Coursework Assignment Brief Case Study Analysis Instructions: You are encouraged to research the mergers and other aspects relevant to the case and course concepts beyond the information below. Any outside research must be properly cited and acknowledged. The assignment is worth 10 marks. The Microsoft-Nokia Deal International negotiation in business: merging two distinct corporate cultures with as little conflict as possible. International negotiation brings on more challenges than most. During the 1990’s and early 2000’s, one company dominated the mobile industry: Nokia. Established in 1871, the Finnish-born company gained a worldwide reputation for producing reliable, standard mobile phones that were internet - enabled and programmed with an array of multimedia features. Eventually, competition in the mobile phone sector rose in 2007 when Apple introduced the iPhone, and Nokia soon found its market share rapidly decreasing.1 Initially, Nokia predicted the smart phone craze would die out and consumers would return to standard mobile phones, but smart phones proved to be more than a passing trend. Nokia’s management failed to understand the wave of radical innovation that revolutionized the mobile industry—as Samsung and Apple produced and sold touch-screen phones. Nokia’s failure to react to the changing competitive climate is reflected in the precipitous fall in its share price from the iPhone’s introduction to Nokia’s own smartphone introduction: its market share faltered, losing almost 10 percent On 3 September 2013, Microsoft CEO Steve Ballmer announced that Microsoft would acquire Nokia’s mobile phone division for $7.2 billion.7 Microsoft had been looking for a way to enter the mobile phone industry to better compete with Apple and Google. In acquiring Nokia’s services and devices unit, Microsoft took control of Nokia’s mobile phones and smart devices, design team, licensing agreements, and approximately 32,000 new employees. Given Microsoft’s prowess in software and Nokia’s in devices, the acquisition was anticipated to be a smooth, successful transaction. Furthermore, both CEOs (Ballmer and Elop) acknowledged the acquisition as something that would build upon the existing Nokia-Microsoft partnership. The agreement marked a belated but bold move by Microsoft to upgrade its presence in handheld devices and signals an end to Nokia’s long struggle to enter the hyper-competitive (and extremely lucrative) smartphone market. The Microsoft Corporation purchased the Nokia phone business in 2014 for approximately $7.2 billion. Although Nokia could be labeled as a profitable business during that time, it was a downstream customer for Microsoft. Thus, it was unclear whether the deal was beneficial for Microsoft since Nokia was not even a leader in the mobile phone industry. The issue that Microsoft had to resolve was the negotiation process between the companies as the negotiators were from different cultural origins: Microsoft is an American company, while Nokia is a European (Finnish) one. What is more, the strategies and aims of both companies were different: while Microsoft was trying to become present in the mobile phone market, Nokia wanted to be provided with a serious capital that could help it deal with expensive operations and productions. However, it should be noted that negotiations between the two companies took place before Microsoft acquired Nokia: in 2011, the Windows 7 Platform was presented on Nokia phones. At first, the companies only cooperated to develop new devices and products. Only three years after the first cooperation Nokia was purchased by Microsoft. This decision implies that this type of partnership was profitable for both companies at first. Another problem of these negotiations is the fact that companies often do not see their counterparts as individuals; thus, one of the companies (Nokia) had to abandon its identity to receive benefits from the synergetic deal. However, as it can be seen from the case study, Windows phones were not as popular as it was expected and did not bring Microsoft visible presence and recognition in the mobile phone market, where Apple and Android were the main leaders. While the deal might appear as unprofitable at first, it may present some benefits in the long run. Nevertheless, Microsoft is not the first company that chose to purchase a “downstream customer” in order to target a new market where the corporation was not present. Acquiring a company that is not a leader anymore can be a risky decision, and, in Microsoft’s case, it led to a reduction in the value of the company. Moreover, it also brought little benefit to Nokia, although the Finnish company had expected other outcomes. While Microsoft tried to resurrect the former leader in the mobile phone market, Nokia experienced losses and thousands of job cuts due to Microsoft’s workforce management policy in 2014. Thus, the deal was not as profitable as both companies had expected. One question remains to be answered: why did Microsoft decide to involve in this deal if it was clear that the deal was not profitable? On the one hand, this deal was unlikely to harm Microsoft’s core business. On the other hand, the corporation tried to present a new product (Windows Phone) by purchasing a (once stable) company in decline – not an entirely new approach. It can work if the odds are in your favor. However, as it can be seen, Windows Phone cannot compete with iPhones and Android devices, and Microsoft’s presence in the smartphone market is still relatively small. Android is capable of expanding because this operating system can be installed on multiple devices from various manufacturers (Samsung, LG, Lenovo, Huawei, etc.). Windows 7 and 8 for mobile phones are mostly used on Nokia smartphones that cannot compete with Samsung, not to mention other companies. Thus, Microsoft’s acquisition of Nokia was unprofitable. It is possible to assume that this deal will bring more additional losses in the future. International Negotiation behind the Microsoft and Nokia Deal Both sides had strong incentives to join forces. Nokia had lost significant ground in recent years to smartphone manufacturers, most notably Samsung and Apple, by failing to keep up with innovations such as touch screens. Having shed its underperforming handset business, Nokia planned to focus on telecommunications equipment, mapping business, and patent portfolio. Microsoft’s Steve Ballmer first approached Nokia CEO Stephen Elop about a possible acquisition during the Mobile World Congress industry conference in Barcelona. Ballmer and Nokia chairman Riisto Siilasmaa conducted methodical, discreet negotiations across the globe in 2013. Cultural Barriers in International Negotiation: Merging Distinct Business Cultures As with any large merger or acquisition, this one faced even more complexity after the ink dried on the contract—namely, the challenges of integrating employees from different cultures (for more information on overcoming cultural barriers in negotiation, please see our free report, Overcoming Cultural Barriers in Negotiations). Merging distinct cultures can be a confusing, lengthy process – even without the added complexity of joining together two of the world’s largest companies, each of which is emblematic of its mother country in its own way. It often makes sense to maintain each organization’s unique identity and borrow from the best of both. Moreover, because national culture is just one facet of our identities, it pays to view negotiating counterparts as unique individuals rather than as cultural ambassadors. Keeping this in mind, it never hurts to infer strategies based on expected cultural norms so long as this acknowledgement is part of a holistic bargaining process aimed at creating value and forging workable, sustainable agreements. Ultimately, Microsoft did acquire Nokia, but according to Computerworld, Ballmer called it a ‘monumental mistake’ and ended up writing off billions of dollars, calling it an “impairment charge” of $7.6 billion, which was close to how much it paid for Nokia and its patents. As a result, 8,000 people worldwide lost their jobs. Instructions: Consider the Case Study detailed above, your task is to write a report analyzing different aspects of negotiations and bargaining studied in class. You need to refer to and critically discuss the theories covered in the course as of now together with other applicable research which you have identified. Following is a suggested guideline for preparing your case study report, you may choose to structure it as per your choice. Cover Page (Include student names and student Ids) Executive Summary (If appropriate – should be written last to focus on key points/findings. Introduction Theory-driven analysis of case(s) identifying factors underlying key issues, including relevant information from case and other research. Problem Statement What issue has been highlighted the most? Main Body Discussion You can choose to add the subheadings of your choice. (Questions given on next page may be chosen to answer for this discussion part while keeping a proper structure of report) Recommendations Conclusion References Maximum Word count: 2,500 Questions 1. In your view what type of negotiation occurred between Nokia and Microsoft? Would it have been Distributive or Integrative? Why? 2. How would Nokia’s position in the mobile phone industry have affected its negotiation strategy? 3. As both companies originated from “different cultures”, how would that have impacted their tactics and goals? 4. What lessons would each company have drawn from the negotiation? 5. What negotiating skills brought negotiators to an agreement in one of the tech industry’s largest acquisitions? 6. What bargaining strategies can business negotiators use to bring competitors to a negotiated agreement in similar negotiation scenarios?
