Company: Nokia Region: United States of America

Introduction & Methodology Nokia is one the worlds most renowned brands. From its low-cost handsets to its high end smartphones, Nokia products have been widely purchased and everyone is aware of Nokia a sign of quality. However, Nokia no longer prevails. Over the last few years, sales of Nokia phones have slumped and Nokia has also lost its place as the market leader in the mobile industry. It has faced immense market share losses at the hands of Samsung and Apple. While Samsung has been able to dethrone Nokia in the low-end mobile phone segment, Apple has prevailed over Nokia in the smartphone segment. Even more shockingly, Nokia has faced significant decline in profits which has in recent years forced it to immensely downsize and restructure its operations. The more significant issue has been Nokias performance in the United States. Whereas, throughout the world Nokia has slumped into the second place, in US Nokias has slumped to the fifth place, according to market share (Gartner, 2012). This deteriorating position of Nokia in the United States calls for an inquiry into the global strategy of Nokia with respect to the US Smartphone Industry. This inquiry and the inherent analysis are the purpose and aim of this essay. In order to realize how Nokias strategy with respect to US Smartphone Industry has fared, the essay would make use of numerous frameworks. First of all, the effect of globalization on the industry would be understood. For this

purpose, Yips model of globalization drivers and Porters framework of industry competition would be looked at. These frameworks would highlight to what extent and how globalization has impacted the US Smartphone Industry. Subsequently, the paper would assess the market entry strategy that Nokia utilizes with respect to the US Smartphone Industry. This would be done by first mentioning Nokias strategy and then assessing whether it is appropriate by applying transactioncosts economic framework. Lastly, the paper would look at the key competitive advantages and continued challenges Nokia faces in US as a result of utilizing its existing market entry strategy. This would be done by assessing current SWOT for Nokia in the US market. These realizations would holistically allow us to state whether Nokias strategy is appropriate or inappropriate wit h regards to the US Smartphone Industry.

Impact of Globalization on Smartphone Industry If the case of impact of globalization is to be assessed, it should be realized that smartphone industry is highly globalized. It may even be stated that the smartphone industry is closer to the hyper-globalist scenario discussed in the module. The statement might hold true if not for the US Smartphone Industry. The US Smartphone Industry (USSI) is different from most other industries because it is one of the most advanced technological industries. An example maybe provided by referring to the notion of LTE technology; a wireless transmission technology that is installed in all new smartphones released but only usable in the United States (Clark et al. 2012). Similarly, it should be noted

that consumer behavior in the USSI is slightly different from the global smartphone industry. In order to holistically understand that impact of globalization on the smartphone industry, it would be best to look at the globalization drivers mentioned in Yip (1992)s framework.

Impact on Global Smartphone Industry Yip (1992)s framework provides four drivers to potential globalization; market drivers, cost drivers, government drivers and competitive drivers. While Yips framework assesses potential globalization, if the drivers are considered as pressures, the prevalent globalization in an industry might be realized from Yips framework (Yip, 2000). It should be noted that there are significant cost pressures in the industry that promote outsourcing of smartphone company functions (Laanti et al., 2007). For instance, in recent year, competition in the industry has highly increased and to achieve greater profitability costs have to be reduced. For this reason, many smartphone companies have outsourced their production operation to China. Moreover, those who manufacture themselves have plants set-up in low cost areas. It should also be noted that in recent years, many companies have even outsourced or relocated functions of R&D to avail quality low-cost labor available in BRIC regions (for e.g. Samsung). Hence, it should be noted that there is immense cost pressure on the industry to globalize. Subsequently, it should be noted that a significant amount of market pressure also prevails for globalization. In a recent survey in Peru, it was found that most customers now demand a smartphone rather than basic mobile phone (Hitt et al.,

2012, p. 139). Similar findings were also reported in Pakistan, Namibia, Kazakhstan, and many other countries (Saeed & Abbas, 2012). As such, it should be noted that there is market pressure in these countries as the popular economic adage goes; when there is demand, there will be supply. Moreover, it should be noted that many of the smartphone industries in developed nations are expected to reach market saturation by 2015 (Gartner, 2012). This would only increase competitive pressure for participants in industry to further globalize. If there are any pressures against a hyperglobalist smartphone industry, they exist within a countrys governance and infrastructure. Most countries have not so far adopted the more recent technologies with respect to the smartphone industry. For instance, 3G technology is only available to 6.7% of the total phone subscribers throughout the world (Plus 8 Star, 2008). It should also be noted that due to economic concerns, many governments are more concerned with other developments such as political stability to actually emphasize upon the notion of improved wireless networks. As such it should be realized that infrastructure resistance in most regions of the world is so high that it prevents the smartphone industry from being a complete hyperglobalist phenomenon. Nevertheless, it should be realized that the smartphone industry is still highly globalized, and hence immensely impacted by globalization.

Impact on US Smartphone Industry It might also be appropriate to consider the case of how globalization has impacted the United States Smartphone Industry (USSI) for further use in the

paper. To assess this, it would be appropriate to first consider the case of the USSI structure and competition. This might appropriately be done through Porters Five Forces model and also the lesser known Sixth Force. Porters Five Forces model is an industry analysis model that provides insight into the various sources of competition within an industry. However, a few studies have identified Porters Five Forces also as effective to understand industry structures if the reasons behind each force is assessed. The five forces which are looked in Porters model are; threats of new entrants, threats of substitutes, bargaining power of suppliers, bargaining power of customers and competitive rivalry in the industry. It might be appropriate to begin with bargaining power of customers as this offers the greatest insight into the USSI industry. (Kenney & Pon, 2011) The bargaining power of customers in USSI has increased significantly in recent years. While this does relate to consumers becoming more informed, it relates more to the manner in which the industry is structured. It should be noted that buyers of smartphones in USSI tend to be actually the large mobile carriers rather than the end users. The network carriers tend to be even more informed than the average consumer roaming on the internet and also tend to solicit alliances that are beneficial to them. For instance, T-Mobile may not decide to sell a HTC phone because it thinks that HTC phones do not have much demand, or it may only sell it if HTC offers it an attractive contract. However, even if the case of carriers is put aside, the average smartphone user is quite informed. They do not make their purchase on impulse but are often quite informed about the product. It should be noted that the US smartphone consumer tends to

emphasize higher on brand value and aesthetics aspect of a smartphone. It should be noted that end-user bargaining power might be reduced because of notions of brand loyalty in consumers towards ecosystem such Apples iOS or Googles Android. Nevertheless, the overall bargaining power of consumer is quite high. (Kenney & Pon, 2011) The second force that is high in the industry is the competitive rivalry. The two leading smartphone brands i.e. Samsung and Apple have indulged in almost all sorts of competition except price wars. In their ads, these two brands (especially Samsung) have come to mock each other openly. Moreover, they lead highly-charged and overly-valued courtroom battles to put injunction on each others product. With respect to both the brands, the brand loyalty has increased by multiple folds in recent years. The tenacity of competition is such that even high-end and highly-marketed product releases (for e.g. Nokia Lumia 900) from other companies often result in minimal impact on the overall market structure. As such, it should be noted that the intensity of competitive rivalry in the industry is quite high. (Kenney & Pon, 2011; Lane & Manner, 2011; Arthur, 2011) All other forces in the industry are moderate or low. Bargaining power of suppliers is low because of earlier discussed notions of cost pressures that have globalized the industry. Even regional handset markers tend to outsource or locate manufacturing to low-cost economies. Similarly, the threat of new entrants in the industry is relatively low. This is because there is too much capital cost require to enter the industry. Moreover, the carrier-model bars any form of price

competition within the industry and hence new entrants cant even compete based on price. It should also be noted that brand image is highly valued and most new entrants do not possess any brand value and hence cant compete. Lastly, it should be noted that there is a moderate threat of substitutes. Instead of a smartphone, an individual can buy a feature-phone or a tablet. However, the demand for feature-phone is declining. Also, tablets while deemed appropriate substitute for smartphones for most functions, are not deemed appropriate in terms of communicating while on the move. Nevertheless, as there is some threat of substitutes, this force is rather moderate. (Lane & Manner, 2011)

Appropriateness of Nokias US Strategy With regards to USSI, Nokias entry strategy can be divided into two. For most of the last decade, Nokia has ascribed to the carrier-model of market entry and this has been the traditional strategy. This has been earlier discussed in the industry structure. Even amongst the carriers, Nokia does not maintain any specific strategic alliances. Besides this Nokia does not maintain any direct retail stores or even direct e-commerce to the USSI. With respect to its product strategy, Nokia does not maintain any differentiation amongst its global products and its product with respect to the USSI. Most of Nokias smartphones are one and the same across the world. It might also be noted that Nokias marketing efforts in US havent been much. Now, Nokias strategy in recent years has shifted, and this is the other are of Nokias market entry strategy in USSI. This refers to the two-year old strategic alliance between Microsoft and Nokia. After

failing to have an impact on the market with its in-house Symbian and Meego OS, Nokia entered into a strategic alliance with Microsoft to utilize its Windows Phone OS. In a manner, Nokias success in the US now depends upon how the market reacts to Microsofts Windows Phone 8 OS. An important part of this alliance has been that Microsoft will be spending nearly $1 billion to market the Windows Phone 8 ecosystem, and Nokia expects to benefit from this. The change that this strategic alliance brings Nokia is that now Nokia gains retail space in Microsoft stores all over the US, and this provides Nokia with a more direct approach to the USSI. Nevertheless, it should be noted that both these strategies do not reflect any equity entry mode, as Nokias investment in the US is relatively little. It should also be mentioned herein that throughout the world Nokia operates mostly on strategic alliances formed with agents and distributors rather than actual investments or joint ventures. (Arthur, 2011; Blandford, 2011; Prio, 2012; ) On a theoretical level, Nokias strategies are not appropriate considering the state of USSI. If we look at the framework of transaction-cost economics (TCE), Nokias ongoing failure in US might be outright realized . TCE emphasizes on comparing the transaction costs of each market entry strategy before pursuing either strategy. Transaction costs, according to Peng (2009, p. 94), depends upon the notion; Do the parties to exchange operate harmoniously, or are there frequent misunderstandings and conflicts? Obviously, when outside parties (such as the carrier or Microsoft in this case) do not cooperate, it raises the transaction cost and signifies how inappropriate that market-entry strategy might

be. On the other hand, when outside parties are more likely to cooperate then the transaction cost would be low and that specific market entry strategy would be ideal. With respect to Nokias case, the former scenario applies. This is because in our analysis of the USSI, it was found that carriers select phones based on consumer demand or with those smartphone companies that provide beneficial terms. Nokia, currently, does not satisfy the former condition and the latter condition by itself proposes to greater transaction costs than possibly the cost of other market entry strategies. As such, according to the TCE framework, Nokias current strategy is inappropriate. (Kotabe & Helsen, 2010) Looking at existing occurrences within the USSI, indeed it is quite true that the current market entry strategies of Nokia are inappropriate. For instance, Nokia entered the aforementioned strategic alliance with Microsoft in mid-2011. From there onwards, it has continuously supported the Windows Phone platform, even when other strategic partners of Microsoft, i.e. Samsung and HTC, did not do much to promote their own Windows Phone-based smartphones. In early 2012, a Nokia executive stated that they have bet significantly on the success of Windows Phone. However, in October 2012, as the launch of Windows Phone 8 drew close, Microsoft chose HTC as its flagship phone for Windows Phone 8. For Nokia, this would a strategic blow. Subsequently, it should be noted that after the launch of Windows Phone 8, Nokias sales haves been relatively unaffected whereas HTCs sale have sufficiently increased; only showing how Nokias strategic alliance with Microsoft failed. Hence, it should be realized that existing market entry strategies of Nokia are quite inaccurate, and this might only be

further realized if Nokias current situation and future prospects are analyzed. (Prio, 2012)

Realizing Advantages & Threats SWOT Analysis A SWOT analysis of Nokia with respect to its United States operation would further highlight whether Nokia has actually benefited from its current market entry strategy. This can be largely assessed from Nokia s Form 20-F filings to the US Securities and Exchange Commission. Nokia inclines

more towards weaknesses than strengths. Nokias only possesses three strengths at the moment. The first of its strength relates to the companys strong cash position. Despite facing losses, the company has cash reserves worth $14 billion. Moreover, the company has more than $18 billion of other current assets. The second strength of Nokia is large portfolio of Intellectual Property (IP) relating to mobile phones and mobile technology. Lastly, Nokia despite its lackluster performance in recent years is a brand that is attached to high quality and durability. These strengths at least ensure that Nokia would not go into obsolescence anytime soon. However, it should be noted that none of these benefits are derived from Nokias market entry strategy. In essence, it should be noted that Nokias existing market entry strategy has not provided it with only further weaknesses in recent years. To worsen the situation, Nokias weakness in recent years has only increased. First of all, Nokias result for FY 2011 were exceedingly bad; it had a loss of more than EUR 1 billion and its share price has only significantly fallen since 2010. Moreover, Nokias brand value and image

with respect to the US industry has also sufficiently fallen. A recent survey noted that when asked about a smartphone company most buyers pointed to Samsung and Apple, and thought Nokia was only a feature-phone company. Moreover, Nokia lost its leading position as the mobile phone market leader to become fourth place in the smartphones industry in USA. (Nokia, 2012; Savitz, 2012; Kovach, 2012) Even a worse picture comes up when opportunities are compared with threats. According to the firms own admission (in its Form -20F filing), it faces nearly 47 threats. The company itself highlights a few prominent threats; its current inability to woo US carriers, its relationship with Microsoft, its failure to promote Symbian OS, its declining sales in feature-phones, its inability to recruit appropriately skilled intellectual labor in US, and much more. In comparison, the only opportunity that the firm currently possesses is some hype surrounding the release of its latest phone, i.e. Lumia 920. Considering all this, with the existing market entry strategies, the road ahead for Nokia is simply too bumpy and unpredictable in the USSI. (Nokia, 2012; Savitz, 2012)

Conclusion From our analysis it is quite clear that Nokias current entry strategy in United States is quite lacking. The lack comes from Nokias inability to leverage its strategic alliances rather any other issues. Nokia strongly has failed to solicit major network carriers in the USA to promote its product. Moreover, Nokia has depended too much on its Microsoft strategic alliance, which has backfired on it

for two reasons; Microsoft chose another company to launch its official Windows Phone 8, i.e. HTC, and Windows Phone 8 in early analyst reports have been reported to have a rather timid impact on the USSI. If Nokia is to revive its position as the market leader, it needs to take dramatic steps in the USSI, as the global smartphone industry is often a follower of USSI trends. It is important that Nokia enters the USSI with at least some equity entry mode rather than the current contractual agreements entry mode that it follows currently.

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