Thursday, May 23, 2013

Nokia's Five Forces Framework

Nokia's Five Forces Framework Nokia Corporation is a Finnish global communications and information technology company that has its headquarters in Keilaniemi, Espoo, Finland. The company’s major products are mobile telephones as well as portable IT devices. Additionally, it also provides Internet services together with applications, music, games, media and messaging, along with navigation services and free-of-charge digital map information through its entirely owned subsidiary Navteq. Besides, Nokia has a mutual venture with Siemens, Nokia Siemens Networks that offers telecommunications network equipment in addition to services. The current competition has affected Nokia’s market share in the telecommunication industry but it still holds a significant market share in the ever changing industry. The micro environment refers to internal factors that have an effect on the staff, customers, shareholders and the competitors. Porter’s 5 forces model is most suitable for evaluating Nokia’s micro environment as it takes into account the suppliers, customers, competitors, and new entrants Power of suppliers: Moderate Even though Nokia depend on its suppliers to deliver necessary equipment, there are actually several large equipment manufacturers that Nokia can turn to. Microsoft is currently the software suppliers for Nokia’s Smartphones, and they have a high bargaining power. Nokia are in strong position to bargain plus negotiate with any maker of mobile phone hardware since there is a large number of equipment suppliers which are readily accessible should their present suppliers try to haggle for more cash with them. Additionally, Nokia have recently formed a pact with Microsoft it would be seen as a key coup for Nokia rather than Microsoft. Accordingly, Microsoft may have more power in negotiating a price along with share since the deal is more valuable to Nokia than Microsoft (Roy, 37-48). Powers of buyers: High The customers have rising power due to the increased variety of choices available in the mobile telecommunication sector. Majority of Nokia competitors also providing similar packages and the industry is extremely sensitive to prices with customers looking for the best value for their money. Most of the consumers are also tied into long-standing contracts and hence changing from one handset to another is hard and expensive for the customers. The industry has a competitive market with very wide number of choices, which makes the consumers to have a lot of power since they can decide to go to Nokia’s various rivals if they are not satisfied with Nokia (Henry, 69-88). Threat of new entrants: Low The mobile phone market is well-established and the threat of new entrants is relatively low, since the technology required to rival the already available devices is highly advanced if they wish to differentiate. The barriers to entry are high as any new entrants require high investments in technology and marketing, R&D so as to challenge the established organisations. Threat of new entrants is very improbable since the initial cost of entering into the market is very high and needs a lot of time to be to compete with the established organisations. Nokia presently has a 29% of the whole global mobile phone market and for any new competitor to get a bit of their market requires a long term plan or highly innovative products never seen before, since practically the new entrant requires incredibly high investment for the R&D and marketing and may to make positive result for an extensive time (Schwarzinger, 12-29). Threats of substitutes: Very Low Mobile phones are a daily essential in the lives of people today and they would find it difficult to replace, since customers will not be able to be have constant contact while away from their houses. However, the customers may contact people via others forms of media, for instance, email, social networking websites and home telephones. But keeping in constant contact will be difficult in customers’ daily life. In contrast, smart phones have lots of functions hence there are numerous substitutes provided the substitutes focus on a single functions. Mobile phones are now a daily necessity in the lives of people due to the important functions they can perform and they are all present in one handset. There is no other product with the ability to send messages, make phone calls, surf the web among others in one device. Moreover, constant communication with other people at anytime and any place makes the mobile phone an extremely vital device to individuals (Grant, 154-172). Therefore, the threat of substitutes is very low because of the fact that a mobile phone is not just for making calls alone but for the entire other functions as well. Without mobile phones individuals will find it very hard to replace, since it can offer a lot to consumers all in a single device. Consumers also rely on mobile phones a great deal and may not find a substitute that possesses the entire functions of a mobile phone (Hill, 112-129). Competitive rivalry: Very High Nokia competitors have switched to smart phones as well as androids whereas Nokia have merely just lately released their initial smart phones and hence trail their rivals such as HTC and Apple. There is also incredibly modest differentiation among the competitors which implies that any new smart phones will find it hard to lure existing HTC and iPhone customers to switch. Additionally, there is intense competition from big companies like Sony Erickson, Blackberry and LG among others. The mobile phone industry has very high competition that is extremely fierce and requires huge investments in the R&B and marketing so as to compete with the biggest global organisations. Nokia’s sluggish move into the Smartphone market leaves them trailing their rivals (McGuigan, 421-442). Therefore, competitive rivalry is extremely high and Nokia have to be alert of their competitors’ threat on their business particularly with the increasing popularity of the RIM blackberry and Apple iPhone. Competitive rivalry is the main threat to Nokia since they are significantly behind in the Smartphone market and to raise their market share requires a lot of efforts (Stonehouse, 162-181). Works cited Roy, D. Strategic Foresight and Porter's Five Forces: Towards a Synthesis. GRIN Verlag. 2011 Henry, A. Understanding Strategic Management. Oxford University Press 2008 Schwarzinger, A. Porter's Five Forces Framework - An Analysis of the Swiss TV-Broadcasting Industry. GRIN Verlag. 2012 Hill C. et al. Strategic Management Theory: An Integrated Approach. Cengage Learning 2009 McGuigan, J. et al. Managerial Economics. Cengage Learning 2010 Stonehouse, G. et al. Global and Transnational Business: Strategy and Management. John Wiley and Sons 2007 Grant, R. Contemporary Strategy Analysis: Text Only. John Wiley and Sons 2010