Nokia Joint Venture

Joint Venture of Microsoft and Nokia

After an unsuccessful attempt to conquer the market of smartphones on its own, Microsoft decided to search for a partner, whom with its knowledge about this industry, especially the Microsoft operating system, can be matched and the creation of an extraordinary product can become reality. To do so, the company contacted Nokia who had declining business and elaborated a mutually beneficial cooperation. They decided to create a Joint Venture (JV) to fully harness the capabilities, knowledge and skills of both firms. The aim of this Venture is to create a new ecosystem with devices, applications and supporting structures for Windows Phone Operating systems running on Nokia smartphones. Both companies put valuable

All the accumulated know-how and engineering knowledge of creating mobile devices are strongly connected to the individuals and teams who possess and work with it, nevertheless this form of assets are mostly tacit. It is not effective to acquire the whole company, because of this embeddedness and the fact, that Microsoft is only interested in the limited set of resources. With the JV, Microsoft reduces the risks with sharing it with its partner, and the size of the cooperation is also easier to manage (Hennart and Reddy, 1997). All the above mentioned arguments lead to the conclusion, that in this case, Microsoft would profit from alliance more, than acquire Nokia.

• Difficulties in assessing value of target firm

For Microsoft it is difficult to assess the value of Nokia, because of the information asymmetries. Microsoft has only general insight in the hardware industry and the specific knowledge, e.g. the intellectual property, which is required to produce the mobile devices, is intangible. This also means that the assessment of this part has serious obstacles, which further decreases reasonability of acquire Nokia.

But the JV makes possible to reduce the asymmetrical information, to assess the actual value of Nokia. In case of the collaboration does not work, the rescission of the relationship has lower costs (Balakrishnan and Koza,

According to the research concluded by Oxley and Sampson (2004), the opportunistic behaviour mostly affected by the market overlap, the technological overlap, the market position of both companies and the existence of prior cooperation between them. The market overlap is relatively low, because Microsoft’s main segment is PC and laptop operating systems, while Nokia develops and create large-scale telecommunications infrastructures, thus their end product market is significantly different. Nevertheless, their technology is not far away from each other, because they have entered the market of smartphones, although without great success. Thus their general knowledge about the industry and the technology is still significant and similar. Regarding to the aim of the JV, both corporations are considered as a laggard, because despite of their past experiences, none of them has a meaningful market share in the Smartphone business. The low market overlap and the fact they are both laggards, result they are not direct competitors, and the medium technological overlap allows them to absorb each other’s knowledge effectively. However, they have not cooperated before, which increases the possibility of opportunistic nature. (Wang and Zajac,