Micro-Economic Study of Nokia's Market in India

K.J.Somaiya Institute of Management Studies & Research

Page 1

A Report on NOKIA

By-AMIT MUKHERJEEK.J.Somaiya Institute of Management Studies & Research Page 2

Roll No-10(PGDM-A)Index Introduction3 Compliments and Substitutes available for Nokia mobiles4 Market share of Nokia in India7 Demand of Nokia phones8 Supply curve for Nokia in India...9 Factors affecting Supply of Nokia in India...10 Macro-Economic Factors affecting Demand of Nokia in India.............................................................11 Future demand of Nokias mobiles...12


Page 3

IntroductionNokia is a world famous mobile manufacturing company from Finland which started in1865. It is a global leader in the manufacturing of mobiles with sales in more than 150 countries and market share up to 30 %. Nokia was launched in India in 1995 and since then has steadily progressed to become the number 1 mobile selling company in India. Nokia has also has a subsidiary Nokia Siemens Networks which produces telecommunications network equipment and provides solutions and services. Nokia produces mobile phones in every segment of mobile phones such as GSM, CDMA and W-CDMA. Nokia is also highly responsible for driving a healthy part of the Finnish economy. It accounted for about a third of the market capitalization of the Helsinki Stock Exchange (OMX Helsinki). It is a steady contributor to the GDP growth o Finland and it alone accounted for about 1.5% GDP growth of Finland in 1999. Some of the recent highpoints of brand Nokia are given below:

The Nokia brand, valued at $29.5 billion, is listed as the eight most valuable global brands. It is the 41st most admirable company worldwide in Fortune's World's Most Admired Companies list of 2010. According to Fortune Global 500 list of 2010 it is the world's 120th largest company.


Page 4

Compliments and Substitutes available for Nokia mobilesSubstitutes: - Nokia as a market leader in the India in the mobiles segment has amarket share of about 39%. Following are the major competitors for Nokia mobiles in India which act as its substitutes.

Samsung LG Sony Ericsson Business phones like Blackberry, HTC, etc. Newcomers like Micromax, Karbonn mobiles, etc.

In the high end category comparison of Nokias X6 and Samsungs Galaxy Ace can be made which offer similar features. These two products are perfect substitutes for each other and differentiation can be made in the minds of the consumer only on the terms of brand loyalty.

Nokia x6

Samsung Galaxy AcePage 5


Indifference Curve for Perfect Substitutes

Samsung prices on x-axis, Nokia prices on Y-axis With the comparison of prices of Nokia and Samsung we can clearly see that they act as perfect substitutes for each other. A Samsung Galaxy Ace mobile can be bought for about 12350 whereas a Nokia X86 can be bought for about 14150. Thus the indifference curve formed by these products represents a straight line.

Compliments: - The major compliment for a mobile equipment selling company likeNokia is the telecommunications sector. The growth and performance of the telecommunications sector greatly affects the business of Nokia. With a subscriber base of more than 851 million,[5] the Mobile telecommunications system in India is the second largest in the world and it was thrown open to private players in the 1990s. The country is divided into multiple zones, called circles (roughly along state boundaries). Government and several private players runK.J.Somaiya Institute of Management Studies & Research Page 6

local and long distance telephone services. Competition has caused prices to drop and calls across India are one of the cheapest in the world. The mobile subscriber base has grown by a factor of over a hundred and thirty, from 5 million subscribers in 2001 to over 851 million subscribers as of June 2011. The dominant players are Airtel, Reliance Infocomm, Vodafone, Idea cellular and BSNL/MTNL.

A list of states with the largest subscriber base as of Mar 03rd 2011 is given below.States Uttar Pradesh Maharashtra Tamil Nadu Andhra Pradesh West Bengal Bihar Karnataka Gujarat Rajasthan Madhya Pradesh Delhi Kerala Punjab India Subscriber base Population Mobile phones per 1000 Population

116,889,074 101,065,519 72,763,544 62,560,974 65,829,685 57,336,840 51,221,157 48,818,855 44,473,945 48,134,232 41,171,114 32,757,390 30,147,893 851,695,668

199,581,477 112,372,972 72,138,958 84,665,533 91,347,736 103,804,637 61,130,704 60,383,628 68,621,012 72,597,565 16,753,235 33,387,677 27,704,236 1,210,193,422

586 899 1009 739 721 552 838 809 648 663 2,458 981 1,088 704

With the steady increase in the subscriber base from 5 million in 2001 to 851 million in 2011 i.e. about 170%. The telecommunications industry has been growing at a phenomenal rate in India and this has largely aided the growth of the mobiles sector as well with Nokia leading the way.


Page 7

Market Share of Nokia in IndiaNokia is the #1 player in handset business in FY2010-11 with revenue of Rs. 12,929 crore showing a growth of 0.2 per cent over Rs. 12,900 crore it did in FY2009-10. It lost market share in low-end segments to home grown handset makers like Micromax, Karbonn and Spice whereas it's high-end phones faced a tough competition from brands like Samsung, BlackBerry and HTC. Nokia enjoys 39% market share as of FY2010-11 with Samsung in close pursuit with 17.2%. Other significant players in the market are Micromax, Blackberry and LG with market shares of 6.9%, 5.9% and 5.5% respectively.

Market Share of Mobiles in India in 2011

Demand of Nokia mobilesDemand:- The following graph shows the market share of Nokia mobiles in India overthe past 5 years. As seen the market share is almost steady over the past 4 years withK.J.Somaiya Institute of Management Studies & Research

Page 8

a severe drop in the first quarter of 2011. This effect is due to the lack of demand of Nokia mobiles in India over the last year.

Factors affecting the demand of Nokia mobiles :(1)Price of Nokia mobiles:- Nokia manufactures in all price ranges from 800 RS to 25,510 RS. Owing to its presence in multiple price ranges Nokia continues to be the market leader in each segment. (2)Price of Nokias competitors: - Owing to the increase in consumption levels and growth of the telecommunications sector in India, Nokia has started facing stiff competition in the lower price range mobiles segment from competitors like Micromax, Karbonn mobiles, etc. and in the higher price range mobiles segment from competitors like Samsung, Blackberry, LG etc. (3)Income levels: - The per capita income of India has risen from 46,492 in 2010 to 54,835 in 2011 which is almost a growth of 17.3%. Also, the mobile subscriber base has grown by a factor of over a hundred and thirty, from 5 million subscribers in 2001 to over 851 million subscribers as of June 2011 depicting an increase in demand of mobile phones with rise in income levels. (4)Consumer preferences: - Due to the lesser prices offered by competitors and availability of options Nokia is losing out in its market share. Consumers are taking a liking to better technology offered by android based phones in the higher price range and greater services offered by new entrants in the market in the lower price range.

Elasticity of Demand: - The prices of Nokias mobiles are very high to begin initiallybut as these mobiles continue to thrive in the market their prices eventually fall which gives rise to an increase in their quantity demanded. Thus it has been seen that the demand for these mobile phones are generally elastic in nature.

Supply Curve for Nokia In IndiaSupply curve shows a relationship between quantities of a particular good that a producer is willing to supply at a given price. A supply curve is upward sloping which indicates a positive correlation between the quantity supplied and the price at which it is supplied. The following example shows the increase in supply of Nokia mobile handsets on account of increase in price rates in the market.


Page 9

Factors affecting supply of Nokia in India:1) Producers expectations If Nokia expects the consumers income level to increase or change in preferences and tastes and such other expectations it will increase its supply accordingly and vice-versa. 2) Cost of production If the cost of production is high then Nokia would supply in accordance to the demand as cost of producing each unit would be high and supplying in excess would lead to losses. 3) Technology If Nokia is able to produce mobile phones at high volumes and low cost on account of superior production technology then its supply would be more. 4) Competitiveness of the market structure The state of competition is another major factor affecting the supply. 5) Market size If the market size is huge then the supply would also be more in order to cater to the huge market size and vice-versa.


Page 10

Macro Economic Factors Affecting Demand of Nokia phones1. Current Economic Condition:- Nokia has already built themselves as a reliable brand in terms of quality and durability. Indias GDP is growing at 8.5% and per capita income is predicted to grow at 17.3% plus having a market of more than 1.2 billion people shows signs of good economic conditions for Nokia in India. 2. Political and Governmental Environment:- After liberalization of Indian economy in 1991, most of the governments policies have been pro industrialization. The government is looking for more FDI. Higher service tax and entertainment tax though does affect the profits but favorable overall policies by the government are in best interest of Nokia. 3. Socio-Cultural Environment:- Indian lifestyle is changing and need to connect with people is increasing due to the hectic work culture. The socio-cultural structure is dictated in such a way that a mobile phone is a mandatory item that a consumer must possess. As per this element an increase in demand for mobiles will continue to be the trend. 4. Demographic Environment: - With 63.6% of Indian population in the age bracket of 15-64 years, Indian market is favorable for Nokia. Most of Indian population lies in Nokias target segment as it offers mobiles with a wide price range. High population growth rate indicates increase in consumer base in future. 5. Technological/Innovations Environment: - Nokia has been innovating as per tastes and preferences of the consumers. The consumers are receptive to the new innovations and changes made by Nokia. From its start in 1995 in its simple CDMA forms to the latest touch screen multimedia phones that it sells, Nokia has always been at the forefront of technology innovation.


Page 11

Future demand of Nokias mobilesPresently sprinting on a high speed track, the Indian handset market is poised to touch record levels by 2015 in terms of volume sales. A major sales growth is expected to come on the back of rising disposable incomes, growing demand for innovative features, applications, and offerings. With the urban markets touching saturation levels, the focus is bound to shift towards rural sector, where customers are highly price sensitive and most of the purchase decisions are taken on the POS (point of sale) only. Additionally, in the rural sector, sales are primarily driven by factors such as easy affordability, quality, and at times easy-to-use features. The introduction of 3G services is expected to be another crucial growth driver in the domestic market as it is expected to push demand for high-end handsets to new highs, especially for the ones with 3G feature.

Also, the merger of Microsoft with Nokia to implement the windows 7 platform in the Nokia mobiles is in anticipation of rise in demand of the smartphones segment and is expected to boost Nokias sales in this segment to counter the rise of Apple, Samsung and HTC.


Page 12


Page 13

Documents

Micro-Economic Study of Nokia's Market in India