Smartphone Industry Competitiveness

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Executive summary

This paper aims to provide a critical assessment of the term “strategic alliances” in the context of the global smartphone industry given the case study: “Nokia-Microsoft alliance: Joining forces in the smartphone wars” (De Wit & Meyer, 2011). Firstly, the nature of the fierce competition in the smartphone industry will be demonstrated, with particularly the war between the used-to-be dominance in the smartphone industry Nokia, and other strong rivals such as Apple and Google. Data, numbers and figures are shown to illustrate how Nokia had been miserably struggling to compete against such strong rivals and to stop their profits and market share from tremendously declining. Secondly, the theoretically review of the term “strategic alliances” and “mergers and acquisitions” will be presented. This paper will then in-deep analyze the impacts of strategic alliance on Nokia before and after being acquired by Microsoft, in term of market share, profits, share price, etc. Finally, the organizational culture, structure, innovation and leadership of Nokia influenced by the strategic alliance with Microsoft will be further discussed to evaluate the ability of Nokia’s CEO and senior management team to make current and future strategic alliances work more successfully.

Question One: Smartphone Industry Competitiveness

1 (a) Critical evaluation of the nature of the industry competition facing Nokia from new mobile operating systems entering the market  e.g. iOS and Android

The mobile phone industry had never been at such an extreme level of dynamically active until the first decade of the 21st century, when the concept of smartphone with converged-function was fully shaped and widespread as it consequently rocketed the demand for a smartphone product with various synchronized technologies to perform as a multi-function device. Nokia had dominated the smartphone market since 1997 with the release of its Symbian OS that allowed it to enter the high-end smartphone market. Nokia generated $9.7 billion in revenue (1997) and rapidly increase to $54.27 billion in 2006 (Nokia, 2006). However, new mobile OS entering the market such as iOS and Android has created a revolution in the industry that bring out challenges for Nokia. The nature of the industry competition facing Nokia can be evaluated refer to the 5-forces model proposed by Michael Porter (1980).

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Figure 1 Five Forces Model (Porter, 1980)

The threat of new entrants is strong in the smartphone industry. The smartphone industry is a potential and an open market with 67% market growth rate (Canalys, 2010). The global revenue reached $56.92 billion in 2009 and was expected to swiftly increase to more than $272 billion in 2015 (Statista, 2014). Apparently, these typical results represent a wealthy and strong developing market that attract many firms. For example, Samsung with Bada OS, BlackBerry with BlackBerry OS. Especially, the entrants of Apple iOS and Google Android has put a fierce challenge for Nokia in the industry.

The bargaining power of buyers is high because with a wide variety of smartphone choices, customers have major brand choices and are willing to pay higher price for the latest product. However, since the release of the revolutionary iOS by Apple in 2007, customer’s preferences tend to be drawn toward Apple’s products with interesting design, user-friendly platform, huge app resources. This has caused a major decrease in the selling power of Nokia, with a decrease from 100.3 million smart phone sales in 2010 to only 63 million unit sold as of Q3 2013 (The Statistics Portal, 2014). In fact, Nokia is facing a significant difficulty of losing customers over rivals such as Apple and Samsung.

The bargaining power of suppliers is medium because although smartphone manufacturers rely on their suppliers for quality component parts at a competitive price, there are in fact many component suppliers available that firms can easily switch to. This fact has reduced the bargaining power of suppliers. Besides, Nokia is a global corporation with 50.9% of global market share as of Q3 2007 (Statista, 2014), apparently grant them more bargaining power over suppliers.

The threat of substitutes is high for Nokia because it was unable to embrace the advantage of developing technologies, and at the same time, many new mobile OS entering the market providing a more innovative and creative device that are integrated with a more advanced technologies than Nokia, such as iOS or Android. This factor makes it further harder for Nokia as the substitutes are now capable of replacing them in the market.

Competitive rivalry is very high because the joining of many new mobile OS has made Nokia to compete against many larger firms, such as Google and Apple. Besides, the incapability of Nokia in utilizing advanced technologies has made them trailing their rivals. By the time many other mobile OS such as iOS or Android has already success in the market, Nokia had only just released their Lumia smartphone range that was not even innovatively advanced enough to compete against rivals. This has caused a gigantic decrease in the smart phone sales, from 77.68 in 2007 to only 63 million units in 2013, with an decrease of 29.8% of market share, from 43.7% to 13.9% in the period of 2007-2013 (Elmer-Dewitt, 2014). Consequently, Nokia is facing a very tough challenge since the joining of new mobile OS such as iOS and Android.

Generally speaking, the industry competition facing Nokia is very challenging because not only Nokia has failed in utilizing advanced technologies to embrace innovation competitiveness, but also at the same time the entrants of Apple or Google with such a revolutionary products like iPhone has caused Nokia its dominance in the smartphone market. Nokia even finds it difficult to compete against low-cost manufacturers like ZTE and Huawei in China and Europe, as they lost 18% sales in China, 27% in Europe and 61% in North America (Forbes, 2013). Apparently, the entering of new mobile OS has put a fierce challenge facing Nokia in the smartphone market.

1 (b) Discussion of the impact of the global smartphone industry competition on Nokia’s smartphone market share and income from 2006 to 2010 (data retrieved from Exhibits 3, 4, 5, 6, and 7 in the Nokia case (De Wit and Meyer, 2014)).

The release of the Symbian OS in 1997 together with new generation smartphones from Nokia has put the corporation in the leader position in the industry. The period 2006-2007 has seen the dominance of Nokia in the global smartphone industry, with the introduction of many product generations aimed for high-end market segment. The corporation net income is increased from €4306 million in 2006 to €7205 million in 2007 (Statista, 2013), with its share of global smartphone market reached 46.7% as of Q1 2007 (Statista, 2014). As of 2006, Nokia’s revenue was $54.27 billion, with 1.1 million smartphones shipped around the world (Canalys, 2007). Even though at that time, there were already many players in the field, such as Motorola, Sony Ericsson, however, all of them were incapable in competing with Nokia, with only 6.6% and 5.1% in global market share respectively (Canalys, 2007). In short, by the end of 2006, Nokia remained their dominance position in the global smartphone market.