Module Contact: Dr J Fairbrass, NBS Copyright of the University of East Anglia Version 1

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1 UNIVERSITY OF EAST ANGLIA Norwich Business School Main Series UG Examination STRATEGIC MANAGEMENT NBS-3M3Y Time allowed: 2 hours (including 10 minutes reading time for case study) Answer TWO questions: The question in Section 1 is compulsory Answer ONE question in Section 2 Write EACH answer in a SEPARATE booklet Each question is worth 100 marks The TOTAL number of marks available for this paper is 200 Notes are not permitted in this examination. Do not turn over until you are told to do so by the Invigilator. NBS-3M3Y Module Contact: Dr J Fairbrass, NBS Copyright of the University of East Anglia Version 1

2 2 SECTION A CASE STUDY It relates to the case study about Nokia supplied as part of this examination. You are asked to write your answer in REPT FMAT. 1. Using appropriate strategic management models and tools, write a two-part report that carries out the following tasks: a) Conducts an analysis of the external environment surrounding Nokia and; b) Formulates suitable future strategies for Nokia based on the analysis carried out under part a). Set out your analysis and recommendations in a report addressed to the Chief Executive Officer. SECTION B ESSAY QUESTION Answer ONE question from this section in an ESSAY STYLE. Credit will be given for the appropriate use of strategic management models and business examples. Analysis, evaluation and synthesis will be rewarded. EITHER: 2. Businesses should always behave ethically regardless of the costs involved Critically evaluate this statement, using business examples to illustrate your answer. 3. Innovation contributes to growth and competitive advantage. However, it can be risky and result in major losses for a business organisation. Discuss the statement above, giving business examples to illustrate your answer. 4. Using Porter s diamond approach (i.e. national competitive advantage), assess the benefits and drawbacks of relocating a company to a country of your choice. 5. Conventionally, it has been believed that strategic leadership is or should be exercised by the most senior managers in an organisation as they make the important decisions. However, some observers argue that that leadership should be dispersed throughout an organisation. Critically evaluate the statement above, giving business examples to illustrate your answer.

3 3 Case Study: NOKIA Over the past 15 years the Finnish company Nokia has built global leadership in the mobile telephone market. This case explores the corporate strategy that delivered this and the risks that Nokia now faces. Background In the late 1980 s, the small Finnish company Nokia was involved in a wide range of businesses. For example, it made televisions and other consumer electronics in which it claimed to be third in Europe. It also had a thriving business in industrial cables and machinery and manufactured a wide range of other goods from forestry logging equipment to tyres. It had been expanding fast since the 1960 s and was beginning to struggle under the weight of the vast range of goods that it sold. The early 1990 s In 1991 and 1992, Nokia lost FM482 million (US$120 million) on its major business activities. The company had to find new strategies to remedy this situation. It had already cut out some of its activities but was still left with a telephone manufacturing operation, an unprofitable TV and video manufacturing business, and a strong industrial cables business. In 1992, the Nokia headquarters team chose to develop two existing divisions that had related technologies: mobile telephone and telecommunications equipment (switches and exchanges). Subsequently, it focused mainly on the mobile business but did not pull completely out of the telecommunications equipment market. There were four criteria to justify the strategic choice to focus on mobile telephones: It was judged that the mobile telephone market had great worldwide growth potential and was growing fast. Nokia already had profitable businesses in this area. Deregulation and privatisation of telecommunications markets around the world were providing specific opportunities. Rapid technological change, especially the new pan-european GSM mobile system, provided the opportunity to alter fundamentally the balance between competitors. Clearly, all the above judgements carried significant risk. Benefits and problems of strategic choice In fact, the Nokia headquarters team was highly successful in its expansion. It moved rapidly to design phones that would appeal to global customers by designing mobile phones that offered flair, 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

4 4 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 1990 s 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. 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 per cent global share : Coping with new challenges Having concentrated its resources into mobile telephones, Nokia then had to cope with a major downturn in the world market in which occurred for three main reasons. The first reason was that the market became saturated in some parts of the world. For example, 80 per cent of people in the EU already 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 per cent of the population had mobiles and the take-up was much higher in Asian countries like Singapore, Australia 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 1990 s came to an end in This left the leading telecommunications companies overburdened 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, masts, dropped 50 per cent over 3 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 the company. Telephone service providers like Vodafone and Orange were delaying the introduction of the next generation of mobile phone technology for reasons of technical feasibility and lack of funds (through paying too much for the licences). 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 The early markets for the new 3G technology were in Japan and Korea, where the GSM standard was not used. In addition, some of the Asian electronics manufacturers like Samsung and Sony realised that the new technology gave them another chance to enter the global mobile markets, particularly if they had missed out on the benefits of the GSM standard. Sony combined with Ericsson to launch a new joint venture and Samsung invested heavily in new 3G technology. The result was that Samsung had built a global market share of 14 per cent by 2005 and Sony Ericsson had a share of 6 per cent. However, Motorola still kept its second position with 17 per cent of the market. Competition was therefore increasing for Nokia.

5 5 New challenges At this point, Nokia lost its way slightly. It failed to read customer demand correctly around the year The new clam shell folding designs and mid-price photo imaging screens from its competitors proved popular in the market place. Nokia did not move to match these but stuck with its existing stick designs. There was some suggestion that this may partly have been because Nokia s economies of scale were more associated with its existing designs. Certainly, Nokia had easily the highest profit margins in the industry and was reluctant to reduce these. Eventually, Nokia decided that its dominant world market share was highly valuable and it would be preferable to reduce its prices, take a loss of profit margin, and also introduce new clam-shell designs. At the end of 2004, the company s share had begun to rise again and was back around 35 per cent. More generally around 2004, Nokia realised that it needed to review its position. It had taken a hit from its competitors and it had failed to read the market changes fully. Importantly, it also faced new challenges that would come as 3G digital technology became the accepted medium of telephony. Essentially, this would open up opportunities that were unclear but potentially important such as live transmission of television to mobile phones, new games to mobile phones, and instant web access. All these were technically feasible but still remained to be exploited fully. New mobile phones needed to be multimedia and also needed to consider the extent to which they would converge in terms of performance with other consumer electronics like highly successful Apple ipod. There was also another new trend that Nokia needed to master. The world market for mobile telephone providers was becoming more concentrated. Companies like Vodafone, Orange, Telekom and others were Nokia s major customers. The mobile telephone service customers were buying around per cent of all the worlds mobiles, which they were then selling or offering for free to customers. The Japanese electronics company Sharp had been able to move into mobile telephones from nothing in the early 2000 s by doing a deal to supply Vodafone with some of its models. This was a serious matter for Nokia since such large customers required more than the standard models: customers like Vodafone wanted customised phones that would deliver competitive advantages over their rivals and large orders meant real bargaining power. Nokia needed to introduce a whole new area of customer management for such large customers. Adapted from Lynch Copyright Richard Lynch All rights reserved. This case was written by Richard Lynch from published sources only. END OF PAPER