Nokai: a Case Study of Expansion and Specialisation

Topics: Nokia, Mergers and acquisitions, Mobile phone Pages: 7 (2545 words) Published: November 2, 2008
Nokia Corporation once transcended its current business of mobile and telecommunication service production as it is currently known. The corporation started out as a paper, rubber and cable manufacturer. It later in its life expanded to include consumer electronics and mobile and telecommunication. Due to certain constraints and shortcomings, and also new opportunities for growth in mobile-telecommunications, the corporation built its new identity with only mobile-telecommunications as its operative sector and core business. This report deals with the company’s establishment, its diversification and internationalization and finally the issues that led to its divestment from other interests and retention of mobile-telecommunication as its core business.

History of Nokia
The company was first started as a paper manufacturing firm by Fredrik Idestam at Tammerkoski Rapids in south-west Finland. Due to the European industrial revolution and the growing consumption of paper and card-board the company soon became successful. The company was named Nokia Abs in 1871 and added electricity generation to its business in 1902. The company launched its electronics department in 1960 (Nokia, 2008). The merging of three companies, Nokia Abs, Finnish Rubber Works (founded 1898), and Finnish Cable Works (founded in 1912) led to the formation of the Nokia Corporation in 1967 (Nokia, 2008).

Investment in Consumer Electronics Product
The corporation’s venture into consumer electronics was influenced in part by the energy crises of 1973. The crisis was cause by member countries of the Organization of Arab Petroleum Exporting Countries (OAPEC) to halt the exportation of crude oil to nations that supported Israel during the Arab-Israeli conflicts. The shortfall in oil supply created by that resolution led to a general increase in oil prices across the globe. Oil dependent industrializing countries of Western Europe, United States, and Japan were adversely hit by the increase. The increase in prices had led to a dramatic inflationary pressures and a crunching suppression of business activities within those countries. Nokia, with its primary businesses in manufacturing, was adversely hit by this trend. The trend limited expected growth in its core businesses and led management to seek a new corporate level strategy. Corporate level strategies can be defines as actions taken by a firms top management to gain competitive advantage by selecting and managing businesses in different sectors of industry with the aim of creating value (Hill et al, 2003). The firm chose to diversify, consolidate and internationalize. Diversification can be defined as a business technique for spreading risks by holding or operating in a range of products or in a range of activities which are subject to independent risk elements (White, 2004). Put simply, it means de-concentrating a firm’s sphere of business activities. Diversification can be classed into two types; conglomerate diversification and concentric. Conglomerate diversification involves branching out into other unrelated business while concentric diversification involves going into businesses which are related to the firm’s current business (Sharplin, 1985). The aim of Nokia in choosing to diversify its operations from its business of paper, tyres and cables and manufacturing was to mitigate the risk that had become imminent from the concentration in just those sectors. According to Sharplin (1985), as a grand strategy diversification usually has its chief purpose the reduction of risks. A company operating in several sectors avoids risk to it financial earning that may have been brought about by down cycles if it maintained operations in just one sector. Since expectations of growth in its core businesses were limited, the corporation’s top management sort other avenues for growth and investment outside its current businesses. And since the electronics business was not as oil dependent as...

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