Page 92 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes have access to a large market where the technology was standardised and major economies
of scale were therefore possible. Such a development was important because the GSM
standard was subsequently used worldwide, with around 500 millions of the world’s
700 millions mobiles using this standard by 2000. This was fortunate for companies like
Nokia: “Good luck favours the prepared mind” was Alahuhta’s cryptic comment some
years later.
Benefits and Problems of Strategic Choice

In fact, Nokia was highly successful in its expansion.: moved rapidly to design phones that
would appeal to global customers by designing mobile phones that offered reliability
and ease-of-use. This meant that it had to invest heavily in software development and it
formed an alliance with the British company, Symbian, subsequently taking a majority
share in order to ensure that developments remained on track. Nokia was also single-
minded in its investment in factories in order to deliver economies of scale, reduce costs
and raise profit margins.
Nokia was particularly good at reading what customers wanted and then moving quickly
into the market place with new telephones: it realised that the mobile phone during this
period was almost a fashion accessory and designed phones to reflect this. It made the
important judgement that the market during the 1990s was moving from being a high-
tech market into a mass-market, where cheaper, entry-level phones were required. This
was in sharp contrast to its Nordic competitor, Ericsson, who had remained with high-tech
phones: “We had the wrong profile in our portfolio,” was the later comment from Kurt
Hellstrom, Ericsson’s chief executive. By 2000, Nokia had developed a range of mobile
telephones that were both attractive to look at and innovative in their use of the new
digital technology that had become available. The result was that by 2000 Nokia was
world leader in mobile telephone manufacture, with 35% global share.
2000-2005: Coping with New Challenges
Having concentrated its resources into mobile telephones, Nokia then had to cope with a
major downturn in the world market 2000-2002 which occurred for three main reasons.
The first reason was that the market became saturated in some parts of the world – for
example, 80% of people in the EU had mobile telephones. Other markets were also
becoming saturated – only America lagged behind because of the profusion of mobile
standards in that market. Even in countries like China and India, around 30% of the
population had mobiles and the take-up was much higher in Asian countries like Singapore
and Japan, though the latter country had developed its own technical standards outside
the GSM system.

The second reason for problems was that the technology bubble of the late 1990s came to
an end in 2001. This left the leading telecommunications companies over-burdened with
debt and wanting to slash their costs. Sales in Nokia’s telecommunications equipment
division - related to mobile phones but more associated with the surrounding infrastructure
of telephone exchanges dropped 50% over three years. Nokia itself had to make some
7,500 workers redundant in order to recover the situation.
In the mobile phone division of Nokia, there was a third additional problem for Nokia.
The telephone service providers like Vodafone and Orange were delaying the introduction
of the next generation of mobile telephone technology for reasons of technical feasibility
and lack of funds through paying too much for the licenses. The ‘3G’ pure digital technology
would introduce a whole new market for telephone services that would need a totally
new series of product designs. In turn, this would require new manufacturing processes
inside companies like Nokia. The result was that all the mobile telephone manufacturers,
including Nokia, were hit by falling profits in 2001-2002. Contd...

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