Analysis of Nokias Competitive Policies

Analysis of Nokias Competitive Policies Nokia’s Competitive Policies In Handset Industry in Asia Chapter 1. Introduction The progress of technology has altered our daily life routine dramatically. In recent 2 decades, people have seen the big convenience brought by colour TVà £Ã¢â€š ¬Ã‚  telephoneà £Ã¢â€š ¬Ã‚  laptopsà £Ã¢â€š ¬Ã‚  mobile phone and etc. Among them, the contribution of mobile phone is especially prominent: given the integration of technologies of Internet, laptop, and communication etc, the small and good looking handset will enable us ubiquitous application of modern multi-functions. The advantage of 3G even further attracts our minds with colourful imagination. During the upgradation of our living style, we owe a lot to the companies of the handset industry, especially those popular giants including Nokia, Motorola and Samsung. When they change our living successfully, they realize their developing targets as well. For example, according to the Fortune Global 500 in 2005, Nokia and Motorola ranked 130th and 138 respectively1. Thus, they are recognized by the society. It’s unpredictable for a company to achieve great goals without correct strategies to employ. In the fierce competition of handset industry in China, the correct competitive strategies are required for the participant to win market shares. Surely, sometimes the right strategies are difficult for survival. Nokia, as the no. 1 in the handset industry of China, is certainly the biggest winner through exertion of correct competitive strategies. As is mentioned above, the competition in handset industry in China will become even more fiercer along with the emerging trend such as the advent of 3G, the alteration of distributing channels, and the improved leval of industrial centralization etc. So competitors should promptly adopt relevant changes of their competitive strategies to adapt to new environment. This dissertation aims first to analyze the competitive strategies already employed by Nokia 1 Accessed on Feb.23rd, 2007, The List of Fortune Global 500 in 2005 http://brand.icxo.com/brand500/top500_1.htm During the progress of Chinese handset industry. To confirm whether the competitive strategies are acurate, I use Porter’s 5 forces theory as the frame to anatomize the factors such as Economies of scale, Product differentiation, Capital requirements, Cost disadvantages, independent of size, Access to distribution channels, Government policies, and Competitor’s Retaliation. Thereby, the rationalities of Nokia’s competitive strategies in Chinese handset industry may be authenticated. According to the great lots of evidence collected from website newspapers and catena, new trends of handset industry appear gradually. To grasp the future flux on market share and industrial environment, it is necessary for Nokia to nip in the bud. As a natural extending of the aforesaid analysis on competitive strategies, this paper also expounds the reason causing the new industrial trend in Chinese handset industry and suggests the probable strategies Nokia may adopt. As is well known, according to the Moore’s law, the chips of the handset is developing at a very rapid speed. Moreover, the handset is still influenced by the fluky vanguard fashion. It is not easy to survive in the fluctuate market, and say nothing of being leading company in the industry. I wish textual analysis might benefit the readers to recognize the industrial situation and use Nokia for reference. This text takes a logical sequence to discuss the total analysis, so the chapters are in turn as follows: Introduction to Reportà £Ã¢â€š ¬Ã‚ Introduction on Nokia Corporateà £Ã¢â€š ¬Ã‚  The Mobile Handset Industryà £Ã¢â€š ¬Ã‚ Industrial Analysis Using Porter’s 5 Forces Theoriesà £Ã¢â€š ¬Ã‚  Analysis on Nokia’s Competitive Strategiesà £Ã¢â€š ¬Ã‚ Evolution of Nokia’s Competitive Strategies and Conclusion. The content of each chapter encircles its name, and the detailed discussion will be deployed in the following chapter. Chapter 2. Introduction on Nokia Corporate With hundreds of years’ development, Nokia has successfully realized its industry transform within the world-wide range, and gradually established its leading position in the handset industry in China as well as in other area of all the world. The whole experience is full of legendary color, as is introduced as follows: Section 1. Nokia’s Developing History 1à £Ã¢â€š ¬Ã‚ Brief Review on Nokia’s History According to the introduction from Nokia’s autobiography, the roots of Nokia go back to the year 1865 with the establishment of a forest industry enterprise in Southwestern Finland by mining engineer Fredrik Idestam. Other relative events were the foundation of Finnish Rubber Works Ltd in 1898 and in 1912 Finnish Cable Works began operations. After decades of operation, the three companies were merged to form Nokia Corporation in 1967. The worlds first international cellular mobile telephone network, NMT, was introduced in Scandinavia in 1981 and Nokia made the first car phones for it. At the beginning of the 1980s, Nokia strengthened its position in the telecommunications and consumer electronics markets through the acquisitions of Mobira, Salora, Televa and Luxor of Sweden. In 1987, Nokia acquired the consumer electronics operations and part of the component business of the German Standard Elektrik Lorenz, as well as the French consumer electronics company Oceanic. In 1987, Nokia also purchased the Swiss cable machinery company Maillefer. In the late 1980s, Nokia became the largest Scandinavian information technology company through the acquisition of Ericssons data systems division. In 1989, Nokia conducted a significant expansion of its cable industry into Continental Europe by acquiring the Dutch cable company NKF. In 1992, Jorma Ollila became the CEO of entire Nokia Group, who made a strategic decision to concentrate solely on telecommunications in the coming Digital Age. Thus, during the rest of the 1990s, Nokia continued to divest itself of all of its non-telecommunications divisions. This strategic shift consolidated the foundation for Nokia to become a worldwide famous leading company in telecom industry.2 2à £Ã¢â€š ¬Ã‚ Nokia’s Performance in Recent Years After the strategic shift in 1990s, Nokia has established its leading position in the global telecommunication market. Every business item, especially mobile phone item, has exhibited high-speed of development ever since. At present, Nokia comprises four main business groups: mobile handsets, multimedia, enterprise solutions, and networks. Among them, the mobile handset is the pillar business for entire group operation. According to annual report of 2005, Nokia ´s net sales arrived at EUR 34 191 million3, realizing an increase rate of 12.56% when compared with EUR 30376 million in 20004. Among the total net sales, sales of mobile phones reached EUR 20811 million, occupying 60.87% of the total net sales. In 1992, the mobile handset business only account for 20% of the total sales of entire group. Nokia ´s operating profit for 2005 reached EUR 4 639 million, representing a 2005 operating margin of 13.6%, and Operating profit in mobile handsets decreased 5% to EUR 3 598 million (operating profit of EUR 3 786 million in 20045), representing a 2005 operating margin of 2 Accessed on Feb.23rd, 2007, The History of Nokia 1865-2002, http://r2.nokia.com/nokiahistory/index.html 3 Accessed on Feb. 23rd, 2007, Key data of Nokia http://www.nokia.com/link?cid=EDITORIAL_4026 4 Accessed on Feb. 23rd, 2007, Annual Information 2000, http://www.nokia.com/A4126501 5 Accessed on Feb. 23rd, 2007, Annual Information 2004, http://www.nokia.com/A4126497 17.3%. However, in comparison with the EUR 83 million in 19926, the operating profit of mobile handset in 2005 represents more than 43 times increase. As is recognized by the global consumers, Nokia brand was ranked 16th among The World 500 Most Influential Brands in 2005 by the World Brand Lab. According to the Fortune Global 500 in 2005, Nokia group ranked 130th and represented no. 1 among the Industry of Network and Other Communications Equipment, taking a position higher than any other competitors. From the aspect of mobile handset, till Sept. 2006, Nokia captures 35.1% of the global market. According to the Gartner institute, Motorola was in second place, with market share of 20.6%, and Samsung of South Korea saw its share of the world market fall to 12.2 % from 12.5 in third quarter 2005. 7 Obviously, Nokia has firmly established its leading position in its industry and has become the worlds leading provider of mobile telephones. Section 2. Nokia’s Development in China The year Nokia traded with China can be traced back to 1950s. And later, until 1985, Nokia opened its first branch in Beijing to initiate its development of early stage in China. In 1995, Nokia set its joint venture in China to produce large scale of GSM system equipment. Then, in 1997, Nokia deliver China the first GSM 1800 network. Soon later, in 2000, Nokia started up the Chinese GPRS network that is first one compatible with newest business 6 Martti Haikio (2003) NOKIA THE INSIDE STORY. Published by Edita Publishing Ltd and Nokia Oyj, Copyright 2002, Chinese Edition First Printed in Sept. 2003. pp.272-273. 7 Accessed on Feb. 23rd, 2007, Nokia is top mobile phone maker for Q3-Gartner, Nov. 23,2006 http://telecomasia.net/article.php?id_article=2793 standards in the world.8 In 2001, Nokia invited its main global partners including mainly hardware providers to invest about RMB 10 billion together in Star Net Industry District in order to form integrated production capabilities and to decrease cost.9 During 2003, Nokia released 15 styles of handsets and ranked no.1 of the GSM mobile handset. As is reported, the top 3 brands of GSM in 2003 are Nokiaà £Ã¢â€š ¬Ã‚ Motorola and Samsung, with market shares respectively 17.23% à £Ã¢â€š ¬Ã‚ 16.46%à £Ã¢â€š ¬Ã‚ and 11.81%.10 When entering into the new century, Nokia strengthens its cooperation with China in the field of communication technology and takes active part in the development of Information Industry in China. At the same time, Nokia commits itself to employment and cultivating of the local talents. To the end of 2004, Nokia arrived at no. 1 of the whole handset sales in China. In 2005, the rising trend continued. It is calculated that Nokia captures 25.8% of domestic handset market share in 2005, realizing 10.8% more than in 2004. By contrast, the second brand Motorola only gets 8.7% of market share11. After decades of tillage, Nokia has really established its leading position in the handset industry in China; it is believed that Nokia will actualize greater success in the mobile 8 Martti Haikio (2003) NOKIA THE INSIDE STORY: Beijing Strategies of Nokia, Published by Edita Publishing Ltd and Nokia Oyj, Copyright 2002, Chinese Edition First Printed in Sept. 2003. pp.234-236. 9 Accessed on Feb.23rd, 2007, Explore Star Net Industry District, by Wangshucheng, Huoxiaoguang, Yujingzhong, Source from Xinhua Agency. Yesky.com-Chinese IT website, http://www.yesky.com/135/215635.shtml 10 Accessed on Feb.23rd, 2007, Synthesized analysis report on handset in China by YiGuan, Jun. 29th, 2004, http://www.c114.net/zhuanti_simple/3g/Read_3g.asp?action=3gzlkstyptID=3articleID=26 11 Accessed on Feb.23rd, 2007, Domestic Handset Market Share Declines March, 28th, 2006, http://www.chinamobile.gov.cn/200603/61242.shtml communication market in China under the 3G era. Chapter 3. The mobile handset industry As is well known, competitive strategy is the outcome resulting from competitive environment. Without given circumstance, it will become meaningless to discuss whether the employment of certain competitive strategies by some enterprises is successful. Therefore, before anatomizing the competitive strategies of Nokia, we need to describe the notion of mobile handset industry and its main composing elements. 1. Definitions —What is a mobile handset A mobile or cellular phone is a long-range, portable electronic device for personal telecommunications over long distances. Most current mobile handsets connect to a cellular network of base stations (cell sites), which is in turn interconnected to the public switched telephone network (PSTN) (the exception are satellite phones). Cellular networks were first introduced in the early to mid 1980s (the 1G generation). Prior mobile handsets operating without a cellular network (the so-called 0G generation), such as Mobile Telephone Service, date back to 1945. Until the mid to late 1980s, most mobile handsets were sufficiently large that they were permanently installed in vehicles as car phones. With the advance of miniaturization, currently the vast majority of mobile handsets are handheld. In addition to the standard voice function of a telephone, a mobile handset can support many additional services such as SMS for text messaging, email, packet switching for access to the Internet, and MMS for sending and receiving photos and video.12 2. Brief Introduction on Global Mobile Handset Industry Broadly speaking, the mobile handset industry consists of upstream suppliersà £Ã¢â€š ¬Ã‚ whole handset 12 Accessed on Feb. 23rd, 2007, Mobile phone Definition Introduction, Sirchin-The Free Encyclopedia And Other Stuff Beta. http://www.reference.sirchin.com/?wiki:directories:mobile-phone manufacturersà £Ã¢â€š ¬Ã‚ network operatorsà £Ã¢â€š ¬Ã‚  downstream distributorsà £Ã¢â€š ¬Ã‚ terminal retailers etc. From raw materials to handset product, from hardware suppliers to software providers, from the handset per se to service and content providers, mobile handset industry can be identified as the whole value chain encircling the handset’s substance concept. From the narrow sense, mobile handset industry consists of the companies engaging in producing hardwareà £Ã¢â€š ¬Ã‚ componentsà £Ã¢â€š ¬Ã‚ and accessories of handset ¼Ã…’as well as assembling handset. As is well known, the worlds largest mobile handset manufacturers include Audiovox, BenQ-Siemens, High Tech Computer Corporation, Fujitsu, Kyocera, LG, Motorola, NEC, Nokia, Panasonic (Matsushita Electric), Pantech Curitel, Philips, Sagem, Samsung, Sanyo, Sharp, SK Teletech, Sony-Ericsson, TA Alcatel and Toshiba. And the worlds largest mobile phone operators include Orange SA, China Mobile and Vodafone. According to report on global mobile market in Q4 2005, the top 5 manufacturing companies are Nokia, Motorola, Samsung, LG, and Sony-Ericsson, with their global mobile handset market of 35%, 16.3%, 12.1%, 7.2% and 6.9% respectively13. As is calculated, the mobile handset sales continue to grow worldwide, going up from 482.5 million in 2003 to 561 million in 2004. This growth rate is expected to gradually slow down over a period of five years. The estimated growth figures for these five years are—10% in 2005, 7.7% in 2006, 6.4% in 2007, 4.8% in 2008 and 2.6% in 2009.14 Clearly, the global handset industry has been growing fast and will continue to grow for next 3 years. However, the rate of industrial growth will calm down, a status leading to prudential optimism. 13 Accessed on Feb.23rd, 2007, Big Six Dominate Expanding Mobile Phone Market, by John Leyden. Feb.28th, 2006, http://www.theregister.co.uk/2006/02/28/gartner_mobile_market_2006/ 14 Accessed on Feb.23rd, 2007, Changing Faces of The Global Mobile Handset Market –2007, Research and Consultancy Outsourcing Services, March 2005, Pages: 95 Researchandmarkets http://www.researchandmarkets.com/reportinfo.asp?report_id=63375 3. Mobile handset Industry in China Since China ushered in mobile handset in 1987, the handset users has reached 0.443 billion people, with the penetration rate of 33.9%; and the business revenue from mobile communication has occupied about 50% of whole revenue from telecommunication. Mobile communication has grown to be the main impetus of industrial development. 15 —3.1 Network operators After many years of evolution, there are now 6 network system operators in China: Chinatelecomà £Ã¢â€š ¬Ã‚ Chinanetcomà £Ã¢â€š ¬Ã‚ Chinamobileà £Ã¢â€š ¬Ã‚ Chinaunicomà £Ã¢â€š ¬Ã‚ Chinasatcomà £Ã¢â€š ¬Ã‚ and Chinatietong. Till May 2004, Chinamobile is No. 1, because it occupied more than 30% market share according to the business revenue. According to the 2005 annual report, Chinamobile achieved revenue of 243.04 billion RMB and net profit of 53.549 billion RMB, with customers covered 0.257 billion16. —3.2 Overview of industrial developing situation Chinese mobile handset industry keeps its rapid development in recent 5 years, and this trend is forecasted to be extended in the coming years. According to the MII, the handset output from year 2000 to 2005 is 52.57à £Ã¢â€š ¬Ã‚ 83.97à £Ã¢â€š ¬Ã‚ 120à £Ã¢â€š ¬Ã‚ 186.44à £Ã¢â€š ¬Ã‚ 231.75à £Ã¢â€š ¬Ã‚ 303.67 million units respectively. The relevant yearly increasing rate reaches 59.73%à £Ã¢â€š ¬Ã‚  42.91%à £Ã¢â€š ¬Ã‚ 55.37%à £Ã¢â€š ¬Ã‚ 24.30%à £Ã¢â€š ¬Ã‚ 31.03% respectively. Along with the high-speed increase in handset output, the handset users reaches 0.3934 billion people, and the popularization rate of mobile handset increase rapidly, arriving at 30.3 units per hundred people. However, compared with 60-odd units per hundred people in western developed countries, the future increasing space for handset is still optimistic.17 15 Accessed on Feb.23rd, 2007, The address on the Seminar of Constructing Green Handset Culture by Mr. Xiguohua, vice Minister of Mii of China in 21st Nov 2006, Beijing, on Website of Ministry of Information Industry of the People’s Republic of China http://www.mii.gov.cn/art/2006/11/23/art_223_27118.html 16 Accessed on Feb.23rd, 2007, the financial highlight, http://www.chinamobileltd.com/ 17 Accessed on Feb.23rd, 2007, Comment on the 2005 development of handset industry in China, Website of Ministry of Information Industry of the People’s Republic of China http://www.mii.gov.cn/art/2006/03/15/art_62_8307.html 2001-2005 Handset Output in China83.97120186.44231.75303.6759.73%42.91%55.37%24.30%31.03%050100150200250300350200120022003200420050.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%OutputYearly Increasing Rate(%) (Note: Amounts in millions of units. Source: Comment on the 2005 development of handset industry in China, Website of Ministry of Information Industry of the People’s Republic of China http://www.mii.gov.cn/art/2006/03/15/art_62_8307.html) Simultaneously, China has gradually become the export base of mobile handset. According to the statistics of MII, the handset export in 2005 is 228 million units, occupying 75% of total handset production. Compared to the 43.3% of export rate in 2000, the higher rate for export in 2005 indicates the excess capacities of handset production and the advent of market maturation in China.18 It is estimated that in 2006, the output of handset will arrive at 0.34 billion units including 0.25 billion for export purpose19. Generally speaking, the developing trend of handset industry in China will maintain rapidà £Ã¢â€š ¬Ã‚ healthyà £Ã¢â€š ¬Ã‚ and harmony progress. 18 Accessed on Feb.23rd, 2007, Comment on the 2005 development of handset industry in China, Website of Ministry of Information Industry of the People’s Republic of China http://www.mii.gov.cn/art/2006/03/15/art_62_8307.html 19 Accessed on Feb.23rd, 2007, Comment on the 2005 development of handset industry in China, Website of Ministry of Information Industry of the People’s Republic of China http://www.mii.gov.cn/art/2006/03/15/art_62_8307.html —3.3 Brand vendors As is reported (Aug.13/2002, People’s Post Newspaper), Chinese mobile market was totally occupied by foreign brand handsets before 1998. According to the result of investigation on consumer products in main cities in China in 1998, the market share of mobile is as follows: Motorola 37.3%, Ericsson 28.6%, Nokia 15.6%, and the left 20% market share was distributed among other foreign brands such as Philips, Siemens, Alcater, and Sony etc.20 Following the market booming of handset, Chinese domestic brand vendors began to dissatisfy their original position of OEM only. In addition, with the reformation of approval system, more domestic powerful competitors enter handset industry. As is reported, there are now about 70 companies granted license to produce mobile21. Although domestic brand vendors showed its competence and achieved brilliant performance in 2003, due to the lack of core technology and small scale of production, their total domestic market shares begin to fall down from the zenith of 60% in 2003 to 40.6% in 2005. And the ranked top 3 domestic brands occupy only 17.5% shares in comparison with 31.6% in 200322. According to the 2005 rank on sale of GSM handset in China, the top 10 brand is in turn as follows: Nokiaà £Ã¢â€š ¬Ã‚ Motorolaà £Ã¢â€š ¬Ã‚ Samsungà £Ã¢â€š ¬Ã‚ Birdà £Ã¢â€š ¬Ã‚ Amoià £Ã¢â€š ¬Ã‚ Sony-Ericssonà £Ã¢â€š ¬Ã‚ Lenovoà £Ã¢â€š ¬Ã‚ TCLà £Ã¢â€š ¬Ã‚ Koncaà £Ã¢â€š ¬Ã‚ Haier. Among them, top 3 brands occupy 60.05% of domestic market share, a number overpassing the total result of domestic brands23. 20 Accessed on Feb.23rd, 2007, The competitive situation in handset market in China, http://www.china-qg.com/articleHistory/yingXiao/4/275.html 21 Accessed on Feb.23rd, 2007, Handset Market Increasingly Open, by Zhugangqi, Nov. 29th, 2006, http://www.cww.net.cn/consultation/shownews.asp?nid=207 22 Accessed on Feb.23rd, 2007, Market Shares of Foreign Handset Increasing Rapidly, Mar. 21st, 2006, Source: MII. http://www.ccw.com.cn/news2/mobile/htm2006/20060321_09RRM.htm 23 Accessed on Feb.23rd, 2007, Domestic Rank of Handset Sales, by YiGuan, Source: CNETNews.com.cn, http://www.cnetnews.com.cn/news/review/story/0,3800057985,39445251,00.htm The following is the overview on the major participants, which probably possess potential capacity to challenge Nokia: 3.3.1 Motorola Motorola is known around the world for innovation and leadership in wireless and broadband communications. Motorola came to China in 1987 when it opened a representative office in Beijing. In 1992, Motorola (China) Electronics Ltd. was established in Tianjin, a major manufacturing base where Motorola produces mobile phones, two-way radios, wireless communications equipment for the Chinese and global markets. 24 Today, Motorola has one holding company, three wholly owned companies, five joint ventures, 16 RD centers and 25 branch offices across China. At the end of 2005, the number of employees exceeded 10,000, and the total cumulative investment in China reached US$3.6 billion, making it one of the largest foreign investors in China. Investment in RD has reached US$600 million.25 The goal of Motorolas China strategy is to build China into world-class production and RD bases. While pursuing and maintaining market leadership in both mobile devices and infrastructure equipment, Motorola continues to develop businesses in digital trunking, broadband products, solutions and services. As a runner-up in the mobile industry, Motorola keeps fighting its way for market leading position all the while. Undoubtedly, relying on its high-tech RD and cogent brand, Motorola can be qualified as the strongest challenger for Nokia in the mobile handset manufacture industry, no matter in China or in global market. 24 Accessed on Feb.23rd, 2007, Motorola China is the biggest wholly foreign invested enterprise Source: Tianjin Developing District Investment Net, Jun. 26th, 2003, http://www.investteda.org/zxzx/tdtzdt/t20051025_6324.htm 25 Accessed on Feb.23rd, 2007, Motorola in China, http://www.motorola.com.cn/about/inchina/inchina_en.asp 3.3.2 Samsung Since it’s founding in 1938, SAMSUNG (Group) has maintained a mission statement that responds both to its own change, and to new developments in the world. After unremitting struggle for decades, the company grows from a domestic industrial leader into a global consumer electronics powerhouse. Following its management philosophy-We will devote our human resources and technology to create superior products and services, thereby contributing to a better global society, Samsung achieves quick pace of development. And Samsung’s brand value, a key engine of business growth, increased to US$8.31 billion in 2002 from US$6.37 billion in 2001 and was recognized by Interbrand Corporation as the fastest growing global brand.26 As one of its emphasized fields, Samsung endows mobile handset market with great efforts. It was reported that the expenditure of total RD in Samsung reached 5 billion USD, including 2 billion especially for mobile handset RD. Moreover, as an industrial newcomer compared with Nokia and Motorola, Samsung adopt several special developing strategies to overtake advanced companies, for example: à ´Ã¢â€š ¬Ã‚ Ã‚ º Samsung prefer cooperation with strong technology leader to research alone. Samsung plays more attention on how to obscure know-how in shorter period, and to avoid confrontation with powerful competitors. Then, through reverse engineering, Samsung can absorb the newest technology with high efficiency. à ´Ã¢â€š ¬Ã‚ Ã‚ º Based on owned technology, Samsung inclines not to further dig, but to emphasize on developing additional value of product in order to occupy the market rapidly. It’s not difficult to understand that Samsung’s mobile handset exhibits first design and fashionable appearance, the important feature attracting majorities of users. This feature benefits Samsung to be among global top 3 brands of mobile handset. 26 Accessed on Feb.23rd, 2007, Samsung’s Managing Philosophy, http://china.samsung.com.cn/public/gongyi.asp?sm=menu7 à ´Ã¢â€š ¬Ã‚ Ã‚ º Expand rationally based on technology on hand. At present, Samsung has occupied already 65% of CDMA market in Korea, and the target at 20%-30% CDMA market share in China has become its next step, which means about 7.5-11million handset units. Believably, along with the deeper cooperation between Samsung and Qualcomm Incorporated, which is the owner of CDMA patent, Samsung will achieve more opportunities on market of CDMA handset, which is used by nearly 1/3 of global mobile user. In conclusion, Samsung, as an active and ambition participant in mobile industry, has found a unique way to boom, and has grown to be an important industrial power unable to be neglected. 3.3.3 Indigenous Brands Before 1998, domestic handset comes into the market in the form of joint ventures. During that period, they just assemble international brand handset. After 1998, domestic handset companies began to produce handset through OEM (Original Equipment Manufacturing) for international brands such as Samsung of Korea and SAGEM of France, which still not entered into China at that time. Simultaneously, some companies began to launch its own handset brand such as EC528 of Eastcom. In 1999, the market share of indigenous brand handset is less than 3% in China. However, until 2003, indigenous mobile handset arrived at its height of development, with a market share of 60%. However, indigenous brand soon began to decline all- the- round, with a market share of less than 40% at the end of 2004. During 2005, this declining trend continues, with 10 more percent market share lost than 2004 at the year-end. Relying on indigenous marketing advantage and OEM technology, domestic mobile handset manufacturers, as a whole, have grown up and gradually captured medium and low-end market. Although they encounter fierce competition and face present embarrassment, and even 3 brands that is Kejianà £Ã¢â€š ¬Ã‚  Pandan and Gaoke fade away in 200527, certain individual brand still actualize rapid development against the current and emerge. It is Lenovo that achieved 4.1% market share and ranked 7th in 2005; by contrast, its market share rises to 6.5% with a rank of 4th in June 2006 (from IDC report), an achievement invigorating all indigenous brands. 28 Considering the advantages of indigenous brands such as: flexible distributing- channelsà £Ã¢â€š ¬Ã‚ sensitive price reflectionà £Ã¢â€š ¬Ã‚ strong end-user networks and deep understanding of domestic fashion trend ¼Ã…’we have no reason to doubt the future of indigenous handset development. In addition, Chinese government has shown its resolution to support domestic handset companies; surely the relative policies will be improved further. It is believable that indigenous brands, as a whole, will soon rally to enhance their market position. Generally speaking, due to the recent situation of handset industry in China including the advent of 3G, all the brand vendors are adjusting each competitive strategies referring to individual inherent and existing advantages. In a word, new turn of reshuffle on handset industry in China is unveiling. 27 Accessed on Feb.23rd, 2007, March 16th, 2006, by Pengxuzhi, http://mobile.csonline.com.cn/jzsl/200512/t20051228_423095.htm 28 Accessed on Feb.23rd, 2007, Lenovo handset’s market share, Source: IDC, http://telecom.chinabyte.com/243/2576243.shtml Chapter 4. Industrial Analysis using Porter’s Five Forces Analysis Porter’s Five Forces Analysis is arguably the most influential analytical model in analyzing industrial environment. Logically, it will greatly facilitate comprehending the rationality of Nokia’s competitive strategies to use Porter’s Five Forces model to analyze the competitive environment where Nokia is operating in China, before expounding Nokia’s detailed competitive strategies. 1. Theory Brief Five Forces Analysis is a method used to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but focuses on an industry. It looks at five key forces namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry. Porter’s five-force model is arguably the most influential analytical model in strategy. In practice, it is best applied to cases in which strategic decision-making is closely associated with industry conditions. Porter’s Five Forces of Competitive Position New Market Entrants, e.g.: †¢ Economies of scale †¢ Proprietary of product differences †¢ Brand identity †¢ Switching cost †¢ Expected retaliation Supplier Power, e.g.: à ´Ã¢â€š ¬Ã‚ Ã‚ º Differentiation of inputs à ´Ã¢â€š ¬Ã‚ Ã‚ º Supplier concentration à ´Ã¢â€š ¬Ã‚ Ã‚ º Presence of substitute inputs à ´Ã¢â€š ¬Ã‚ Ã‚ º Switching costs of suppliers and firms in the industry à ´Ã¢â€š ¬Ã‚ Ã‚ º Importance of volume to supplier Competitive Rivalry, e.g.: †¢ Industry growth †¢ Fixed costs/value added †¢ Intermittent overcapacity †¢ Product differences †¢ Brand identity †¢ Switching costs †¢ Corporate stakes Buyer Power, e.g.: †¢ Buyer choice †¢ Buyer information †¢ Ability to backward integrate †¢ Substitute products †¢ Buyer switching costs relative to firm switching costs Threat of Substitutes, e.g.: †¢ Relative price performance of substitutes versus firm concentration †¢ Switching costs †¢ Buyer propensity to substitute 29 Henry Mintzberg, Joseph Lampel, James Brian Quinn, Sumantra Ghoshal, (2002) THE STRATEGY PROCESS Concepts, Contexts, Cases FOURTH EDITH Prentice Hall, Upper Saddle River, New Jersey 07458, pp95. The only deficiency with his model lies that the same analysis often applies equally well to more than one company (hence, the notion of â€Å"strategic groups†). And Porter’s emphasis on the importance of external context is balanced by Barney’s insistence that sustainable advantage depends as much or more on the internal resources of the firm. As Jay Barney argued that sustainable competitive advantage is not the product of correct position in the external environment but is derived from the firm’s internal resources. More specifically, resources must meet four criteria to confer sustainable comp