History of Nokia

Question:

Write a Report on the Loss of Market share.

Nokia is a telecommunication company which was established in the year 1865 but it was acquired by Microsoft in the year 2014. But again the company was sold off to the supply chain of Apple, Foxconn in exchange of $350 million. In the din and bustle of buying and selling, the Nokia Company had reportedly lost 766 million Euro in the year 2016. The cause of the loss has been described by the company as the fall in network sales and the shooting of costs from acquirement and incorporation of Alcatel- Lucent. In the years 1998- 2011, the company was leading in the making of mobile phones but gradually suffered losses owing to the booming industry of smart phones. Apart from the introduction of smart phones, the rise of competitors such as Apple and Android has been accountable for the loss of Nokia (“Our history | Nokia”, 2017).

With their severe loss in the market the company planned to cut 1700 jobs all over the world in 2009 in order to gradually respond to the introduction of new devices and technologies. This reduction in jobs continued till 2012 as Apple and Android became a major obstacle in the path of Nokia. The reason behind this was that Nokia was more of a hardware company than a software company. They were more focused on the physical components of their product rather than paying attention in the technological aspects. The biggest mistake on their part was to underestimate the significance of software which includes different applications of the mobile phone. In contrary to its competitor Apple, the hardware engineers of Nokia had always dominated the software engineers which resulted in the company to lag behind in technical aspects. Not only that, the company had also failed to understand the importance of transition to smart phones. It can be analyzed that a market survey would have helped the company to measure the pulse of the target group and launch their products as per the demand of the market (Ciesielska, 2017).  

Another major fault of the Nokia Company was that they were overconfident of their own brand and products. They had a misconception that even if their entry in the smart phone market is delayed, it will not hamper their sale. They were not successful in recognizing the contemporary brands of the same sector which were not flexible as before. Even after many days of the launch of Apple iPhone, Nokia still did not stop insisting the people that they can win over the competitive advantage with their unique design which failed miserably. It can be contradicted that the adoption of Windows technology had been a mistake on the part of the Nokia company while it can also be said that their own operating system was also outdated and needed modification.  In the period of superior technology, Nokia failed to answer the call of innovation which affected their sale and reputation. The deadly combination of overconfidence and underestimating posed a fatal outcome on the company. The most valuable brand in the world became the worst sufferer because of major mistakes on their part (Laamanen, Lamberg & Vaara, 2016).

Causes of Nokia’s Downfall

Fig: Global market share of Nokia from 2007 (1^st quarter)- 2013 (2^nd quarter)

Source: (Jia & Yin, Y, 2015)

Cultural factors

With the diversification of a country, there are several factors which have an effect on the consumer behavior. The cultural factors that have played a part in the loss of Nokia are the increasing use of smart phones and different applications. Although Nokia was a pioneer in the smart phone market but still they could not maintain the leadership position in the market. They could not bring much innovation in their product until 2011 with the introduction of Windows phone. With the introduction of iPhone the whole concept of smart phone was changed which had a big impact on the consumer’s buying behavior. Moreover, the decision of the company to adopt Windows Phone instead of the trending Android technology could not attract the customers (Vuori & Huy, 2016).

Social factors

Consumer behavior is dependent on the reference and recommendation by a closed group of family or friends. With the increasing use of smart phone applications which are typical of Apple and Android, Nokia could not grab the market with their Windows phone technology and thus lost their potential future market. Moreover, people nowadays are only targeting a specific brand as a result of that Nokia market was threatened in the USA by a generation of customers. This is because people are adopting android and IOS technology more than that of Windows. In fact Nokia was in an advantageous position than Samsung because it did not have to start from the ground position as they already had a established market of smart phone (Alibage, 2017, pg 9- 51).  

Personal factors

The factors such as age, income, lifestyle and occupation of the consumers had an impact on the buying decision of the customers which failed to target required customers of the company. Apple iPhones were stylish and trendy which could meet the high standard of living and thus more appealing to the customers. With the increase in the income of the individuals it has become necessary for them to meet the high standard and Apple is considered as a style statement (Aspara et al., 2013, pg 2-25).

Psychological factors

Beliefs, perception and attitude vary from one customer to the other. It was a mistake on the part of the Nokia Company that they could not measure these three aspects of their target group. According to Maslow’s need theory, the level of motivation also influences the purchasing behavior of the consumers. Nokia did not pay attention towards the indulgence of the consumers as compared to their competitors. The learning process of the consumers is dependent on the skills, intention and knowledge which are evolved through constant practice. With the knowledge that is gained about the particular brand, they take the decision of buying the product. The Nokia Company should have measured the psychology of the customers before adopting the technology of Windows Phone. They failed to understand the perception of the consumers towards the Nokia brand and did not make any effort to increase brand awareness. Neither did they work towards the technological advancement of the products (Doz & Wilson, 2017).  

Impact of Consumer Behavior on Nokia’s Sales

The Nokia products are subject to government regulations which have a direct effect on the business. The Federal Communications Commission maintains a regulatory environment for mobile device and the network services to enhance growth of the particular sector. The government has criticized Nokia for their job cuts in different countries as a result of their loss in the market. They were blamed for not keeping the promise of making a technological hub by keeping research and development jobs. This was responsible for putting a halt to the company’s production of new phones. In response to the government blame Microsoft mentioned that they will continue to launch Windows 10 and Lumia smart phones but they were not sure of the new windows phones ((Laamanen, Lamberg & Vaara, 2016).

Nokia was not so much of a poor company that it would fail so terribly. Even the government had said that they will not intervene by buying the market share of a weak mobile company. Nokia was once the global leader in the mobile phone sector but with the advent of its competitors the company has become no better than a drowning ship.  The company had no other option than to shut down as a part of their cost- cutting plan. Previously Nokia was responsible for a major amount of share in the country’s economy and played a role in exporting more than a quarter (Akinsanmi, Ekundayo & Okorie, 2013). But with the sinking of the company’s fortune, the country’s economy has also been suffering. Moreover, other less popular companies which did not have much effect on the economy of the country got help from the government in order to avoid the trap of Europe’s financial dilemma ((Laamanen, Lamberg & Vaara, 2016, pg 16- 27).

The environmental factors that can be taken into consideration are – Nokia was technically substandard to Apple, the company was content with their services and they could not foresee the introduction of iPhone. Also they could not keep up with the contemporary innovations which made them fall behind Apple, Samsung and other smart phone companies. They could not understand that their slow response to the adaptation of new technology will lead to such a disastrous loss. Similar to other electronic companies, Nokia also faced the constraints of safe and economic disposal of the used products in an environmentally sustainable manner. There is a chance that in the coming years the company could face the penalty from the laws of electronic manufacturers for disposal of the used devices specifically the use of lithium batteries (Wang, Hedman & Tuunainen, 2016).

Impact of Government Regulations

Another environmental factor that affected Nokia Company is the price hike of raw materials and components such as lithium for batteries. Also the rising demand for lithium to be used for other purposes such as in electric cars restricted the supply by increasing the price. Climate change is a major environmental factor which posed a long term threat in the form of global warming. As a result of that there has been disruption in the trans- oceanic shipping which affected the supply chain of Nokia. The modifications in the environmental laws for reducing the emission of greenhouse gases have increased the production costs in the countries and thus affected the cost of Nokia ((Doz & Wilson, 2017).           

The internal environmental factors of the company include management style, organizational culture and climate. A complicated and competent environment of Nokia threatened its existence in the market. There are some external environmental factors such as the practices which are against the laws and norms and the companies involving in such practices can have a negative impact.  Nokia was late in taking measures to reduce the energy consumption by the company and ensure that all their materials are sourced ethically. Also they could not keep up with the innovation of the market as compared to the competitors and fell drastically when came to the sale of the products. They stumbled at various stages such as they were unable shift the spending of research and development into such products that had high demand in the market (Akinsanmi, Ekundayo & Okorie, 2013, pg 459- 474).

The CEO of the company had responded by mentioning that although he was happy with the figures but still the problem of headwinds made him worried about the upcoming fall in networks. He stated that they are expecting the network sales to perform as per the market trend. Moreover, he showed confidence in the operation margin of 8-10 percent in the coming year. The company has also signed patent license with Apple with the aim of expanding their business in the near future (Aspara et al., 2013, pg 2-25).

This much response was not sufficient on the part of the company. One of the main reasons behind their failure was that they could not measure the need of the potential market and again they failed to respond properly against the justification of their loss. They had launched a new product in 2002 against which Apple competed with new products (Laamanen, Lamberg & Vaara, 2016, pg 16- 27). At that point, Nokia failed to respond to the technological advancement and developed applications. Although they had launched a few products but could not make anything unique that could appeal to the customers.

Economic and Environmental Factors

It was wrong on their part to respond to the call of Windows in 2011 when they were already on the verge of declining. They should not have trusted Windows at that crucial point when it was new in the sector to regain their lost position in the market. Nokia lagged behind its competitors because they were unable to create the enthusiastic spirit among the customers with their new products as there was nothing unique in the products and thus flopped in the market. It is a fact that the customers will only revert to the company’s response when they will get something as per their demand. The company failed to respond to the complaints of the customers in terms of their low voice quality, not so stylish heavy sets and not user friendly (Wang, Hedman & Tuunainen, 2016).    

It can be recommended for the company that they should be more technologically savvy in order to cope up with the market trend. The company has enough experience in the mobile phone industry which will be used effectively for regaining their value and share in the market. They need to get hold of the opportunities of newly expanding market and shift their focus on smart phone business. It can be suggested for the company that they should make sleek designed and stylish sets which will attract the customers and think of innovation in the form of tablets and notebooks.

Fig: Yearly profit and turnover of Nokia

Source: (Wang, Hedman & Tuunainen, 2016)

Nokia has been hit by decline in the main network sector where it was threatened by Apple and Samsung. Even though the company was the first in the market to introduce mobile handset still they could not maintain their position as a pioneer. The reasons behind their loss have been mentioned in the course of this assignment and it could be recommended that should be extremely innovative for hitting the market. They should bring about sensible designing in their phones along with technologically advanced software which could beat Apple and Android. They should work on their overconfidence and be attentive towards the customer demand to make products for meeting their needs.

Fig: Apple hardware quality revenues vs. Samsung mobile

Source: (Vuori & Huy, 2016)

Fig: Comparison between Apple and Nokia

Source: (Ciesielska, 2017)

Conclusion

Therefore it can be concluded from the assignment based on Nokia’s loss that the key to their success lies in their own hands. They could have used better branding strategies in order to beat the competitors. When Apple and Android were booming in the mobile industry with their extraordinary design and high tech applications, Nokia was lagging behind with its Windows technology and old set of phones. They have underestimated the trend in shifting to the smart phone technology and thought that they will be able to capture the market later on.

Their pride was the main factor behind their ruin and they lost their market. The not- so- friendly mobile phones could not appeal to the customers in front of the stylish iPhones. Also, the technologically advanced applications of Samsung’s android were no match to the backdated technology used in the Nokia phones. There were other factors too which played a role in the loss of Nokia such as environmental factors, social factors, psychological factors, cultural factors and personal factors. The government also did not support the company to regain their market share. Moreover, Nokia failed to respond to the market call when it was needed.

References

Akinsanmi, O., Ekundayo, K. R., & Okorie, P. U. (2013). Reliability Assessment of an Electronic System: A Case Study of Nokia N1650 Mobile Phone Charger in Zaria, Nigeria. In Advanced Materials Research (Vol. 824, pp. 170-177). Trans Tech Publications.

Alibage, A. (2017). Nokia’s Smartphones: What Happened, and What Possibly Happens? A Review of Nokia’s Strategic Management of Technology Prior to 2014, and an Analysis of the Current and Future Situations.

Aspara, J., Lamberg, J. A., Laukia, A., & Tikkanen, H. (2013). Corporate business model transformation and inter-organizational cognition: The case of Nokia. Long Range Planning, 46(6), 459-474.

Ciesielska, M. (2017). NOKIA ON THE SLOPE: THE FAILURE OF A HYBRID OPEN/CLOSED SOURCE MODEL. The International Journal of Entrepreneurship and Innovation.

Doz, Y., & Wilson, K. (2017). Ringtone: Exploring the Rise and Fall of Nokia in Mobile Phones. Oxford University Press.

Jia, J., & Yin, Y. (2015). Analysis of Nokia’s Decline from Marketing Perspective.

Laamanen, T., Lamberg, J. A., & Vaara, E. (2016). Explanations of success and failure in management learning: What can we learn from Nokia’s rise and fall?. Academy of Management Learning & Education, 15(1), 2-25.

Our history | Nokia. (2017). Nokia. Retrieved 26 November 2017, from https://www.nokia.com/en_int/about-us/who-we-are/our-history

Vuori, T. O., & Huy, Q. N. (2016). Distributed attention and shared emotions in the innovation process: How Nokia lost the smartphone battle. Administrative Science Quarterly, 61(1), 9-51.

Wang, J., Hedman, J., & Tuunainen, V. K. (2016). Path creation, path dependence and breaking away from the path: re-examining the case of Nokia. Journal of theoretical and applied electronic commerce research, 11(2), 16-27.