Reference no: EM133477018

NOKIA

Nokia is the world's leading manufacturer of mobile phones. With a market share of 35 per cent, its sales in 2000 were three times that of second -placed Motorola and far ahead of other rivals such as Ericsson of Sweden and Siemens of Germany. A Finnish company, founded in 1895 as a paper manufacturer, Nokia grew into a conglomerate with interests including electronics, cable manufacture, rubber, chemicals, electricity generation and, by the 1960s, telephone equipment. In the early 1990s the company decided to focus on the mobile phone industry, then still in its infancy.

A number of factors favored this moves. First, the Finnish government had taken an early lead in telecoms deregulation and Nokia was already completing vigorously with other manufacturers supplying equipment to the national phone company. Second, the EU adopted a single standard - the Global System for Mobile

Telephone (GSM) - for Europe's second generation (digital) phone. Not only did this create an opportunity to build economy of scale, but it also coincided with Finnish entry into the EU. The GSM standard is now used by two-thirds of the world's mobile phone subscribers. Finland's links with its Nordic neighbours also helped. In these remote and sparsely populated countries mobile communications were enthusiastically adopted.

Nokia's success is also attributed to strong design skills and to its early recognition that mobile phone were not just a commodity but a fashion accessory. By acknowledging the importance of individuality, different ring tones and coloured covers allowed Nokia to establish itself as the 'cool' mobile brand and gave it a lead that its competitors were forced to follow. Nokia has also mastered the logistics of getting millions of phones to customers around the world. While many competitors subcontract the manufacture of their handsets, Nokia assembles most of its own, with factories in countries including Brazil, Finland and China. The company believes that this gives it an understanding of the market and the manufacturing process that it would not otherwise have.

Nokia does buy in components (some 80 billion a year) but has developed close working relationships - through 'virtual companies' that comprise representatives from both sides - with the most important of its 150 suppliers.

While all of these factors lie behind Nokia's success, Matti Alahuhta, head of mobile phones at Nokia, believes there was a further reason. Although competitors such as Motorola and Ericsson already had advantages of scale, experience and distribution networks, the arrival of the new digital technology changed the rules of the game, forcing all players to start from scratch. Mr. Alahuhta acknowledge that some factors favoured Nokia's development but has also argued that 'good luck favours the prepared mind'.

1. How has the environment favoured the development of Nokia?

2. How could the same factors turn to the disadvantage of the company.