SAMSUNG010605BJ-kickoff2
CONFIDENTIAL
Mobile Handset Competitor Analysis:
Nokia
SAMSUNG ELECTRONICS CHINA
(SEC China)
August 20, 2001
This report is solely for the use of client personnel. No part of it may be
circulated, quoted, or reproduced for distribution outside the client
organization without prior written approval from McKinsey & Company.
This material was used by McKinsey & Company during an oral
presentation; it is not a complete record of the discussion.
SAMSUNG010605BJ-kickoff2
OVERVIEW OF COMPETITOR ANALYSIS FRAMEWORK
1. Background information
4. Value chain strategy
• Location
• Registered
Focus on
• Marketing,
advertising and
promotion
• Distribution (channel
and sales force)
• Starting year
• Number of
capital
employees
• Management • Era analysis
team
• Equity
structure
2. Strategy
5. Organization and ownership
•
•
•
•
• Organization structure
• Ownership structure
Mission
Vision
Corporate strategy
Market position
3. Product/market
6. Financial performance
•
•
•
•
•
• Sales
• Profit
Key product offerings
Key customers
Value proposition
Geographic focus
Pricing
1
SAMSUNG010605BJ-kickoff2
KEY ISSUES TO PROBE - NOKIA
Strategy
Product/market
Value chain
strategy
Organization &
ownership
Financial
performance
• How does Nokia position itself now and in 2005?
• What are Nokia’s product and value delivery system strategies that
differentiate itself from its competitors?
• How does its current market position help achieve its goal?
• What is Nokia’s key product offerings and how does Nokia
differentiate its products from its competitors’?
• What customer segments is Nokia targeting at?
• In which geographic areas is Nokia strong or weak?
• How does Nokia’s product development meet customer
requirement?
• How do Nokia’s distribution channels differ from its competitors’?
• Why does Nokia launch exclusive specialist shops?
• How does Nokia provide customer services?
• How much does Nokia invest in JVs and WOFEs in China, and what
are the main drivers?
• How does Nokia organize to enable the JVs and WOFEs to work
together?
• How strong is Nokia’s performance and what are the major
contributors?
• What is Nokia’s performance trend?
2
SAMSUNG010605BJ-kickoff2
BACKGROUND INFORMATION
1. Background information
4. Value chain strategy
• Location
• Registered
• Focus on
• Starting year
• Number of
capital
employees
• Management • Era analysis
team
• Equity
– Marketing,
advertising and
promotion
– Distribution (channel
and sales force)
structure
2. Strategy
5. Organization and ownership
•
•
•
•
• Organization structure
• Ownership structure
Mission
Vision
Corporate strategy
Market position
3. Product/market
6. Financial performance
•
•
•
•
•
• Sales
• Profit
Key product offerings
Key customers
Value proposition
Geographic focus
Pricing
3
SAMSUNG010605BJ-kickoff2
NOKIA IS RELATIVELY A LATE-COMER TO CHINA; HOWEVER
IT HAS GROWN RAPIDLY TO BECOME A MARKET LEADER IN
MOBILE COMMUNICATION
Background
Location
Implication
• Based at Finland, with offices in China, e.g. Beijing
• China is Nokia's strategic location because it is
Nokia's second largest market, second only to US
Investment
Business
Starting
Employees
• Invested more than USD1.7 billion in China
• Two main business units: Nokia network and Nokia
mobile
• First office in China in 1985, first JV in China in 1994
• Leader in mobile communication
globally and in China
• Al though a relatively latercomer to China, has invested
heavily in its Chinese business
• Focused product lines with
Nokia network offering mobile,
broadband and IP network infrastructure, and Nokia mobile
offering mobile handsets
• 60,000 staff in 130 countries
• More than 20 offices in China, 7 JVs, 1 WOFE and 1
R&D center with over 5500 staff
History
• Started business in China since 1950s
• 1985 saw first office in Beijing, supplying fixed line
•
•
•
•
networks
Supplied analog NMT 450 system and terminal in
1986
Supplied transmission system, optical cable and
electric cables in later 1980s
Supplied analog ETACS system and terminals in
1989
Supplied GSM system and terminals in 1990s
Source: Nokia Press Release
4
SAMSUNG010605BJ-kickoff2
STRATEGY
1. Background information
4. Value chain strategy
• Location
• Registered
• Focus on
capital
• Starting year
• Number of
employees
• Management • Era analysis
team
• Equity
– Marketing,
advertising and
promotion
– Distribution (channel
and sales force)
structure
2. Strategy
5. Organization and ownership
•
•
•
•
• Organization structure
• Ownership structure
Mission
Vision
Corporate strategy
Market position
3. Product /market
6. Financial performance
•
•
•
•
•
• Sales
• Profit
Key product offerings
Key customers
Value proposition
Geographic focus
Pricing
5
SAMSUNG010605BJ-kickoff2
NOKIA POSITIONS ITSELF AS A LEADING PRODUCT AND SYSTEM
SUPPLIER IN THE FAST GROWING MOBILE COMMUNICATION INDUSTRY
Product
Value
delivery
system
Strategy
• Focuses on mobile communication
products and aims to be a total solution
provider in mobile communication
• Regularly introduces consumeroriented products with emphasis on
designs and functions
• Builds strong local alliance through JVs
with Chinese partners and R&D centers
with Chinese universities
• Builds exclusive specialist shops to
bring one-step solutions to end users
• Builds fixed and mobile service stations
with wide geographic coverage
including rural areas
Source: Nokia press Release
Vision
To lead mobile
communication through
the integration of mobility
with internet and the
innovation of new service
models
6
SAMSUNG010605BJ-kickoff2
NOKIA HAS CAUGHT UP WITH MOTOROLA AS MARKET LEADERS IN
MOBILE HANDSETS SINCE 1999
Monthly market share development
(Percent of market in units sold)
40
Nokia
Motorola
30
20
10
Siemens
Ericsson
0
98
Source: IDC, McKinsey Analysis
99
Jan ‘00
Dec ‘00
7
SAMSUNG010605BJ-kickoff2
UNLIKE ITS COMPETITORS, NOKIA’S MARKET SHARE IS THE SAME
AMONGST NEW AND REPURCHASE BUYERS
Percent of units sold, 2000 4Q
Others
23
21
21
Ericsson
8
7
7
10
12
12
28
29
29
31
31
31
Repurchase
Buyers
New Buyers
Total market
25%
75%
100%
Definition:
• New buyer:never
bought mobile phone
before
• Repurchase buyer:
bought mobile phone
before
Siemens
Motorola
Nokia
% of Market
Source: IDC, McKinsey analysis
8
SAMSUNG010605BJ-kickoff2
AMONG REPURCHASERS, NOKIA’S CHURN RATE IS HIGH, BUT AT PAR
WITH MOTOROLA
Percent, 2000
Brand bought by previous
Nokia owners
Brand bought by previous
Motorola owners
Others
Others
10
Alcatel
Nokia
Alcatel
3
6
Siemens
Nokia
11
26
33
6
Siemens 19
Samsung 6
15
Ericsson
Samsung
24
Motorola
Source: McKinsey analysis
3
6
32
Ericsson
Motorola
9
SAMSUNG010605BJ-kickoff2
PRODUCT/MARKET
1. Background information
4. Value chain strategy
• Location
• Registered
• Focus on
capital
• Starting year
• Number of
employees
• Management • Era analysis
team
• Equity
– Marketing,
advertising and
promotion
– Distribution (channel
and sales force)
structure
2. Strategy
5. Organization and ownership
•
•
•
•
• Organization structure
• Ownership structure
Mission
Vision
Corporate strategy
Market position
3. Product /market
6. Financial performance
•
•
•
•
•
• Sales
• Profit
Key product offerings
Key customers
Value proposition
Geographic focus
Pricing
10
SAMSUNG010605BJ-kickoff2
KEY MESSAGES - PRODUCT/MARKET
• Nokia has a narrow product portfolio focusing on mobile
communication products, and mobile handset is Nokia’s key
product offering
• Nokia offers consumer-oriented handsets with emphasis on
designs and functions, targeting medium and low end customers.
Its main customer segments are the young and fashionable
• Nokia’s fashion phones are relatively strong in major cities and the
south region; however Nokia is relatively weak in the fourth-tier
cities
11
SAMSUNG010605BJ-kickoff2
MOBILE HANDSET IS NOKIA's BIGGEST PRODUCT OFFERING AND ITS
ESSENTIAL PART OF TOTAL SOLUTIONS IN MOBILE COMMUNICATION
Nokia
mobile
handsets
Nokia
product
offerings
Nokia
network
Products
• Nokia 3310 for young
people
• Nokia 8210 for fashion
chaser
• Nokia 6210 WAP for
business professional
• Nokia 7110 WAP with full
Chinese interface
• Nokia 9210 as personnel
communicator
• Nokia 8310, 6310 for
GPRS and WAP
Now and future
• Largest mobile handset supplier in the
world with above average growth in sales
and more than 30% global market share
• Views mobile handset as a digital
convergence point for multimedia services
• Supports blue tooth between mobile
handset and PC in Nokia 6310 for mobile
professional
• Develop WCDMA handsets with DoCoMo
• Develops homenet products such as
multimedia terminals in Nokia Zhongxin
• Mobile network
• Broadband network
• IP network
• Provides multimedia service network
solutions for operators and ISP entering
the mobile communication fields
• Nokia network covers many cities and
areas in China including Beijing,
Shanghai, Hong Kong and Taiwan etc.
• Aims to be a total solution provider for
mobile communication
12
SAMSUNG010605BJ-kickoff2
NOKIA EMPHASIZES ON CONSUMER-ORIENTED DESIGNS AND FUNCTIONS
Fashion
8210
Fashion
• Changeable cover
• Sub-100g
Business
•
•
•
•
•
•
•
Voice-dial
Recording
Vibration
Built-in modem
IR-port
Basic
• Chinese input
• Li-Ion battery
• SMS messaging
Fun
• Games
• Composable/ downloadable
V998++
6210
P7689
L2000
L2000WWW
















































Tri-band
WAP
Key Differences
Classic








ringer tone
Price in China (RMB)
* Nov. 2000 price
2652
2878
Equivalent features,
Nokia more fun/fashion
vs. Motorola more
functions
2369
1800
1435*
1452
Motorola offers lower price
models with similar features,
tri-band and WAP
13
SAMSUNG010605BJ-kickoff2
WITHIN CHINA, NOKIA's FASHION PHONES PERFORM BETTER IN SOUTH
CHINA AND LARGE CITIES
Percent, 2000
Market share
North region
East region
4
5
7
South region
China average
5
Beijing
5
Shanghai
7
Shenzhen
8
Guangzhou
8
Source: McKinsey Analysis
14
SAMSUNG010605BJ-kickoff2
NOKIA IS RELATIVELY WEAK IN THE IMPORTANT 4TH TIER CITY MARKET
Percent market share, 2000
100%=
6.7
7.0
8.5
Others
21
25
24
Ericsson
10
7
7
Siemens
10
9
9
14.8
Million units
30
7
11
Motorola
28
29
30
28
Nokia
Tier size as % of total
Source: McKinsey Analysis
31
30
Tier 1
Tier 2
18%
19%
30
Tier 3
23%
24
Tier 4
40%
15
SAMSUNG010605BJ-kickoff2
AND THIS WEAKNESS IN 4TH TIER CITIES SPANS MOST PROVINCES
Tier 1/2/3 city
Percent market share, Nokia
Tier 4 city
40%
35%
30%
Market share
Percent
25%
20%
15%
10%
5%
0%
Province
Source: Retail Audit, McKinsey analysis
16
SAMSUNG010605BJ-kickoff2
VALUE CHAIN STRATEGY
1. Background information
4. Value chain strategy
• Location
• Registered
• Focus on
• Starting year
• Number of
capital
employees
• Management • Era analysis
team
• Equity
– Marketing,
advertising and
promotion
– Distribution (channel
and sales force)
structure
2. Strategy
5. Organization and ownership
•
•
•
•
• Organization structure
• Ownership structure
Mission
Vision
Corporate strategy
Market position
3. Product/market
6. Financial performance
•
•
•
•
•
• Sales
• Profit
Key product offerings
Key customers
Value proposition
Geographic focus
Pricing
17
SAMSUNG010605BJ-kickoff2
KEY MESSAGES - VALUE CHAIN STRATEGY
• Nokia is not regarded as a technology leader, as compared with Motorola;
however, it spends a great amount of effort in understanding customer
requirements and tailors its product to meet these requirements.
• Nokia employs PTAC, CellStar, Beijing Telecommunication Equipment Factory,
Bright Point, Express Fortune, and Tech Glory as the first-tier resellers to
distribute handsets through authorized stores and counters. The distribution
channels are relatively flat.
• While its retail shops are growing rapidly to approximately 900 around the
country, Nokia also develops exclusive specialist shops in order to provide “onestep” solutions to end users
• Nokia implements a highly efficient customer service system with 250 service
stations and mobile service stations for rural areas. It provides good pre- and
after sales service
18
SAMSUNG010605BJ-kickoff2
NOKIA IS STRONG AT MARKETING, SALES AND SERVICE, BUT WEAK AT
TECHNOLOGY
R&D
Strengths
Manufacturing and
supply chain
Marketing
and
branding
• Established R&D • Scalable local • Strong brand
center in 98/99 in production
Beijing for China • Optimized
market, with 150 logistics
research staff
• Strong in low end
development
• Good product
quality and design
Levers for
• Weaker position in
improvement high end segment
and high end
technology
• Position in low end
under attack
Sales and
distribution
• Country-wide
awareness and
preference
• Promotes
“technology based
•
on people”
distribution
channels and
strong channel
management
High retailers
preference
Service
• Highly efficient
customer service
system with 250
service stations
and mobile
service stations
for rural areas
• Good pre- and
after sales
service, e.g. “one
hour repair”
service
• Awareness and • Lower rating of
preference lower retail support
• Retailer
than Motorola
preference not
• Brand in young
translating into
market under
higher market
attack
• Low technology share
image
19
SAMSUNG010605BJ-kickoff2
NOKIA HAS REPUTATION GAP AS TECHNOLOGY LEADER, AND TARGET
DIFFERENT CUSTOMER SEGMENTS FROM MOTOROLA
….on Nokia
….on technology
leadership and
innovation
….on design
… on typical
loyal users
Nokia is second to
upgrade products
Nokia has
good product
designs
Nokia phones
are for female or
younger people
……on Motorola
Motorola always
introduces new
technology to the
market first
Motorola products
are more formal
Loyal user
is white-collar
worker
20
SAMSUNG010605BJ-kickoff2
NOKIA DISTRIBUTES THROUGH SIX FIRST-TIER RESELLERS AND
DEVELOPS EXCLUSIVE SPECIALIST SHOPS
Nokia Channel Structure
Rationales
Vendor
• Nokia employs PTAC, CellStar,
58%
Beijing Telecommunication
Equipment Factory, Bright Point,
Express Fortune, and Tech
Glory as its 6 first-tier resellers
1st-tier resellers
33%
6%
2nd-tier resellers
33%
• Nokia requires resellers to
36%
22%
Retailers/retail chain stores
3% 6%
91%
Consumers
report the promotion plan and
product ordering plans a quarter
in advance, and since the
demand for handsets tends to
fluctuate across promotional
programs, this inflexible strategy
generally limits the potential
gain when market demand
changes across promotions
• Late entry to the China market
• Close to 900 retail shops and
with less historic overhead
• Flat distribution channels
• Develops exclusive specialist
shops
• Provides after-sale services
• Form exclusive specialist shop
Source: China Computer Journal
counters country-wide, with 50%
growth from 1999
to provide one-step solution to
end users
21
SAMSUNG010605BJ-kickoff2
ORGANIZATION AND OWNERSHIP
1. Background information
4. Value chain strategy
• Location
• Registered
• Focus on
capital
• Starting year
• Number of
employees
• Management • Era analysis
team
• Equity
– Marketing,
advertising and
promotion
– Distribution (channel
and sales force)
structure
2. Strategy
5. Organization and ownership
•
•
•
•
• Organization structure
• Ownership structure
Mission
Vision
Corporate strategy
Market position
3. Product /market
6. Financial performance
•
•
•
•
•
• Sales
• Profit
Key product offerings
Key customers
Value proposition
Geographic focus
Pricing
22
SAMSUNG010605BJ-kickoff2
KEY MESSAGES - ORGANIZATION AND OWNERSHIP
• Nokia has 7JV and 1 WOFE in China, among which Nokia Beijing
and Nokia Dongguan are manufacturing mobile handsets. Nokia
Beijing has annual production capacity of 30 million units in 2001.
• The main drivers for Nokia to setup JVs and WOFEs in China
include building local alliances, localizing manufacturing to meet
domestic market demand and increase exports, and technology
transfer encouraged by the Chinese government
• With a narrow product portfolio, Nokia’s organization is product
focused with coordinated sales and marketing effort across JVs
that manufacture the same products
23
SAMSUNG010605BJ-kickoff2
NOKIA HAS 7 JVs AND 1 WOFE IN CHINA, AMONG WHICH 2 JVs ARE
DEVOTED TO MOBILE HANDSETS
Main drivers
Nokia
international
• Builds successful
•
•
•
•
alliance with
Chinese partners
Localizes manufacturing for major
products
Meets domestic
market demand
and increases
exports
Realizes technology
and skill transfer in
development,
manufacturing and
management
Helps Chinese
partners improve
competitiveness in
China and globally
50%
with
Shouxin
Nokia Beijing
mobile
communication
Established year
Product offering
1995
• GSM
•
system and
equipment
Mobile
handsets
70%
With
Dongguan
Wanxin
Nokia
Dongguan
mobile phone
1995
• Mobile
handsets
With
Fujian
mobile
Nokia Fujian
mobile
communication
technology
1997
• GSM
900/1800
network
services
With
Beijing
Hangxing
Nokia Beijing,
Hangxing
telecom
1994
• Mobile
switches
With
Dongruan
With Zhongxin
100%
and
broadcasting
science institute
Nokia Dongda
telecom
technology
Nokia
Zhongxin
digital
technology
Nokia Suzhou
telecom
2000
1999
1998
• Wireless
applications
solutions
and services
• Digital
multimedia
terminals
Nokia
Chongqin
telecom
• GSM base
station
• Cellular
network
transmission
products
24
SAMSUNG010605BJ-kickoff2
NOKIA's ORGANIZATION IS MAINLY PRODUCT FOCUSED WITH
A NARROW PRODUCT PORTFOLIO AND COORDINATED SALES
AND MARKETING
Nokia
international
Nokia
China
Nokia
office
China
office
Marketing
Sales
Nokia
Beijing
mobile
communication
Nokia
Dongguan
mobile phone
Nokia
Fujian mobile
communication
technology
Nokia
Beijing
Hangxing
telecom
Nokia
Dongda
telecom
technology
Nokia
Zhongxin
digital
technology
Nokia Suzhou
telecom
Nokia
Chongqin
telecom
Service
Manufacturing
Sales and
Services
R&D
Service
Manufacturing
• GSM system and
equipment
• Mobile handsets
• Mobile
handsets
Manufacturing
• GSM
900/1800
network
services
R&D
Implemetation
Sales and
Services
Sales and
Services
• Mobile
switches
Manufacturing
Manufacturing
• Wireless
applications,
solutions
and services
Sales and
Services
Sales and
Services
• Digital
multimedia
terminals
• GSM base
station
• Cellular
network
transmission
products
25
SAMSUNG010605BJ-kickoff2
FINANCIAL PERFORMANCE
1. Background information
4. Value chain strategy
• Location
• Registered
• Focus on
• Starting year
• Number of
capital
employees
• Management • Era analysis
team
• Equity
– Marketing,
advertising and
promotion
– Distribution (channel
and sales force)
structure
2. Strategy
5. Organization and ownership
•
•
•
•
• Organization structure
• Ownership structure
Mission
Vision
Corporate strategy
Market position
3. Product/market
6. Financial performance
•
•
•
•
•
• Sales
• Profit
Key product offerings
Key customers
Value proposition
Geographic focus
Pricing
26
SAMSUNG010605BJ-kickoff2
KEY MESSAGES - FINANCIAL PERFORMANCE
• Nokia’s sales in China grew 31% and its operating profit grew 26% in 2000,
among which, mobile handsets contributed to 59% of the sales and 70% of
the profit.
• Mobile handset plays an increasingly important role in Nokia’s product
portfolio, as it represents 59% of the sales in 2000 from 54% in 1999.
• Nokia has secured an operating margin of 22% in mobile handsets, the
highest margin in the mobile handset industry in China, due to highly efficient
operations that keep the cost down to minimum, even though intensive
competition has driven the operating margin down from 24% in 1999.
27
SAMSUNG010605BJ-kickoff2
NOKIA SEES 30% GROWTH IN SALES AND OPERATING PROFIT WHERE
MOBILE HANDSETS CONTRIBUTE MORE THAN 50%
USD millions
Revenues in China
31%
Operating profit in China
2,697
2,052
26%
1,597
1,114
406
Mobile
handsets
Mobile
handsets
1999
2000
Source: Nokia Press Release, IDC, McKinsey Analysis
512
262
356
1999
2000
28