Product life cycle consist of four stages, namely introduction, growth, maturity and decline stage. In the introductory stage, the consumer has not accepted the product and is trying it in order to find out its usability and advantages. The demand is low and the firm uses a lot of money to advertise and promote the product. In the growth stage, the consumers have accepted the product and its demand growing at an increasing rate. The organization makes huge sales and revenues are high and profitability increases. The maturity stage of a product is the stage where the rate of its demand is increasing at a decreasing rate. In the product life cycle diagram it is represented by the flat section of the diagram. The last stage is decline stage, where demand of the product is very low and the product cannot sustain profitability to the firms.
Maturity stage of Nokia
Nokia is a maker of various kinds of phones and it has a significant market share in the phone market in the world. However, some of its products have reached their maturity stage. For instance, its Nokia 1110 phone has reached its maturity stage despite its earlier soaring demand, especially in the vast African market, occasioned by simplicity in its use and its simple applications. At this stage most of Nokia product has reached the maximum market value, meaning the company can make maximum sales on its market segments worldwide. For Nokia company to continue making such huge sales, there must be huge advertisement done in all forms of advertisement models across the world. Failure to make such awareness to the customers, the product will move to the next stage which is decline stage where the company will make huge losses.
Nokia’s home country is Finland. There are various ways which Nokia Corporation can explore to raise money for its financing needs. This could be done both by use of public and private sources. The company could issue bonds in either domestic or international capital markets. Owing to the fact that Nokia is a known company, this could attract a lot of investors both local and foreign.
It could also issue shares to the public through an initial public offering. This involves ceding parts of its ownership to private investors. This is a popular means of raising capital by many organizations in the world today. This is because it is not a debt obligation to the creditors.
The company could also obtain loan funds from financial and non-financial institutions. This is applicable and appropriate where the funds are needed urgently because there are no much steps and procedures involved in acquiring funds from these organizations.
The corporation could also form mergers with other known phone makers in the world. Mergers are advantageous in that they result to the economies of scale. Economies of scale refer to the benefits of large scale production of goods and/or services. This is because the costs per unit of production are greatly reduced because they are spread across many products.
Optimal source of finance
Despite the fact that many financing options could be available for Nokia Corporation, there exists an optimal source of finance. An optimal source of finance is the source of finance that greatly reduces the cost of capital, that is quick to obtain money, that lives up to the vision and values of the organization and that is allowed by the government capital market regulators. In capital budgeting decisions it is very critical that a firm tries to obtain its finances from the source that is very optimal. In determining this, the present value and payback period of various financing alternatives is done. The option whose present value of streams of benefit is high is considered and preferred. However, in case of Nokia Corporation, the optimal source of finance could be an initial public offering. This is because it allows its customers to own a stake in the company and thus promoting the brand loyalty. This means is also safe since it does not create financial obligations to the company in a way of loan. This is advantageous because when the financial health of the company is poor the company will not be under pressure to pay huge debts if it had settled on loan. The shareholders will just forego the dividends for that financial year.
Financial sources outside home country
Multilateral financial sources refer to the financial sources from more than two sources, whereas bilateral sources refer to two sources of funding. Nokia Corporation is open to multilateral sources of finance in order to promote the global investment of its products and consequently increase its market share, growth and profitability. One of these sources could be a merger. This refers to joining of two business firms of equal business strength in order to carry out large scale production and thus benefit from the economies of scale. Nokia could merge with other known phone makers, such as Motorola, Samsung or LG.
The other source could be a long term loan from international financial and non-financial institutions, such as commercial banks, private equity firms or venture capital firms operating on a global scale. It could also issue long term bonds in the international capital markets, such as dollar or Eurobond market. These bonds are issued with assistance of international investment bankers.
Optimal sources of finance from outside country
The most optimal source of capital would also be analyzed using the same parameters as those of raising funds domestically. In this regard the most optimal would be the issue of bonds in the international market because in case of default in payment of the agreed interest payments the bondholders could be given a stake in the company in the debt-equity swap.
Possible market of the mature product
The most potential markets could be the developing countries, mostly in Africa where the majority of people have low incomes and are not fully technologically savvy. Thus, they are in a position to afford the mature product due to its low cost and simplicity in use. The two markets here are that of low cost and secondly technologically not fully savvy population. This should be done through intensive promotion and further simplification in order to attract more consumers especially illiterate ones. It should also lower costs to improve its affordability. This is to be done by ensuring efficiency in the production methods in order to reduce on the operational costs.
As stated above, product life cycle of Nokia, exist in four well defined stages such as introduction, growth, maturity and decline stage. Every stage is very important for the company to analyze what strategy should be employed to ensure the company makes requires profits. Failure to understand how each stage functions, it will head to early product exit from the market. The source of finance for each stage is very important to the company, because minus enough financial requirement from each stage will need to huge losses in the market. At each stage the company should identify the financial source, either internally or externally. Finally the company should also identify the external financial sources and make optimal use of the provided sources. In our case, Nokia has to optimize the above stated sources for it to make the required profit out of the competitive market.