International Negotiation

Case Study: Microsoft and Nokia Deal

Manuel Nicolas Rodriguez Len Cod: 201410495
The Microsoft Is Paying US$7.18bn For The Acquisition Of
Nokias mobile pone divisin and patents.
Introduction
The acquisition of Nokia by Microsoft has been one of the biggest
negotiations in the last years between big companies in the world. But,
who are those companies?

What or who is Microsoft?

Microsoft was founded by Bill Gates and Paul Allen in January 1975. They
see the future. A future in which everyone will have a personal computer
in their Jobs, home or even eating at a restaurant. These guys wanted to
change the world througth their visionary ideas and negotiating core
abilities. Paul and Bill designed and distributed its BASIC programming
language to Altair. In that way, Microsoft has been selling operative
systems to almost all manufactories of personal computers and desktop
computers around the world. But also, Microsoft has been growing to
new technology markets in order to be responding to fast-changing
environment in the industry. Through the years. Microsoft has developed
more software for improving the experience and utility of its operative
systems as Microsoft office and Microsoft Internet Explorer for creating
and editing documents in the computers and the another one for having
a good experience on the internet. Also, Microsoft analizes the new
emerging markets and try to capture market share of those markets. An
example, we get back to 2000s when Microsoft gets into console
videogames market with XBOX and competed with Sony and Nintendo.
In a review, Microsoft started a profitable industry and has been growing

to desirable and profitable markets through its history. (Bellis, 2016) In

the following figure, we see the incomes growth of Microsoft through the
years.

Figure 1.1 Net income for Apple and Microsoft

(Context,
2016)
The next step about Microsoft will be, why did Microsoft buy Nokias
Mobile phone device divison and its patents?

What or who is Nokia?

Nokia has a particular story in how a business growth and expand.
Today, Nokia is a multinational company in the technological and
telecomunications industry with location in Espoo, Finland. In contrast
with Microsoft, Nokia was founded in 1865 as a company of production of
paper mil by Fredrik Idestam in Southern Finland in 1865.So, Nokia grew
to looking for new strategic business units that were not related to paper

mill industry because It saw opportunities in that changing environment.

In the 1960s, Nokia became a conglomerate, comprised of rubber, cable,
forestry, electronics and power generation businesses resulting from a
merger of Idestams Nokia AB, and Finnish Cable Works Ltd, a phone and
power cable producer founded in 1912, and other businesses. But, in the
80s

Nokia

developed

the

first

cellphone

in

the

world

and

telecommunications network and took the strategic decision of closing

those business described earlier and got into the new cellphone market.
Therefore, for many years Nokia was the leader in the manufacturing
and selling cellphones around the world. But, with the growth of Iphone,
Samsung and other competitors in the industry. Nokia could not catch
them and tried to get into other markets rather than mobile phone
market. ("Our story", 2013).

Introduction to the negotiation

The negotiation between Microsoft and Nokia must be analize in order to
respond this questions: Why did Microsoft buy Nokias mobile phone
divisin? What are Microsofts interest in this negotiation? Why did Nokia
sell its mobile phone divisin? What are Nokias interest in this
negotiation?

How was the deal closed between the Microsoft and Nokia?
Microsoft acquires the Nokias core cellphone division for the amount of
$7.2 billion in the mid of 2013. Microsoft paid 3.79 billion for the all
Nokias smartphone operations. In other hand, company paid 1.65
billion to license Nokia's patents, the companies said, bringing the deal
to $7.18 billion. Also, several executives were joined to Microsoft as part
of the deal. (Ovide, 2016)

Microsofts interest and positions

Why did Microsoft buy Nokias mobile phones division? Microsoft wanted
to get in the profitable mobile phones market without making its own
position in the market and taking advantage of the Nokias experience
and knowledge. In fact, Mobile phone market is not growing fast but
Microsoft knows that has the resources and capabilities for gaining
ground in this market. In the following chart, we can see this behaviour:

Figure 1.3 Mobile phones market share and growth

(casais, 2016)

The number of cellphones is being reduced over the time and the
product is getting to the maturity stage of the product life cycle. So, the
dylemma is the following what do Microsoft or Nokia with this business?
Clearly, Microsoft decided to invest in a dog what it means that it has
low market share and low market growth rather than harvest oo selling
the business like Nokia did. Actually, Microsoft hope for getting a higher
piece of pie through its resources and capabilities.

There is an important frame in the decision of Microsoft for getting into

mobile phone market and this has a name: Apple. Through the history,
Microsoft and Apple have been competing against each other. Since
2010, Apple is one of the biggest manufacturers and sellers od
smartphones around the world. So, Microsoft just can not allow Apple to
do this. Because, they will be always competitors and each other do not
want to see the another on the top. In that way, Nokia acquisition by
Microsoft is an answer for Apple.
So, Microsoft paid just $7.2bn for Nokias Brand, specialized engineers
with experience, knowlegde and abilities in mobile phones, Nokias
international value chain, vertical integration of its activities (Making its
own hardware and software), reduce the transaction cost of the NokiaMicrosoft joint (Before the purchase).
Nokias interest and positions

Figure 1.2 Nokias mobile market share 2000-2014

Nokias Mobile Phone Market Share 2000-2014

45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%

("Mobile phone market share worldwide 1997-2014 | Statistic", 2016)

Bibliography
1. Bellis, M. (2016). Microsoft - History of a Computing Giant. About.com
Money. Retrieved 8 April 2016, from
http://inventors.about.com/od/CorporateProfiles/p/Microsoft-History.htm

2. Context, C. (2016). CHART OF THE DAY: Apple's Incredible Profit

Growth In Context. Business Insider. Retrieved 8 April 2016, from

http://www.businessinsider.com/chart-of-the-day-net-income-applevs-microsoft-2011-4
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http://company.nokia.com/en/about-us/our-company/our-story
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