

Nokia has been a leader for so long that it almost became complacent in its business model. However things changed in 2004 when the company realized that it could lose its edge if it did not introduce significant changes in its business model and came up with new business strategies that could help the company maintain its dominance. Nokia realizes that it serves two distinct markets i.e. The developed market and the developing market. In the developed world, Nokia has to adopt strategies that would be based on "replacement" mindset of the consumers. This is because in developed countries, cell phones have become such an important part of people's life that sales mostly come from replacement instead of purchasing for the first time. There are few first time buyers and more replacement buyers. "The trend among cell phone users in these markets is to "trade up" to better models with more features, such as color screens, digital cameras, or better ring tones. Often, such purchases are not a necessity. The overall markets have matured, but sales continue to grow because of this "upgrade cycle.'"

In the developing world, trends are still growing which means adoption rate is lower and hence there is a bigger room for expansion. The market is likely to grow exponentially in the coming years and hence all competitors in cellular industry have their eyes on the developing markets such as Latin America, India and China. This is where Nokia is not as far ahead of its close competitors as it is in some developed countries. Secondly in these countries local cell phone manufacturers have also posed a serious threat to the dominance of Nokia. For example in China, Nokia's sales went down in past few years because of the presence of local manufacturers.

Nokia needs to decide what it will do to improve its market share and maintain its dominance in the cellular industry. The one important thing is to find new economies of scale. Since the company began focusing on cell phones as its main business in 1980s, Nokia has managed to stay at the top due to economies of scale. With competition getting tougher, it needs to find new economies of scale which means it needs to find new ways to manufacturer low cost cell phones while still expanding its customer base and its market share. This would play the key in maintaining its advantage over other competitors.

But Nokia cannot solely depend on this one strategy. It also needs to bring in new phone designs that would revolutionize the way people use cell phones. This is because with Apple coming up with iPhone and Motorola introducing the Driod, there is a no reason why Nokia cannot do the same. It needs to develop new models that would change the way people view cell phones and cell phone usage.

Outsourcing is another strategy that Nokia must use more often. This is because production is far more expensive in Europe and the U.S. "In 2003, Nokia outsourced 25% of its handset business. In the future, according to CEO Jorma Ollila, outsourcing is an area where the company may consider trying to save as much as possible. Nokia already has several joint ventures in China, which provides substantially lower costs of manufacturing than in Europe and the U.S. China have emerged as a strategic market and important manufacturing base for Nokia."