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CONFIDENTIAL

Mobile Handset Competitor

Analysis: Nokia

SAMSUNG ELECTRONICS CHINA

(SEC China)

Document
Date 20, 2001
August

This report is solely for the use of client personnel. No part of it may be
circulated, quoted, or reproduced for distribution outside the client
organization without prior written approval from McKinsey & Company.
This material was used by McKinsey & Company during an oral
presentation; it is not a complete record of the discussion.
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OVERVIEW OF COMPETITOR ANALYSIS FRAMEWORK
Unit of measure
1. Background information 4. Value chain strategy
• Location • Starting year Focus on
• Registered • Number of • Marketing,
capital employees advertising and
• Management • Era analysis promotion
team • Distribution (channel
• Equity and sales force)
structure

2. Strategy 5. Organization and ownership

• Mission • Organization structure
• Vision • Ownership structure
• Corporate strategy
• Market position

3. Product/market 6. Financial performance

• Key product offerings • Sales
• Key customers • Profit
• Value proposition
• Geographic focus
• Pricing
*
Source:
2
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KEY ISSUES TO PROBE - NOKIA
Unit of measure

• How does Nokia position itself now and in 2005?

Strategy • What are Nokia’s product and value delivery system strategies that
differentiate itself from its competitors?
• How does its current market position help achieve its goal?
• What is Nokia’s key product offerings and how does Nokia
Product/market
differentiate its products from its competitors’?
• What customer segments is Nokia targeting at?
• In which geographic areas is Nokia strong or weak?
Value chain • How does Nokia’s product development meet customer
strategy requirement?
• How do Nokia’s distribution channels differ from its competitors’?
• Why does Nokia launch exclusive specialist shops?
Organization & • How does Nokia provide customer services?
ownership • How much does Nokia invest in JVs and WOFEs in China, and what
are the main drivers?
• How does Nokia organize to enable the JVs and WOFEs to work
Financial together?
performance • How strong is Nokia’s performance and what are the major
contributors?
• What is Nokia’s performance trend?
*
Source:
3
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BACKGROUND INFORMATION
Unit of measure
1. Background information 4. Value chain strategy
• Location • Starting year • Focus on
• Registered • Number of – Marketing,
capital employees advertising and
• Management • Era analysis promotion
team – Distribution (channel
• Equity and sales force)
structure

2. Strategy 5. Organization and ownership

• Mission • Organization structure
• Vision • Ownership structure
• Corporate strategy
• Market position

3. Product/market 6. Financial performance

• Key product offerings • Sales
• Key customers • Profit
• Value proposition
• Geographic focus
• Pricing
*
Source:
4
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NOKIA IS RELATIVELY A LATE-COMER TO CHINA; HOWEVER
IT
UnitHAS GROWN RAPIDLY TO BECOME A MARKET LEADER IN
of measure
MOBILE COMMUNICATION
Background Implication

Location
• Based at Finland, with offices in China, e.g. Beijing
• China is Nokia's strategic location because it is
Nokia's second largest market, second only to US
Investment
• Invested more than USD1.7 billion in China
• Leader in mobile communication
globally and in China
• Al though a relatively later-
comer to China, has invested
heavily in its Chinese business

Business
• Two main business units: Nokia network and Nokia • Focused product lines with
mobile
Nokia network offering mobile,
broadband and IP network infra-
Starting
• First office in China in 1985, first JV in China in 1994 structure, and Nokia mobile
offering mobile handsets

Employees
• 60,000 staff in 130 countries
• More than 20 offices in China, 7 JVs, 1 WOFE and 1
R&D center with over 5500 staff

History
• Started business in China since 1950s
• 1985 saw first office in Beijing, supplying fixed line
networks
• Supplied analog NMT 450 system and terminal in
1986
• Supplied transmission system, optical cable and
electric cables in later 1980s
• Supplied analog ETACS system and terminals in
1989
*
• Supplied GSM system and terminals in 1990s
Source:
Source: Nokia Press Release 5
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STRATEGY
Unit of measure
1. Background information 4. Value chain strategy
• Location • Starting year • Focus on
• Registered • Number of – Marketing,
capital employees advertising and
• Management • Era analysis promotion
team – Distribution (channel
• Equity and sales force)
structure

2. Strategy 5. Organization and ownership

• Mission • Organization structure
• Vision • Ownership structure
• Corporate strategy
• Market position

3. Product /market 6. Financial performance

• Key product offerings • Sales
• Key customers • Profit
• Value proposition
• Geographic focus
• Pricing
*
Source:
6
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NOKIA POSITIONS ITSELF AS A LEADING PRODUCT AND SYSTEM
SUPPLIER IN THE FAST GROWING MOBILE COMMUNICATION INDUSTRY
Unit of measure

Strategy
• Focuses on mobile communication
Product products and aims to be a total solution
provider in mobile communication
• Regularly introduces consumer-
oriented products with emphasis on
designs and functions Vision
To lead mobile
communication through
the integration of mobility
Value • Builds strong local alliance through JVs with internet and the
delivery with Chinese partners and R&D centers innovation of new service
system with Chinese universities models
• Builds exclusive specialist shops to
bring one-step solutions to end users
• Builds fixed and mobile service stations
with wide geographic coverage
including rural areas

*
Source:
Source: Nokia press Release
7
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NOKIA HAS CAUGHT UP WITH MOTOROLA AS MARKET LEADERS IN
MOBILE HANDSETS SINCE 1999
Unit of measure
Monthly market share development
(Percent of market in units sold)
40

30
Nokia
Motorola
20

10

Siemens
Ericsson

* 98 99 Jan ‘00 Dec ‘00

Source:
Source: IDC, McKinsey Analysis 8
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UNLIKE ITS COMPETITORS, NOKIA’S MARKET SHARE IS THE SAME
AMONGST NEW AND REPURCHASE BUYERS
Unit of measure
Percent of units sold, 2000 4Q

Definition:
23 21 21
Others • New buyer:never
7 7
bought mobile phone
8 before
10 12 12 • Repurchase buyer:
Ericsson bought mobile phone
before
28 29 29
Siemens

31 31 31
Motorola

Nokia

Repurchase New Buyers Total market

Buyers
% of Market 25% 75% 100%
*
Source:
Source: IDC, McKinsey analysis 9
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AMONG REPURCHASERS, NOKIA’S CHURN RATE IS HIGH, BUT AT PAR
WITH MOTOROLA
Unit of measure
Percent, 2000

Brand bought by previous Brand bought by previous

Nokia owners Motorola owners
Others Others

Alcatel Nokia
Alcatel Nokia

Siemens

Siemens
Samsung

Samsung
Ericsson
Ericsson

Motorola Motorola

*
Source:
Source: McKinsey analysis 10
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PRODUCT/MARKET
Unit of measure
1. Background information 4. Value chain strategy
• Location • Starting year • Focus on
• Registered • Number of – Marketing,
capital employees advertising and
• Management • Era analysis promotion
team – Distribution (channel
• Equity and sales force)
structure

2. Strategy 5. Organization and ownership

• Mission • Organization structure
• Vision • Ownership structure
• Corporate strategy
• Market position

3. Product /market 6. Financial performance

• Key product offerings • Sales
• Key customers • Profit
• Value proposition
• Geographic focus
• Pricing
*
Source:
11
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KEY MESSAGES - PRODUCT/MARKET
Unit of measure

• Nokia has a narrow product portfolio focusing on mobile

communication products, and mobile handset is Nokia’s key
product offering

• Nokia offers consumer-oriented handsets with emphasis on

designs and functions, targeting medium and low end customers.
Its main customer segments are the young and fashionable

• Nokia’s fashion phones are relatively strong in major cities and the
south region; however Nokia is relatively weak in the fourth-tier
cities

*
Source:
12
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MOBILE HANDSET IS NOKIA's BIGGEST PRODUCT OFFERING AND ITS
ESSENTIAL
Unit of measurePART OF TOTAL SOLUTIONS IN MOBILE COMMUNICATION

Products Now and future

• Nokia 3310 for young • Largest mobile handset supplier in the
Nokia people world with above average growth in sales
mobile
• Nokia 8210 for fashion and more than 30% global market share
handsets chaser • Views mobile handset as a digital
• Nokia 6210 WAP for convergence point for multimedia
business professional services
• Nokia 7110 WAP with full • Supports blue tooth between mobile
Chinese interface handset and PC in Nokia 6310 for mobile
Nokia • Nokia 9210 as personnel professional
product communicator • Develop WCDMA handsets with DoCoMo
offerings • Nokia 8310, 6310 for • Develops homenet products such as
GPRS and WAP multimedia terminals in Nokia Zhongxin

• Mobile network • Provides multimedia service network

Nokia • Broadband network solutions for operators and ISP entering
network • IP network the mobile communication fields
• Nokia network covers many cities and
areas in China including Beijing,
Shanghai, Hong Kong and Taiwan etc.
• Aims to be a total solution provider for
mobile communication
*
Source:
13
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NOKIA EMPHASIZES ON CONSUMER-ORIENTED DESIGNS AND FUNCTIONS

Unit of measure Fashion Classic Key Differences
8210 V998++ 6210 P7689 L2000 L2000WWW
Fashion
• Changeable cover ✔
• Sub-100g ✔ ✔
Business
• Voice-dial ✔ ✔ ✔ ✔ ✔ ✔
• Recording ✔ ✔ ✔ ✔ ✔
• Vibration ✔ ✔ ✔ ✔ ✔ ✔
• Tri-band ✔ ✔
✔ ✔ ✔ ✔
• WAP
• Built-in modem ✔ ✔ ✔
• IR-port ✔ ✔ ✔ ✔
Basic
✔ ✔ ✔ ✔ ✔ ✔
• Chinese input
• Li-Ion battery ✔ ✔ ✔ ✔ ✔ ✔
• SMS messaging ✔ ✔ ✔ ✔ ✔
Fun
✔ ✔ ✔
• Games
• Composable/ downloadable ✔ ✔ ✔
ringer tone
Price in China (RMB) 2652 2878 2369 1800 1435 1452
*
Equivalent features, Motorola offers lower price
* Nokia more fun/fashion models with similar features,
Source: vs. Motorola more tri-band and WAP
* Nov. 2000 price functions 14
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WITHIN CHINA, NOKIA's FASHION PHONES PERFORM BETTER IN SOUTH
CHINA AND LARGE CITIES
Unit of measure
Percent, 2000
Market share
4
North region
5

East region 7

5
South region
5

China average 7

8
Beijing
8

Shanghai

Shenzhen

*
Guangzhou
Source:
Source: McKinsey Analysis 15
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NOKIA IS RELATIVELY WEAK IN THE IMPORTANT 4TH TIER CITY MARKET
Unit of measure
Percent market share, 2000

100%= 6.7 7.0 8.5 14.8 Million units

21 25 24
30
Others 10 7 7
10 9 9 7
11

Ericsson 28 29 30
28
Siemens
31 30 30
24
Motorola

Nokia

Tier 1 Tier 2 Tier 3 Tier 4

Tier size as % of total 18% 19% 23% 40%
*
Source:
Source: McKinsey Analysis 16
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AND THIS WEAKNESS IN 4TH TIER CITIES SPANS MOST PROVINCES
Tier 1/2/3 city
Unit of measure
Percent market share, Nokia
Tier 4 city
40%

35%

30%

25%

20%

15%
Market share

10%

5%
Percent

0%

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Yu ang d F Z n il H g an ndon s u x i u
Inn He
ij o J
g xi x i n in u
i an iao ich Sha g h an i nsuuizho
Gu a n b e ia n b e a
Ji He Sh L S J S Hu G G

*
Source: Province
Source: Retail Audit, McKinsey analysis 17
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VALUE CHAIN STRATEGY
Unit of measure
1. Background information 4. Value chain strategy
• Location • Starting year • Focus on
• Registered • Number of – Marketing,
capital employees advertising and
• Management • Era analysis promotion
team – Distribution (channel
• Equity and sales force)
structure

2. Strategy 5. Organization and ownership

• Mission • Organization structure
• Vision • Ownership structure
• Corporate strategy
• Market position

3. Product/market 6. Financial performance

• Key product offerings • Sales
• Key customers • Profit
• Value proposition
• Geographic focus
• Pricing
*
Source:
18
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KEY MESSAGES - VALUE CHAIN STRATEGY
Unit of measure

• Nokia is not regarded as a technology leader, as compared with Motorola;

however, it spends a great amount of effort in understanding customer
requirements and tailors its product to meet these requirements.

• Nokia employs PTAC, CellStar, Beijing Telecommunication Equipment Factory,

Bright Point, Express Fortune, and Tech Glory as the first-tier resellers to
distribute handsets through authorized stores and counters. The distribution
channels are relatively flat.

• While its retail shops are growing rapidly to approximately 900 around the
country, Nokia also develops exclusive specialist shops in order to provide “one-
step” solutions to end users

• Nokia implements a highly efficient customer service system with 250 service
stations and mobile service stations for rural areas. It provides good pre- and
after sales service

*
Source:
19
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NOKIA IS STRONG AT MARKETING, SALES AND SERVICE, BUT WEAK AT
TECHNOLOGY
Unit of measure

Manufac- Marketing
Sales and
R&D turing and and Service
distribution
supply chain branding

Strengths • Established R&D • Scalable local • Strong brand • Country-wide • Highly efficient
center in 98/99 in production awareness and distribution customer service
Beijing for China • Optimized preference channels and system with 250
market, with 150 logistics • Promotes strong channel service stations
research staff “technology based management and mobile
• Strong in low end on people” • High retailers service stations
development preference for rural areas
• Good product • Good pre- and
quality and design after sales
service, e.g. “one
hour repair”
service

Levers for
improvement • Weaker position in • Awareness and • Lower rating of
high end segment preference lower retail support
and high end than Motorola • Retailer
technology • Brand in young preference not
• Position in low end market under translating into
* under attack higher market
attack
Source: share
• Low technology
20
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NOKIA HAS REPUTATION GAP AS TECHNOLOGY LEADER, AND TARGET
DIFFERENT
Unit of measureCUSTOMER SEGMENTS FROM MOTOROLA

….on Nokia ……on Motorola

Motorola always
….on technology Nokia is second to introduces new
leadership and upgrade products technology to the
innovation market first

Nokia has
….on design good product
Motorola products
are more formal
designs

… on typical
loyal users Nokia phones
Loyal user
are for female or
is white-collar
younger people
worker

*
Source:
21
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NOKIA DISTRIBUTES THROUGH SIX FIRST-TIER RESELLERS AND
DEVELOPS
Unit of measureEXCLUSIVE SPECIALIST SHOPS
Nokia Channel Structure

Rationales
Vendor

58% • Nokia employs PTAC, CellStar,

Beijing Telecommunication
1st -tier resellers Equipment Factory, Bright
33% 6% Point, Express Fortune, and
Tech Glory as its 6 first-tier
2nd -tier resellers resellers
33% 36% • Nokia requires resellers to
22% report the promotion plan and
Retailers/retail chain stores product ordering plans a quarter
in advance, and since the
3% 6% 91%
demand for handsets tends to
Consumers fluctuate across promotional
programs, this inflexible
strategy generally limits the
potential gain when market
demand changes across
• Late entry to the China market promotions
with less historic overhead
• Flat distribution channels • Close to 900 retail shops and
• Develops exclusive specialist counters country-wide, with
* shops 50% growth from 1999
• Provides after-sale services
Source: • Form exclusive specialist shop
Source: China Computer Journal
to provide one-step solution to 22
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ORGANIZATION AND OWNERSHIP
Unit of measure
1. Background information 4. Value chain strategy
• Location • Starting year • Focus on
• Registered • Number of – Marketing,
capital employees advertising and
• Management • Era analysis promotion
team – Distribution (channel
• Equity and sales force)
structure

2. Strategy 5. Organization and ownership

• Mission • Organization structure
• Vision • Ownership structure
• Corporate strategy
• Market position

3. Product /market 6. Financial performance

• Key product offerings • Sales
• Key customers • Profit
• Value proposition
• Geographic focus
• Pricing
*
Source:
23
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KEY MESSAGES - ORGANIZATION AND OWNERSHIP
Unit of measure

• Nokia has 7JV and 1 WOFE in China, among which Nokia Beijing
and Nokia Dongguan are manufacturing mobile handsets. Nokia
Beijing has annual production capacity of 30 million units in 2001.

• The main drivers for Nokia to setup JVs and WOFEs in China
include building local alliances, localizing manufacturing to meet
domestic market demand and increase exports, and technology
transfer encouraged by the Chinese government

• With a narrow product portfolio, Nokia’s organization is product

focused with coordinated sales and marketing effort across JVs
that manufacture the same products

*
Source:
24
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NOKIA HAS 7 JVs AND 1 WOFE IN CHINA, AMONG WHICH 2 JVs ARE
DEVOTED TO MOBILE HANDSETS
Unit of measure

Main drivers Nokia

• Builds successful international
alliance with
Chinese partners
• Localizes manu-
facturing for major
products
• Meets domestic
market demand
and increases
exports 50% 70% With With With With Zhongxin 100%
• Realizes technology with With Fujian Beijing Dongruan and
and skill transfer in Shouxin Dongguan mobile Hangxing broadcasting
development, Wanxin science institute
manufacturing and
management Nokia Beijing Nokia Fujian Nokia
• Helps Chinese Nokia Nokia Beijing, Nokia Dongda Nokia
mobile mobile Zhongxin Nokia Suzhou
partners improve Dongguan Hangxing telecom Chongqin
commu- communication digital telecom
competitiveness in mobile phone telecom technology telecom
nication technology technology
China and globally

Established year 1995 1995 1997 1994 2000 1999 1998

Product offering • GSM • Mobile • GSM • Mobile • Wireless • Digital • GSM base
system and handsets 900/1800 switches applications multimedia station
equipment network solutions terminals • Cellular
* • Mobile services and network
handsets services transmission
Source: products
25
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NOKIA's ORGANIZATION IS MAINLY PRODUCT FOCUSED WITH
A NARROW
Unit of measurePRODUCT PORTFOLIO AND COORDINATED SALES
AND MARKETING
Nokia
international

Nokia Nokia
Nokia
China Nokia Fujian mobile Nokia Nokia Nokia
Nokia Beijing Nokia Suzhou Nokia
office Dongguan communic- Beijing Dongda Zhongxin
China mobile telecom Chongqin
mobile phone ation Hangxing telecom digital
office communi- telecom
technology telecom technology technology
cation

Marketing Sales Service

Manufa- Sales and Impleme- Sales and Manufa- Sales and

R&D Service R&D
cturing Services tation Services cturing Services

Manu- Manufa- Sales and Manufa- Sales and

facturing cturing Services cturing Services

• GSM system and • Mobile • GSM • Mobile • Wireless • Digital • GSM base
equipment handsets 900/1800 switches applications, multimedia station
• Mobile handsets network solutions terminals • Cellular
* services and services network
Source: transmission
products
26
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FINANCIAL PERFORMANCE
Unit of measure
1. Background information 4. Value chain strategy
• Location • Starting year • Focus on
• Registered • Number of – Marketing,
capital employees advertising and
• Management • Era analysis promotion
team – Distribution (channel
• Equity and sales force)
structure

2. Strategy 5. Organization and ownership

• Mission • Organization structure
• Vision • Ownership structure
• Corporate strategy
• Market position

3. Product/market 6. Financial performance

• Key product offerings • Sales
• Key customers • Profit
• Value proposition
• Geographic focus
• Pricing
*
Source:
27
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KEY MESSAGES - FINANCIAL PERFORMANCE
Unit of measure

• Nokia’s sales in China grew 31% and its operating profit grew 26% in 2000,
among which, mobile handsets contributed to 59% of the sales and 70% of
the profit.

• Mobile handset plays an increasingly important role in Nokia’s product

portfolio, as it represents 59% of the sales in 2000 from 54% in 1999.

• Nokia has secured an operating margin of 22% in mobile handsets, the

highest margin in the mobile handset industry in China, due to highly efficient
operations that keep the cost down to minimum, even though intensive
competition has driven the operating margin down from 24% in 1999.

*
Source:
28
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NOKIA SEES 30% GROWTH IN SALES AND OPERATING PROFIT WHERE
MOBILE HANDSETS CONTRIBUTE MORE THAN 50%
Unit of measure
USD millions
Revenues in China Operating profit in China

31% 2,697

2,052

1,597
1,114

262 356

26%
512
406
Mobile Mobile
handsets handsets
1999 2000 1999 2000
*
Source:
Source: Nokia Press Release, IDC, McKinsey Analysis 29