The Merging of Nokia and Microsoft

Something Microsoft former CEO Steve referred to as ‘a bold approach with the future,’ the merging of Microsoft with Nokia devices through acquisition was heralded as a win-win for stakeholders, employees, and consumers as a whole. This report will focus on the advantages of the merging and the subsequent costs of internalisation.

Internalisation of Costs

Sourcing

In the economic domain, cost of internalisation refers to the process of using firms own inventory shares instead of using trade with outside entities (Hair Jr, Wolfinbarger, Money, Samouel, and Page, 2015). In its broadest sense, it refers to any activity within the confines of the company instead of involving outside sources for assistance. With Nokia and Microsoft merging, an internalized trade which is an element of internalised cost will be less expensive than alternatives such as working with other companies like Apple. Internal sourcing has also been possible since a coalition between the two companies has been created (Singh, 2014). Both companies have been able to produce mobile smartphones internally instead of depending on external suppliers.

A failing business coalition

Nokia had been experiencing a declining market for its products as its Windows phone was not selling as they had hoped and acquisition from Microsoft saved it from its impending doom of financial crisis. Nokia’s CEO then Elop, launched the Lumia 800 and 710 in 2011which received positive reviews. However, costs came 2015 when Steve Ballmer admitted to the failed acquisition as the business deal was termed as a ‘monumental mistake’. With an impairment-a situation where the market value of a business is contrary to what is in the books,-7800 employees are to be laid off. This cost the company $ 750-850 million making it Microsoft’s biggest deductions.

The Advantage of the Acquisition

With the aim of accruing a viable presence in the mobile domain. Microsoft acquired Nokia for a whopping $ 7.2 billion (Riley,  2018). The acquisition comes with a lot of advantages for both Microsoft and Nokia altogether. For one, through vertical integration, Nokia’s record has been boosted. This is because in earlier times, in the advent of smartphones, Nokia had a good reputation and uniting it with Microsoft helped the company acquire a chain supply in the production of the mobile services. Before the merging, both companies worked intimately in the production of the Lumia phone, Nokia deployed Microsoft’s operating system which entailed restrictions that left consumers with more yearn of their smartphones. Now that the two are integrated, an operating system with a maximum capacity is an anticipated success.

Another advantage stems from the decrease in transaction costs. Before the merging, transaction costs inhibited efficient business of good exchange and services between the two companies. Consequently, both companies were producing smartphones bordering on sub-optimal operating systems. Also with Microsoft in charge of production and a plummet in transaction costs, unit costs have also reduced. Unit costs refer to the expenses an organisation incurs during the production storage and sale of one product. Before the acquisition, Microsoft asserted that the windows phone only accrued less than $ 10 per unit. However, after the unification smartphones have grown to over $ 40 per unit coupled with an integrated hardware system.

References

Hair Jr, J.F., Wolfinbarger, M., Money, A.H., Samuel, P. and Page, M.J., 2015. Essentials of business research methods

Riley, G. (2018). Microsoft and Nokia - A Merger Made in Hell | tutor2u Economics. [online] tutor2u. Available at: https://www.tutor2u.net/economics/blog/microsoft-and-nokia-a-merger-made-in-hell [Accessed 22 Oct. 2018].

Singh, N.P., 2014. Microsoft Acquired Nokia in Unipolar Operating System Market. Independent Journal of Management & Production, 5(3), pp.598-622.