On September 3, 2013 Microsoft announced that they were purchasing Nokia for a total of $7.2 billion. This is a part of an effort to adapt by offering mobile devices to consumers who are increasingly demanding them. Commenting about the deal was Microsoft’s CEO Steve Ballmer who said, “It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies. Bringing these great teams together will accelerate Microsoft’s share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services. In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution.
Given our long partnership with Nokia and the many key Nokia leaders that are joining Microsoft, we anticipate a smooth transition and great execution. With ongoing share growth and the synergies across marketing, branding and advertising, we expect this acquisition to be accretive to our adjusted earnings per share starting in FY15, and we see significant long-term revenue and profit opportunities for our shareholders.” (Microsoft to Acquire Nokia 2013) This is illustrating how the acquisition will help the company to adjust with demands inside the marketplace.
To fully understand what is occurring requires focusing on the firm’s strategy for international acquisitions. This will be accomplished by looking at the drivers of internationalization to include: the markets, government, costs, and competitive factors. Together, these elements will highlight how the acquisition will help the company to remain competitive in the future.
The market drivers are focusing on the needs of customers, the company’s presence on a global scale and how the brand image can be promoted around the world (through a process known as transferable marketing). In the case of Microsoft, the firm needs to adjust with the changes in customer demand. As they want portable devices such as tablets and smart phones. (International Strategies n.d.) (Standard and Poor’s 2014)
Moreover, the company also needs to increase its dominance on global scale through utilizing the various patents and technology. This will help them to compete directly against firms such as Apple and Google. The brand image is promoted by using this as leverage to show how Microsoft is more than just another software and game console manufacturer. Instead, they want to illustrate the way they can offer everyone with portable, smart technology. That is embracing the latest applications and features to simplify their lifestyle choices. (International Strategies n.d.) (Standard and Poor’s 2014)
The government drivers are concentrating on trade policies, technical standards and host government procedures. As far as Microsoft is concerned, they are the world’s largest technology company. This means that they do lots of trading and sell proprietary applications. Technical standards impact Microsoft, as they need to be able to market a product which is universal inside various regions of the world. Nokia makes perfect sense, as they have strong relationships in Europe, Asia, Africa, Australia and the Western Hemisphere. Host government policies are concerned about the impact they will have on the company. The acquisition is an effective strategy for Microsoft, by ensuring that the technology and the sale of Nokia’s mobile devices will meet various guidelines inside different areas. (International Strategies n.d.) (Standard and Poor’s 2014)
The costs are concentrating on scale economies, country specific differences and favorable logistics. In the case of Microsoft, scale economies are when the company can reduce expenses from the production and purchasing side. This means that they can use the patents and relationships established by Nokia to quickly develop new products cheaper. Country specific differences are when specifications and standards will vary from one region to the next. Microsoft can take advantage of this, through using the existing marketplace that was established by Nokia. At the same time, they can utilize favorable logistics to ensure they have adequate supplies of materials and are quickly distributing mobile devices to cliental. (International Strategies n.d.) (Standard and Poor’s 2014)
The competitive drivers are focusing on interdependence between countries and competitors’ global strategies. In this situation, Microsoft is able to use similar standards for building and selling new mobile devices inside various regions of the world. They can utilize the same kinds of strategies that are embraced by Apple and Google to market their products. This will help the firm to quickly offer another alternative to consumers in different areas. (International Strategies n.d.) (Standard and Poor’s 2014)
Clearly, Microsoft’s purchase of Nokia is designed to increase their competitive position inside the marketplace. This is taking place with the firm wanting to distribute to customers mobile devices that are combined with their proprietary products (such as: the Windows operating system). At the same time, they can be able to quickly enter specific regions and use the relationships Nokia has established for their benefit. This means they can use the merger to demonstrate how they are competing in an area which is dominated by two firms (i.e. Apple and Google). This will reduce the firm’s costs for research and development. While it is also, enabling them to meet customer demand using the patents and technology of Nokia. In the future, this means that the company will become more competitive and can easily adapt to changes inside the technology sector. Once this takes place, is the point Microsoft can experience above average rates of growth by quickly moving into an area where there is strong demand.