Why is Managing the Global Environment So Complex Today?
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Why is Managing the Global Environment So Complex Today?

Essentials of

Contemporary Management

Gareth R. Jones . Jennifer M. George

Managing in the Global Environment

Nokia has experienced enormous problems in the 2010s because the popularity of smartphones has soared and companies like Apple, BlackBerry, Samsung, and Motorola (now owned by Google) are competing vigorously to offer customers the smartphone that contains the latest features and technology. In fact, in 2012 Samsung took over from Nokia as the world's largest cell phone maker, and Nokia's stock price has plunged in the 2010s as its attempts to fight back continue to fail and it is losing billions of dollars. To a large degree the reasons for Nokia's problems center around the way it has traditionally managed the global environment compared to its cell phone competitors. To keep their costs to a minimum, its competitors have outsourced their cell phone production to Asian companies. Nokia did not because historically a major reason for Nokia's dominance in cell phones was its skills in global supply chain management that allowed it to provide low-cost phones that could be customized to the needs of customers in different world regions. Nokia's global strategy was to make its phones in the world region in which they were sold; Nokia built expensive state-of-the-art factories in Germany, Brazil, China, and India. In 2008 it opened a new plant in Romania to make phones for the expanding eastern European and Russian market. A major reason for beginning operations in Romania was its low labor costs. In fact, once Nokia's Romanian factory was up and running, Nokia closed its factory in Bochum, Germany, in 2008 because it was too expensive to operate. Even so, Nokia was hardheaded about how efficiently it expected its Romanian factory to operate because all its global factories were required to operate at the same level of efficiency that its most efficient global factory has achieved. Nokia's goal was to continuously improve efficiency over time by encouraging managers to find ways to lower costs and then share this knowledge across the company. Finally, in 2010, Nokia's CEO Olli-Pekka Kallasvuo realized that Nokia's strategy had failed and that the company needed to recruit a new CEO who understood how to change the way it managed the environment. Stephen Elop became Nokia's CEO in September 2010, the first non-Finn ever to be named to the top position. Elop left Microsoft, where he had been head of its business division, and announced that Nokia would team up with Microsoft to supply its new smartphone software and dump its own Simian platform. In April 2011 Elop announced it would axe 7,000 jobs and outsource its Symbian software development unit to cut $1.2 billion in costs. The move included laying off 4,000 staff and transferring another 3,000 to services firm Accenture—12% of its phone unit workforce. Then in September 2011 Elop announced the closure of its assembly plant in Romania and in January 2012 the closure of its operations in Finland, Hungary, and Mexico. In the future all smartphone assembly would be outsourced to Asia with the loss of over 15,000 jobs. In addition, Nokia announced it would cut 17,000 more jobs or almost a quarter of its workforce in its Nokia Siemens Network division, a global telecommunications joint venture with Siemens. Elop was betting Nokia's future on developing its close ties with Microsoft, and in October 2011 Nokia unveiled two sleek new smartphones based on Microsoft Windows in time for Christmas, a major step in its fight back against Apple and Google.1 These phones did not sell well despite their reasonable pricing, and Nokia's competitive position continued to deteriorate. In June 2012 Elop announced plans to cut another 10,000 jobs globally and warned its second-quarter loss from its cell phone business would be larger than expected. Its stock price continued to plunge and many analysts wondered if Nokia could survive or whether it would become a takeover target. Despite its new approach to managing the global environment Nokia was still losing the battle against Samsung and Apple and its future looks bleak indeed.

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