Nokia is the largest mobile handset maker in the world with a 40% market share. The mobile handset industry is marked by declining prices and depressed margins making companies look at low-cost production options. Nokia, to be more competitive, is relocating its German plant to Romania where the wages are 10 times lower. This abrupt announcement however stirs a wave of resentment with employees, trade unions, politicians and business leaders who condemned Nokia's move. Nokia is also accused of being insensitive to German culture and greedy for misusing state subsidies. However, Nokia while refusing to alter its decision says that in a repeat scenario, the company would follow exactly the same policy. This case study is the second in a two part series on Nokia. Providing a brief outlook on the mobile handset industry trends and the competitiveness of Germany, it details the furor created after Nokia's plant closure announcement. While debating on whether global companies should follow country specific approaches or a company-specific approach when handling large scale restructuring moves, it brings out lessons on how to manage complexities in global issues, whether global firms should adopt local practices or use a company-specific approach across different countries, and how to handle large-scale restructuring moves like plant closure and relocation.
Q1.1: What are the trends in the mobile handset industry?
Nokia is the largest mobile handset manufacturer in the world with a 40% market share. Industry enjoyed healthy margins however since 2001, industry is marked by declining prices and week margins making companies look at low-cost production options.
Outsourced manufacturing of handsets Demands in the developed markets like US & Europe has saturated Significant growth has been noticed in the Middle East, Southeast Asia, Africa, China, India and South Korea. Demands of low cost phone in the emerging market has increased Average selling prices fell by 35%, which is directly impacting the revenue. A brief analysis of the trends follows: Demand for phones in US and Europe are decreasing.
High demand for cheaper phone models in Middle East, Southeast Asia, Africa, China, and India. Low-cost handsets = reduced Average Selling Price.
Growing market for $25 and $10 phones
Companies moving manufacturing plants to low-cost Asian countries
* Rising cost levels
* declining prices
* higher competition
Q1.2: what is Nokia’s strategy and how has globalization changed its way of operation?
High cost manufacturing to low cost manufacturing regions Dominant position in emerging markets such as Brazil, Russia, India and China. High growth of in Middle East, South East Asia, Africa, China and consecration on low cost countries Moving to the locations where Govt. is more supportive in granting huge subsidies Impact of globalization; Shifting of manufacturing facilities Operations are taking place at selective places (where both the suppliers and the partners are present to give impetus to over all productivity). Most companies in the mobile handset industry is following the same trend as Nokia and outsourcing its operations to markets with lower costs and a cheaper workforce. In most cases, the operations are outsourced to emerging markets like India and China. Leaders in the industry like Apple and Motorola have the majority of their manufacturing in China, if Nokia is to stay competitive in this diverse market; it too has to follow these trends. Further, with most of the developed markets like the US and Europe being saturated, Nokia, like other mobile manufacturers have turned to emerging markets like Southeast Asia, Middle East, Africa, India and China. A brief analysis of Nokia’s strategy and how globalization effected its operations follows: Maintain large market share and economies of scale.
Strong brand, supply chain efficiency,...