Image source:

This article has been written by Nimish Dhagarra pursuing a Diploma in M&A, Institutional Finance, and Investment Laws (PE and VC transactions) from LawSikho.


“If you cannot beat them, join them”. 

A common saying which in simple terms means if you cannot beat your rivals or outdo them, it is better to join them and be at an advantageous position. Now, this quote perfectly fits when it comes to businesses as we don’t know when in a competitive market a big monster company might collaborate with another dominant company. To put it simply,, this is one of the main reasons why the merger and acquisition field is in constant buzz at all times. The players have to SWOT analyze the market to protect their market share as well as grow it at the same time. It is a basic understanding in a competitive market that nobody wants to forgo their profits. That being said, when a company faces a threat from another company in the market, they have two options, either to play the market or join hands with each other. Nokia and Siemens AG opted for the second option through a joint venture. In 2006, a six-year agreement was signed in which they incorporated a new entity known as Nokia Siemens Network with both the parties having a 50-50 ownership split in the newly incorporated company. This was an attempt by both the companies to combine their resources and expertise to grow their profits margins. It made the new company one of the biggest phone equipment producers in the world.  

Download Now

What is a Joint Venture?

Joint venture is a business arrangement where two or more parties agree to come together, polling their resources to accomplish a special task. This cooperation may take various forms like incorporating a new entity or a contractual arrangement and can for a limited/long term strategic purpose. The object for entering into such a transaction can range from investing purposes, limiting the competition in the market, or entering a new business activity by incorporating a company or investing in an existing one. It is important to note that at the end of the day both the parties are liable to share profits and liabilities according to the share contributed by them into the joint venture. No party can escape its liability by blaming the other as each is liable according to their share. 

The basic intention behind entering into such a transaction is to share the resources and expertise of each other. Joint ventures are more preferred in the M & A landscape as they are a more efficient and fastest way to collaborate with a particular company. They are also less capital intensive and allow the parties to gain access to each other’s market easily. Mostly such transactions are entered for a specific purpose of the object. The terms and conditions are decided by the party keeping in mind their own companies’ individual goals.

Background information 

Nokia, a company that originated in Finland, who is active worldwide in mobile and fixed-line telecommunication. The company is listed in the New York, Stockholm, Frankfurt, and Helsinki stock exchanges. 

Siemens, a company based out of Germany, is active in the areas of Information and Communication, Power and Generation and Power, Automation and Control, Transportation, Lighting, Financing, Medical solution and Real Estate. The company is listed in the New York and Frankfurt stock exchanges.

In 2006, Nokia and Siemens decided to incorporate a new dutch limited liability company named Nokia Siemens Network. Nokia was contributing its carrier-based operation while Siemens was contributing their network business group to the joint venture, including the whole additional package: the management, employees, assets, resources, Intellectual rights etc. Both the parties decided on having equal ownership in the company. The network business would include mobile network equipment, fixed line network equipment, associated mobile and fixed line services. The two companies expected Nokia Siemens Networks to achieve annual cost savings of €1.5 billion ($1.9 billion) by 2010. These savings were majorly expected from headcount reductions. Restructuring charges were also supposed to also amount to total €1.5 billion, of which 75 percent would be recorded in the first two years of operation. These restructuring charges would be borne by the joint venture.

Nokia Siemens Networks decided to begin with 60,000 staff at its inception, and eventually lose between 6,000 and 9,000 staff over the next four years. Nokia’s networks group had 18,332 staff at the end of 2005 but is contributing about 20,000 staff to the new venture, while Siemens accounts for the other 40,000. After the announcement of the deal, the shares of Nokia went up by 3% whereas the shares of Siemens went up by more than 8%. Both parties saw this deal as a step to strengthen their position in the market. 

The plan for both companies was simple, rather than fighting on the field for their market share, both companies wanted to scale up their production as well as operations and wanted to build and add broad products to their portfolio which are necessary to compete globally. In this way, both the companies would have access to untouched markets through each other. Therefore, both the parties wanted to create a global company whose strength lies in wireless and wireline telecommunication,  and attract international massive sales and tap into markets which were not available to both the companies previously. 

When asked about the reason for such numbers, Nokia reported that sales were lower than expected due to factors such as competition and pricing in the aggressive mobile infrastructure market. Also, ancillary factors such as late customer reach/purchase and the two management of the company adjusting to each other’s style and corporate culture lead to the slow start of their business operation to pick up its pace. But regardless of this, Nokia Siemens Network was adamant on their company goals and assured that the company would reach its projected goals by accelerating its cost-saving plan to increase its future sales. 

However, in the coming years the venture, due to certain reasons, failed to become profitable. Finally, in the year 2011 both the companies started looking for additional investors and even hunted for investment from private equity firms and companies but to no avail.l, In spite of this et back, many players in the market believed that NSN has a lot of opportunities to make money in the competitive aggressive mobile infrastructure market and predicted that NSN can either go for an initial public offering as they still had that option with them and due to their reputation in the market there were still chances of them being acquired by another company. 

But to everyone’s surprise in 2013, Nokia decided to buyout the stake of Siemens in the joint venture which was sold for a calculated 2.2 billions dollars. It came as a surprise as in May 2013, the NSN posted a strong operating profits, cash generation and financial position in the market. The company was profitable at the end but that being said Nokia played its cards right and launched a bid to buy out the stake in NSN at the right time. The deal boosted Nokia’s cash flows as they had extra cash flow in their hand now which they put into their cell phone business to compete with the new players in the market. 

Criticism and failure of the deal 

Many have cited this deal as a failed venture as it took them almost 6 years to become profitable. Some can say it was a bold and good move for Nokia to buy out the stake of Siemens. While others would wonder what went wrong between the two companies. No matter what, one cannot deny the fact that these companies were at their peak before the deal, enjoying good profit margins and stable returns. 

It can be said that it is of utmost importance for the two companies who are entering into a joint venture to find that synergy between them, that equilibrium can make or break the deal. As to why this venture was a failure, many say it is due to poor management decisions. This merger was an attempt to recapture some market share, particularly from Ericsson and low-cost manufacturers from Asia. The merger was extremely risky; Nokia and Siemens were investing in technology that they had little or no experience in and trying to compete with established manufacturers. It was a bold and risky move that ultimately backfired. Here are some of the factors that led to the failure of the joint venture-

  1. If we look at it from a management perspective, the NSN case illustrates a perfect example that highlights the difference between two organizations. The two companies though from European backgrounds had two different managerial practices and different corporate culture. Through the years the management of both the companies were never really able to gel with each other resulting in bad managerial decisions. Due to this the NSN had a cultural clash between them leading to a question as to whose culture will be adopted moving further. Such an environment usually leads to alienation of the other party and conflict between the two parties. A case study by Accenture, partly echoes the same view as they state, “As Nokia Siemens Networks discovered, creating a new business strategy is only a first step. The more challenging part of the journey is about putting in place the organizational structures, systems, processes, leadership capabilities and learning opportunities that enable the company to execute that strategy”.
  2. The operation of the company was also delayed in 2007 as several of the executives were involved in the investigation of corruption charges which demotivated the consumers to buy the product of the company. On top of that one of the senior managerial persons working in the NSN said that there was very little communication between the two management which was frustrating for the whole company.  
  3. As mentioned above, it is said that as Nokia and Siemens were investing in technology that they had little or no experience in trying to compete globally with established manufacturers in the long run they failed to adapt to the competitive aggressive mobile network market due to which their competitors had gained an edge over them resulting in them losing profits and in turn losing market share. 
  4. In 2011 when NSN was in talks with private equity companies for the possible investment they had a chance to reposition themselves by analyzing the market trends which they failed to do so. On top of that they had the option to either go for Initial Public Offer or look to get acquired by other players in the market but they didn’t explore these options. 


Eleanor Roosevelt said “Learn from the mistakes of others. You can’t live long enough to make them all yourself. ” 

The NSN joint venture deal is a perfect example for companies who are looking to enter in  cross-border merger or joint venture deals to learn from mistakes that NSN did. It is important for management of both parties to be on the same page at all times. When it comes to joint ventures, it is important for the parties to have synergy between them. It is basic understanding that to achieve the projected goals, both parties have to compromise on certain principles and practices to survive together. In the case of Nokia Siemens Network, the joint venture failed due to the reason that in the initial years the management of both the companies spent their time in adjusting to each other setting new rules and regulations for the venture which created some internal conflict between the two during which they didn’t really get the time to innovate their product and services. Due to both the companies having different operating models, the company was not really able conduct its business operation in a proper manner. 

That’s why in present times we have M & A synergy framework which is a framework that helps the parties in understanding the elements that are of greatest importance in merger and acquisition deals. This framework enables the parties to step into the shoes of each other and get a detailed understanding of what they need to do to make the deal a successful one. At the end of the day, joint venture deals and cross-border mergers are a two-way process in which one cannot work without the other therefore parties at every step need to assess and reflect their plan of action to get the desired result for their combined entity.             

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.



Please enter your comment!
Please enter your name here