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2014

Microsoft's Strategic Alliance with Nokia

Some of the information used in this report has been


adopted from the case study "Microsoft's Strategic
Alliance with Nokia".
Contents

Coursework Header Sheet .................................................................................................................................0


Chapter I: External Analysis .............................................................................................................................2
1.1 PESTEL Analysis ..................................................................................................................................2
1.2 Porter's Five Forces Model .............................................................................................................5
1.3 Industry Life-Cycle ..............................................................................................................................9
1.4 Key Success Factors ......................................................................................................................... 10
Chapter II: Internal Analysis.......................................................................................................................... 12
2.1 MICROSOFT ......................................................................................................................................... 12
2.1.1 Competency Framework ..................................................................................................... 12
2.1.2 VRIN Framework Analysis .................................................................................................. 12
2.1.3 Strengths and Weaknesses ................................................................................................. 14
2.2 NOKIA..................................................................................................................................................... 15
2.2.1 Competency Framework ..................................................................................................... 15
2.2.2 VRIN Framework Analysis .................................................................................................. 15
Bibliography .......................................................................................................................................................... 17
Chapter I: External Analysis

1.1 PESTEL Analysis

Political

By working together in 150 nations, Nokia is always subjected to an expansive number


of diverse political impacts. Every nation has its political frameworks and distinctive
regulations and terms of business and the smartphone industry is pretty much highly
regulated. Notwithstanding, as a leader in the smartphone market with far reaching
knowledge, more than 10 years ago, Nokia entered the extremely political Chinese
market (Johnson, 2012)-. It is likewise significant to record that Nokia has moved its
principle producing units to developing nations China and India and hence any
government intrusion in those nations (especially regarding work laws) can specifically
influence Nokia. For a delineation, Indian factory owned by Nokia encountered strike
movement when on staff turned up for work and was informed that he had been moved
to another department without his awareness (Ray, 2010), this constrained the
industrial facility to close down for few weeks.

Economical

The interest for smartphones is differed; accordingly the economy assumes a pivotal
part regarding prosperity for the mobile and smartphone market. The economic
downturn in the recent times has unmistakably influenced all competitors in the
business and a few have been compelled to exit. An example of this would be Motorola
who sold its cellular movement to Google in 2011 (Rushton, 2011) and LG is taking in
consideration to stop their mobile movement in the following few years (Dediu, 2010).
Likewise, in light of the fact that in all developed areas the penetration rate of cell
telephones is incredibly high, clients will substitute their phones just if value for money
is ideal; this will subsequently expand the opposition between primary players.

Social

Social effects have an immediate impact on the smartphone and cell markets. The
growth of the alleged information society has made telecommunications progressively
more significant to purchasers, both regarding leisure and work. With Nokia primarily
working in the Western industry, it is essential for them to completely comprehend the
social components in these markets and the principle component they have to
comprehend is the culture of the general public; which is to have the most recent and
most state-of-the-art phone, is viewed as a vital fashion icon. Buyers are dependably
after the most inventive and most attractive Smartphone in light of the fact that in
today's society individuals are judged on how elegant they are by their selection of
smartphone. The expanding fashion in Smartphones implies when shoppers buy new
mobile phones, the number of buyers picking the standard mobiles phones over
Smartphones are reducing due to the societal trend in the current society. Nokia will be
mindful of this and possibly make use of their hard efforts creating a Smartphone that
can rival their adversaries invention, with a specific end goal to stay aware of the
trends of their buyers.

Technological

The cellular handset trade has constantly depended on extraordinary high-tech


vicissitudes. Also, throughout the recent decade, the increment in innovative
developments has pressed the fundamental contenders to reintroduce and release their
new phones at a much quicker pace than they competed a while ago. Likewise, the
development of 3G AND 4G networks has an effect on the cell handset industry. The 4G
network of wireless engineering is presently starting to be sent around the globe. As a
result, mobile network specialists have submitted themselves to constructing networks
which supports 4g. Accordingly, organizations like Nokia can deliver these networks
and ought to have the ability to build their sales considerably. The hi-tech developments
in the business are crucial to the accomplishment of any new Smartphone in the market
that is constantly developing, as the level of rivalry ascents Nokia must guarantee that
their Smartphones are at the most uppermost level of enhancement. With features, such
as, web, camera, email and social networking becoming popular, Smartphone
manufacturers will need to consider different features support differentiation and to
separate and to be prominent from its adversaries.

Environmental

In today's society it is exceptionally essential for firms to be seen as an eco-friendly and


moral with its production; on account of the worldwide impact it has on global
warming, so Nokia must guarantee that they work in a proper way. With cellular
telephone recycling firms getting to be more popular, this shows how imperative
individuals are in regards to it. The principle issue with cellular recycling is the removal
of the batteries in the handsets as these can get hazardous if not discarded fittingly.

Legal

In order to sustain competitiveness, firms have to bear in mind that intellectual


property is the fundamental to any technological firm. This must be looked after and
protected without bounds add up to guarantee the business does not miss out to
adversaries. Nokia work in an industry where it is extremely troublesome to have a
handset that is distinctive to its rivals, upon the release of a handset with an imaginative
competence, it is fundamental to secure the rights to it through licenses, copyright,
trademarks or outline to guarantee they are not embezzled" by their rivals. As Nokia
have production plants in different nations, it is greatly paramount that they keep the
rules and regulations fixed by the various nations as the regulations will contrast
relying upon the nation, these might be occupations laws, Health and Safety or even
exchange confinements.
1.2 Porter's Five Forces Model

Threat of New Entrants:

This industry is as of now an


entrenched industry and the
threat of new entrants is low, as
the innovation required to
compete the currently available
handset range is highly. The
barriers to entry in the mobile
Figure 1: phone market is high on the
Porter's grounds that any new
Five Forces participants will require high
spendings in Research and
development, innovation and
advertising so as to contend with the well-known companies.

New participants need to take piece of the pie from the bigger firms yet Nokia held 29%
of the piece of the pie in the business, the most elevated share of the overall industry in
the business (BBC, 2011). The risk of new participants into the cellular telephone
industry is farfetched as the initial expense of entering into the business at an elevated
amount needs a great deal of reserve and time to be viewed as a respectable contender
of the officially settled associations. Nokia as of now hold a 29% of the whole cell
telephone market overall and for another contender to acquire some of their business
will take either a long haul arrange or something that is positively imaginative and
unseen in the recent past. This is on the grounds that sensibly the new participant will
require high financing for research and development and promoting, and might not
have the capacity to distribute positive outcome for quite a while as they attempt to
assemble a client base and a name for itself in a created business. All in all the danger of
new participants is low and not a variable which Nokia will need to stress over within a
brief period of time.

Power of Suppliers:

Despite the fact that Nokia depend on its suppliers to supply gear for their propelled
cellular telephones there are truly various substantial suppliers, which could appeal to
Nokia. The suppliers for their smartphones operating system are presently Microsoft.
As a result, they have a rather high bargaining power. As Nokia is leading the mobile
phone market, they are in an exceptionally solid position when negotiating with their
suppliers. Nokia are positioned in way where they can deal and arrange with any mobile
phone manufacturers on the grounds that there is a high amount of suppliers that are
promptly accessible to them ought to their current suppliers endeavour to bargain for
higher cash with them.

Nokia's fundamental contention might be the way that they are a worldwide association
with the highest market share in the mobile industry, so the suppliers might not have
any desire to lose such an illustrious business. Contrariwise, Nokia have as of late made
an alliance with Microsoft for their operating system which might be viewed as a
significant overthrow for Nokia more than Microsoft. Subsequently, Microsoft will have
a greater power when negotiating a deal and offer on the grounds that the arrangement
is more valuable to Nokia than Microsoft. All in all, the power of suppliers pose a
moderate threat in spite of the fact that the hardware suppliers have a low power,
Microsoft's control over the product is high on the grounds that they're not many
different firms who have the finesse and abilities to opponent Microsoft.

Powers of buyers:

The power that clients have is escalating due to the expanding number of choices in the
mobile phone market. With a ton of the Nokia contenders all offering comparative
bundles (e.g. unlimited messages and calls) the industry is exceptionally price sensitive
with clients searching out the best deals for their money. A large number of the buyers
will additionally be tied into long haul contracts so changing starting with one handset
then onto the next will be troublesome and unreasonable for the buyer, therefore they
may not have any desire to change until the agreement has ended.

The mobile phone market is a highly intense market where the amount of decisions
made is extensive, leaving consumers with greater power of choice on the grounds that
they can decide to go to one of Nokia's numerous opponents on the off chance that they
feel Nokia are bad enough. As Nokia don't have stores to sell directly to consumers,
representatives, for example, Carphone warehouse or network stores such as Vodafone
likewise have different handsets promptly accessible for the customer, which makes it
troublesome for Nokia to have an immediate effect on the offering of their handsets.
Therefore this has made an exceptionally price sensitive business sector in light of the
fact that customers will dependably be vigilant for the best deals. All in all, the
consumers have a high level of power as a result of alternate handsets they can buy
rather than Nokia.
Threats of substitutes products

Smartphones are everyday essentials in individuals' lives today and people might think
that it hard to replace, as clients might not have the ability to be in steady contact when
away from home. Then again, it could be said that clients might have the capacity to
contact individuals through others source of media, for example, social network,
telecommunication, email, web, In spite of the fact that staying in consistent contact
might be hard in clients' everyday life.

Notwithstanding, smartphones are well built with highly advanced functions and the
amount of substitutes are high. Cell phones have a wide range of features and along
these lines numerous particular items might be classed as substitutes for one of a few
capacities. For instance, electronic products like tablet and, notebooks can blanket
practically all mobile phone functions, with the exception of the most vital text and call
features. Likewise, regardless of the fact that the pace of 4g will empower clients to
utilize more video calls rather than voice calls, clients will dependably depend on little
gadgets like smartphones that might be transported effectively in pocket or a bag.

Taking everything into account, the threat of a substitute product is low because of the
certainty a mobile phone is no more only for making calls however for the various
functions too. In this way, the main genuine substitute is to purchase all the functions of
a mobile phone in the distinctive products which might not be possible to bear all on an
individual in the same time. Without mobile phones, customers might discover it
exceptionally troublesome to swap, as it can offer such a great amount of to the buyers
all in one gadget, regardless of what the needs of the buyer are. Customers depend on
mobile phones heavily and might not have the ability to discover a substitute that has all
the capacity of a mobile phone.

Industry Rivalry

Nokias opponents have progressed to smartphones while Nokia just released their first
smartphone leaving them behind to their rivals. The level of differentiation within the
industry is very little which means newly released smartphones will find it challenging
to attract existing HTC and iPhone customers to switch. Taking everything into account,
Industry Rivalry is high and Nokia must be mindful of the danger that contenders have
on their business particularly with the rising trend of the Apples iPhone, HTC, LG, Sony
Ericcson and RIM (Blackberry). The industry rivalry is the greatest risk to Nokia on the
grounds that in the Smartphone market they are significantly behind and to build their
share of the market will require hard work in a market where some of the greatest
names in the industry such as Apple and Sony operate in.
Rivalry in the worldwide handset business sector is extreme and is quickly getting much
bigger as buyer gadgets firms see the potential of exchanging their well-known brands
into the mobile phone sector. Throughout the last decade, significant computing firms
like Apple and Lenovo have moved into the smartphone market, either by designing
their own particular mobile phones or by getting an existing brand or protected
property (Google and Motorola). In addition, few players exited this industry because of
the trouble in drawing in clients (e.g. Acer, Dell, and HP). The difference between
product characteristics is getting decreased and subsequently firms who have exited
have invested vigorously in services and applications in order to distinguish their
products.
1.3 Industry Life-Cycle

Smartphone
Industry

Figure 2: Industry Life-Cycle - Smartphone

According to the Nielsen Company (2011), Android gained 37% of the market share
with Apple trailing behind with 27%. The smartphone industry is at present in the
maturity stage. Smartphones have turned out to be extremely mainstream in today's
business sector. This industry has started to become saturated. There is a high level of
competitive rivalry in this market. Many rivals have entered this market through
mergers and acquisitions such as Googles acquisition of Motorola. In addition, many
firms have exited the market. The smartphone technology is on the verge of growth and
maturity as new features and functions are being developed and released.

1.4 Key Success Factors

Extensive Research and Development

Across the globe, Nokia has built many manufacturing with research and development
facilities. By December 2009, Nokia had built R&D sites in 16 nations. The research
centre includes around 500 researchers, engineers and scientists. Furthermore, Nokia
has implemented modern technology to remain competitive in the world. As a result,
Nokia are able to invest into new emerging technology and research which they could
later implement in their handsets.

Production and Manufacturing Facilities

Nokia the worlds largest mobile phone manufacturer has an overall 15 facilities in
manufacturing with an excess of 123,000 employees in 120 nations. Nokia utilise their
fixed assets world-wide which enables them to be successful over low expenses. Nokia
thrives on innovative technology and effective employees that leave them with greater
productivity and low expense based design.

Faster Learning Curve

Nokia offers greater learning opportunities for employees who seek for system
operation development and build workforce efficiency. Nokia are able to use additional
resource in operational developments therefore, they benefit from a faster learning
curve. The firm is able to achieve economies of scale by sourcing all parts through one
company.

Innovative Activities

Nokias long-term intention for research and development is to create innovative


products and technologies. The companys short term objective is to develop products
to tested successful technologies as opposed to creating new technology. Nokia partners
with universities, research institutes and other organisations for the running of R&D.

Strong Distribution Network

Nokia has a strong distribution network around the globe. Moreover, the firm has
distribution within Southeast Asia and customer support centre in Singapore. These
centres provide an effective transfer of information and enhanced customer support for
Nokias associates in Asia.

Capable Workforce

The success of Nokia rest upon the capable and devoted workforce, the diversity within
the workforce brings forth competitive advantage with state-of-the-art technology
solutions for the firm.

1.5 Opportunities & Threats

Opportunities

Nokia has an incredible client base; they are able to enhance the average revenue per
unit with the development in mobile internet and the rising trend in internet users. The
emerging markets such as China and India provide big market prospects for growth and
an increase in market share. In addition, European market incorporation can also be
seen as an opportunity on account of the formation of European Single Marketing and
Euro, Nokia get numerous profits for trade and FDI to European countries.

Threats

The new entrants in this industry oppose a high threat. Googles purchase of Motorola
has established that the market has begun to consolidate. Financially stable firms such
as Apple and LG hold a very robust brand will be tough to challenge with. Android has
penetrated the smartphone market and this ecosystem has loyalty from developers.
Therefore the growing loyalty within the OS is increasing and thus a major threat. Nokia
are unable to compete in the high-end smartphone market due to its low/med prices
handsets where strong price erosion is predicted to carry on driving the profits down.
Chapter II: Internal Analysis

2.1 MICROSOFT

2.1.1 Competency Framework

1 Diversity of intellectual product portfolio from Microsoft office to gaming console


used world-wide. Along with product development, Microsoft has intellectual
property with over 35,000 patents issued (Microsoft, 2013).
2 Financially stable According to (Wilcox, 2011), for 2011, Microsoft made $17.37B
revenue & $5.87B profit.
3 Heavily invested in Research & Development - with facilities around the globe,
empowering the company to create innovative products. According to (Jackson,
2011), Microsoft set aside a budget of $9.6 billion for R&D.
4 The Founder of Microsoft, Bill Gates The visionary of Microsoft who created his
empire from scratch.
5 Strong diverse employees the diverse workforce brings forth innovative
technological solutions for the firm.

2.1.2 VRIN Framework Analysis

Resources & Valuable? Rare? Difficult to Non- Competitive


Competenci Imitate? Substitutable Implications
es ?
Diversity of YES YES YES/ NO YES Sustained/
intellectual Highly valuable The number is Patented The patents Temporary
product as it provides patents issued products provide Competitive
portfolio Microsoft with for products cannot be Microsoft Advantage
a shield against owed by imitated. with product
rivals and Microsoft it However, differentiatio
generate certainly rare similar n and
income opponents can diversity and
create similar as a result,
products with enabling them
few to gain
modifications competitive
advantage
Financially YES YES/NO NO YES Temporary
stable The revenue The huge Any firm can Microsoft Competitive
and profit that earnings that achieve a generates a Advantage
is generated by Microsoft similar substantial
Microsoft is generates are financial sum of
valuable as it rare. position and revenue.
benefits the However, market share. Consequently,
firm to reinvest rivals Apple Therefore this this revenue
the capital into and Samsung is not difficult is capitalized
different are in the to imitate as for the future
aspects of the immediate various factors growth of
business such region determine the Microsoft
as marketing income. These
factors can be
achieved by
competitors
Heavily YES NO YES YES Temporary
invested in This is very This is not Although The huge Competitive
Research & valuable aspect rare within competitors budget Advantage
Development within a the can invest in Microsoft
business technological R&D, its retains for
operating in a industry difficult to R&D is non-
fast paced imitate substitutable
technologically Microsofts and it keeps
driven industry high level of them intact
investment with the
current
trends
The Founder YES YES YES YES Sustained
of Microsoft, This is valuable The vision Bill This cannot be The image Competitive
Bill Gates to Microsoft as Gates had to imitated as Bill and ethos Advantage
Bill Gates is the drive the Gates cannot be created by Bill
founder of innovation of replaced. Gates is still
Microsoft and the renowned entrenched
the visionary operating within
pioneer behind systems for Microsoft
the success PC is rare
Strong YES NO NO NO Competitive
diverse The workforces Opponents A robust In the near Parity
employees are highly also operate efficient future, if
valuable to the with strong workforce can Microsoft
company. They workforce to be hired by any decides to
drive the remain competitors. endeavor new
company in competitive in Therefore this projects, they
terms of its the industry aspect is not may require
R&D, entirely new diverse
marketing and exclusive workforce
engineering
2.1.3 Strengths and Weaknesses

Strengths
Solid Dissemination channels - The organization works with all the significant PC
hardware makers, for example, Dell, Lenovo and Samsung and other PC retailers
to ensure that desktops are sold with built in preinstalled Windows operating
system. The organization likewise put capital into Dell and Nokia to tighten its
associations with these organizations.
Brand Loyalty - Through the years, Microsoft has been the heading operating
system and programming supplier, which brought about more than 90% piece of
the overall industry for PC operating systems. The greater part of the modern
society population grew up utilizing its not difficult to use operating system, are
acquainted with it and will continue operating it. Many rivals fail to attract users
even by offering OS free of charge. Windows operating system and Office
programming items are so prominent not simply in light of the fact that
Microsoft has incredible monopolistic force, solid distribution networks and
great brand reputation, additionally in light of the fact that its items are of
extraordinary quality and truly simple to use.
Brand Reputation - As stated by (Interbrand , 2012), Microsoft's brand is the
fifth most profitable brand on the planet, valued at $ 57.8 billion. Forbes
recorded the corporate as the seventh most legitimate business on the planet.
Brand reputation prompts higher transactions and more share of the industry.

Weaknesses
Lack of Innovation - Microsoft has surplus R&D budgets and the firm is in a
strong position to go into new markets with product innovation however always
neglected to do so. Microsoft had the chance to be the first player in online
marketing however missed the good fortune. Moreover, Microsoft entered the
mobile operating system industry quite late leaving them behind Google and
Apple who have taken shares for Microsoft.
Heavily dependent on hardware manufacturers - Microsoft is a monster
programming company yet it doesn't manufacture its own hardware and relies
on upon other computer manufacturers to create desktops and laptops that run
Windows operating system. On the off chance that computer manufacturers find
a low-priced or trendy operating system elsewhere, they might basic pick the
substitute and Microsoft will be left with little power to change the
circumstances.
PC industry entering a maturity stage - Just as of late has Microsoft entered the
smartphone industry and still intensely relies on upon its operating system and
sales of softwares for laptops and computers. This industry is on the maturity
stage Microsoft will find that it challenging to develop incomes in these areas.
2.2 NOKIA

2.2.1 Competency Framework

1 Intellectual product portfolio Nokia own licenses which confine different


contenders from imitating their products.
2 Cost leadership strategy Nokia can manufacture astounding amount of mobile
phones on low expenses. This gives them the benefit of the economy of scale
3 Strong brand image - Nokia are famous for being a dependable telephone maker
4 Manufacturing capacity - Nokia have possession of its own manufacturing plants
across the globe. Therefore they are vertically integrated.
5 Indefinable capability in global network and broadband innovations - Nokia have
an unfathomable manufacturing capability and a world-wide telecommunication
network, the third greatest after Ericsson and Huawei (S Revus, 2011).

2.2.2 VRIN Framework Analysis

Resources Valuable? Rare? Difficult to Non- Competitive


& Imitate? Substitutable? Implications
Competenci
es
Intellectual NO YES YES YES
Product The patents An agreement They are Nokia own some Sustainable
Portfolio dont bring over licensing leading the very important Competitive
any value means that industry in patents which Advantage
from a Apple have to terms of quality makes it very
consumers pay Nokia a and quantity of hard to be
perspective royalty for patents so this substituted
each iPhone is hard to
sold imitate
Cost YES YES YES YES
Leadership Nokia own Nokia Nokia use their Hard to beat in
Strategy their own produce the widely terms of cost Sustainable
production highest dispersed leadership Competitive
facilities quantity low production Advantage
which allows priced facilities to
them to mobiles and it lower fixed
control some would be hard costs and be
of their fixed to achieve a able to provide
and variable lower cost value for
costs money
YES YES/ NO YES YES
Brand Nokia have a The brand It would be The brand Sustainable
Image large although hard to mimic cannot be Competitive
consumer unique has the brand as substituted Advantage
base due to competitors they have
their reliable with similar strong
image and is values economies of
known scale
worldwide
Production NO YES YES YES
Capability Nokias vast Nokia owning The quantity The ability to Temporary
production their produced and produce high Competitive
allows them production the number of output levels is Advantage
to manage facilities is facilities makes important in the
costs and rare in the it costly to industry and
produce large industry as implement cannot be
quantities but this is quite substituted
doesnt add an expensive
value to the feat
product
YES NO NO NO
Network & The company It may be Other New innovations
Broadband has a strong possible for companies or systems might Competitive
Expertise engineering competitors have the ability mean the Parity
proficiency to hire similar to obtain highly engineers might
qualified staff skilled need to be
engineers replaced
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