Nokia

BUSINESS ECONOMICS PROJECT PORTER’S FIVE FORCES MODEL FOR NOKIA SUBMITTED BY :- NANDITA SADANI M.B.A. 2ND SEM ENROLL NO. :- 48 PORTER’S FIVE FORCES MODEL Porter's five forces is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979. It uses concepts developing, Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An quot;
unattractivequot;
industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching quot;
pure competitionquot;
. Three of Porter's five forces refer to competition from external sources. The remainder is internal threats. It is useful to use Porter's five forces in conjunction with SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats). Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally, requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models, have been able to make a return in excess of the industry average. Porter's Five Forces Include:– Three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers. The model of the Five Competitive Forces was developed by Michael E. Porter in his book „ Competitive Strategy: Techniques for Analyzing Industries and Competitors“in 1980. Since that time it has become an important tool for analyzing an organizations industry structure in strategic processes. Porter’s model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on and understanding of industry structures and the way they change. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porter’s model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry. The Porter's 5 Forces tool is a simple but powerful tool for understanding where power lies in a business situation. This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you're looking to move into.With a clear understanding of where power lies, you can take fair advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an important part of your planning toolkit. Conventionally, the tool is used to identify whether new products, services or businesses have the potential to be profitable. However it can be very illuminating when used to understand the balance of power in other situations too. How To Use The Tool:- Five Forces Analysis assumes that there are five important forces that determine competitive power in a situation. These are:- ,[object Object],The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services.Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are. ,[object Object],Similarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes.Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, they are often able to dictate terms to you. ,[object Object],This force describes the intensity of competition between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry What is important here is the number and capability of your competitors – if you have many competitors, and they offer equally attractive products and services, then you’ll most likely have little power in the situation. If suppliers and buyers don’t get a good deal from you, they’ll go elsewhere. On the other hand, if no-one else can do what you do, then you can often have tremendous strength. ,[object Object],A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products.This is affected by the ability of your customers to find a different way of doing what you do – for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power. ,[object Object],The competition in an industry will be the higher, the easier it is for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment (e.g. market shares, prices, customer loyalty) at any time. There is always a latent pressure for reaction and adjustment for existing players in this industry. The threat of new entries will depend on the extent to which there are barriers to entry.Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it. Porters model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on and understanding of industry structures and the way they change. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porters model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry. HISTORY Nokia Corporation is one of the world's largest telecommunications equipment manufacturers. It has since established a leading brand presence in many local markets, and business has expanded considerably in all areas to support customer needs and the growth of the telecommunications industry. Nokia also produces mobile phone infrastructure and other telecommunications equipment for applications such as traditional voice telephony, ISDN, broadband access, professional mobile radio, voice over IP, wireless LAN and a line of satellite receivers. Nokia provides mobile communication equipment for every major market and protocol, including GSM, CDMA, and WCDMA. Nokia has played a pioneering role in the growth of cellular technology in India, starting with the first-ever cellular call a decade ago, made on a Nokia mobile phone over a Nokia-deployed network. Nokia started its India operations in 1995, and presently operates out of offices in New Delhi, Mumbai, Kolkata,Jaipur,Lucknow,Chennai, Bangalore, Hyderabad, Pune and Ahmedabad. The Indian operations comprise of the handsets business; R&D facilities in Bangalore, Hyderabad and Mumbai; a manufacturing plant in Chennai and a Design Studio in Bangalore. Over the years, the company has grown manifold with its manpower strength increasing from 450 people in the year 2004 to over 15000 employees in March 2008 (including Nokia Siemens Networks). Today, India holds the distinction of being the second largest market for the company globally. Nokia has established itself as the market and brand leader in the mobile devices market in India. The company has built a diverse product portfolio to meet the needs of different consumer segments and therefore offers devices across five categories ie. Entry, Live, Connect, Explore and Achieve. These include products that cater to first time subscribers to advanced business devices and high performance multimedia devices for imaging, music and gaming. Nokia has been working closely with operators in India to increase the geographical coverage and lower the total cost of ownership for consumers. Today, Nokia has one of the largest distribution network with presence across 1,30,000 outlets. In addition, the company also has Nokia Priority Dealers across the country and Nokia ‘Concept stores’ in Bangalore, Delhi, Jaipur, Hyderabad, Chandigarh, Ludhiana, Chennai, Indore and Mumbai to provide customers a complete mobile experience. Some Firsts For Nokia In India:- ,[object Object]

1998 - Saare Jahaan Se Acchha, first Indian ringtone in a Nokia 5110

2000 - First phone with Hindi menu (Nokia 3210)

2002 - First Camera phone (Nokia 7650)

2003 - First Made for India phone, Nokia 1100

2004 - Saral Mobile Sandesh, Hindi SMS on a wide range of Nokia phones

2004 - First Wi-fi Phone- Nokia Communicator (N9500)

2005 – Local UI in additional local language

2006 – Nokia manufacturing plant in Chennai

2007 – First vernacular news portalSome Achievements For Nokia:- ,[object Object]

Ranked the No 1. MNC in India by Businessworld, India’s leading business weekly, 2006

Ranked as the No. 1 telecommunications equipment vendor in the country by Voice & Data for five consecutive years –2008, 2007, 2006,2005 and 2004

Ranked as the 9th most powerful brand by Millward Brown’s BrandZ 2008

Ranked world’s 4th most valuable brand by Interbrand, 2007PORTER’S FIVE FORCES MODEL FOR NOKIA Threat of entryMediumLOWIndustry Competitors rivalry among Existing FirmsStrongThreat of Substitute ProductsWeakBargaining power of Supplier’sWeakBargaining power ofBuyersStrong Threat Of New Entrants:- It is very difficult for a new firm to enter into the market because of the following reasons:- High Initial And Fixed Cost Requirement :- Nokia is a very big company producing different kinds of hand set at a large scale, so in order to enter into a competitive market the new firm requires huge amout of capital. Nokia enjoys a slight advantage here, though it’s an advantage that may be quickly lost. The other cell phone manufacturers have a lot of experience making cell phones, but not necessarily software. So, to most effectively compete with the nokia they will need to invest significantly in certain areas. Future competitors looking to enter the cell phone arena are less likely to have that advantage. Technology Backup:- In order to enter into the mobile market the new firm is required to have a innovative and cutting edge technological backup.The latest machine, technology and Design in order to satisfy customer with their product. Government And Legal Issues:- ,[object Object]

Economies Of Scale (minimum size requirements for profitable operations):-

Nokia already had pre-existing experience in manufacturing mass-market consumer electronics devices, many of which share components of the other nokia mobile; so Nokia is not adversely affected by this barrier. New entrants, however, may not have that luxury and the cell phone market is almost defined by its mass-market (which requires mass production and consumption) nature.

Nokia

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