samsung010605bj-kickoff2 confidential mobile handset competitor analysis: nokia samsung electronics...

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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.


2

OVERVIEW OF COMPETITOR ANALYSIS FRAMEWORK

1. Background information

• Location• Registered

capital• Management

team• Equity

structure

• Starting year• Number of

employees• Era analysis

4. Value chain strategy

5. Organization and ownership

6. Financial performance

Focus on• Marketing,

advertising and promotion

• Distribution (channel and sales force)

• Organization structure• Ownership structure

• Sales • Profit

2. Strategy

3. Product/market

• Mission• Vision• Corporate strategy• Market position

• Key product offerings• Key customers• Value proposition• Geographic focus• Pricing


3

KEY ISSUES TO PROBE - NOKIA

Strategy

Product/market

Value chainstrategy

Organization &ownership

Financialperformance

• 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?


4

BACKGROUND INFORMATION




team• Equity

structure






• Focus on– Marketing,


– Distribution (channel and sales force)



2. Strategy

3. Product/market




5

NOKIA IS RELATIVELY A LATE-COMER TO CHINA; HOWEVERIT HAS GROWN RAPIDLY TO BECOME A MARKET LEADER IN MOBILE COMMUNICATION

Background Implication

Location• 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• Invested more than USD1.7 billion in China

Business• Two main business units: Nokia network and Nokia

mobile

Starting• First office in China in 1985, first JV in China in 1994

Employees• 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

• Leader in mobile communication globally and in China

• Al though a relatively later-comer to China, has invested heavily in its Chinese business

• Focused product lines with Nokia network offering mobile, broadband and IP network infra-structure, and Nokia mobile offering mobile handsets

Source: Nokia Press Release


6

STRATEGY




team• Equity

structure











2. Strategy

3. Product /market




7

NOKIA POSITIONS ITSELF AS A LEADING PRODUCT AND SYSTEM SUPPLIER IN THE FAST GROWING MOBILE COMMUNICATION INDUSTRY

Vision

To lead mobile communication through the integration of mobilitywith internet and the innovation of new service models

Product

Value delivery system

Strategy• Focuses on mobile communication

products and aims to be a total solution provider in mobile communication

• Regularly introduces consumer-oriented 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


8

NOKIA HAS CAUGHT UP WITH MOTOROLA AS MARKET LEADERS IN MOBILE HANDSETS SINCE 1999

Monthly market share development (Percent of market in units sold)

98 99 Jan ‘00 Dec ‘000

10

20

30

40

NokiaMotorola

Siemens Ericsson

Source: IDC, McKinsey Analysis


9

UNLIKE ITS COMPETITORS, NOKIA’S MARKET SHARE IS THE SAME AMONGST NEW AND REPURCHASE BUYERS

31 31 31

28 29 29

10 12 128 7 7

23 2121Others

Nokia

Ericsson

Siemens

Motorola

Repurchase Buyers

New Buyers Total market

Percent of units sold, 2000 4Q

25% 75%% of Market 100%

Definition:• New buyer:never

bought mobile phone before

• Repurchase buyer: bought mobile phone before

Source: IDC, McKinsey analysis


10

AMONG REPURCHASERS, NOKIA’S CHURN RATE IS HIGH, BUT AT PAR WITH MOTOROLA Percent, 2000

Ericsson

NokiaAlcatel

Others

Siemens

Brand bought by previous Nokia owners

Motorola

Samsung

Motorola

Alcatel

Others

Siemens

Brand bought by previous Motorola owners

Nokia

Samsung

Ericsson

Source: McKinsey analysis


11

PRODUCT/MARKET




team• Equity

structure











2. Strategy

3. Product /market




12

• 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

KEY MESSAGES - PRODUCT/MARKET


13

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 Now and future

• 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

• Mobile network• Broadband network• IP network

• 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

• 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


14

NOKIA EMPHASIZES ON CONSUMER-ORIENTED DESIGNS AND FUNCTIONS

Fashion

Business

Basic

Fun

• Changeable cover

• Sub-100g

• Voice-dial

• Recording

• Vibration

• Tri-band

• WAP

• Built-in modem

• IR-port

• Chinese input

• Li-Ion battery

• SMS messaging

• Games

• Composable/ downloadable ringer tone

8210 6210 P7689 L2000V998++ L2000WWW

Fashion Classic

Price in China (RMB) 2652 2878 2369 1800 1435*

1452

Equivalent features, Nokia more fun/fashion vs. Motorola more functions

Motorola offers lower price models with similar features, tri-band and WAP

*Nov. 2000 price

Key Differences


15

WITHIN CHINA, NOKIA's FASHION PHONES PERFORM BETTER IN SOUTH CHINA AND LARGE CITIES

North region

East region

South region

China average

Beijing

Shanghai

Shenzhen

Guangzhou

4

5

7

5

5

7

8

8

Market sharePercent, 2000

Source: McKinsey Analysis


16

31 30 3024

29 3028

10 9 911

10 7 77

21 25 2430

28

Tier 1 Tier 2 Tier 3 Tier 4

Nokia

Motorola

Others

NOKIA IS RELATIVELY WEAK IN THE IMPORTANT 4TH TIER CITY MARKETPercent market share, 2000

Ericsson

Siemens

18% 19% 23% 40%Tier size as % of total

100%= Million units

6.7 7.0 8.5 14.8

Source: McKinsey Analysis


17

0%

5%

10%

15%

20%

25%

30%

35%

40%

Source: Retail Audit, McKinsey analysis

AND THIS WEAKNESS IN 4TH TIER CITIES SPANS MOST PROVINCES

Inner Mongolia

Hunan

YunnanAnhui

GuangdongFujian

Zhejiang

HeijongjiangJilinHenan

JiangxiHebei

ShanxiLiaoning

SichuanShandong

JiangsuShanxi

HubeiGansu

Guizhou

Percent market share, Nokia

Ma

rke

t s

ha

reP

erc

en

t

Province

Tier 1/2/3 city

Tier 4 city


18

VALUE CHAIN STRATEGY




team• Equity

structure











2. Strategy

3. Product/market




19

• 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 “one-step” 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

KEY MESSAGES - VALUE CHAIN STRATEGY


20

NOKIA IS STRONG AT MARKETING, SALES AND SERVICE, BUT WEAK AT TECHNOLOGY

Manufac-turing and supply chain

Sales and distribution

Marketing and branding

R&D

Strengths

Levers for improvement

• Established R&D center in 98/99 in Beijing for China market, with 150 research staff

• Strong in low end development

• Good product quality and design

• Weaker position in high end segment and high end technology

• Position in low end under attack

• Scalable local production

• Optimized logistics

• Country-wide distribution channels and strong channel management

• High retailers preference

• Lower rating of retail support

• Retailer preference not translating into higher market share

• Strong brand awareness and preference

• Promotes “technology based on people”

• Awareness and preference lower than Motorola

• Brand in young market under attack

• Low technology image

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


21

….on Nokia ……on Motorola

NOKIA HAS REPUTATION GAP AS TECHNOLOGY LEADER, AND TARGET DIFFERENT CUSTOMER SEGMENTS FROM MOTOROLA

Nokia hasgood product

designs

Nokia phonesare for female oryounger people

Nokia is second toupgrade products

Motorola productsare more formal

Motorola alwaysintroduces new

technology to themarket first

Loyal useris white-collar

worker

….on technology leadership and innovation

….on design

… on typical loyal users


22

NOKIA DISTRIBUTES THROUGH SIX FIRST-TIER RESELLERS AND DEVELOPS EXCLUSIVE SPECIALIST SHOPS

Nokia Channel Structure

•Late entry to the China market with less historic overhead

•Flat distribution channels•Develops exclusive specialist

shops•Provides after-sale servicesSource: China Computer Journal

Vendor

1st-tier resellers

Consumers

2nd-tier resellers

Retailers/retail chain stores

6%3% 91%

22%

33% 36%

6%33%

58%

Rationales

• Nokia employs PTAC, CellStar, Beijing Telecommunication Equipment Factory, Bright Point, Express Fortune, and Tech Glory as its 6 first-tier resellers

• Nokia requires resellers to 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

• Close to 900 retail shops and counters country-wide, with 50% growth from 1999

• Form exclusive specialist shop to provide one-step solution to end users


23

ORGANIZATION AND OWNERSHIP




team• Equity

structure











2. Strategy

3. Product /market




24

• 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

KEY MESSAGES - ORGANIZATION AND OWNERSHIP


25

NOKIA HAS 7 JVs AND 1 WOFE IN CHINA, AMONG WHICH 2 JVs ARE DEVOTED TO MOBILE HANDSETS

Main drivers

• Builds successful alliance with Chinese partners

• Localizes manu-facturing for major products

• Meets domestic market demandand increases exports

• Realizes technology and skill transfer in development, manufacturing and management

• Helps Chinese partners improve competitiveness in China and globally

Nokia international

Nokia Beijing mobile

commu-nication

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

Established year

Product offering

1995 1995 1997 1994 2000 1999 1998

• GSM system and equipment

• Mobile handsets

• Mobile handsets

• GSM 900/1800 network services

• Mobile switches

• Wireless applications solutions and services

• Digital multimedia terminals

• GSM base station

• Cellular network transmission products

50% with Shouxin

70%With Dongguan Wanxin

With Fujian mobile

With Beijing Hangxing

With Dongruan

With Zhongxin and broadcasting science institute

100%


26

NOKIA's ORGANIZATION IS MAINLY PRODUCT FOCUSED WITH A NARROW PRODUCT PORTFOLIO AND COORDINATED SALES AND MARKETING

Nokia international

Nokia Beijing mobile

communi-cation

Nokia Dongguan

mobile phone

Nokia Fujian mobile communic-

ation technology

Nokia Beijing

Hangxing telecom

Nokia Dongda telecom

technology

Nokia Zhongxin

digital technology

Nokia Chongqin telecom

Marketing

Nokia China officeNokia China office

Sales Service

Manufa-cturing

Sales and Services

Manu-facturing

R&D Service

Manufa-cturing

Sales and Services

R&DImpleme-

tationSales and Services

Manufa-cturing

Sales and Services

Nokia Suzhou telecom

Manufa-cturing

Sales and Services

• GSM system and equipment

• Mobile handsets

• Mobile handsets

• GSM 900/1800 network services

• Mobile switches

• Wireless applications, solutions and services

• Digital multimedia terminals

• GSM base station

• Cellular network transmission products


27

FINANCIAL PERFORMANCE




team• Equity

structure











2. Strategy

3. Product/market




28

• 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.

KEY MESSAGES - FINANCIAL PERFORMANCE


29

NOKIA SEES 30% GROWTH IN SALES AND OPERATING PROFIT WHERE MOBILE HANDSETS CONTRIBUTE MORE THAN 50%

Revenues in China Operating profit in China

1,114

1,597

2,052

2,697

2000

Mobile handsets

USD millions

262 356

406 512

1999 2000

31%

26%

1999

Mobile handsets

Source: Nokia Press Release, IDC, McKinsey Analysis

samsung010605bj-kickoff2 confidential mobile handset competitor analysis: nokia samsung electronics...

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