International Business Question 1. Using one specific company, with which you are familiar, examine the actual and potential impacts of globalisation on that company. Explain the reasoning behind the points you make. Evaluate possible strategies going forward which the company might use to respond to the impacts of globalisation you have identified. Table of Contents 1. Background 1. 1 What is Globalization? 1. 2 The Importance of Globalization regarding a business 1. 3 Nokia – a brief introduction 2. Characteristics and issues influencing Globalisation 3. How globalisation impacts the company 3. Product 3 . 2 Logistics 3. 3 Acquisitions 4. Evaluation and recommendations 4. 1 Rugman and Collinsons integration-responsiveness framework 4. 2 PEST analysis 4. 3 SWOT analysis 4. 4 Conclusion 5. Bibliography Part 1 – Background 1. 1 What is Globalization? “Globalization – the growing integration of economies and societies around the world… “ The World Bank Globalization is a very wide concept involving such diverse areas as global and domestic economies, politics, sociology and international relations. Because of this there is no general consensus regarding the definition of this phenomena.
There also isn’t a clear agreement between when globalization began. Some say that it actually began when Christopher Columbus discovered America in the late 15th century and brought back such goods as tobacco, various spices and some others. While others say it’s a relatively new and began in the 19th century with the Industrial Revolution. However people tend to agree that it’s never had such wide impact as in the last 20 years due to the introduction of the internet, mobile phones, decreased costs of transportation and manufacture of various goods.
It’s agreed by most people that at least the following three elements are commonly involved in globalization:
• Shrinking Space. The lives of people are becoming more and more interconnected; not just domestically, but also globally. With increasing popularity of the social networking services such as facebook, twitter and skype it’s becoming easier to interact with people on the other side of the globe. Due to easier communication between human beings, people people in some cultures are becoming more aware of global norms.
Youth in Japan for example are refusing to work long hours although this was common in the past and still is amongst the older generation.
• Shrinking Time. Due to the various communication and information technologies and the pace of their development, events occurring in one place have close to instantaneous impacts in other places. Catastrophic events like attacks on the twin towers of the World Trade Center during September 9/11 were reported globally in a matter of seconds and also had global effects on the prices of various stocks and currencies. Disappearing Borders. Borders of Countries around the world are becoming significant only on maps, as regional trade blocks (e. g. EU, NAFTA) and supranational bodies (e. g. IMF, WTO) increasingly override national policy making in economic and business issues as well as law enforcement and human rights. 1. 2 The Importance of Globalization regarding a business. Globalization should be important to every company because it’s nearly impossible to succeed for a large business in current economic conditions without carefully analysing every single angle of it.
Companies worldwide are outsourcing the production of some and in some cases even all of their goods to other countries due to cheaper labour costs and cheaper raw materials. The transportation is becoming cheaper and cheaper due to improving technology, hence it is often more profitable produce the goods elsewhere and transport them directly to the consumer. Companies are also exporting certain branches of their company to other countries (e. g. utsourcing customer service calls to operators in India) Because of these decisions companies are saving vast amounts of money, hence they are able to decrease the prices of their goods and compete very aggressively with other companies. Due to the fierce competition many businesses are forced to also use the benefits of globalisation to their own advantage. In order to survive the harsh reality of competition businesses need to constantly be aware of changing conditions regarding the quality, efficiency and cost of production and various other important, but constantly fluctuating factors. . 3 Nokia – a brief introduction Nokia is a leading manufacturer of mobile devices, with a market share of 30% of all mobile devices globally. Interestingly the company was founded in 1865 and started its operations by manufacturing paper. The company later added electricity generation to its business activities. In the beginning of the 20th century the company started making rubber shoes along with other rubber products. Shortly Nokia expanded to cable and electronics business.
By the late 1960’s the company was responsible for many different industries, hence producing many completely different products. During the 1990s the company focused solely on the fastest growing segments in telecommunications and divested itself of all of its non-telecommunications businesses. While Nokia remains the global leader of mobile devices, the market share is falling slightly. Same time last year the company had 34% global market share, 4% more than currently. Worryingly the profit fell by a staggering 40% in the second quarter of 2010, compared with the previous year.
The company faces strong competition in the Smartphone segment, as Apple and Google recently entered the Smartphone sector with the iPhone and Google android phones accordingly. Part 2 – Characteristics and issues influencing Globalisation
• In the past the world economy was dominated by 2 (bi-polar) main areas – North America and Europe, however the world moved on to a tri-polar model where 3 regions dominate the entire world. These regions are North America, the European Union and South-East Asia and they account for roughly 80% of the total value of world exports and 84% of world manufacturing value added. There has been growth in international trade and capital flows for exports and foreign direct investment respectively. During the period between the 1980 to 2007 world exports of goods and services more than doubled, reaching over 17,000 billion USD in 2007 and accounting for over 31% of world GDP.
• There has been significant growth in the world cross-border Mergers and Acquisitions. Most activity regarding Mergers and Acquisitions is concentrated in the telecommunications and the media, financial services, insurance sectors.
The global value of Mergers and Acquisitions rose from 200 billion USD in 1990 to 1600 billion USD in 2007.
• Over the past years there has been a rapid growth in regional trading agreements. To name a few – European Union, North American Free Trade Area, European Free Trade Association. Members of these regional trading arrangements have preferential treatment to trade in goods and services between members of these blocs. Multinational Enterprises began locating production facilities inside these RTAs to avoid protective and discriminatory barriers. Changing international labour costs are particularly important in the globalization movement as both wage and non-wage costs (like social security, taxes, etc. ) are one of the most important factors when a business, has to decide in which country to locate the production plants and export other areas of the company. However labour costs alone are a poor indicator, that’s why relative unit labour costs are often used instead, as the RULC takes into account not only the labour costs, but also the productivity of the workforce and the exchange rate. Another important factor influencing globalization is the increasing international communication. Over the 20 years from the 1990 to 2010 the international telephone calls have risen from 33 billion minutes to over 130 minutes. Worldwide Internet users have increased tremendously from 1990 to 2006. From 1. 7 users to 136 per 1000 people. Telephone lines increased six times in developing countries. In 1990 only 21 people had telephone line per 1000, while currently this number is a whopping 132 per 1000 people.
• Another important factor in many countries is growth in ageing populations.
Although the median age of world’s population rose only from 23. 6 years to 26. 6 years from 1950s to 2008, it’s predicted that the median age over the coming 40 years will rise to 37 years by 2050. This will definitely affect the labor supply in some countries as well as the changing consumer tastes. Producers of goods and providers of various services will have to focus on the older generation. Part 3 – How globalisation impacts the company 3. 1 Product Nokia operates a total of 15 manufacturing facilities located in Finland, Brazil, China, England, Hungary, India, Mexico, Romania and South Korea.
The company produces standardised products worldwide due to the enormous benefits of the economies of scale. Nokia’s products are produced in exactly the same way in every country, the only difference being that company focuses on promoting different models in different countries in various continents. Naturally as disposable income in African countries is much lower than in other parts of the world the company focuses on selling cheaper, more economical budget phones, which appeal to the majority of locals. One of such examples of phones is the Nokia 1100.
This simplistic device is the world’s best selling handset with the sales of 250 million since the launch in 2003. In addition to being the best selling mobile phone it’s also the best selling consumer electronics device in the world. Despite being released in 2003 when the phones already had colour screens and cameras this phone outsold all others just because the correct marketing approach by Nokia – selling to the developing countries. This phone is capable of lasting for up to 400 hours and also has a built in flashlight which are essential functions in the parts of the world where electricity is scarce.
Interestingly Nokia’s one billionth phone sold was a Nokia 1100 purchased in Nigeria. In Europe and North America on the other hand the company focuses on each country individually as personal income fluctuates highly depending on the region; however as over all the consumers in these areas are more technologically conscious and have higher incomes Nokia naturally sells more mid to higher end phones. Nokia’s most expensive mass produced phone was the Nokia 8800 Gold Edition which cost a whopping ? 1459.
This demonstrates company’s diversity, with the ability to find a niche in the mobile phone market both ways – for the lower and higher end devices. Recently however due to the effects of the global economical recession the company introduced a new line of budget phones, hence indicating the flexibility and adaptability of the company. 3 . 2 Logistics Nokia manufactures mobile devices and related Internet and communications industries, with over 123,000 employees in 120 countries, sales in more than 150 countries and global annual revenue of EUR 41 billion and operating profit of €1. billion as of 2009. As of December 2009, Nokia had R presence in 16 countries and employed 37,020 people in research and development, representing approximately 30% of the group’s total workforce. The Nokia Research Center, founded in 1986, is Nokia’s industrial research unit consisting of about 500 researchers, engineers and scientists. It has sites in seven countries: Finland, China, India, Kenya, Switzerland, the United Kingdom and the United States. Besides its research centers, in 2001 Nokia founded (and owns) INdT – Nokia Institute of Technology, a R institute located in Brazil.
Nokia’s industrial design department is headquartered in Soho in London, England with significant satellite offices in Helsinki, Finland and Calabasas, California in the USA. Recently the company signed a memorandum with Cluj County Council, Romania to open a new plant near the city in Jucu commune. Moving the production from the Bochum, Germany factory to a low wage country created major dissatisfaction in Germany. The politicians in Germany even boycotted the company by trading their mobile phones to other brands.
The German officials even threatened Nokia by demanding 60 million Euros which the company received in subsidies, however one of Nokia’s Chairmen replied – “Unfortunately, the costs of labour, including non-wage labour costs, in Germany are not competitive enough for the mass-production of Nokia products”. This just shows how the differences and changes in the RULC in combination with various taxes on imports/exports including other important factors can steer a company like Nokia away from one country to another. . 3 Acquisitions Acquisitions are a big part of any large corporation these days and they are very important in many fundamental ways including strategically, economically and time management wise. In present times every second counts as information travels virtually instantly from one end of the globe to the other, hence a company may save valuable time and resources by acquiring another firm, which will most likely be established in the market and only some reorganisation may be needed.
During the past few years Nokia has been actively acquiring companies with new technologies and competencies, including also investments in minority positions. Since December 1997, Nokia has acquired 41 companies or businesses. To name a few more notable acquisitions:
• In 2003 Nokia acquired Sega. com, a branch of Sega which became the major basis to develop the Nokia N-Gage device. This was a very notably strategic and innovative move, because the company later launched the first gaming/mobile device on such mass market.
Although the device sold over 3 million units it was still considered a failure, yet it still was a very innovative move from Nokia.
• On June 19, 2006, Nokia and Siemens AG announced the companies would merge their mobile and fixed-line phone network equipment businesses to create one of the world’s largest network firms, Nokia Siemens Networks. Each company has a 50% stake in the infrastructure company, and it is headquartered in Espoo, Finland. The companies predicted annual sales of €16 billion and cost savings of €1. 5 billion a year by 2010.
About 20,000 Nokia employees were transferred to this new company.
• In October 2007 Nokia bought Navteq, a U. S. -based supplier of digital mapping data, for a price of $8. 1 billion. Nokia Ovi Maps use Navteq’s maps in Smartphone’s. Ovi Maps provides offline maps, eliminating the need for a constant internet data feed.
• On April 10, 2010, Nokia announced its acquisition of MetaCarta, whose technology was planned to be used in the area of local search, particularly involving location and other services. Part 4 – Evaluation and recommendations . 1 Rugman and Collinsons integration-responsiveness framework Nokia is in the transnational strategy (T) quadrant as it faces high local responsiveness and high global integration. The company operates in a market with strong international cost and price competitiveness pressures but it must meet such challenges while paying due regard to the high political sensitivities of host governments (like in the case mentioned previously when Germany didn’t agree to the relocation of one of the production plants) and agencies. . 2 PEST analysis |Political |Changes in the future taxation policies are a possible issue as there still are countries which struggle to | | |regain economic muscle after the recession, hence it’s very likely to see some changes in weaker economy | | |countries. | |Changes in subsidies or financial funding, especially in developing economies can lead to increased costs in | | |the company | | |Changes in trade bodies is an ongoing issue, as globalization is advancing the pace in the changes between | | various trading parties are very likely to influence import/export costs along with other unforeseeable | | |impacts. | | |Political instability in countries such as North Korea, Afghanistan and Iraq can lead to global political | | |insecurities, hence unpredictably effecting business behaviour worldwide. |Economical |Overall economic situation, especially future economic fluctuations | | |Changes in consumer spending can influence the demand greatly | | |Changes in government spending | | |Exchange rates can increase/decrease import/export costs | |Social |Ageing populations such as China along with many other European countries can influence the design of future | | |mobile phones | | |Social networking sites such as Facebook and twitter are changing the accessibility to the consumers | | |Lifestyle patterns and changes | | |Media views and perceptions | | |Ethnic and religious differences | |Technological |Current and future technological innovations | | |The level of research funding | | |Changes in means of consumer purchase | | |Intellectual property rights and copyright infringements | | |Global communication technological advances | | |Digitalization of things like books | 4. 3 SWOT analysis Strengths |Leading mobile phone company by market share | | |Sales in more than 150 countries | | |Innovative company | | |20 year experience in mobile phones | | |Global brand awareness | | |Widespread Location | | |Offers products in various price ranges | | |Corporately responsible company | | |Environmentally conscious | |Weaknesses |Slow and outdated Operating System (symbian) of mobile devices | | |Poor customer service | | |Slow comeback to competition (During the beginning of the iPhone era) | |Opportunities |New and innovative future products | | |MeeGo – new OS for netbooks | | |New approach towards developing companies | | |Partnerships with other organisations | | |Symbian^3 – a reboot of the old symbian operating system for mobile phones | |Threats |Political instability | | |Economical instability | | |Incredible sales of Apple iPhone and Google Android mobile phones | | |Market share loss to competitors | 4. 4 Conclusion
Nokia is one of the leading global brands, however recently companies like Google and Apple started posing extremely dangerous threats with introduction of new products and services. These companies are taking over Nokia’s market share at extremely fast pace, especially in the smart phone sector. Other communication companies like Samsung, Sony Ericson and Motorola are also introducing innovative technologies and products. Nokia needs to quickly develop new mobile phones, especially with touch screen displays and also improve the hardware performance of its devices. Although investments are being made towards new operating system development for mobile phones the company need a completely different approach, as the early beta demonstrations are not looking up to par when compared to its competitors.
Nokia also need to focus on the changing economical conditions in countries like China where the standard of living is changing drastically, hence more and more people are becoming possible future customers. The company should also take in to account the changing demographic situation worldwide, where most currently dominant economies are ageing; therefore it should prepare to shift its target clientele base from young adults towards older customers. The firm should also continue manufacturing simplistic devices as there are still plenty of possible customers with little technologic knowledge. 5. Bibliography Websites: Wikipedia. 2010. Nokia. [online] Available at: < http://en. wikipedia. org/wiki/Nokia> [Accessed 28 November 2010]. Wikipedia. 2010.
List of acquisitions by Nokia. [online] Available at: [Accessed 28 November 2010]. Wikipedia. 2010. Globalization. [online] Available at: [Accessed 28 November 2010]. Nokia. 2010. The story of Nokia. [online] Available at: [Accessed 29 November 2010]. Newlaunches. 2007. Nokia’s phone history timeline. [online] Available at: [Accessed 30 November 2010]. Articlesbase. 2007. Nokia – the History. [online] Available at: [Accessed 10 December 2010]. Dw-World. 2008. German Politicians Return Cell Phones Amid Nokia Boycott Calls. [online] Available at: [Accessed 12 December 2010]. Spiegel Online International. 2008. German State Demands €60 Million from Nokia. online] Available at: [Accessed 12 December 2010]. Books: Wall, S. Minocha, S. and Rees. B. , 2010. International Business. 3rd ed. Pearson Education Limited. Griffiths, A. and Wall, S. 2008. Economics for business and management. 2nd ed. Pearson Education Limited. Brooks, I. Weatherston, J. and Wilkinson, G. 2010. The international business environment. :challenges and changes. 2nd Ed. Financial Times/ Prentice Hall Dicken, P. 2007. Global shift :mapping the changing contours of the world economy. 6th ed. Sage Publications Ltd. Cullen, B. J, and Parboteeah P. K. 2009. International business :strategy and the multinational company. 1st ed. T & F Books US