Smartphone Industry Competitiveness

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However, the dominance position of Nokia started shaking since 2007 with the release of revolutionary Apple’s iOS and following by Google’s Android. The growth of Nokia reached its peak with €7205 million in 2007, and began to fall down significantly by half as it was €3988 million in 2008 (Statista, 2013). Apple has opened a new era for the smartphone industry, as many players were able of taking their chances to change and renovate themselves, such as Samsung and Lenovo. These firms eventually became strong rivals in the competition as they were able of beating Nokia with smartphone technology, diversity and design application created to attract consumer. As such rivals gained significant market share, such as Samsung increased from 3.3% to 9.4% from Q4 2009 to Q4 2010 (Canalys, 2010), Nokia started to lose market share fast. Its share of the smartphone market fell from 46.7% in 2007 to 32% in 2010 (Ricknas, 2010). Pressures were heavy for Nokia as the lost in market share has forced them to reduce the prices of their high-end smartphones, which in the end lowered their profits, and at the same time they were also losing in the low-end market as firms such as Lenovo, ZTE and Huawei began to knock them out in this segment. Nokia’s profit received a fatal strike as it went down from €4366 million in 2006 to €1343 million in 2010 (Nokia, 2010).

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Figure 2 (Gatner, 2011)

Lost in both high-end and low-end market, together with slow reaction to market changes and lack of innovation, Nokia’s net profit has witnessed a miserable decline from 2007 as it reached the bottom in 2009 with only €260 million in 2009 (Nokia, 2009). Besides, the continuously introduction of rivals’ breakthrough products such as iPhone generations, Samsung Galaxy, etc. led to the abandonment of customers and investors toward Nokia, which consequently sharply decreased the corporation’s share price. Nokia’s share price fell 16.31%, from €27.70 in October 2007 to only €9.47 as of July 2009 (De Wit & Meyer, 2011). Apparently, the fierce competition in the smartphone industry, initiated by the introduction of Android and iOS has devastated Nokia’s finance, especially in term of income and global market share.

Question Two: Strategic alliances and global competitiveness

2 (a) Critical assessment of the terms “strategic alliances” (SAs) and “mergers and acquisitions” (M&As) in the context of Nokia’s ambition to sustain its competitive advantage in the global smartphone market.

The term Strategic alliances (SAs) refers to the co-operative agreements between potential or actual competitors, with the aim to utilize their internal skills and technologies to strengthen both companies (Hamel, et al., 1989). For example, General Motors and Toyota assemble automobiles, Canon supplies photocopiers to Kodak, etc.

The reason for SAs often base on the reflection of commitment and capacity of each partner to absorb the skills of the other. For Asian companies, SAs is mostly for learning and renovation. They learn the effectiveness and efficiency the way in which their partner operate, thus apply to their operation to improve their performance. Such commitments to learning represent a change in competitive tactics, for example, NEC in SAs with Honeywell has allowed them to facilitate its in-house R&D more efficient (Hamel, et al., 1989). For Western companies, however, SAs often aim to gain economies of scale while reducing cost and avoiding risks. Frankly, for companies to gain benefits from SAs, they need to aware that, first, collaboration is competition in a different form, as their partner may not be their friend forever. Secondly, in some cases, conflict in SAs may result in mutually beneficial collaboration. Thirdly, companies should be able to realize the threat of competitive compromise as limitation should be set out to protect their competitive advantages and core competencies in the SAs. Finally, it is important that partners in SAs learn from each other’s strength to improve themselves in a way of building skills in areas outside the formal agreement and systematically diffuse new knowledge throughout their organization (De Wit & Meyer, 2011).

Mergers and acquisitions (M&As) serves as one of SAs’ indicator, which account for $3.4 trillion in world economy in 1999 (Bennett, 1999). Mergers is the joining of at least two companies into a single legal entity with the approval by the shareholders of both firms. The assets of the smaller company are merged into the those of the larger one, with surviving company and shareholders of the target company are either bought out or become shareholders in the acquiring corporation (Havard Business School, 2000). Acquisitions occur when one firm purchase more than 50% of the voting shares of another. The two companies can then continue to operate as separate legal entities, with the acquired firm is referred as the subsidiary. Unlike mergers, in acquisitions, the buyers can negotiate which assets to buy and which liabilities to assumes. Regarding stock acquisitions, the buyers only deal with the target shareholders for the sale of their stock. M&As provide benefits of assets acquire cost reduction, greater economies of scale, high performance of production or distribution process, growth through internal expansion, product diversification, etc. Frankly, by using M&As, companies can acquire lower unit costs, stronger purchasing power or gaining of management efficiencies.

In an attempt to sustain its competitive advantage in the global smartphone market, in February 2011, the SA between Nokia and Microsoft was announced as Microsoft spent $7.2 billion in acquisition of Nokia. Nokia, being the pioneer in the smartphone industry, with strength in offering modernized smartphone solutions quickly, but their solution development was time-consuming and impractical that consequently made them trailing their competitors. Microsoft had no experience in manufacturing smartphone and was looking for a strong smartphone manufacturer to support their mobile-oriented initiatives by offering millions of Windows Phone devices to the market and to unfurl the Windows Phone application ecosystem for their long term benefit. Hence, the SAs between Nokia and Microsoft was naturally fit and was expected to turn the tide in a way of creating a third alternative mobile OS that capable of competing in the market, make it the “three-horses race” among their alliance, Apple and Google.

For Nokia, the deal seems to benefit their ambition. Nokia received $1billion from Microsoft to promote and develop Windows Phone handsets, and switch from Symbian OS