Term Paper on "International Business the Nokia Corporations"

Term Paper 5 pages (1504 words) Sources: 10

[EXCERPT] . . . .

International Business

The Nokia Corporations is one of the largest and most successful enterprises globally, and an undisputable leader of the mobile telephone industry sector. The Finnish company was established in 1865 and has, since then, created its success by basing its operations on development, innovation and global presence. Also, an important component in the success of the firm has been represented by its ability to develop successful strategic partnerships with companies in several sectors, as well as several countries. While the Nokia products continue to be popular in Europe, they are best welcome in China, where the company sells more than one fifth of its production.

The Nokia Corporation is "the world's #1 maker of cell phones, ahead of such rivals as Motorola Mobility and Samsung. First incorporated in the eponymous Finnish city, Nokia's business consists of mobile device manufacturing and services -- shifting its focus to Microsoft's Windows mobile platform -- as well asNAVTEQ (digital map content and services). Nokia also operates the Nokia Siemens Networksin partnership with Munich-based Siemens; the joint venture is a leading player in the telecom infrastructure and services market, along with Ericsson and Alcatel-Lucent. China is, by more than double, Nokia's largest single-country market at nearly 20% of sales" (Hoovers, 2012).

Another key success factor in the positive results registered by Nokia is represented by the company's strong managerial plan. According to this plan, the firm has opened various global facilities, where it completed several operational processes. At a generic level, the company opened manufacturing and assembly plants in several countries in both Europe as well as outside it. The scope of these plants was that of completing the operations of Nokia in a more cost effective manner. Specifically, Nokia focused on outsourcing operations (Louis).

The company initially expanded to countries in Europe, with Hungary being one of its important destinations. The deal signed between the government in Budapest and Nokia was highly favorable to the company, as it offered it several benefits, such as tax deductions and infrastructure favors, such as decreased costs with rentals.

In 2011, rumors began circulating that the Nokia Corporation considered closing down its plant in Hungary. The move would result in 4,000 employees becoming suddenly unemployed, causing the adjacent problems within the Hungarian economy. More pressure would be put on the state budgets that had to offer compensation for unemployment; the incomes of the population would decrease; the purchase power would weaken and consumption levels would decrease (Layard, Nickell, Eichorst and Zimmermann, 2011).

The rumors caused much distress for the Hungarian population and political community, and the country's prime minister traveled to Helsinki to strive and convince the company to preserve its operations in Hungary. The prime minister appealed to the strategy that had initially worked with Nokia and lobbied with the aid of political and economic favors. He offered the mobile phone producer tax deductions and other favors pertaining to "the most favorable tax incentives and economic environment possible to foreign investors" (Budapest Business Journal, 2011).

The approach implemented by prime minister Viktor Orban was aligned with the internationalization and overall business strategy of Nokia, which had been seeking financial advantages. Hungary strived to offer these advantages, but they proved insufficient for the Finnish company. In 2012, Nokia confirmed that it would be conducting massive layoffs in the Hungarian market (Raby, 2012).

The decision of the firm is often understood as a reaction to the changing global community and economy. Specifically, upon penetration of the Hungarian market, Nokia expected particular financial advantages. The government in Budapest offered these advantages, but they eventually proved insufficient for the financial expectations of Nokia.

The costs with the personnel gradually increased, and the company came to spend more than they had initially estimated. Additionally, Nokia had opened its plant in Hungary in the late 1990s decade, when the market for mobile telephones was booming. By 2011 however, the company came to encounter severe competition from other mobile producers, with increased emphasis on smart telephones. Specifically, a new industry was created and the traditional Nokia telephones became less and less competitive, as they were unable to compete with the smart phones of the new generation (Dunai, 2012).

Then, in 2007, an economic crisis commenced within the United States real estate sector, and soon expanded throughout the rest of the sectors and the countries. In such a setting, the jobs of the population became uncertain; their discretionary incomes decreased and their spending behaviors changed. Specifically, the buyers would come to focus on items of immediate necessity and telephones registered a decreased demand.

In the setting of decreasing demand and declining competitive power, the sales of Nokia products decreased dramatically. In 2011 for instance, comparative to 2010, the company's net sales were of 38.7 million euros, when the same indicator had a value of 42.4 million euros in 2010; the total decrease is of 9 per cent. Other important indicators are reveled below:

The gross profit of 2011 was 12 per cent lower than the gross profit of 2010

The company's budgets for research and development decreased by 4 per cent

The expenses for sales and marketing decreased by 2 per cent

The operating profit of Nokia decreased by a staggering 43 per cent

The company's net cash from operating activities decreased by 76 per cent, and last

The net cash and other liquid assets registered a total decrease of 20 per cent (Nokia Corporation 2011 Annual Report).

In such a context, it is obvious that Nokia encountered severe financial challenges and it is justifiable that it looked for a more cost effective solution. In other words, it relied on financial prudence and strived to reduce its expenses.

Ultimately then, Nokia downsized its plant in Hungary and would be moving to Asia, in an effort to generate more cost efficiencies. In this decision and course of action, the Finnish mobile telephone manufacturer remains true to its internationalization and overall business strategy.

In order to better understand the strategy and decision made by Nokia, it is useful to assess the situation with the aid of the CSA-FSA matrix. This matrix was developed by Rugman and it is helpful in assessing multinational enterprises within the global community (Rugman, 2007).

Country specific advantage

Firm specific advantage

Weak

Strong

Strong

Products made in the European Union, as opposed to Asia or other global region; prestige connected to the Made in EU brand.

Economic advantages.

Impact on the Hungarian economy.

NA

Weak

Financial advantages, which are important for the firm but insufficiently offered by Hungary.

Doorway to Asia.

NA

Based on the matrix, it appears that the Made in EU brand is important for Nokia, but it is less important than the ability to operate in a more financially sustainable manner. Additionally, the Finnish firm recognizes the economic advantages provided by the Orban government, but renders them insufficient to help attain its overall objectives. Finally, the country argues the important negative impact of such a decision, which would leave thousands of Hungarians without a job. While the company is sympathetic to the situation, this does not constitute a sufficient reason to preserve the plant in Hungary.

At the opposite pole of all these arguments stand those which are strong for the company and weak for the country. The most important of these arguments is represented by the fact that Nokia needs to cut its costs, and the country is unable to support this decision. This argument is part of Nokia's strategy and business model and cannot be counter-argued. Aside from this however, the company would hope that its move into Asia would help it access a newer market. Europe for instance reveals an increased competition and a wide presence of smart telephones. This trend is less advanced in Asia, where the firm could still sell its mobile telephones.… READ MORE

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