Nokia - the Creation of New Markets

Hien Tran

BA 4305-001

9/27/05

NOKIA- The Creation of New Markets

By the end of 2003, Nokia was the clear market leader in the mobile phone industry in terms of sales and profitability. It was ahead of giant companies like Motorola, Ericsson, Siemens, Samsung, and other worthy competitors. Since the early 1990s, Nokia's Strategic Intent was to build distinctive competency in product innovation, rapid response, and global brand management. Its strategic intent required rapid growth in the core businesses of mobile phones and telecommunications networks. This goal was achieved by Nokia's development of new products and expansion into new markets. In order to become the global leader as it is today, the company had overcome numerous challenges and obstacles over the last decade.

In 1990, Nokia Mobile Phones (NMP) was the smallest of the five business divisions of Nokia, with annual sales of $500 million and 3,051 employees. Jorma Olilla, the new president of NMP, in the same year led the division to become the world's second largest manufacturer of mobile telephones after Motorola in just a year and half later. Motorola and NEC, the close third competitor, were the dominant players with a combined 33 percent global market share, compared with NMP's share of 13 percent. During this period, the main customers of mobile phones were business users who could afford the high prices. The everyday consumers were not overly attracted by these high prices and limited functional phones. Despite these limitations, the cellular market was growing rapidly, which brought more Asian producers into the competition. To make the matter worse, there was much proprietary technology and equipment required for analog standards around the globe. The emergence of digital technology provided a hope for a uniform communication standard. As a result, NMP had to make a difficult decision regarding which technology to commit significant resources to.

Nokia focused on building and sustaining its current competency in the early 1990s. NMP created valuable alliances across the industry and made key acquisitions to increase economies of scale, market share, and access to R&D resources. The management believed in the growing acceptance of digital technology as the uniform communication standard in the future. Nokia formed partnerships with AT&T, Alcatel, and AEG to further the development of a digital telephone and network. The GSM digital standard was a major success for NPM on the global scale. Nokia also realized the need to create rapid response to market changes. The production and distribution processes were standardized and simplified in order to satisfy the changing market's demand. At the same time, Nokia also focused in building brand management. The management realized that mobile phones would be a commodity in the near future. The company increased spending in advertising, reallocating resources, and building brand image across the globe. This strategy was successful and placed Nokia among the world's most admired brands.

Nokia was facing with major trends and potential discontinuities in the 1990s. New distribution channels emerged "through a tumultuous process of expansion, acquisition and consolidation in cellular markets across the globe" (Oliff, 3). The three dominant cellular service providers were the UK-based Vodaphone Group, the Japan-based NTT Do Como, and the US-based Bell companies. These companies, who provided phones to customers at subsidized rates, required discounted phones from cellular manufacturers. Nokia had to tailor its product offerings to these market's largest customers. During this period, the nature of cellular markets was also changing. Traditional markets, such