I Table of Contents
II Table of Figures
2. NOKIA’S ENGAGEMEN† IN GLOBAL †RADE
2.1 NOKIA’S INTERNATIONAL BACKGROUND
2.2 THE PATTERN OF INTERNATIONALISATION
2.3 EXTENT OF GLOBALISATION - IS NOKIA A TRULT GLOBAL BUSINESS?
2.4 NOKIA’S INTERNATIONAL BUSINESS STRATEGIES - THEORIES OF INTERNATIONAL TRADE
2.4.1 International Product Life Cycle
2.4.2 Tke Stages of International Business Expansion
2.5 TRADE DISPUTES/BARRIERS WITH CHINA
2.6 GLOBAL SHIFT TO PROTECTIONISM
II Table of Figures
Figure 1: Nokia’s Organisational Structure Figure 2: Pattern of International Expansion
Figure 3: Table of the Pattern of International Expansion Figure 4: Types of Internationalisation
Figure 5: Nokia’s Markets
Figure 6: Nokia’s Net Sales in 2010 Figure 7: Nokia’s Ramp;D Locations
Figure 8: Nokia’s Locations in the World Figure 9: International Product Life Cycle
Figure 10: The Stages of International Business Expansion Figure 11: Big Max Index
Figure 12: Development of Trade-Restrictive Measures
In this assignment the nature and trends of globalisation will be identified and analysed, which will include the investigation of patterns, drivers and methods of internationalisation. After explaining theoretical principles and theories, those will be applied Nokia in order to identify how the company is doing business internationally.
International business means “transactions taking place across national borders”, which include trade (imports and exports), foreign direct investment ( “equity funds invested in other nations” ) and collaborative arrangements, such as joint ventures or franchise. (Rugmann amp; Collinson, 2009, pp.7-10 + Armstrong, 2012) Internationalisation has become more and more important for organisations in the course of an increasing globalisation, which can be described as the “increasing interdependence of business activity throughout the world”. (Harrison et al., 2000, p.XVII) It is a very complex process that entails both advantages and disadvantages for countries, companies and individuals.
„Nokia is looking to add 2 billion new users by the end of the decade by reaching out to emerging markets, including China, Brazil, Indonesia, Africa, and India.“ (Lakshman, 2007 [online])
“Emerging markets are countries which are in a transition phase from developing to developed markets due to rapid growth and industrialization.” (Cavusgil, 2012, p.1,5 [online]) Indeed, “most of the world’s growth is expected to occur” in those within the next 20 years. (Cavusgil, 2012, p.1
[online]) China is one of those emerging markets and for organisations both interesting as a production location and due to their increasing consumer markets. As one of the BRIC countries, China is “continually investing in education and technology, increasing foreign investments, and focusing on integrating themselves in the global economy as major players.” (p.5) One decisive characteristic of emerging countries is that major deals can just be implemented through the government (p.36), which is a strong indicator for protectionist policies.
In this paper, special emphasis will be put on the global shift to protectionism, which has been happening since the worldwide crisis started in 2008. Protectionist measures and subsequent trade barriers make trade between nations more difficult and can result in conflicts between trade blocs. This will be investigated in more detail containing examples and especially concentrating on the role China plays in this global scenario.
2. Nokia’s Engagement in Global Trade
2.1 Nokia’s International Background
In 1865, mining engineer Fredrik Idestam founded the business with one pulp mill in Finland. A few years later he opened the second mill, and since 1871, the business has been called Nokia Ab. At this point already Nokia pursued its foreign sales and started the internationalisation of the business by selling the products of the mills to Russia and the UK. “This internationalization strategy is necessary because Finland has only 3 million people and only a small share of its sales originates in its home base.” (Rugman amp; Collinson, 2009, p.464) Some time later, Finnish Rubber Works was founded, a business that concentrated in producing boots, galoshes, tyres etc. In 1912, Nokia’s cable and electronic business came into existence, with the founding of Finnish cable works. The three businesses Nokia Ab, Finnish Rubber Works and Finnish cable works were owned jointly since 1922 and officially merged in 1967. This could be called the first stage of expansion, even if Nokia was still producing in their home country, they had made acquisitions at different locations and in different industries. From the 1980s, Nokia started to concentrate on the mobile telecommunication sector. They were among the first manufacturers of hand-held mobile phones in 1982, and their gradual sophistication in the years to come. In 1984, the first production site abroad was opened in South Korea. In 1992, Nokia decided to lay their strategic focus ”exclusively on manufacturing mobile phones and telecommunications systems“. (Marketline, 2012, [Online]) During the whole 1990s, Nokia developed the most innovative mobile phones and in 1998 they had become world leader in mobile phones. However, during the last years the competition in this market has become very strong, especially in the sky- rocketing sector of smart phones with companies like Apple or Samsung, which is why Nokia has been losing market share and is struggling to stay profitable right now. (Milne, 2012 [Online]) Therefore, Nokia had to change their global strategy, shift more and more of its production to Asian countries and concentrate on emerging countries in terms of sales. (Reisinger, 2012
Nokia is a very large and complex business that offers a huge variety of products and services and consists of many different divisions. The basic three-part division can be seen in Figure 1.
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Figure 1 Nokia’s Organisational Structure
Own source, adapted from Marketline, 2011 [ online ]
2.2 The Pattern of Internationalisation
There are many different models that suggest how an organisation’s extent of globalisation can be ranked. One of them is the “Pattern of International Expansion” from Daniels, Radebaugh and Sullivan (2004, p.16-18), which uses four axes in order to show the level of a company’s internationalisation. The model that can be seen in Figure 2 contains 5 axes, whereas in the original model axes D and E are taken together. It will be explained in detail below. The further an organisation moves away from the “domestic business” core along the axes, the higher its global commitment becomes – which also implies rising risks from the core going outward.
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Figure 2 Pattern of International Expansion Adapted from Daniels et al.
The “Impetus for Business” axis describes the motivation of the company to become more and more global. It is usual for an organisation to start with passive expansion, such as responding to “unsolicited export requests” (Daniels et al., 2004, p.16), whilst acting actively means to search for oppor- tunities and operate self-contained. Analysing Nokia in this matter, it can be said that they are doing business at a relatively high active level. The com- pany tries to be innovative and reaches for new markets in order to push its international business forward. Exports started shortly after the foundation of the business and apart from those, the company has been keen to expand overseas through FDI and recently particularly concentrated on Asian mar- kets. This enabled them to gain experience, develop specific market know- ledge and learn from former mistakes (e.g. divestment in Romania after just 3 years of production). (Thorpe, 2011 [online])
The “Internal/ External Handling of Operations” axis shows how the com- pany is selling its products (or services) to other countries. During the early stages of expansion, most organisations start by employing intermediaries, such as agents that have expert knowledge about the foreign market. How- ever, with an increase of international involvement, the organisation gains knowledge about the new market and “will want to handle the operations with its own staff” . (Daniels et al., 2004, p.16) Nokia has 130,000 own staff in 120 countries (in 2011), but works together with distribution partners in order to sell their products, which means they are still using intermediaries and can therefore be placed in the “medium area” of axis B. (Millett, 2011 [online])
The “Mode of Operations” axis shows how organisations progress from import/export to overseas production. As the first step, import and export re- quire few resources and mean less formal commitment. After that, com- panies often shift to production in the foreign country and might also have other functions abroad. The final stage of expansion would be extensive pro- duction abroad including foreign direct investment (FDI) such as acquisitions, subsidiaries or strategic alliances. (Daniels et al., 2004, p.16) Nokia began with exports for which they worked in strategic alliances, for example with ATamp;T shops in the US. (Rugman amp; Collinson, 2009, p.464) After that, they mainly expanded through building up production facilities and Ramp;D Centres in many overseas countries. Between 1993 and 2011, the company has also made 43 acquisitions in countries all over the world. (Nokia, 2011 [online]) Therefore, Nokia has reached a high level on axis C.
The “Geographic Expansion” axis demonstrates the number of countries in which a company is doing business and the degree of similarity between its domestic country and the foreign countries. In general, companies start doing business in one country which is fairly similar to their own domestic market (in terms of culture, language etc.) and then gradually move to more dissimilar countries. (Daniels et al., 2004, pp.17,18) Nokia firstly expanded into other Scandinavian countries, then to the UK and after that they progressed to the rest of Europe. Those markets were geographically close and quite similar to their domestic market. During their internationalisation process the company also entered markets far away with many dissimilarities (at first the US, then Japan and China) and have, meanwhile, operations in
150 culturally diverse countries in Asia, the US, the Middle Eastern and Africa. (Rugman amp; Collinson, 2009, p.464 + Marketline, 2012 [online]) This means their level of geographic expansion is very high.
The following table is based on the model from Daniels et al. and shows that Nokia has a high level of international expansion in terms of three of the four axes and is on a medium level concerning internal/external operations.
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Figure 3 †able of the Pattern of International Expansion Own source