Week 1: Shareholder Wealth Maximisation

On 24^th January 2013, BBC News informed about the returns on profit of Nokia in the last three months of 2012, but there were no dividend would be paid for shareholders. According to information from BBC, this was the first time during 20 years that shareholders of Nokia have missed out dividend from the company. The reason that Nokia explained for paying no dividend is the company wanted to manage flows of cash as well as guarantee for all strategies in the future which are implemented flexibility. I guess there were incompatibility which happened between management’s decision making and shareholder interest of Nokia. Because, in this decision, management of Nokia focus more on short-term strategy, whilst the shareholders usually care about long-term benefit. In fact, Nokia made a worry for shareholders and investors when spending too much cash in order to invested in new products.

However, all figures about sales and profits of new product – Lumia phones create advantage condition for Nokia to prove that the strategy of this company operate effectively. The company sold 86.3 million devices during the quarter, including 4.4 million Lumia smartphones. This change in strategy contributes to a 70% rise in Nokia's share price in past months. Besides, the actual expense which is lower than the forecasting one helped Nokia to save costs in these new products.  In my opinion, the strategy matches with stage one of the value action pentagon “raise investment in positive spread units”. Nokia concentrates on developing and releasing more Lumia line products as a competitive advantage in the market. For example, in recent time, Nokia is releasing new Lumia 820 and 920 phones, which will use Microsoft's latest Windows 8 software. I believe the success of Lumia phones also impact upon their shareholders wealth. Because this strategy are considered as a good strategy which suitable with capabilities of Nokia and enhance the finance condition, three elements that generate shareholder value are satisfied.

On the other hand, in 2012, Nokia also announced information about 4,000 job losses at plants in Hungary, Mexico and Finland. In this case, Nokia applied the third stage of the value action pentagon “Divest assets from negative spread units to release capital for more productive use”. By disinvesting and cutting off labor in existing market, Nokia would spend more capital and enhance sources to develop in emerging market like Asia, China. Nokia will remain and develop customizing phones, while the company also moves the actual assembly to South Korea and China. The aim of this decision is placing its production closer to its component suppliers who are also based in these markets. As a result, when focusing on emerging market, Nokia would expand market easily, increase profit and enhance their capabilities. So, shareholder wealth maximization might also be ensured as a result.

In conclusion, Nokia has some positive strategies to recover the current situation and gain profit for the company, but they have to face with strong competition from Apple and Samsung. In fact, in recent years, Nokia has been losing market to rivals Apple and Samsung. Therefore, in order to create the trust of shareholders and maximize shareholders wealth as well as attract investors, Nokia must combine efficiency between strategy, capabilities and finance to perform in the best way.