Internalization of Nokia by Microsoft

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The paper examines whether the acquisition of Nokia by Microsoft was a good internalization strategy by analyzing the benefits and costs of internalization by Microsoft. Strange and Humphrey (2018) argues that organizations that undertake mergers or acquisitions in the contemporary market should make sure that the investment that they carry out will lead to an increase of its value through the acquisition of intangible assets such as technology know-how, dedicated management as well as marketing ability it did not possess. According to Violeta and Camelia (2016) Microsoft had through the years been experiencing an imperfection in its product markets since it did not have a competitive mobile product segment. This saw the company acquire Nokia in 2014 to help penetrate the fast growing and lucrative mobile segment.

The acquisition of Nokia by Microsoft allowed the latter to enjoy the coordination of multistage processes in an external market that it had been missing out, making it possible for the organization to catch up with its rivals such as Apple Inc and Google (Nevin 2016). Microsoft had been unable to penetrate the growing Smartphone industry which Nokia although already underperforming had established itself and had a client base. This would allow Microsoft to easily penetrate the market using Nokia and integrate its innovative software into the Nokia hardware making it come competitive within a short duration of time. The internalization of Nokia would also allow Microsoft to eliminate instability since the company would be able to unify its hardware and software which would reduce operating software (OS) fragmentation that has been a cause of panic among customers (Verbeke and Kano 2015). For instance, with Nokia having already developed the hardware peripheral, Microsoft would easily integrate its Windows phone 8 and ensure there is use of consistent hardware specification which would improve OS security since it would enable users to easily update to the latest version of the OS.

The Smartphone industry is marred with high levels of buyer uncertainty since they are spoilt for choice between emerging brands and the existing brands that are continuously refining their operations. Microsoft by leveraging on the in-depth knowledge of Nokia, its existing brand as well as large capital base would be able to produce high quality phones such as Lumia devices which would retail at an affordable price, making it easier to attract the first-time Smartphone users who are incapable of purchasing the high end products such as iphones (Teixeira 2015). This would help the two brands grow their market share and increase their customer base. Lastly, the combination of Microsoft outstanding software and Nokia’s hardware is likely to make the companies diversify their target customers to both low-end and high-end consumers.


The Smartphone market is bound to keep growing in the coming years as its penetration across the globe rises. The internalization strategy of Microsoft goes a long way in making sure that the company is well positioned in the market to reap from this boom by integrating its software with Nokia’s hardware and an already existing loyal market base.


Nevin, M., 2016. The Strategic Alliance Handbook: A Practitioners Guide to Business-to-business Collaborations. Routledge.

Strange, R. and Humphrey, J., 2018. What lies between market and hierarchy? Insights from internalization theory and global value chain theory. Journal of International Business Studies.

Teixeira, D.F.P., 2015. Microsoft-Nokia: stategy and valuation(Doctoral dissertation, Instituto Superior de Economia e Gestão).

Verbeke, A. and Kano, L., 2015. The new internalization theory and multinational enterprises from emerging economies: A business history perspective. Business History Review, 89(3), pp.415-445.


January 19, 2024
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