A "Porter's Five Forces" Analysis of Nokia
Porter's Five Forces Model
Nokia was founded over 140 years ago in Finland, and since then has become a global organisation that operates in over 120 countries worldwide. Nokia has also become a market leader in the mobile telecommunications industry and is most known for their mobile phones and Smartphone’s. Although recent competition has affected the market share that Nokia has in the telecommunication industry they still hold a strong 29% (2011) of the market share in a forever changing industry.
The micro environment includes the internal factors that are affected by the customers, staff, shareholders and competitors. The best model for evaluating the micro environment of Nokia is Porter’s Five Forces as this takes into consideration the competitors, customers, suppliers and new entrants.
Threat of New Entrants:
The mobile phone industry is already a well established market and the threat of a new entrant is quite low, as the technology needed to rival the devices already available is quite advance if they want to differentiate from them
The barriers to entry in the mobile phone industry is high because any new entrants will need high investments in R&D, technology and marketing in order to compete with the established organisations.
New entrants want to take market share from the larger organisations but Nokia hold 29% of the market share in the industry, the highest market share in the industry. (BBC News, 2011)
The threat of new entrants into the mobile phone industry is very unlikely as the start up cost of entering into the market at a high level needs a lot of investments and time to be considered a respectable competitor of the already established organisations. Nokia currently holds a 29% share of the entire mobile phone market worldwide and for a new competitor to obtain some of their market will take either a very long term plan or something that is truly innovative and unseen before. This is because realistically the new entrant will need very high investment for R&D and marketing, and would not be able to publish positive result for a long time as they try to build a customer base and a name for itself in an established market.
In conclusion, the threat of new entrants is very low and not a factor which Nokia will have to worry about in the near future.
Power of Suppliers:
- Although Nokia relies on its suppliers to supply equipment for their advanced mobile phones there are actually a number of large equipment makers, which Nokia could switch to.
- The software suppliers for their Smartphones are now Microsoft, who will have a very high bargaining power.
- As the leading mobile phone company in the industry they are in a very strong position when bargaining with their suppliers.
Nokia is in the position where they can bargain and negotiate with any mobile phone hardware maker because there is a high number of equipment suppliers that are readily available to them should their current suppliers attempt to bargain for more money with them. Nokia’s main argument would be the fact that they are a global organisation that has the highest market share in the industry, so the suppliers would not want to lose such an illustrious organisation. On the other hand, Nokia has recently created an alliance with Microsoft for its software which would be considered a major coup for Nokia more than Microsoft. As a result, Microsoft will have a lot of power when negotiating a price and share because the deal is more beneficial to Nokia than Microsoft.
In conclusion, there is a moderate threat from the powers of suppliers because although the hardware suppliers have a very low power, Microsoft’s power over the software is very high because they’re very few other organisations who have the expertise and skills to rival Microsoft.
Powers of Buyers:
- The power that customers have is rising because of the increasing number of choices in the mobile telecommunication industry.
- With a lot of the Nokia competitors all offering similar packages (e.g. unlimited texts and calls) the industry is very price sensitive with customers seeking out the best value for money.
- Many of the consumers will also be tied into long term contracts so switching from one handset to another will be difficult and expensive for the consumer, as a result, they may not want to change until the contract is finished.
The mobile phone industry is a competitive market where the number of choices is very wide, resulting in the consumer having a lot of power because they can choose to go to one of Nokia’s many rivals if they feel Nokia is not good enough. As Nokia does not have a direct store to sell to their consumers, intermediaries such as Carphone warehouse or network stores such as Orange also have other handsets readily available for the consumers, which makes it difficult for Nokia to have a direct impact on the selling of their handsets. As a result, this has created a very price-sensitive market because consumers will always be on the lookout for the best deals.
In conclusion, the buyers have a high amount of power because of the other handsets they can purchase instead of Nokia.
Threats of Substitute’s Products
- Mobile phones are an everyday essential in people’s lives today and people would find it hard to replace, as customers would not be able to be in constant contact when away from the house.
- On the other hand, it could be said that customers would be able to contact people through other types of media such as social networking websites, email and home telephones. Although staying in constant contact would be hard in customers’ day to day life.
- However, smartphones are capable of a lot of functions so there are many substitutes if the substitute focuses on one of the functions, e.g. digital camera can take better photos then smartphones, notebooks can surf the web just as effectively and PDAs can plan a day the same way a smartphone can.
Mobile phones have become an everyday necessity in peoples’ lives because of the important functions that they can do and are all available in just one handset. No other product has the ability to make phone calls, send messages, surf the web and many more in one device. The idea of being in constant communication with someone at anytime and anywhere makes the mobile phone a very important device to people. On the other hand, a mobile phone can be dissected into the key function where there are substitutes for the functions, such as the camera function on a mobile phone can be substituted for a digital camera that can do a better job than the camera in a mobile phone.
In conclusion, the threat of a substitute product is very low due to the fact a mobile phone is no longer just for making calls but for all the other functions as well are expected on all mobile phones. So, the only real substitute is to buy all the functions of a mobile phone in the individual products which would not be plausible to carry all around on a person at the same time. Without mobile phones, consumers would find it very difficult to replace, as it can offer so much to the consumers all in one device, no matter what the needs of the consumer are. Consumers rely on mobile phones a lot and would not be able to find a substitute that has all the functions of a mobile phone.
- Nokia's rivals have moved to smartphones and androids while Nokia have only just recently released their first smartphones leaving them trailing their rivals such as Apple and HTC.
- There is also very little differentiation between the competitors which means any new smartphones in the market, like Nokia Lumia, will find it difficult to tempt existing iPhone and HTC customers to switch.
- Intense competition from large companies such as; Apple, HTC, Blackberry, Sony Ericcson and LG, etc.
Nokia operates in an industry where the competition is extremely fierce with high investment in R&D and marketing to compete with some of the biggest organisations in the world. This year Nokia’s market share has dropped to 29% and it is forecast to continue to fall because of the rising popularity of the Apple iPhone. After Nokia’s slow move into the Smartphone market it has left them trailing their rivals, and has just released their Lumia range which will find it difficult to compete and win over consumers from their iPhones.
In conclusion, competitive rivalry is very high and Nokia must be aware of the threat that competitors have on their business especially with the growing popularity of the Apple iPhone and RIM blackberry. The competitive rivalry is the biggest threat to Nokia because in the Smartphone market they are considerably behind and to increase their market share will take a lot of work in a market where some of the biggest names in business operate in such as Apple and Sony.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2012 tfliu90