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4. Foreign Direct Investment
This section analyzes what kind of strategy Nokia took in terms of FDI.
Foreign direct investment (FDI) occurs when a company directly invests in production and/or marketing of products in a foreign country. FDI can be categorized in to two. 1. Greenfield Investments, when established as a new operation in a foreign country. 2. Acquiring and merging with existing firms of a foreign nation (Joint Ventures).
Horizontal FDI is when the company is starting business in the same industry in the foreign nation. Dubai based Telecommunication Corporation buying over Tigo Sri Lanka in Oct 2009 to enter into the Sri Lankan market is a good example (Arab News, 2009).
Vertical FDI takes place when a multinational corporation (MNC) owns some shares of a foreign enterprise, which supplies input for it or uses the output produced by the MNC (Hill & Jain, 2007).
In terms of motives, Foreign Direct Investment can be categorized as: 1. Market seeking FDIs 2. Resource seeking FDIs 3. Efficiency seeking FDIs
FDIs that are undertaken to strengthen the existing market structure or explore the opportunities of new markets can be called 'market-seeking FDIs.' 'Resource-seeking FDIs' are aimed at factors of production which have more operational efficiency than those available in the home country of the investor. FDI activities may also be carried out to ensure optimization of available opportunities and economies of scale. In this case, the foreign direct investment is termed as 'efficiency-seeking.
For Nokia it was more or less a mix of all of the above three motives. Some of the key examples for NOKIA can be listed as follows: Mergers, Collaborations and Acquisitions by Nokia • Nokia Siemens Networks (NSN) - To develop a portfolio of products and service solutions to help operators run their networks more efficiently. • NAVTEQ acquisition. To get in to the Maps and navigation technology, which have become tremendously popular services on mobile devices. (NAVTEQ’s advanced map capabilities are critically important, as we believe that the next phase of Internet services will be defined by local relevance and your "social location". Nokia is well-positioned to take leadership here). • Collaborate with The Symbian Operating System to broaden the definition of the smartphone, by expanding smartphone features into the mid-range, and into new categories. • Working together with certain competitors, new players and partners in new ways to tackle global environmental issues. • Agreements with Microsoft and IBM for corporate e-mail services. • Collaborate with Qualcomm to develop smartphones for the North American markets. • Nokia and Broadcom are cooperating on technologies a next generation 3G baseband, radio frequency (RF) and mixed signal chipset system supplier for worldwide markets., including Nokia modem technology (Tolkoff, 2009).
In the 1990s, Nokia internationalized its R&D function, by setting up research centers abroad. By 1998, half of the company’s R&D was conducted outside of Finland. Some of these centers, located in regional clusters of scientific excellence (e.g. Silicon Valley), have helped Nokia tap knowledge from rivals and foreign markets. In addition, Nokia has forged collaborations with leading universities in Finland and abroad (e.g. Massachusetts Institute of Technology) and has participated in various international R&D projects, in view of expanding the scope of its long- term technology development. By the end of the 1990s, co-operation with other companies, research institutes and universities had become a central part of Nokia’s global R&D strategy. This approach triggered two-way knowledge transfers, enabling Nokia to exploit external expertise and technology.
Furthermore, by end 2000 Nokia had set up ten plants for the manufacturing of its mobile devices in nine different countries. These plants have handled huge amounts of parts (e.g. more than 100 billion in 2006). The challenges of managing such huge volumes are enormous, but Nokia has turned high-tech manufacturing, supply chain management and logistics into one of its core competencies. In addition, the company has also been working with a selected number of external suppliers in Finland and abroad to procure electronic and mechanical components, and software. Collaborating with such a diverse base of suppliers worldwide through a horizontally-integrated supply chain model has generated (two-way) knowledge and technology transfers between Nokia and its partners, helping it to multiply its technological capacities. Moreover, Nokia’s long-term supplier relationships have functioned as a growth engine for the entire Finnish ICT (information and communication technologies) sector as it served as an international marketing channel for many smaller Finnish companies. The increasing significance of Nokia’s foreign operations in the company’s global business strategy has however implied potentially greater risks and higher costs from changes in tariffs and other obstacles to trade affecting the import and export of mobile device components.
Finally, in the early 1990s, Nokia adopted an export-based sales strategy. As a result, between 1990 and 2006, Finland’s position as Nokia’s dominant geographic market declined dramatically at the expense of other European countries, the Asia-Pacific and the Americas. In recent years, emerging markets (e.g. China, India and Russia) have been Nokia’s main markets. In addition to the changing composition of key markets, the volume of net sales also dramatically increased (+ 209% over eight years, increasing from a total ?13 326 million in 1998 to ?41 121 million in 2006), which enabled Nokia to recoup its R&D investments more easily. Today Nokia is ranked 85 in top 500 companies in the world (Lesser, 2009).
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