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Nokia's failure: emerging markets

After just three years of massive restructuring that was supposed to revive Nokia, the former global mobile communications giant, the company's gone. Why?
Recently, Microsoft agreed to acquire the handset and services business of Nokia for about $7.2 billion. In the process, Stephen Elop, the former Microsoft executive who ran Nokia until the deal was signed, will rejoin Microsoft, which some observers believe sets him up as a potential successor for its CEO Steven A. Ballmer.
To Nokia's veteran executives, it was a day of infamy. I should know. At one point or another, I have talked with and interviewed most of them.
Only months before the release of "The Nokia Revolution" (Amazon, 2001), in which I recorded the early success of the company, Finland-based Nokia's stock price peaked at $60 and market cap exceeded $250 billion.
After the technology bubble burst, the stock declined to $16. Unlike its big country rivals that made most of their money in the U.S. and the U.K., Nokia made more than 99 percent of its revenues outside its tiny home market. It was Nokia's success in China and India and the takeoff of mobile services that boosted the stock to $40 before the global crisis in 2008, as I argued in "Winning Across Global Markets" (Wiley 2010).
But was everything all right at Nokia? No.
Strategic erosion

By 2010, Nokia was being squeezed by competition on two fronts. Even as its handsets were challenged by low-cost producers in emerging economies, Apple's iPhone, followed by Samsung, was surging in smartphones that Nokia had been developing already in the mid-1990s, but failed to commercialize.
There was nothing inevitable in this dual challenge, however. Intel, too, had struggled with parallel low-end and high-end challenges in the late 1990s, but survived.
Despite its mantra of listening to the customer, Nokia had also grown less responsive and more self-contented. When Apple was pushing its user-friendly iPhone in 2007, Nokia's R&D was looking too far in the future.
Indeed, Nokia's U.S. operations exemplify its strategic erosion. In China and India, it was far more flexible, willing to tailor products and services, and to localize its workforce. In the U.S., such responsiveness was belated. Unlike Samsung and LG, it failed to expand market share in the U.S. and it did not invest adequately and in time in the market, industry, developers, R&D or personnel.
The problem is that Nokia's strategic erosion—its failure to sustain its technology innovation and retain its market leadership in both advanced and emerging markets—explains Nokia's relative decline until 2009, but not its value meltdown after 2010.
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