Nokia(TM)s dominant mobile business in China

University Degree Business and Administrative studies

Final project 2008

Section I: Know about Nokia and its current business

1.1 Nokia’s history in brief

From 1865 until now, after over 100 years’ innovation Nokia grew from roots in paper, rubber, and cables of south-western Finland, today it has become one of the global telecom’s giants.

From the beginning, Nokia was one of the key developers of GSM (Global System for Mobile Communications) technology, its profession on the new technology coupled with the openness of European telecommunications markets in 1980s and 1990s, became the cornerstone of its global achievement.

In 1992, Nokia launched its first digital handled GSM phone. In 1998, Nokia had become the leader of handset makers; meanwhile Nokia had already supplied GSM systems to more than 90 operators around the whole world. Entered into the 21st century, Nokia’s market turnover increased nearly five times from EURO 6.5 billion in 1996 to EURO 21 billion in 2001.

Currently, Nokia is the number one mobile manufacturer and mobile network operator around the whole world. However, Nokia’s evolution still under process, Nokia is operating on a combination mobile communications with computing, internet and digital imaging, aim to make it possible for human being use mobile phone devices for listening music, playing games, shooting videos, surfing on the internet and business mobility and so on.

Nokia’s slogan is ‘Connecting people’.

1.2 Nokia’s current global market performance

Figure 1.1: Net sales by business group 2007

Source: Adapted from .
Nokia nowadays organized in to four business groups: Mobile Phones, Network, Multimedia, and Enterprise Solutions. As the Mobile Phones business account for the largest percentage of the total sales of 49 % (see Figure 1.1), compare with 61 % in 2005, this case will concentrate on that business group.

Figure 1.2: Nokia’s financial performance

Source: Adapted from
Nokia’s operation performance remains in a fast-growth rate these years keep increasing in a good management circumstance. For the financial year ended December 2007, the Nokia Corporation generated excellent total net sales of EURO 51.01 billion (see Figure 1.2). Profit before tax reported of EURO 8.27 billion for the year. Nokia continues expecting the volumes of its industry mobile device in 2008 to grow approximately 10% from the approximately 1.14 billion units Nokia estimates for 2007.

Nokia also reported that it sold 77.8 million mobile phones in Asia, the Middle East and Africa. In China, which was considered as the fastest-growing high-volume market to Nokia, the firm sold 20.2 million mobile phones with a 38.4 % growth over last year. According to The New York Times (2008), currently, Nokia’s global mobile phone market share was recorded of 40 % at the end of 2007 as the profit surged 44 % from increasing sales in Africa, China and the Middle East.

1.3

Figure 1.3: Top 5 mobile-handset maker’s global shipment volume and market share in Q3 2007

Source: “Nokia Still Leads Worldwide Cell Phone Market,” nclubsoft.com

According to the latest research from iSuppli, last year (2007) Nokia still was in the leading position compared with its competitors in global market. The analyst firm said that Samsung persisted its position as the closest competitor of Nokia, however, controls nearly 40 % share of the market, meanwhile Samsung sold only 15.1 % (see in Figure 1.3). Motorola, Sony, and LG take the rest seats of the top five in global market respectively.

The iSuppli analyst said that, as usual, Nokia has its difficulty in North America market only, in this market, the third-quarter sales figures were not available yet. At the end of 2006, Nokia had roughly 15 % of the North American market, placing at the fourth behind Motorola that obtains 40 % market share in North America. While LG and Samsung almost tied for second and third, respectively.

Figure 1.4: Net sales by market area 2007

Source: Adapted from www.nokia.com.

Of the total turnover in 2007, Europe accounts for 39 %, Asia-Pacific 22 %, Middle East & Africa 14 %, China 12 %, Latin America 8 %, and North America 4 %. The ten largest markets have shown in Figure 1.4.

From the table in Figure 1.4 it demonstrates that the largest single market is China with EURO 4,913 million accounts 23 % and growth rate impressively of 83 % from 2004 to 2006, whereas the largest net sale decline (13 %) happens in the United States, which found accounts 13 % of Nokia’s global shipment.

At 31 December 2007, Nokia employed 112,262 employees and operated fourteen manufacturing facilities in eight countries around the world for the production of mobile devices and network infrastructure. (Nokia, 2008)

1.4 Nokia sale performance in China in 2007

Nokia announced its performance in 2007 in China region including HongKang and Taiwan. It sold 70.7 million mobile phones just in China which contributing 13% to the global sales, annual growth of 38.6% (Business Week, 2008). This sales performance had confirmed Nokia’s leading position in China’s mobile phone market for four consecutive years; meanwhile China continues to be the top single market for Nokia.

Section II: Entry into China’s market – the largest mobile market worldwide

2.1 Nokia’s global focus strategy – China’s Volume Potential

At the beginning of 1980s, ‘Nokia has been adept at leveraging its limited financial and managerial resources to gain a foothold in lead market. The strategy of narrowing the business focuses to leverage resources but aggressively enter international markets made China critical to Nokia’s future – and a source of another tragedy within the company.’ (Steinbock, 2001, p149)

After Nokia has gained a stable market performance in Europe and the USA, next step for long-term operation, Nokia made a transition to global focus mobile phone seller from a technology concern. Moreover, Nokia shifted its global strategy sharply toward Asia, where Nokia saw its largest market potential, especially in China, low penetration circumstance made Nokia recognising a fantastic potential for volume. As Merriden, T (2001) illustrated that ‘There is no doubt that, it is rare nowadays for any boardroom not to have the immense opportunity of the China’s market high on their list of priorities. If ever you had to go with the flow and culture of an overseas market, China appears to be the epitome.’ As a result, Nokia prepared to expand its business into China.

Nokia’s Global focus strategy was that Nokia viewed geographic segments in terms of long-term potential. According to Ollila, former CEO of Nokia, who said that China might well become Nokia’s leading geography segment, because China had a huge population of 1.2 billion, though there were only 22 million mobile phones in used that time. (Steinbock, 2001)

Nokia first arrived in Chinese market around 1985. Nokia set up its first office Beijing Nokia Telecommunications Ltd. in Beijing to begin its business of early stage, at the very beginning, Nokia’s sales were less than only EURO 1 million, because of Nokia was still not very famous in China, therefore it faced a was very difficult market to tap at first.

In order to crack China, Nokia had to show some originality in its approach. By the autumn of 1996, Beijing Nokia Telecommunications Ltd. and Jiangxi PTA (Post and Telecommunications Administration) signed a contract, which valued at nearly $35 million, to expand the latter’s GSM network. From then on, ‘Nokia claims to be the first company to bring in GSM technology to mainland China’ (Merriden, T, 2001). Meanwhile Nokia's GSM/DCS technology also supplied to 52 operators in 31 countries (Steinbock, 2001). Four years later, GSM network dominated China’s market, while Nokia’s star in China has risen with it.

In 1995, Nokia’s annual revenue only amounted to $200 million, but this figure had increased sharply to $2 billion by the end of 1999 with an impressively growth. At the mid-1990s, Nokia realise the localization of production in Beijing via joint ventures approach, later this production subsidiary gradually became Nokia's major global production base.

By late of 1990, Nokia has increased its investment in China while it had built seven factories and set up GSM networks in 9 of 23 important regions in China, the employees grew to nearly 3 thousand. (Nokia, 2003) By the year of 1999, Europe contributed 53% of Nokia’s net sales, while the USA and Canada made 25% and Asia Pacific 22%. China took part in Nokia’s four major single markets together with the USA, the UK, and Germany – accounted collectively 47% of total sales. (Steinbock, 2001) Since producing its first mobile model in China in January 1996, Nokia has produced more than 200 million mobile phones in China until 2005, and half of them have exported. (China Daily, 2005)

2.2 China’s mobile phone market

Mobile phone introduced into China in 1980s, the same time with Nokia’s entrance, people considered the mobile phone as a luxury electronic product, as a result, mobile subscribers were still seldom, and nevertheless, the China’s mobile market has grown tremendously since the 90s. In 1994, China had only about 3 million mobile users in entire country, (see Figure 2.1) at that time China was processing the transition period from an analogue network towards a digital Global System for Mobile communications (GSM) system. During this period, Nokia did a favour on this construction; because Nokia has been trying to set up a powerful image in the China since mid 80s, also Nokia has made a big amount of investments on researching and manufacturing section.

Figure 2.1 Mobile Phone Users: 1990/1995/2000/2003-2005

Source: China’s life style: Telecommunications, Euromonitor International

As can be seen in the table, in 2000, China’s mobile users have become 85.26 million people, from then to 2005, the number increased to 429 million people. This was nearly equal as one third of China’s population, in that 5 years, the change in growth was surprising 404% (See Figure 2.1). Moreover, from 1990 to 2005, this number increases sharply with 2,238,233% growth.

Today, mobile phone has become the all-purpose electronic equipment in people’s normal lives compares with the old days.

China has become the world’s No. 1 mobile communications market. China's mobile subscribber base surpassed 450 million in 2006, the mainland is the world’s largest cell-phone market by size and mobile penetration is estimated to be slightly more than 30 percent. (Business week, 2007)

Figure 2.2 forecast mobile Phone Users and its growth: 2006-2015

Source: China’s life style: Telecommunications, Euromonitor International

This is a preview of the whole essay

Figure 2.2 forecast mobile Phone Users and its growth: 2006-2015

Source: China’s life style: Telecommunications, Euromonitor International

According to Informa Telecoms & Media (2007) forecast that China's mobile users to reach 600 million by the end of 2010. Another forecast from Euromonitor International (See Figure 2.2) figures it around 626 million in 2010 and 666 million in 2015, and the growth rate from 2006-2010 and 2010 to 2015 will be 23.54% and 6.32% respectively.

There is no doubt that, China's massive market presents tremendous opportunities for those mobile phone vendors or manufacturers like Nokia, Motorola, Samsung, and Sony Ericsson.

2.3 China’s market environment and the PEST analysis

2.3.1 Political factors

China has become the world’s leader in the manufacturing and consumption of electrical appliances and information products. China’s Government recognizes that such products will bring serious energy and environmental problems in addition to their many other benefits. As a result, the government makes strict policies to make sure that overseas companies bring jobs and expertise to China, as well selling products into China. Also the government has already issued regulations that draw heavily upon regulatory models from those developed countries, especially the European Union’s Directive on Waste Electrical and Electronic Equipment (WEEE) and the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (RoHS). (WilmerHale, 2006)

“China WEEE”

The Government promulgated the Regulations on Recycling and Disposal of Waste and Used Household Electrical Appliances (often referred to as “China WEEE”), which intends to set up a responsibility system to those electronic applications manufacturers and sellers. The regulation requires recycling and disposal in an approved and environmental sound manner, in contrast to the haphazard operations that currently litter the Chinese countryside. (WilmerHale, 2006)

“China RoHS”

The Government also promulgated the Measures for Administration of the Control of Pollution by Electronic Information Products (often referred to as “China RoHS”), which will cover electronic communications products. The regulation aim to make the Ministry of Information Industry to be lead agency which is intended to foster the products’ redesign, to limit or avoid the use of toxic and hazardous substances in manufacture process, adjust sales channels, and provide information to consumers on the environmental and energy features of such products. (WilmerHale, 2006)

From particular concern is that the potential more rigorous inspection requirements in China’s borders for imports under China’s RoHS than requirements that apply to domestic products, and of disproportionate disposal costs on foreign manufacturers under China’s WEEE. (WilmerHale, 2006) As a result, set up production subsidiaries in China will be a better choice to those international mobile phone manufacturers, to reduce the transaction and operation costs.

In order to match the policies, Nokia requires its suppliers to implement the "Marking for Control of Pollution Caused by Electronic Information Products" in China from 2005; Nokia has also updated its environmental requirements by placing a stronger emphasis on waste and substance management. (Nokia, 2008)

Quotas

Besides, China sets quotas on telecommunications equipment’s import on Nokia and its ravels and the size of that quota depends on how committed each company is in localizing production, the higher the mainland output, the higher the quota. (Merriden, T, 2001)

However, China’s policies on mobile market is more emphasize particularly on bestir policies than the requirement policies. (Sina, 2007) From this point, it is easily to tell that China’s government has created a comparatively welcome environment for obtaining more overseas investments.

In China, mobile phone manufacturers have no right to sell domestically if they have not obtained a “Network Access License.” For example, although Benq (formerly Acer) manufactures over 4 million units of mobile phones in China, it has to export all products unless obtaining the “Network Access License.” Some early entry brands as Nokia, Motorola, and Sony Ericsson have obtained their licenses therefore they can distribute and sell products in mainland China. (China Business Solution Ltd., 2003)

In addition, in China, mobile users can accesses internet through any GPRS mobile phone freely only if they open the GPRS or WAP service from their network operators. There is no regulation to restrict this service, normally, users just need to go to the network agents or even just make a phone call to ask assistants to open the service. Operator will claim the GPRS fee by user’s usage, there are two modes, one is pay as you go, and the other is by contract.

Economic Factors

The prosperity of mobile phone market cannot separate with the economical environment in China. With the vast economic growth and a booming retail market, China’s population has the strongest favour on movement communication equipments than before.

The main factor driving a huge growth in the China mobile phone market is a comparatively favourable macroeconomic situation in the country and high GDP growth, according to the Euromonitor International, from 2002 to 2007, China’s GDP in RMB doubled while the GDP in US dollars increased more than two times.

In 2007, GDP of China was US$ 3,223 billion, 11% growth compare with 2006’s US$ 2,626 billion (See Figure 2.3). Moreover, China’s GDP growth remains in an estimate 10% annual.

Figure 2.3 Summary of China’s economic

Source: “Country Profile,” Euromonitor International

The living standards of the Chinese have enhanced, particularly in coastal areas and big cities, accompanying the rise in most Chinese's disposable income, which has increased consumer expenditure, and purchasing power on communications has increased from RMB 694,717 million in 2000 to RMB 877,920 million in 2005 this number predicted to be RMB 1,018,190 in 2015. (Euromonitor International, 2007) (See Figure 2.4 & 2.5).

Figure 2.4 Annual gross and disposable incomes (China): 1990 – 2015

Source: “Consumer life style – China,” Euromonitor International

Figure 2.5 Consumer Expenditure by purpose: 1990 – 2015

Source: “Consumer life style – China,” Euromonitor International

Because of the high growing demand, mobile phone retailing sectors have been growing rapidly; and production of electronic equipments is improving drastically. Strong profits in these industries continue to attract investments. Those products which emphasis on high-volume, low-cost methods are popular around the world, “China made” storm in global market has boosted China’s economic growth. Besides, China's economy is so big and growing so fast that it consists like a magnet for foreign firms and investors. (Business week, 2007)

Social & cultural Factors

If the economic growth and purchase power represents the “quality” factor of China’s mobile market, thus the huge population of China should considered as its “quantity” factor. Suppose that the main mobile phone consumption group is 15-year-old to 49-year-old, according to the country statistics from Euromonitor International (See Figure 2.6 next page) that in 2000, the age of 15-year-old to 49-year-old occupied 45.8% of total, later in 2005, this age group has increased to 57.6%.

Figure 2.6 Population by age (% Analysis): 1990-2015

Source: “Country Profile,” Euromonitor International

In addition, analysts forecast that the percentage of this age group will continually increase to 59.21% in 2010 and 58.82 in 2015 (See Figure 2.6), accompany with the expansion on age, China’s mobile phone market remains a huge potential on volume.

Furthermore, Chinese love using SMS to be their fast communication style and people are accustomed to change their ring tones frequently. As the Gartner analyst illustrates that the major mobile data revenue of China’s carriers will still come from SMS and ringtones/ring-back tones. According to Portio research, China is the world's NO.1 SMS market, that more than 451 million text messages were sent in 2006, an improvement of 67% compare with 2005. This phenomenon because of SMS and ringtone/ring-back tones are cheap, easy to use and effective on all mobile models and represents the personality, as a result that popularity of these applications has become a social trend in now day’s China, by prediction that this consumption popularity at least will carry on to 2010. (Business Week, 2007)

Besides, because it is easy and free to mobile users to accesses to Internet, more and more mobile phone users have become WAP enthusiasm, while the mobile phone WAP becoming a developing economic and cultural sector in China’s mobile phone market, as a result, Nokia put a amount of investment on the mobile entertainment development sector, like applications, mobile games (N-gage games), music and video download.

Technologic Factors

Currently, there are two networks operating in China CDMA and GSM/GPRS networks.

One area should be concerned to Nokia’s China dream is the deployment of 3G (third-generation) network in China, according to Gartner, the industry will pay attention on the initial market response to China's homegrown 3G communication network TD-SCDMA, which was approved in 2006, and was launched in several big cities in China just in April 2008.

This response will indicate how successful of China’s homegrown 3G network will be, and when the official 3G licenses will be issued the market, after that, similar 3G technologies like CDMA2000 and W-CDMA may be deployed to compete with TD-SCDMA in China’s mobile phone market, according to the Gartnet analyst, future mobile adoption will not be impacted by 3G temporary, because most potential 3G users are already mobile users, and new mobile users are likely to be 2G users first. Whatever, Nokia will be one hard competitors of the 3G mobile phone war, while Nokia has already launched a number of 3G mobile phones into China’s market. (Business Week, 2007)

Section III: Nokia’s operation in China

3.1 Competition and challenges

During 1990s, three global mobile vendors Nokia, Motorola, and Ericsson dominated China’s mobile phone market; as a result, they occupied 95% of China’s mobile market share. (HC360.com, 2004)

Enter the new century, due to China’s huge potential market volume and the rapid growth, many global mobile vendors rush into China to get a piece of this big cake, such as Samsung, LG, and Sony Ericsson.

Although Nokia entered advanced, but more and more intractable rivals enter into China from global market, besides, domestic players such as Ningbo Bird, TCL and Kangjia. These domestic vendors rely on the protection from policies like “Mobile produce licence” and “Network access licence”, and because introduce a big amount of new models and the channel advantages Chinese mobile manufactures grew rapidly in recent years, even though their competition are still weak to those international opponents.

As the evolution of mobile phones, smart phone and PDA (Personal Digital Assistant) have become the dominance in current mobile phone market worldwide. Therefore, the competitors of Nokia has included more traditional consumer electronics suppliers, like Apple, Dell, HP, Microsoft and Palm those who began to produce and sell the smart phone and PDA, Nokia is influenced by these mobile market “transferred students”. Moreover, “The mobile communications industry now also includes increasing numbers of participants that provide specific hardware and software layers within products and solutions.” (Euromonitor International, 2007) Nokia is facing the challenges from these competitors, not only merely deal with the complete products and solutions, but also the operating systems. Finally, Nokia is facing growing competition from low-cost upstarts in China mainland, and those who are trying to enter the market through aggressive pricing for example Taiwan and Korea.

Facing these competition and challenges, Nokia must protect its market share in China through its marketing strategies, good quality supply chain, marketing mix, strategic co-operation and new product develop policy, all above will illustrated in following parts.

3.2 Marketing (Operational) strategy

In order to increase its competitive advantages, Nokia always concern on its marketing strategy. As Robert Anderssonthe, vice CEO of Nokia in Asia Pacific Region announced that Nokia would continue with its localization strategy to maintain and expand the market share in China. (BNET, 2002) Nokia intends to become the best partner of China via building up a long-term development in China. Base on the creative technology, as the supplier of Terminal Broadband network equipment and China Mobile Communication System, Nokia’s leading position has strengthened. Nokia has already raise China to be the most important production and R&D base worldwide. Currently, Nokia operating 20 offices, 6 research and development units in China and another 4 manufacturing factories in mainland China, and the employees are over 7,000 people, 30% growth over one year earlier.(China supply chain council, 2006) The strategy of Nokia is to create a long-term development and commitment to become the best partner of China.

Nokia also implement the sales segmentation strategy in China. According to David Ho’s speaking, president of Nokia (China) Investment Co Ltd, “Nokia will ‘make substantial efforts’ to introduce low-price mobile phones to China to tap the less-developed markets.” (China daily, 2005) He indicates that there is a good opportunity of third and fourth-tier cities in China, while there are a growing number of new subscribers; a top priority for Nokia is to strengthen its coverage of its sales network in small cities and rural regions where are gradually becoming one vital battleground for mobile phone sellers. He also pointed out that in the near future, “most of the new users will be those from small cities and rural regions, who will buy handsets for the first time.” (China Daily, 2005) Some mobile manufacturers including Nokia have introduced the so-called ultra low cost handsets (ULCH) to China; these phones provide only basic functions like call-making, messaging, and black and white screens. These models sold as cheap as just about US$30.

Bedsides these low-end models, “Nokia will also aggressively introduce very high-end mobile phones to woo corporate users,” said Hera Siu, general manager of Nokia Capitel Telecommunications Ltd, Nokia's joint venture in China. (China Daily, 2005) These high-end models are enable users to access the internet via Wi-Fi or WLAN.

3.3 Good performance on supply chain and logistics

As a global company, to secure its supply chain (See Figure 3.1) and logistics has become an essential policy to Nokia, at present, Nokia’s suppliers locate in about 30 countries all around the world and it indicates that most of the suppliers locate in China, Asia, and Europe (See Appendix B). About 26% of Nokia’s mobile phone manufacturing work outsourced to contract manufacturers and Original Design Manufacturers (ODM). (Nokia, 2007)

Figure 3.1 Nokia’s Supply Chain

Source: Supply chain,

Nokia handles its supply chain and logistics very successful, according to a latest research from AMR Research called “Supply Chain Excellence,” in listed top 25 global companies over the world who made an excellent supply chain, Nokia ranks at second place after Dell while the third one is P&G.

Nokia’s global logistics and supply chain sectors extends Nokia's investment in China to logistics from production and R&D. For example, Suzhou production centre serves for logistic operation for Nokia’s products. (People’s Daily Online, 2004)

In global market including China, Nokia launches new mobile models regularly every year, during this process, there will be a forecasting from those operators or agents in every countries or regions. They will hand in their research results about the potential demand of different mobile models, although these data are doubtful, but still worth to use as original data of Nokia’s production plans. Then Nokia will contact its suppliers in China or other regions provide these market information and plans to them, accordingly, secure the production advanced, even enlarge the production in time, finally Nokia will consider different demands from different regions, to allot production missions to different manufacturers or production subsidiaries which are enable to produce in the lowest cost. Besides, Nokia makes the forecasting the market demand for next year, also collect the feedbacks from its agents or operators customers seasonally or even monthly, aim to make the timely adjustment on operation. (NetEast, 2006)

As Merriden, T (2001) said that ‘Nokia treat suppliers with respect’, Jorma Ollila exactly agrees, he says that you get added value from each part of supply chain which starting from supplier relationship, technology platforms, production all the way to the customer and the demand chain.

In addition, Nokia pays enough attention on choosing suppliers and serious supplier assessment to maintaining its “good quality” supply chain. Nokia discusses with suppliers are more positive and open, also collect feedbacks from its suppliers and manufacturers regularly. This kind of humanization is the basic element of Nokia’s success. “Close cooperation with customers and suppliers is one of our core development principles. It allows end-to-end efficiency and speed – key success factors for the entire supply chain.” (Nokia, 2008)

Nokia’s “stock – production – supply” chain structure is the key point to make it so successful in China and worldwide.

3.4 Business cooperation and relationship

Once Nokia entered into China, it began to construct strategic co-operations, like the GSM construction contract with Jiangxi PTA that mentioned earlier. Nokia intends to expand its market competition and the strength through the cooperation with local companies, research institutions, authorities, and industry organizations. Therefore, Nokia has set up several joint ventures in China, particularly in the areas of manufacturing and R&D sectors. For instance:

Beijing Capitel Nokia Mobile Telecommunications Co., Ltd., and China, Dongguan Nokia Mobile Phones Co., Ltd, China, established in 1995, made Production of mobile phones and accessories into effect;
ChongQing Nokia Telecommunications Co. Ltd, China established in 1998, mainly of provision of a full range of services, manufacture and supply of products for fixed networks;
Nokia (Suzhou) Telecommunications Co., Ltd., China and Fujian Nokia Mobile Telecommunications Ltd., China in 2001, their Main activities are production of GSM base station, GSM technical services and cellular transmission product.

These are just a part of the co-operations; mainly Nokia has entered about nine joint-venture co-operations. Most of them completed in late 1990s and early 2000s; as a result, Nokia has already enabled to produce its majority products completely in mainland China. (Nokia, 2008)

Nokia has just signed a strategy partnership contract with China Postel Mobile Communication Equipment Co., Ltd. (China Postel) of China P&T Appliances in March 2008; China Postel expected to buy in mobile equipments valued at nearly $2 billion from Nokia in 2008. In addition, both parties have agreed to strengthen strategic ties, especially with regard to marketing management, resource investment, and channel development. China Postel is the largest mobile phone distributor in China. All above secures Nokia’s leader position in China’s mobile market.

3.5 Nokia marketing mix-Nokia’s 4Ps in China

3.5.1 Product

Nokia’s mobile phones are well known by theirs ‘unsurpassed functional and technological design’ (Steinbock, 2001), Nokia develops its hi-end mobile phones and accessories for all major analogue and digital (GSM, AMPS, CDMA, TDMA) standards. Its mobiles designed to make communicating easily and providing a fashion design, many standard features like large graphic displays, signal and battery indicator and ringing tones and so on originally designed by Nokia. Functional features provide competitive advantages to Nokia.

Besides, Nokia’s fans are most favoured on its classical user-interface and the Symbian operating system. Symbian founded in 1998 in the UK for supporting the phones based on its operating system, Nokia, as its majority ownership shares with Ericsson, Sony Ericsson, Panasonic, Samsung, and Siemens. (Nokia, 2008)

Nokia also make different product segments, like entry level, mid range and high-end mobile models. In 2005, Nokia introduced its Nseries mobile models, for example, N73, N80 and N95, for those early technology adopters, these models own some advanced functions such as mega-pixel cameras, WLAN option, multimedia player of music and videos. Nokia also launches sub-brands to help differentiate its wide range of mobile models. For instance, the “Vertu” label, it is Nokia’s luxury handcrafted product series. Fashion sensitive users can also choose from Nokia's new sub-brand L'Amour collection of Hi-tech and fashion mobile phones. (Euromonitor International, 2007)

Price

On pricing strategy, Nokia continues its tact on business. Its mobile phone models have a big amount of category and segments, as a result its price become multiplex, the existing low-end model from RMB 550 ($78) like Nokia 1110 and 5000, (Information Week, 2008) to the high-end one RMB 8000 (over $1000), like Nokia 8800. However, the low-end models are still seldom in big or seaboard cities, middle-class models are popular in these regions, the price normally in RMB3000 to RMB 5000, like Nokia N73, 7610. Nokia’s luxury mobile phone lines like Vertu and L'Amour are extreme expensive, its prices often higher than RMB 10 thousand (over $1500). In addition, its prices are different depends on different region or area in mainland China.

Moreover, Nokia is used to exert the skimming pricing strategy with the objective of achieving the highest possible contribution in a short time while other pricing strategies are market pricing and penetration pricing strategy, as more segments are targeted and more of the products is made available the price is gradually lowered. This depends on Nokia’s ability and speed of competitive reaction and its advanced features of product. Most middle class mobile models are using this strategy in China. (Hollenson, S, 2007)

Place (Distribution)

Nokia mobile phones are distributed via network of different channels, which including sales to operators, distributors, independent retailers and corporate customers. Sometimes this channel will be different according to different geographic region, In China; mobile phones sold mainly through the retail channel. (Euromonitor International, 2007)

Figure 3.1 the operation of mobile distribution in China market

Source: An Overview of Mobile Phone Distribution Channels in China, China Business Solution Ltd., 2003

According to the flow chart above, in China, mobile phone manufactures mainly use this simple approach to distribute theirs products. Nokia also follows this approach to distribute its mobiles from its production base in Suzhou, which is the first integrated distribution centre in Asian-Pacific region (People’s Daily Online, 2004). Mobile phones will be transported to the first tier distributors, which including the general agents specialist handset agents, specialist mobile distributors, most agents or distributors often responsible to more than one mobile phone makers, and these first tier distributors are not going sell mobile phones to customers directly.

Next the products go to second tier distributors including mobile retailers, household appliances and retail stores, while they will sell mobile phones to customer directly, handset retailers are not only sell mobile phones, but also provide network connecting services via selling SIM cards to customers on behalf of mobile phone operators. Mobile phone operators just will order a small amount of mobile phones; because they normally just provide the services like SIM cards.

Nokia also uses the multi-tier distribution channel, which has a more complex structure with regions and distributor categories, and it has abandoned the original national general distributor channel to provincial distributors in China currently. (China Business Solution, 2003)

Promotion

Aim to attract more customers, Nokia utilizes a number of different media types in their promotion activities, including print advertising, TV, online and broadcast advertising, Nokia’s advertisements are always attract people as its creation and vivid. To sponsorships at leisure events or major sporting events in China, like Beijing University Student Sport competition and Nokia also sponsored China national dive team. Nokia also recognized product demonstration by using movies was very successful in promoting the company's products, such as the use of the Nokia 8110 in the first movie of the Matrix Trilogy.

Nokia is always concern on the contributions activities like ‘Nokia’s Helping Hand’ and ‘Nokia Green Hope Project’ in China to promote a good image and reputation. In 2006, Nokia contributed donations of computers, desks, chairs, books, sports equipment and cash to Hongyuan primary school, accompanied Nokia volunteer doctors the Nokia staffs, over 4,000 local people were given medical checkups, the donations from Nokia was valued exceeded $27,000. (Nokia Corporate Responsibility, 2008)

New product development policy

Over 20,800 people or 36% of Nokia’s total workforce concentrate on research and development work, the company puts a strong emphasis on new product development work. While these aim to create a better competitive position in its global market. For example, in 2005, Nokia spent about €3.8 billion totally on research and development, this representing 11% of Nokia's sales that year. (Euromonitor International, 2007) As a result, Nokia introduces dozens of new mobile models annually and each of them with Nokia’s advance technology and design features catering to the different demands around the world.

Gradually, Nokia has added a lot of new features and functions designed to its product portfolios such as technological colourful screens, mega-pixel cameras, music, and video players. Moreover, Nokia found that mobiles are gradually become a fashion accessories or statement pieces by consumers. So that, Nokia intends to use its L'Amour sub-brand mobile phones and its high-tech Vertu models to please its customers, for instance, some of the Vertu mobile phones have features ranging from sapphire crystals, polished ceramic keypads, gold and stainless steel housings, and diamonds and leather accents, it creates a extremely luxury image. (Business Week, 2007)

Nevertheless, Nokia still has its barriers on this field, because its slow adoption on new ways of thinking. A good example is the “Clam shell” mobile model, although are preferred by many customers in China and the US, Nokia was reluctant to produce its clamshell model until 2007, when Motorola’s RAZR has already benefited from its clamshell advanced. Nokia's market diversion is not so active, as a result, its competitors caught this opportunity, and lead Nokia lost a big amount of market share. (Johnson, D, 2007)

All above in this section, are Nokia’s operational strategies or advantages to compete to its rivals for market share in China.

Section IV: Summing-up Nokia

SWOT analysis

Through its long-term operation in China and worldwide, Nokia has made a lot of milestones, but its successful operation should be a ongoing process, now, following are its SWOT analysis which lists some bullet points from its current operation in China and worldwide.

Strengths:

- Excellent brand image and position: Nokia is world’s fifth most value brand and first brand in Asia (Synovate 2006 and 2007) and first brand in Europe (European Brand Institute, September 2007). More than 850 million people around the world own a Nokia mobile phone. (Euromonitor International, 2007)

- Approximately 40% global market share still the largest mobile phone vendor worldwide, with double the market share of nearest competitor. (From Section 1)

- Good profitable performance, over 10% growths annual on sale volume. (From Section 1)

- The dominant position in the smart phone market via its majority ownership of Symbian and its proprietary Series 60 user interface (from Section 3)

- Industry-firsts and innovation advantages, Nokia is in a strong position to introduce dozens of new products every year. For example, the Nokia N92, which was the world's first mobile phone launched in 2006 with an integrated DVB-H receiver that enables broadcast TV services on a mobile phone. (Eruomonitor International, 2007)

- Excellent long-term relationship with suppliers and manufacturers, treat them as respect policy, and many successful cooperation relationship and joint ventures in China. (From Section 3)

- Firm size let Nokia will be enabling to amortize R&D costs and to get fund advantages.

- The R&D research centre and seven production subsidiaries established in mainland China. (From Section 3)

4.1.2 Weakness:

Nokia’s N-gage game gear considered a flop in China’s market. (Sina, 2007)
Nokia's slow adoption on new designing of thinking, for example, late on launching its first “Clam Shell” mobile model. (from Section 3)
Nokia's mobile phone business increasing sharply while a weaker revenue growth in Nokia’s enterprise solutions and network business are negatively affecting its overall growth performance.(Euromonitor International, 2007)

4.1.3 Opportunities:

Increasing presence in China’s CDMA market, which Nokia just entered, as well as 3G markets in China, at the same time, 3G network is also a new role in China’s mobile market. (from Section 2)
China’s high growth economic environment simulates a keep growing mobile phone market where still has huge potential room to explore. (from Section 2)
There are more and more young people who are willing to adapt Nokia mobile models because of its advance technology and great user-interface, for example, Nokia maintains a strong product offering in the growing field of mobile phones with multimedia capabilities, while it hoping to obtain more early technology adopters in China.

Threats:

- Late in the 3G games, this may create a risk to cash up by other competitors, like Motorola, LG, NEC, and others. (Euromonitor International, 2007)

- Many Asian mobile vendors who are entering China’s market very aggressively with their price advantage. For example Sharp (Japan) (from Section 2)

- Nokia is not only faces the hard competition from traditional mobile phone vendors, but also from other emerging firms, such as Apple, Dell, HP, Microsoft and Palm. For example, Apple’s iPhone may introduce to China in next future. (Euromonitor International, 2007)

- China’s government intends to protect the domestic manufacturers by new regulations. (From Section 2)

- There is still a critical issue in China, is the illegal mobile sell which is called “black mobile” or “water mobile”, these illegal mobile phones come from abroad or Hongkang, are often sold in cheaper price than legal mobile phones.

Customer favour and attention research

A latest research work from ZOL (ZhongGuan Village Online, a very signify information technology website in China) could clearly demonstrate that Nokia is the hottest mobile phone brand in China. (See Figure 4.1) In the pie chart, more than 50% of customers will pay their attention on Nokia to be the most favour and hoping to own mobile phone brand, when Sony Ericsson and Samsung follows at the second and the third places with 12.9% and 10.4% respectively, impressively the NO. 5 is Lenovo, the largest PC manufacturer in China just entering into mobile phone market, in top 10 brands there are 3 China own brands: Lenovo, Duopuda and Xiaxin.

Figure 4.1 most favour mobile brands in China’s market in 2008:

Source: ZDL research centre, 2008,

Consequently, it is clear Nokia still will be the dominant in China’s mobile phone market with a definitely high favour by Chinese customers in this year, at the same time, those global brands are feeling pressure on facing the challenges from China mobile manufactures as well.

In China, Nokia’s attraction makes not only a trend or fashion, but also makes a habit, when people go to a store to buy a mobile, 5 in 10 will go to Nokia Shoppe first to check out if there are any favour. Nokia’s dominant position in China, not only because its classic user-interface, unique technological advance, but also because it has established a good quality and reputation image or conception in Chinese mind.

Section V: Conclusion and Forecasting

The last but absolutely no least, with the global mobile subscriber expected to reach 3 billion and 6 hundred thousand in China in 2008, where the market remains attractive potential for Nokia. By 2009, mobile handsets volume expected to reach one billion annually. (Euromonitor International, 2007) Nokia is likely to hold its current market-leading share and perhaps to expand in developing markets, for example China, which market will be the key to future sales growth to Nokia.

Nokia wants to keep its NO. 1 place worldwide as well, besides the sale growth for competition, the growth in new subscribers also expected to remain at over 4 hundred million new subscribers annually of which 90% are in its existing markets. (Euromonitor International, 2007)

Anyway, one major threaten for Nokia's dependence on developing markets is the increasing price competition from its rivals, which will limited the margin of Nokia. However, become more and more popular of its higher-priced replacement phones in China might help Nokia to increase its average selling price of mobile phones. Moreover, Nokia is preparing to inject more fashion elements into its multimedia Nseries product line, to attract more customers who are interesting on this kind of advanced and expensive mobile models.

Base on the successes in China, Nokia’s road still long and flat in this rapid growing market, the competitive advantage stands by its side. Nokia’s evolution is still under process, because Nokia will always keep going on finding new ways of connecting people.

References:

Print Books:

Dan Steinbock, (2001). The Nokia Revolution, The story of an extraordinary company that transformed and industry. United States of America: AMACOM

Philip Kotler and Gary Armstrong, (2006), Principles of Marketing, 11th edition, New Jersey: Pearson Education, Inc.

Svend Hollensen, (2007), Global Marketing, the 4th edition, Spain: Pearson Education Limited

Trevor Merriden, (2001). Business The Nokia Way, Secrets of the world’s fastest moving company. United Kingdom: CAPSTONE.

WebPages and PDF Documents:

AMR Research, (2004). SUPPLY CHAIN EXCELLENCE. [Online] AMR Research. Available from:< > [Accessed 10 April 2008]

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Budde Telecom Research, (2007). China - Major Telcos - Overview & Statistics. [Online] Budde Telecom Research. Available from :

<> [Accessed 17 April 2008]

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China Business Solutions Ltd. (2003). An Overview of Mobile Phone Distribution Channels in China. [Online] China Business Solutions Ltd. Available from:

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China Supply Chain Council, (2006). Nokia expects to keep China market share. [Online] China Supply Chain Council. Available from :< > [Assessed 10 April 2008]

Derek Johnson, (2004). The Natural Alliance Between New Product, Development and Competitive Intelligence. [Online] White Paper: CI and New Product Development. Available from: < > [Accessed 6 April 2008]

Dai Wenye (Zhongguan Village Online), (2008). Most favor mobile brands in China’s market in 2008. [Online] Zhongguan Village Online (ZOL), Available from:

< > [Accessed 17 March 2008]

Euromonitor International, (2008). Consumer Lifestyles – China. [Online] Euromonitor International. Available from:

<> [Accessed 3 April 2008]

Euromonitor International, (2008). Nokia Group - Consumer Electronics - World. [Online] Euromonitor International. Available from:

<> [Accessed 14 Feb 2008]

Business Week, (2007). China's Big, Really Big, Mobile Market. [Online] Business Week, Available from:

<> [Accessed 14 April 2008]

Keith Regan (E-Commerce Times), (2005). Nokia: China Soon To Be Biggest Mobile Market. [Online] E-Commerce Times. Available from:

<> [Accessed 08 April 2008]

KEVIN J. O’BRIEN, (2008). Nokia Increases Profit and Market Share. [Online] the New York Times. Available from:

< > [Assessed 10 April 2008]

Li Weitao (China Daily), (2005). Nokia sees chance in underdeveloped areas. [Online] China Daily. Available from:

< > [Accessed 12 April 2008]

nclubsoft, (2007). . [Online] nclubsoft.com. Available from :< > [Accessed 16 Feb 2008]

Nokia corporate, (2008). Corporate Responsibility, Nokia’s CR, Map Nokia helping hands. [Online] Nokia Corporate. Available from: < > [Accessed 14 April 2008]

Nokia corporate, (2008). About Nokia, Company, Corporation, Joint Ventures. [Online] Nokia Corporate. Available from: < > [Accessed 14 April 2008]

Nokia Corporate, (2003). Nokia's ConnectSite makes strong progress in China. [Online] Nokia Corporate. Available from :< > [Accessed 10 April 2008]

Nokia corporate, (2008). Nokia and China Postel strengthen strategic cooperation. [Online] Nokia Corporate. Available from: <http://www.nokia.com/A4136002?newsid=1199010> [Accessed 17 April 2008]

People’s Daily Online, (2004). Nokia's distribution center in Suzhou serves its global market. [Online] People’s Daily Online. Available from: < > [Accessed 7 April 2008]

ResearchInChina, (2004). China Mobile Phone Industry Chain Report, 2004. [Online] ResearchInChina. Available from:

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, (2006). . [Online] the Mobile Weblog. Available from:

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, (2008). Nokia market share breaks 40 per cent threshold. [Online] Mobile Monday. Available from:

< >

[Assessed 11 April 2008]

Bibliography:

Bekkers, R. and Smits, J., (1999), Mobile Telecommunications: Standard, Regulation, and Applications. London: Artech House Inc.

Cass Lam, (2008). Nokia design push gains momentum. [Online] Marketing-interactive.com. Available from :< > [Accessed 17April 2008]

, (2008). Nokia Plans To Expand China's Rural Market In 2008. [Online] i-Research. Available from:

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China CSR Map, (2008). CSR database: Nokia (China) Investment Co., Ltd. [Online] China CSR Map. Available from :< > [Accessed 07 Feb 2008]

International Telecommunication Union (2008). . [Online] International Telecommunication Union. Available from:

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Jeong Ho Yoon, (2008). Global Mobile Device Market in 2008. [Online] ROA Group. Available from: < > [Accessed 3 March 2008]

Ministry of Science and Technology People's Republic of China, (2000). By-laws on Foreign Investment in China's Telecom. [Online] Ministry of Science and Technology People's Republic of China. Available from: < > [Accessed 16 April 2008]

Appendix:

Appendix A:

Nokia mobile models and the Vertu mobile model:

Nokia L’Amour collection models:

Nokia’s Clam shell mobile model

Motorola RAZR mobile phone:

Source: Adapted from images.google.com

Appendix B:

Locations of Nokia’s suppliers:

The dots on the map indicate suppliers' locations of Nokia, and can represent many facilities in the same area. Manufacturing sites are marked in blue and suppliers' sites with red. Those indirect suppliers are not highlighted on this diagram but are located in each country where Nokia has offices.

The main countries and regions for our contract manufacturing and supplier locations are:
Austria , Brazil , China , Czech Republic , Denmark , Estonia , Finland , France , Germany , Hungary , India , Ireland , Israel , Japan , Korea , Malaysia , Mexico , Morocco, Netherlands, Philippines, Portugal, Singapore, Slovakia, Spain, Sweden, Switzerland, Taiwan, Thailand, UK, USA

Supplier assessment circle:

Source: Corporate responsibility, Supply chain, location,

Appendix C:

Co-operation between China and Nokia:

Source: History of Cooperation,