Nokai: a Case Study of Expansion and Specialisation Essay Example

United States, and Japan were adversely hit by the increase. The increase in prices had led to a dramatic inflationary pressures and a crunching suppression of business activities within those countries. Nokia, with its primary businesses in manufacturing, was adversely hit by this trend. The trend limited expected growth in its core businesses and led management to seek a new corporate level strategy.

Corporate level strategies can be defines as actions taken by a firms top management to gain competitive advantage by selecting and managing businesses in different sectors of industry with the aim of creating value (Hill et al, 2003). The firm chose to diversify, consolidate and internationalize. Diversification can be defined as a business technique for spreading risks by holding or operating in a range of products or in a range of activities which are subject to independent risk elements (White, 2004). Put simply, it means de-concentrating a firm’s sphere of business activities.Diversification can be classed into two types; conglomerate diversification and concentric.

Conglomerate diversification involves branching out into other unrelated business while concentric diversification involves going into businesses which are related to the firm’s current business (Sharplin, 1985). The aim of Nokia in choosing to diversify its operations from its business of paper, tyres and cables and manufacturing was to mitigate the risk that had become imminent from the concentration in just those sectors. According to Sharplin (1985), as a grand strategy diversification usually has its chief purpose the reduction of risks.A company operating in several sectors avoids risk to it financial earning that may have been brought about by down cycles if it maintained operations in just one sector. Since expectations of growth

in its core businesses were limited, the corporation’s top management sort other avenues for growth and investment outside its current businesses.

And since the electronics business was not as oil dependent as marketing, the company saw this sector as safer to invest in. The corporation’s earliest efforts at diversification involved importation.At its simplest form, importation or exportation is the most primary form of new investment, either in new markets r new sectors of production. In the mid 1970’s Nokia moved into computers with the importation and distribution of Honeywell Bull computers. Also within the 1970’s the corporation pursued opportunities presented by a Finnish Army contract bid to enter the mobile telecommunications.

The corporation won the rights to the contract along sides two other companies, Salora and Televa. The company went into a joint venture partnership (JVC) with Salora and between them they created the joint venture vehicle Mobira as their mobile elephone business unit. Salora was the biggest TV set manufacturer in Finland. Ownership was based on a fifty percent shares per JVC partner. In the late 1970’s, Salora experienced problems in due to declining market share and in its ownership. This crisis of ownership led to an invitation for purchase to be placed on the company.

Despite this invitation, Nokia was uninterested in buying out the company but maintained an interest in buying-out the company’s shares in their joint venture vehicle. In the early 1980’s Salora prospered under new management.Business flourished in 1982 and this trend was expected to continue in 1983. But this success brought about some problems for the company. While Salora was competent in research and development, it did not possess sufficient capacity to

deal with new demands.

In order to fulfill production capacity, the management sought to acquire Luxor, a Swedish based competitor held by the Swedish government. The company had core competencies in mass scale production. Salora aimed to complement its competencies in R & D with Luxor’s competencies in mass production.The Swedish government, which held Luxor, was not favorably disposed to Salora’s bid sensing the company too small. While Nokia was not interested in Salora as a single unit, it was interested in the synergy of the two companies.

It should be noted here that Nokia had 18% ownership of Salora bought as a pre-condition before it could acquire Salora’s shares in Mobira. The company believed that this synergy will strengthen its hold in the consumer electronics market and act as a launch-pad for the company’s internationalization. After all Luxor was a Swedish based firm.In 1984, the Nokia Group successfully acquired Luxor. Initially the Group got 51% of Luxor.

The Group increased its shareholding to 70% in the latter part of 1984. The Group also acquired 58% of Salora. By the end of 1984 Nokia Group had a total of 8000 employees on it pay-roll and possessed 36% share of the TV market in Finland and over 20% in Sweden. With the buy-out of Mobira and the acquisition of Salora and Luxor, the strategic targets of diversification had been met.

The company had also successfully begun its internationalization. Nokia had also gained a stronger foot-hold in consumer electronics.Nokia Expansion into Europe and Post-Acquisition Problems With the successful entry of Nokia into the international market, albeit the Nordic market, the corporation acted on a desire to pursue markets within the European

Community (EC). The corporation, in 1987 approved the strategic plans to acquire TV brands in within the EC.

The plan had as its major thrust the acquisition of brands in Germany and France, and a production factory in either of the two countries. Nokia quickly acquired Oceanic, a French competitor, upon learning that the company was for sale.The Swedish owners (Electrolux) had concluded that the company provided no synergy with its core competencies. This acquisition represented a foot-hold for Nokia in the EC. Upon achieving success in its entry into the EC, through the acquisition of oceanic, Nokia began attempts to extend its presence there. The company began negotiations to acquire Thompson and parallel negotiations to acquire Standard Electric Lorenz.

Both companies were German based. In 1988, following negotiations led by the president of its consumer electronics division, Nokia acquired Standard Electronic Lorenz.This acquisition further strengthened the company’s position internationally. Standard Electric exported its products to four countries of southern Europe (Italy, France, Spain and Portugal). The acquisition also included assembly stations in Spain and Portugal and shares in joint ventures in Hungary, Malaysia and Italy. While acquisitions are undertaken to increase a company’s capacity to deliver goods and services whiles also increasing financial bottom-line, acquisitions in many situations have gone awry and have left companies worse-off post-acquisition than they were pre-acquisition.

Upon Nokia’s foray into the rest of Europe through acquisition of foreign companies, the corporation faced difficulties in integrating the newly acquired companies with the older structure. It should be noted that Nokia’s integration with the other Nordic companies it acquired (Luxor and Salora) was quite seamless. The corporation’s integration difficulties post acquisition challenges dealt more

with acquisitions in main stream Europe. The post acquisition integration difficulties were instigated by a number of major factors. This includes:

• Cultural differences
• Managerial politics and ambitions

The size of the integrating components Cultural Differences Cultural differences have often been cited as a probable cause of insurmountable post M&A problems (Chakrabarti and Mitchell).

Culture used in this context refers to organizational behaviour and structure. Greater differences in business culture may lead to greater difficulties in integration. Cultural differences played a huge part in Nokia’s post integration difficulties. As identified by the president for Nokia Consumer Electronics Division Jacques Noels, there were difficulties in integrating the different consumer electronic units and the different nationalities.The company was faced with the choice of maintaining independent cultures or developing a new integrated culture for all the composing units. The company chose to develop a new integrated culture and in this light went on a recruiting derive for new “Euro-managers”.

Managerial Politics and Ambitions Differences in managerial opinions on policy and the use of policy to achieve higher positions also played its part in making post acquisition integration more difficult. Top managers in the corporation at times pursued policies with the sole aim of enhancing their credentials for higher office.Such pursuits were usually in variance with other policies or sometimes even in conflict with same. This was made worse by the fact there was no clear cut organizational structure until 1989. A case in point for example had to do the eventual purchase of Standard Electric Lorenz. Contrary to negotiations to acquire Thompson (which was the second largest TV producer in Europe), Antii Lagerroos entered into negotiations for an acquisition of Standard Electric

Lorenz (SEL).

While this acquisition eventually succeeded, it revealed a power struggle at the top management level of the corporation. Top managers were building fiefdoms to use as a power base for their internal struggle for control. The company also had an insufficient amount of internationally experienced staff. This was even more so in the consumer electronic division. Also, upon employing a new president for its consumer electronics division, the corporation lost time as the new man chose to re-organize the division from scratch.Size of integrating component The integration of components of this size, with a total combined turnover of FIM6 billion, into a singular division proved daunting.

The corporation chose the option of integrating all components rapidly and risking short term difficulties and considerable long term returns over integrating the companies over a long period of time. The option was expected to lead to bigger difficulties because these corporations were not used to being part of a whole but were used to working independently.Divestment and Concentration in Telecommunications Nokia’s decision to divest from consumer electronics was based on two major factors. They are:

• Mobile division’s profitability and mobile telecommunication as the next big thing
• The increasing unprofitability of the consumer electronics division By 1992, the corporation telecommunications division had witnessed the fastest growth within the group, it had become the most productive investment and with telecommunication becoming was becoming a greater value common to all businesses, it could only get better.

In the light of this statistic and given the potential for growth that existed in the Far-East and in North America, the management of the corporation resolved to make telecommunication (including mobile phones) it future core

business. This decision coupled with the declining consumer electronics business made the company to consider its strategy. The corporation chose to divest its interest in other businesses outside telecommunication. The company began divesting some of its business in 1993. In that year, the company parted with parts of the cable and machinery business. In 1995, it divested totally from tyres and cables.

The company announced its total withdrawal from consumer electronics in February 1996. In June of 1996, the company sold its last plant in Finland to Semi-Tech Ltd of Hong-Kong. This transaction represented Nokia’s full withdrawal from the consumer electronics business. Implications of the Case Study for Strategic Management While mergers and acquisitions can be a veritable strategy to be used for diversification, growth and expansion, it can also soon become unsuccessful. The success of acquisitions as it pertains growth and expansion goes beyond the actual display of interest and the eventual purchase of the targeted companies.For an acquisition to become a successful business component of its acquiring company, the acquired company must be seamlessly integrated and made to function as part of a whole.

The integration process is a complex process and is very important to post merger and acquisition (M & A) success. White (2004) opined that post M&A integration is the most important phase and probably the single most important determinant of share-holder value creation. Top management must have a clear-cut integration plan even before attempting the acquisition. This should form an important part of their due diligence.Also the acquiring company must have a designed organizational structure that takes into regards the staff and management structure. This action will mitigate problems that may

have otherwise arisen over the chain of authority.

Conclusion Nokia’s acquisitions were doomed from the onset. This was especially more so with its acquisitions of companies within the European Community (EC). While Nokia group achieved its strategic objective of diversifying, the fact that the corporation used acquisitions as it means (as opposed to starting fresh companies) put the diversified units at risks.The company’s initial failing was in failing to working out an organizational structure pre-acquisition. The company also faced difficulties in integration because it failed to develop a proper integration plan pre-acquisition. The case of Nokia’s diversification into a multi-sector conglomerate and its subsequent reversion into a single sector corporation has revealed the necessity and importance of corporate integration as a fundamental phase for success of a company post acquisition.

In the end game, Nokia failed in this respect and that failure eventually led to its withdrawal from multi-sector production.