Chapter 1: Introduction
Nokia is a global brand and one of the world leaders in mobile phone manufacturing. In India, the name Nokia is associated with trust and quality. Nokia being well recognized and reliable brand has the largest market share in India (more than 50%) which is far more than the nearest competitors. With large number of distributors, good quality products and better service Nokia has made itself as a clear leader of the mobile industry in India.
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Since the late 1990’s the cellular phone market of India has recorded significant amount of growth and has become the fastest growing in the world. The entry of Nokia in the Indian market was in the year 1994 [1] . When Nokia entered the Indian market the policies of telecommunication industry were not conducive to the growth and development of the mobile phone industry. The tariffs imposed on mobile phones were as high as 27% and the usage charges were Rs. 16 per minute [2] . Due to these high rates the customers were not able to go for mobile phones and mobile phones remained a symbol of luxury and high society among Indian people. Also, Nokia faced tough competition for the other powerful mobile global players like Siemens, Ericsson, Sony, Motorola etc.
Nokia learned from its mistakes quickly and then went on adopting strategies which helped it regain its lost market share. Globally, the sales of the company reached to 7.4 billion Euros in the first quarter of the year 2005 and the company sold 54 million phones during that period [3] . Since 2004 the brand Nokia gained wide acceptance and was growing steadily in the Indian market. In 2008, Nokia share in global market was around 30% out of which 59.5% was the contribution from Indian markets [4] making it a profit sanctuary for Nokia.
Research Intention
It is always difficult for a company to successfully enter into a foreign market because of various issues like cultural differences, entry barriers created by domestic competition of that country, difference in political and economic scenario and differences in regulations & policies of government related to telecommunication sector for foreign players. The diverse nature of Indian market and unconventional approaches to business makes India a special case and difficult task for foreign players to enter and establish themselves. The main intention of the research is to critically examine and evaluate the importance of entry strategy in context of India keeping the success story of Nokia as the centre of study and thus defining the parameters to be kept in mind while designing an entry strategy for India.
Research Justification
A company can opt to enter into foreign markets for various reasons like to expand the customer base, to spread its business risk across a wider market base, to increase the market share and to tap new markets and thus increase sales [5] but often a company fails to successfully enter and establish itself, the major reason being cultural differences and new market conditions. Thus, it becomes extremely important to know the key issues and conditions that may prevent a company from entering into a country.
The literature regarding the entry strategy of Nokia which is based on the two main approaches it has followed which are the market-led and the resource based approach. These two approaches are to be viewed as complementary to each other [6] . This research analyses Nokia’s strategies along with the complementary and reciprocal relationship between the two approaches. Nokia was able to achieve tremendous success due to the balance it has maintained between the two approaches. In 2004, Nokia was unable to maintain this balance and it immediately suffered resulting in decreased revenue and reduced market share [7] . However, Nokia was quickly able to recover from the slowdown because of the overall market boom and corrective strategies it followed. Simultaneously its strong internal strengths were quite enough to neutralize its external threats. Nokia was able to maintain leadership position due to capitalization of the good opportunities prevailing in the mobile market and the strong internal base of resources.
One can learn from the difficulties and challenges faced by Nokia and the strategies employed by the company to tackle those challenges. Thus, analyzing the strategies of Nokia will give a better insight in framing, planning and designing the strategies for entering into Indian market. It will be useful for companies which are planning to enter Indian market or similar other market to understand various issues to keep in mind while building a strategy.
Research Position
For the purpose of this research study, the particular area in which Nokia excels is its business in telecommunications and mobile phones. The aim is to demonstrate how Nokia adapted itself to the Indian culture and brought changes according to customer needs in its strategy due to which the customers were deliberately and emotionally attached with the brand of Nokia and the company was successfully able to generate trust among the customers.
Research Aim
The aim of the research is to understand the entry strategies of Nokia in India and analyze on the basis of different marketing principles.
Nokia in India is the focus of this research study. This research is based on the required competencies Nokia possess with an aim of providing generalized suggestions for the other organizations to follow similar practices. Other organizations may not have the similar internal competencies as that of Nokia so they need to follow “me-too” approach in the long term [8] . For the reasons the research perspective is to propose the entry strategy of Nokia in India as a major contributing factor of the considerable success.
Research Objectives
The objectives of this study are:
To study and analyze the entry strategies of Nokia in India.
To analyze the role of the brand image in sustaining the market leadership.
To analyze the localization strategy of Nokia (this acted as a major tool for gaining leadership in the market).
To analyze the competitive scenarios in the mobile market of India.
It is very important to understand the market along with strengths and weaknesses of a company before designing strategy for the company. Hence, as a background work it is important to first study the Indian mobile handset market scenario and factors affecting it. Also, it is important to analyze the competencies of Nokia and its use in planning and designing the strategy. This will help us to understand the strategies adopted by Nokia.
Structure
The structure of the dissertation is as follows: Literature in context to the topic will be discussed and reviewed and thus evaluating the strategy being employed by Nokia compared with the general strategies used for entering into a foreign market. The detail methodology will be discussed based on which the strategy of Nokia and the effectiveness of the strategy will be evaluated. This will be followed by the conclusion and recommendation.
Approach
The methodology followed is research using secondary data. The data are mostly taken from the books, journals, magazines, report published by official agencies and government and other trusted resources and databases. As the basic nature of the project is study and exploration, the dissertation will try to identify various issues related to entry strategy of Nokia and critically review every aspect related to it with the help of various examples and secondary data.
Summary
It is always useful to analyze and study the strategy followed by various companies and the market itself before building or designing a strategy for a company. This helps to identify major issues related while designing and implementing the strategy and thus saves time and effort and also prevents from committing same mistakes. Also if a company has been successful then it helps to identify the factors that make a successful strategy.
Nokia used various strategy to enter into Indian market like customization according to needs of people, pricing and marketing innovation keeping in mind the culture of the people, product innovation, opening up of manufacturing plant in India by selecting strategic location of setting up the plant thus reducing manufacturing cost, wide distribution network and emphasis on post sale services. All of this made it possible for Nokia to capture more than 50% of market share in India.
In 2005, Nokia was recognized as the “Brand of the year” by India’s Apex industry association. Nokia was chosen for this award due to its high brand recall, distribution channels which are well established and also being preferred by the consumers. Even Harvard University invited Nokia India to talk about its success in Indian Market. Thus one can say that Nokia was successful in entering the Indian market and establishing itself as a brand. Though competency of company varies which results in different strategy for each company but one can build up strategy along the line of Nokia to enter into Indian market or at least learn from the Nokia story.
Chapter 2: Literature Review
Whenever a company decides to enter into a foreign market it faces six basic issues: where to launch the product, how to adapt to the preferences and cultural believes of customers in foreign country, what are the changes required to bring in the strategy, how to manage the production, distribution and customer service operations, what will be the strengths and opportunities in foreign market and how to get benefited from resources in the foreign country [9] . These issues when focused upon results in the building up of the strategy for the foreign country. India been very diverse in terms of demography, culture and market conditions makes it difficult for a company to design a strategy for the whole country. Instead the company has to come up with different strategy for different regions. Studying various entry strategies will help us to understand the entry strategy of Nokia in a better way and evaluating the Indian market scenario will help us develop an entry strategy for Indian scenario.
2.1. Generic entry strategies for foreign markets:
There are various generic strategies for entering and competing in a foreign market apart from exporting:
1) Licensing: A company can license a foreign firm which is well established and has good distribution network to use company’s technology to produce and distribute the company’s product [10] . Thus the cost of investment by the company in the foreign firm reduces drastically and it becomes easier for the company to launch its product. For example, Sanofi, a pharmaceutical company, successfully used this strategy and reduced its cost to the extent where it could finance almost 30 research projects [11] . The disadvantage in this strategy is that the company has to share its technology which might be its core competency and there are chances that foreign firm might end up the contract and replicate the product and sell it under its own name. Also, if the quality of product produced by licensee Company is poor then it will affect the image of licensing company.
2) Franchising: It is another strategy where the investment of a company is very less and usually local people sets up the outlets so they know better about the market and can serve better to the people [12] . For example, KFC, Pizza hut and McDonald’s have successfully implemented it [13] . Franchisor can exercise a great deal of control over franchisee which is advantageous for franchisor but might be a disadvantage for franchisee. Its impact may vary as franchisee knows the market condition better and franchisor understand the vision of the company better.
3) Contract Manufacturing: It is usually done with market having low volume and high tariffs [14] . A high tariff makes it difficult for the company to remain price competitive and low volume does not suggest setting up a manufacturing unit. Instead outsourcing the manufacturing to a local company helps saving cost [15] . Marketing and promotion is done by the contractor who is outsourcing the production. Nike, Acer, Sony Ericsson, Phillips, Motorola and Nokia follow this strategy [16] .
4) Strategic alliances and joint ventures with foreign companies: Though it involves more investment and risk compared to previously mentioned strategies like difficulty to build good coordination due to difficulty in building trust and proper communication channel, executive’s ego clash, it requires many meetings to get a job done and there is an over dependency threat but it is strategically more useful [17] . It helps to get a foothold in foreign market, fill the gap of technology and market knowledge, is an easier access to distribution and dealer network and is a good competitive move towards mutual rivals [18] . For a long time it was the only way to enter in India as the regulations made it mandatory to have local participation.
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5) Pricing strategy: It does not necessarily means to offer the product at lowest rate instead to offer the best price in a country. Thus, a company can either go for same pricing or differential pricing for every country such that the overall profit generate or/and market capture is maximum [19] . Various types of pricing strategies can be applied like based on cost of production, marginal cost, demand in market, entry level barrier, price skimming, differential pricing and destroyer pricing.
6) Offensive strategies: There are various offensive strategies that can be employed to capture the market share in foreign countries like attacking rival’s profit sanctuary, selling at cut-rate prices and using cross-market subsidization [20] . It is also advisable to attack with ones strength rather than exploiting the competitor’s weakness. [21]
The above list gives only the generic strategy for entering into a foreign market but it is very important to understand the business and culture of the country before making a move. The needs of people may vary from country to country and in order to tap the market it is important to position and customize your product keeping the needs of people in mind then only the generic strategies will be effective in entering into a foreign market. Thus one can choose to compete in foreign market with a combination of various strategies like offering lowest price, modifying business model accommodating local needs, making operational changes and adopting aggressive marketing campaign only after understanding the market. Thus, before deciding upon what strategies to use there is a need to discuss the Indian mobile handset market.
2.2 Indian mobile handset market:
In 1995 Telecom Regulatory Authority of India was formed to reduce the burden of Indian government and then the mobile phones were officially launched in India. However the policies did not encouraged private players and very high licensing fee was charged. The growth in mobile phones users was very slow in initial years and reached to 1 million in 1998 [22] . In 1999, the Indian Government took a step further and made an announcement regarding the new telecom policy according to which mobile phones will be made available on demand by 2002 [23] . It allowed unrestricted entry of private players in all mobile phone services. The most important of all was permitting the mobile phone service providers to share the infrastructure with other operators which made it cheaper for the companies to invest in the country and thus it drastically reduced the price of GSM and other mobile phone services. The second important change was to allow existing operators to migrate from fixed license fee to time entry fee of sharing revenue thus reducing break even period for telecom companies. All this changes increased the demand of mobile phones by 2001.
In the early phase of introduction of mobile handset the customers were not so demanding in terms of technology. The handsets available were bigger and bulkier with black and white screen. Ringtones were restricted to what manufacturers provide in the handset and in India was looked as status symbol more than a necessity. Also the market competition was very less as there were not many players in the market. A competitive pricing strategy would have done the trick for new entrant.
However, the market has become more dynamic and the product complexity has increased over the time. From 2G to 2.5G and now 3G, technology has changed over time and hence the customer demand. Now bluetooth, FM radio and camera are considered as essential features of the mobile handset. The changing scenario has made it more difficult for new mobile handset manufacturers to enter the market and the intense price rilvary in Indian market has forced manufacturers to constantly innovate so as to survive.
The sector is in growth phase and being related to technology which is changing rapidly the sector seems to be far away from maturity. The 3G mobiles are just introduced in the Indian market and the 4G technology is already been tested in Australia [24] . The mobile phones sector is expected to continue to show robust growth in India over the forecast period, with volume sales projected to grow at a CAGR of 28%, reaching 442.3 million units in 2013 [25] . Growth is based, in part, on increased penetration into rural markets over the forecast period. The launch of 3G service in 2010 is likely to bring increased growth and may result in an increase in the replacement market, as well. This bodes well for the future growth of smart phones, which will benefit from accelerated replacement and upgrades. The sustained growth of smart phones is also expected to keep future price erosion in check.
Already the market superseded the expectations of government by reaching 500 million cellular telephone connections by September 2009 which was previously expected to reach by 2010 and is expected to become the largest manufacturing hub for telecomm equipment by 2010 [26] . Also, India has provided the manufacturers with location advantages like cheap availability of skilled labor and has become a design centre for many of them. For example, Motorola’s RAZOR was developed in India [27] . The transportation costs are also less and no tariff is being imposed thus the overall cost is reduced to such an extent that now companies are looking India as next export hub after China. Thus, the market prospectus seems to be encouraging and good for the mobile handset manufacturers.
2.4 Issues:
According to wireless federation report India is the fastest growing market for mobile phone industry [28] . In spite of a lot of growth opportunities the industry faces major issues that are affecting the growth of the companies in the industry. The issues and problems should be understood before building a strategy:
Infrastructural problems: Though to reduce the burden on service providers and operators the government allowed sharing of resources among the operators but still infrastructure required for 3G are not in place and 4G is a far away thing. This hampers the growth of the industry and restricts manufacturers from increasing their product range.
Electronic waste management [29] : This is a major concern for the industry. A lot of mobiles have been dumped in the market and there is no proper mechanism to manage the waste generated. Though, this is not an issue that directly affects the business of a company but over a period of time this will emerge as the biggest problem for the industry.
Low entry barrier: With the improvement in the technology and production process the cost of manufacturing has reduced drastically which in turn has lowered the entry barrier for local manufacturers. A lot of companies have recently entered in the market for example, Videocon. This has increased the competition in the industry.
Chinese manufacturers: The mobiles produced by them are sold at a very cheap rate due to economies of scale achieved by them. This created problems for other players but as the chances that DoT might impose ban on these phone it brought the faith of manufacturers in the government.
2.5 Strategies applicable:
The strategies should be designed keeping in mind the present market conditions and future market trends. The strategy should generate profit and should help to capture the market share thus making satisfactory progess for the company. The strategies applicable in Indian market will depend upon satisfaction, perception, expectation and need of the customer.
Since 1995 the market and customer both have changed hence the startegies applicable in 1995 and now will also differ. If we discuss the strategies applicable in both the period and compare it with the strategy of Nokia then we can judge the fore sightedness of Nokia. The strategies applicable in 1995 can be:
1) Exporting: As the market market competition was not so intense and only few players existed thus exporting can be considered as a good option. As already the mobile handset was considered a luxury then a necessity thus the customers were higher middle class and upper class so even if the prices were not so competitive one could enter the market if the product was user friendly.
2) Customization: As there are many regional languages in India and english speaking population was not so high in India in 1995 it would have been advantages to have local language available in mobiles. Also if a mobile had simple and user friendly menu then it would have been easily accepted.
3) As there were not many manufacturing units estabilshed in India in 1995, licensing, franchising, strategic alliance, joint ventures and contract manufacturing would have been difficult. In this case company has to reduced its cost of manufacturing so as to reduce the price of the mobile. Differential pricing could have been used effectively.
In present scenario strategies that can be used for entring in market are licensing, franchising, strategic alliance, joint ventures, contract manufacturing, differential pricing, customization and the most of all offensive strategy. The customers are more technology savvy and hence more complicated and better designed phones are in demand for which the customers are willing to pay a hefty price. Thus technology is the key for success in present market.
2.6 Strategies of Nokia:
Initially when the mobile phones first came into picture they were very bulky and hard in usage. So product development and design are key features to success, so Nokia took the initiative to design phones which are smaller and simple to use by the consumers. As people have already paid a lot earlier so they won’t be willing to pay high prices for the same so Nokia had to develop phones which could be sold at a less price and last longer. This is the point where companies can be expected to pay high cost of production.
In the growth stage of the product life cycle promotional and advertising costs can be expected to be high like in the introduction stage because more number of companies is entering the market and the competition for their market share is bound to increase. For promoting technological advancement within a market advertising is suitable so we can expect higher costs on advertising to be spent as technology is getting better and more advanced.
The growth stage is also consider as a stage where companies will (hopefully) start making profits based on the good research of the market and a strong branding sense and a successful scheme for marketing. Profit is not the only thing that will start developing in the growth stage, technological advancement is also developing due to large number of companies in the market. This will drive the prices of mobiles higher and will help the companies in making profits. In the case of Nokia mobile phones, consumers have given acceptance to the product and are willing to spend high price for the new phones that are emerging in the market.
2.7 Conclusion:
Nokia as expected followed different strategy at different time frame and has changed them according to the market conditions. Nokia has used a mix of strategies as discussed above and was not only able to enter the market successfully but was also able to successfully lead the market. Thus it can be said that following the strategies of Nokia might help one to successfully enter a market and thus there is a lot of learn from the strategies of Nokia.
However, it is important to analyze the extent to which the company was successful and for this the strategies of various mobile handset manufacturers have to be compared along with the market shares, profitability and customer satisfaction. This will be the base of analysis of the Nokia’s strategy.
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