Globalization Strategy of Nokia — страница 6

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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). 5. Foreign Exchange Market Impact over Nokia "The foreign exchange risk usually affects businesses that export and/or import, but it can also affect investors making international investments. For example, if money must be converted to another currency to make a certain investment, then any changes in the currency exchange rate will cause that investment's value to either decrease or increase when the investment is sold and converted back into the original currency" (Investopedia, 2010). This way

unfavorable market volatility will have a huge negative impact in Nokia’s profitability. Large companies such as Volkswagen, Airbus and Philips, among others, have experienced a foreign exchange loss on profit arising from unhedged sales in dollar countries. Moreover, some companies, such as Heineken, Nokia and again Airbus, have already announced that the weakened dollar will keep affecting returns, due to mere short-term hedges in previous years. The most common of these solutions are conversion of contracts into domestic currency or transferring the production abroad. The foreign exchange risk for a company will increase with the length of its foreign commitments. Relative small changes in the foreign exchange rates can have a huge impact on the profit and solvency of a

company (Wijckmans, 2005). According to the foreign exchange policy guidelines of the Group, material transaction foreign exchange exposures are hedged. Exposures are mainly hedged with derivative financial instruments such as forward foreign exchange contracts and foreign exchange options. The majority of financial instruments hedging foreign exchange risk have duration of less than a year. The Group does not hedge forecasted foreign currency cash flows beyond two years. One example from Nokia is KongZhong Corporation, a leading mobile Internet company in China, reaching a non-binding agreement with Nokia Growth Partners (NGP) to receive an investment of about US$6.8 million in 5-year convertible senior notes. NGP would also receive warrants to purchase an additional 2.0 million

American Depositary Shares (ADS) at US$5.0 per ADS, exercisable within five years (PR Newswire Association LLC , 2009). Nokia uses the Value-at-Risk ("VaR") methodology to assess the foreign exchange risk related to the Treasury management of the Group exposures. The VaR figure represents the potential fair value losses for a portfolio resulting from adverse changes in market factors using a specified time period and confidence level based on historical data. To correctly take into account the non-linear price function of certain derivative instruments, Nokia uses Monte Carlo simulation. Volatilities and correlations are calculated from a one-year set of daily data. The VaR figures assume that the forecasted cash flows materialize as expected. 6. Culture and Environment