international marketing (nokia)

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Introduction

The Nokia Group (Nokia) is the worlds largest mobile manufacturer and a leading supplier

of digital mobile and fixed networks. The companys increasing focus on cellular products

and wireless services is responsible for the Nokia success during the last decade.

Headquartered in Helsinki, Nokia is the largest and most successful organization in Finland.

By reviewing the market in the 1980s, analog telecommunication products and services

dominated the market. In the beginning of 1990, the increase of wireless phone systems

resulted in new standards for future mobile communications. Digital networks where

developed with more potential in traffic rate and roaming capabilities. In the end of 1990 the

increased demand is focused on wireless information exchange, connecting people andcomputers to interact with different parts of the world.

The Organization

The Nokia Group has during the last decades experienced major organizational changes and

shifted its focus to new market and product segments. In 1994 Nokia consisted of five

business groups; Consumer Electronics, Telecommunications, Cables and Machinery, Mobile

Phones and Other Operations, with its core focus towards telecommunications. Later Nokia

merged the Consumer Electronics and the Cables and Machinery business groups with the

Other Operation business group (Nokia 1997).

There are many elements and organizational factors in the companys outstanding success.

The company was established in 1865 and has over a long period established strong relations

with different vendors and manufacturers in different parts of the world. From the early days

of the mobile industry, Nokia produced and manufactured multiple standards and cellular

products. The firm acquired a wide base of knowledge and with its continued research and

development (R&D) effort, the result was production of superior cellular products and

wireless services.

The Nokia Group is represented with sales in 130 countries. Most of the companys executive

management and board are with Finnish origin. In each country the company is represented

with a local management, which is responsible for various operations in its country. Due to


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the majority of Finnish leadership, it resolves similarities to an organization with polycentric

management with geocentric operations (Keegan 1998:11-16; Rahul 1996).

Nokia has increased total sale with more than 60 percent since 1994. The mobile phone

groups share of the total sale has increased from 35 percent in 1994, to 56 percent in 1997.

The profit from the group has increased from 44 percent, to 61 percent the same period. The

net profit of the total sale has more than doubled since 1995, to 12 percent in 1997. The R&D

costs have increased 2 percent for the same period, to 9.3 percent of the total sale in 1997.

The Nordic markets

As the most successful organizations in the history of Finland, Nokia is successful in

different markets. In 1996 it estimated 6 % of net sales and a 46 % penetration rate in the

Finnish market for cellular mobile products. In Scandinavia, the market penetration rate

reached 44 % in Norway and 29 % in Denmark. Sweden was ranked as Nokias 8 major

market with sales estimated to 8 billion FIM (Nokia 1997). As the company increased its

knowledge in telecommunications in the late eighties, it entered the European and world

arena. All these indications demonstrate the local adaptation and usage of the cultural

differences Nokia adopted in the Nordic countries during the eighties and nineties.

Today, Norway is the only Scandinavian country that not is a member of the European Union

(EU). The other Scandinavian countries, Sweden and Denmark, have been members since

1995 and 1974. Finland became a member in 1994. The importance of Finlands participation

in the EU is obvious to the global localization of the Nokia Group today. Nokia is represented

with sales offices in every European country, US and in Asia. Nokia has production facilities

in Europe, Asia and the US and R&D departments in 11 counties. The organizations

economic development resolved in heavy foreign capital investment and is today representedin European and US stock exchanges. In some respects, Nokia as a Finnish company could be

identified as a Baltic country, rather than the belongings to the western European culture and

economy (Guttman 1994; Rahul 1996; Nokia 1997).

The Core Competence

Part of Nokias core competence is the knowledge and experience in the wireless cellular and

network services industry. By focusing on superior products and services, Nokia has gained


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The unique value seen by consumers is identified in the products unique value. The unique

value can be viewed as the customers perception on its benefit preferences divided by actual

price

A Global Winner

The outstanding growth and success of Nokia can be summarized as the overall performance,

focus and strategic decisions made in the early days of the mobile strategic decisions made in

the early days of the mobile cellular industry.

Nokia is characterized as a global winner for several reasons (Appendix I);

Product leadership

The operational excellency by the top Management

Identification of the internal processes from production to distribution (TQM)

The success in own country

Keeping the global focus on segments.

As the company grew, they identified new need, for a maturing markets and created customer

needs as the products where launched (Lamb et al. 1994:728-740).

The Global Cellular Mobile Industry:

The global mobile phone industry is based on many different manufacturers and operators.

The industry is based on advanced technology and many of the manufacturers are operating

in different industries, where they use their technological skills, distribution network, market

knowledge and brand name. Three large manufacturers of mobile phones are today

dominating the global mobile phone industry; Nokia, Eriksson and Motorola. In addition tothese companies there are many manufacturers that operate globally and locally. This report

focuses on the competition among these organizations.

Global Trade Unions and International Agreements

When operating in a global market, there are a lot of elements to consider, like boundaries

and barricades, legislation and regulations. In Europe many countries have joined the

European Union (EU). EU founded the Single European Market in January 1993, which


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allows mobility of goods, people, services and capital between the countries. Another trade

organization in Europe is the European Free Trade Association (EFTA). This organization

was founded as an alternative to the EU to ensure the negotiation power with EU and to agree

on common tax and tariff rates among the members. The United States, Canada and Mexico

signed a free trade agreement (NAFTA) to establish an open market between the countries.

South and Central America (El Salvador, Guatemala, Honduras and Nicaragua) signed the

Central American Common Market (CACM). The Latin American countries (Argentina,

Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela)

formed Latin American Integration Association (LAIA, formerly the LAFTA). In Asia the

ASEAN (Association of South East Asian Nations) countries has signed the Agreement on

the Common Effective Preferential Tariff (CEPT) scheme for AFTA, but this will not be in

use until the year 2008.

These new open markets are made to protect manufacturing and business within the area. For

global companies located outside these markets, this may lead to higher import tariffs

(Bradley 1995:172-173). It is estimated that 60 % of the world trade is going to be tariff free

early in the next century (World Trade Organization 1997).

The World Trade Organization

131 governments are members of the World Trade Organization (WTO), which succeeded

the GATT in January 1995. WTO emphasizes an effort order and predictability in

international relations, based on three principles; nondiscrimination, open markets and fair

trade.

In many countries, the fixed telephone service is still a public sector monopoly. Last year

WTO agreed on that the monopolies should be removed to ensure competition in thesemarkets. This resolution is a result of the agreement by the countries of the EU to create a

single market for telecommunication services (The Economist, September 13 th 1997). The

step away from monopolies will probably lead to lower prices on using the mobile phones. A

decrease on these prices will again lead to increased demand for mobile phones (Parkin and

King 1995:327-331).

The trade unions and organizations are often responsible for defining technological standards

for its area. The World Intellectual Property Organization (WIPO) and the WTO have agreed


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on a joint initiative to provide technical cooperation for developing countries. Good timing

and early innovation combined with better knowledge about customers, competitors and

markets than other players in the industry, may lead to a competitive advantage (Larsen

1998). The increased importance of being the innovator or having the best technology may

lead to more focus on affecting the decisions on defining technological standards (Porter

1985:5; Porter 1990:35)

Stable governments are more likely to ensure continuity in government policy as it affects

business. Stable systems allow companies to plan their affairs with some degree of certainty.

To be aware of what to consider in each country or region, organizations should do an

analysis of the global environment (Bradley 1995:162).

Market development in the Emerging Markets

Many countries in Eastern Europe are still operating under communistic governments and

different reforms (Onkvisit and Shaw 1997:141), but these governments are moving towards

the western standards. Some of the Eastern European countries are trying to become members

of the EU. These countries have a population of almost 100 million people, and the mobile

phone penetration in the countries is low.

The sales of mobile phones in the South and Latin America have increased rapidly, but it is

estimated that half of the regions 490 million people have never used a phone. The region is

benefiting from an improved governmental stability and a trend towards privatization

(Motorola 1997:10). The market for mobile phones in Asia is also increasing rapidly, and the

potential sale is enormous due to the number of people living in the area. The local operators

have to develop the infrastructure for mobile phones to ensure the application and sale of

mobile phones in the area.

The crises in Asia this year has spread to most of the world. It has been reflected in stock

markets world wide, and many branches, markets and companies have been through a rough

period (Appendix II). The result is governmental changes in many countries. This lead to a

more uncertain political arena on the global mobile manufacturer market. Even though the

price is low, the risk for large investments in these countries is considerable.


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Mobile manufacturers have invested a lot of time and money in R&D and product

development. This is their core strengths when facing possible entrants to the industry

(Thompson and Strickland 1995:42). There are, at the time, no substitutes to the mobile

phones. The potential sale is sky high, especially in un developed countries like China, India,

Brazil, Indonesia, and other 3rd world countries with high population rate (Bradley 1995:242-

250).

The Saturn Markets

In some highly developed countries, especially the Nordic countries, there seems to be a

saturation of mobile phones. The future sale will primarily be based on repurchase

(McDaniels and Gates 1995:324). For the mobile operators and manufacturers this means thatthe end-users needs and preferences most certainly is going to change. The situation is similar

to other high penetration mobile cellular markets.

The Standardized Technologies

Generally the global market is moving from an analogue system towards different digital

systems or platforms. Europe and parts of Asia are based on the GSM technology. North

America is primarily based on the CDMA technology, but small local installations of GSM

technology are in service and future investments of satellite networks are in progress. With

coverage in Europe, Asia and North America, GSM has a widely coverage in global cellular

phone markets.

The New Technology A Connected World

There are two new types of systems in development, each of which will provide a range of

innovative services (Evans et al. 1998);

Global Mobile Personal Communication Services (GMPCS) that will offer voice, fax,

low rate data, and messaging services to mobile handsets similar to those used today.

Iridium, Globalstar and ICO are the main GMPCS systems. All are expected to be in

full service by early 2000.

Broadband Satellite Services (BSS) is intended to provide flexible capacity on the

demand for high-volume telephony, video conferencing, broadcast video, and high

speed Internet data services. They operate globally, but use fixed or bulky portable


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terminals rather than mobile hand-held devices. BSS systems are still in development

and will not be operational until 2001 at the earliest.

The investments of new wireless telecommunication continue, more rapidly, than ever before.

Satellites are about to emerge as a powerful force in communications, as they have already

done in television broadcasting (Evans et al.. 1998:8-9).

This fast growth is development driven by a combination of liberalization and technological

innovation (The Economist, September 13th 1997). The liberalization has sent prices for long-

distance and international calls to a less expensive level. This trend will continue as local

operators begin to charge prices based on the actual cost of providing value-added services.

The monthly charge for an account is likely to rise to comply with an EU directive thatforbids operators from subsidizing currently unprofitable business with "high-margin long-

haul traffic" (Beardsley 1998:32).

The global players

Motorola

Motorola is one of the leading supplier of wireless communication, semiconductors and

advanced electronic systems. Since 1993 they have been the worlds largest mobile

manufacturer, as a result of their strong position in their large home market. Motorola has lost

their leading position in their home market to Nokia, which in fact has become the worlds

largest mobile manufacturer this year (Nokia 1998). The American company is decentralized

with six sectors reporting to the office of the CEO. Motorola employs more than 150.000

people worldwide (Motorola 1997).

Strategic Cost Analysis (Thompson & Strickland 1995) shows that Motorola has problems

with their productivity compared to their main competitors (Appendix V-VI). Motorola is

facing a stagnation of the sale per employee and the net profit in percent of sale has decreased

from 7 % in 1994 to 4 percent in 1997 (Appendix VI).

The customers preferences and needs have changed during the 1990s. Motorola has failed in

adopting to these changes in their product development and design, and in their

communication towards the market.


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L.M. Ericsson

Ericsson is another leading supplier of analog and digital mobile systems, mobile phones and

terminals, energy systems and defense electronics. The company has more than 100.000

employees, but according to Dagsrevyen (1998) the company is dismissing about 10.000 of

its employees. Ericssons small home market made them look towards the international

markets. Their sales of ordinary telecommunication equipment made it possible for them to

build a global distribution network at an early stage. This has become an important strength

for the company. Ericsson has been able to integrate their overall knowledge with the future

development of the mobile phone industry. This has lead to a 27 % average annual growth in

total sales since 1994, with a 35 % growth in 1997. Even though they have grown fast the

recent years, they have managed to improve their profitability from 8 % in 1994 to more than

11 % in 1997 and increased their sale per employee from 154 to 237 the same period

(Appendix V-VI).

Ericsson has an average spending of 15 % of their sales on Research and Development

(R&D) investments (Appendix IX). This is high compared to Nokia and Motorola, which is

spending 8 to 9 % on R&D.

In the early days of the digital mobile development, Ericsson was the main provider of the

TDMA system in the US, and does not supply mobile phones for the competing CDMA

standard (Finstad 1998). Due to this, they have lost potential sale in the US market.

A theoretical framework of Global Marketing Strategy

"Global Marketing Strategy" has achieved great attention all across the world, both among

the academicians and practitioners. It has been argued that worldwide marketplace has

become so homogenized that multinational organizations can market standardized products

and services all over the world, with identical strategies, that leads to lower costs and higher

margins.

The standardization of customers, importance of scale economies of standardized products

and markets, can be argued when adapted to global markets. This issue has generated an

important discussion on the effects of the globalization trends on company strategy (Keegan


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1998: 1-4; Buzzel et al. 1995:2-9; Usunier 1996: 177; Solberg 1997; Subhash 1989:70;

Quelch and Hoff 1986: 59-60).

This section presents a theoretical perspective of the most influential framework of the

present situation.

The competitive strategy

"The railroads did not stop growing because the need for passenger and freight transportation

declined. That grew", Levitt (1960) explores the blindness of major business industries

caused by narrow industry identification. The cellular phone industry is facing similar

challenges today. There are hardly any cellular devices that only enable a phone

conversation. New cellular devices are launched into the market with capability to collaborate

information, exchange text messages, connect to corporate information sources etc. The

railroad example and the cellular phone industry face similar identification threats, as the

industries continues the rapidly expansion. The Marketing Myopia (Levitt 1960) is often

refereed to as the marketing disciplines most quoted and reprinted paper that demonstrates

the need for a broad interpretation of the marketing function. The article strongly argues for

avoiding the myopia of narrow, product oriented industry definition.

During the 1970s, the globalization of world business started for full (Jain 1989). American,

European and Japanese organizations established subsidiaries and joint ventures all over the

world. Theodore Levitt (1983) followed the globalization of business and emphasizes the

focuses on the technology as a driving force towards a converging commonality in

proletarianized communication, transport and travel. "Almost everyone everywhere wants all

the things they have heard about, seen, or experienced via the new technology" (Levitt

1983:1). The new reality forces organizations to emergence the global markets, but themultinational and the global organizations are not the same. The globalization of markets

(Levitt 1983) explains how the same standardized product needs different analysis in

different geographical segments in the global marketplace. The different analysis approaches

are reflected in the organizations orientation towards a multinational or the global company.

"Globalization of markets" (Levitt 1983) is an expression which relates first to demand.

Tastes, preferences and price are becoming increasingly universal in customer demands.

Secondly, it relates to the supply side of the market. Products and services tend to become


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more standardized and competition within industries reaches a worldwide scale. Thirdly, it

relates to the way organizations, mainly multinational companies, try to design their

marketing policies and control systems. These efforts are done to retain its winner position in

the global competition of global products, for global consumers.

Michael E. Porter (1979) focuses on a different approach towards a competitive or

differential advantage, by identifying the different competitive forces that exist within a

competitive market. Knowledge of the underlying forces can shift a corporate focus on their

collective strengths and identify the collective weaknesses. Organizations must increase its

effort on how to influence the different forces in a corporate favor. Porter also contributed

with several books, which entitles organizations to develop an approach to gain strategic or

differential advantages and identifying the organizations value chain.

Local versus global

Organizations operating in a global environment use the economic strengths of low

production costs and standardization of organizational policies.

Consumption is becoming global, artificial entry barriers tend to disappear. Global markets

remain more apparent than real, when one looks at consumption patterns (Sheth 1986). The

general discussion emphasizes how products and market strategies can be globalized under

the fierce pressure of the globalization of competition and the resistance of the consumers

globalization movement (Usunier 1996:187).

Before the classic article of Buzzel (1968), "Can you Standardize Multinational Marketing",

natural entry barriers related to culture were seen as very high, commanding adaptation to

national markets and offsetting the potential advantages of scale economies. Buzzel clearly

showed that with the decrease of purely artificial trade barriers, large international

organizations could create natural entry barriers unrelated to culture through economies of

scale. There have been numerous texts, which have sought to advice business people and

academicians how to make the best choices between standardization and adaptation of

marketing policies to foreign markets (Solberg 1997; Hout et al. 1982; Hamel and Prahalad

1985, Quelch and Hoff 1986; Ghoshal 1987).

Centralization versus decentralization


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During the 1970s and 1980s the debate on centralization versus decentralization of

multinational organizations intensified. Organizations began to think that there would be a

trend towards more standardized products which was delivered by standardized

organizations. It soon became evident that any large-scale centralization of assets, resources

and responsibility would be both organizationally difficult and strategically difficult (Buzzel

et al. 1995).

The globalization of consumption was presented as unquestionable postulate, because it was

much easier to adopt to the recentralization policy within the organization.

Kashani (1989) gives the example of Lego, the Danish toy company facing a leading

competitor in the US, Tyco, which sold its toys in plastic buckets instead of Legos elegantsee-through cartons, standardized worldwide. When asked by the US management to package

in buckets as the competitor, who was gaining market share, the head office rejected the

request. After two years and massive loss of share on the US market, Legos headquarters in

Billund decided to create a newly designed bucket. Not only was the share erosion in the US

stopped, the bucket was introduced worldwide and proved to be a great success. This case

demonstrates that the relationship between the headquarters and subsidiaries for defining

marketing strategies is complex. Too much autonomy results in purely local solutions with

little economies of scale and an absent of worldwide coordination, especially when strong

actions are needed.

What is global strategy? The theoretical lessons we learned.

Global marketing strategy is forcing organizations to rethink their strategy, redesign their

organizations, seek new partnership, and open their minds as well as their boundaries. Global

strategies differ a lot from other international terms in business literature. "Export markets,"meant excess production or obsolete inventory in countries not yet accustomed to standards

of the home market. "Offshore production" meant cheap unskilled labor. "International

management" meant a separate division of an organization (Kanter 1994). Global strategy on

the other hand involves all the companys markets and operations together, viewed through

an integrated framework (Hamel and Prahalad 1989; Hout et al. 1982; Bartlett and Ghoshal

1992; Solberg 1997).


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Countries can be grouped into regions for administrative convenience. This grouping

sometimes makes a difference. One American company worked on an Asian strategy, without

acknowledge the vast differences existed between Hong Kong and Malaysia or Indonesia and

India (Kanter 1994). Similar assumptions where made in Europe and companies gained

efficiency by creating "Eurobrands", but they still have to deal with many jurisdictions and

local distributors (Bartlett 1983; Keegan 1998:86-107; Ohmae 1995:119-125).

Globalization requires new relationships both across companies and in companies. To

compete effectively in the global economy, organizations must strengthen their unity as well

as become more adept as external learning (Bartlett and Ghoshal 1988; Ohmae 1989 #1;

Keegan 1998:543-576; Kanter 1994:231). Business managers emphasize the importance of

considering all markets together when determining the opportunities for sharing or maintain

difference. Global competitiveness often requires greater internal cooperation.

Global strategy brings new skill for companies and their managers. In "Managing Across

Borders" (Bartlett and Ghoshal 1991) the authors have shown that world-wide product

managers, world-wide functional managers and regional geographic managers must each

maintain focus on their dimension of the business while coordinating closely with the others.

The balancing acts required for effective execution of global strategies represent one more

force for organizational change. Less bureaucracy and more communication will characterize

the global competitor of the future. Vertical control and a hierarchy command will be

replaced by more horizontal, peer-oriented relationship building across borders and

boundaries (Day 1992; Kashani 1989:96; Mintzberg 1991; Yip 1992; Bartlett and Ghoshal

1997; Keegan 1998:545-558 and 562-564)

Global marketing strategy is about thinking in an integrated way about all aspects of thebusiness - its suppliers, production, markets and competition.

The true meaning of global is holistic - not international.

Major Challenges and Future Recommendations:

Moving towards a wireless society


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As we are moving into the next millennium, the world has become a global playground.

People, markets, governments and organizations are continuously communicating across

borders and exchanging information. The liberalization and technological invention is the

main driving forces in the wireless telecommunication. Mobile cellular devices are widely

accepted in the main markets; Europe and North America, with over 120 million subscribers

and units sold, and still growing rapidly.

Since 1989, Nokia has reorganized its organization from providing everything from

electronics, cables and machinery, paper and chemicals, rubber and floorings to a lean a

focused organization in the telecommunication industry (Lipasti 1989 and Quelch 1989). This

organizational change enabled Nokia to focus on its core competence and be the superior

manufacturer in the telecommunication industry. Nokia identified the opportunity trends in

the market development of mobile cellular products at an early stage of the wireless

revolution.

Mobile cellular devices are today an integrated peripheral of our daily surroundings. In the

Nordic countries the mobile devices are almost as natural as personal watches.

The connection between consumer fashion and high technological mobile phone devices

made wireless communication devices more available.

Nokia has established the "Nokia Mobile Phones Group" as a leading company delivering

consumer oriented cellular devices. The products relate to customer lifestyles, freedom, and

independence with the newest technology available. Following the trends in the different

local markets enables Nokia to understand consumer preferences and develop superior

products.

Nokia Telecommunications is a leading supplier to local operators. By providing superior

equipment to different standards, Nokia are delivering large systems for infrastructure. The

Nokia Group is a global winner with its strong market position and influence in future

development in wireless telecommunications.

The new challenge

The telecommunication industry is dramatically changing. As the modernization increases in

the telecommunication and networks are becoming wireless, new areas are covered by the


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industry. The fast growing segments of the Internet are probably the main driving force for

the expansion of the wireless industry (Evans et al. 1998:13). Today we explore a high

growth in networks applications and the establishment of Virtual Private Networks (VPN).

The next generation mobile cellular devices are characterized as mobile devices, not mobile

phones. This generation devices will operate as a communication center, integrating Internet

technologies and different network applications for universal collaboration and communities.

To follow the rapid changes in the industry, several leading organizations are preparing for

the new reality. Several joint ventures are established among the worlds leading

manufacturers of mobile cellular devices, telecommunications operators, database operators

and content providers.

Symbian is such a joint venture between main manufacturers Motorola, Nokia, Eriksson,

Philips and Psion. Other technology partners like Oracle, Sybase, JavaSoft, Lotus, DEC, and

NEC among others. Symbian is established to develop a new standardized platform for the

new wireless communication platform. Nokia also participates in the Bluetooth joint venture,

a cooperation mainly withn Eriksson.

The importance for strategic alliances is becoming crucial as the competition increases

(Ohmae 1989 #2). The joining forces we experience today, are indications towards alliances

in the fast growing industry. There are many alliances established in the various industries.

The Information Era

Many of the worlds biggest companies will challenge Nokia in the future. Organizations like

Microsoft, CNN, SUN Microsystems, AT&T, Cisco and 3Com among others, are all players

in the new era of telecommunications and wireless information exchange (Evans et al.

1998:13; Eugster et al. 1998:92). The key issues for further success is; 1) the establishment of

the core network, where data and voice networking do not reside on functionality; 2) creating

the unique product platform, not just offer the unique platform, but also bundles with partners

to provide and influence the "killer" applications; 3) delivering the platform, enable solutions

based products I.E e-commerce and management information systems; 4) increasing

organizational skills among employees and partner alliances.


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Given the stability of the Internet standard, this consolidation is likely to continue, meaning

that ultimately there will be fewer seats at the table for todays organizations and a higher

demand in personal sectors. At the same time, networked applications will drive the growth.

Finally, the battle for the edge will be reached by stable focus on the superior solutions and

customer relationship.


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