A paper analyzing the evolving automotive industry value chain and the strategic rationale of the OEM's decision.

1. The Company “HERE”
[1]
HERE provides mapping and location intelligence services to consumers, enterprise and
automotive customers. It is the market leader in maps provision for the automotive industry.
The table below shows HERE’s core business areas and some of its customers and competition.
Figure 1: HERE’s core business
HERE Auto
HERE Auto is a navigation system that is also designed to host any infotainment app and run on
whatever embedded operating system the OEM customers use. Unlike other embedded
navigation systems, HERE Auto can be accessed on smartphones or PC browsers, and users’
destinations, preferred routes and other information are stored in the cloud and synced
between devices. Routes mapped on smartphones or PCs are synced with the car as soon as it
connects to the network. These routes are stored in the car’s memory and can be used offline if
the car loses connection.[13]
The OEMs can customize the platform and choose what apps to run on it, thereby keeping
control the dashboard and positioning their brands in front.
HD Maps
HD maps are HERE’s precise and highly accurate maps that are being used by developers of
autonomous driving technology to test their cars. [4]
These cars need contextually-aware maps
to complement data collected from on-board sensors. The data for HD maps is collected from
fleet vehicles owned by HERE’s trucking customers, from hundreds of cars fitted with GPS,
cameras and LiDAR technology, which uses laser technology for measuring distances. HD map
data is highly accurate and contextually aware with approximately 2.7 million changes made to
the database every day.
ENTERPRISE AUTOMOTIVE CONSUMER
Truck navigation and freight tracking
data with Sygic and TimoCom
HD Maps
Here.com Maps - online
and offline
Location services for eCommerce, IT
and social network companies
Here Auto
Mobile Map Apps on iOS,
Android and Windows
Live Roads
CUSTOMERS
Baidu, Amadeus, Maps4News,
Amazon, Samsung, Tizen, Microsoft,
SAP and others
Garmin, and most leading OEMs
COMPETITION
Google maps, Apple maps, Bing maps
and others
Google, Apple and TomTom
Google maps, Apple
maps and Bing maps
HERE OPERATIONS
SERVICES

2. The German Auto Consortium’s Acquisition of HERE
The consortium of German OEMs Audi, Daimler and BMW agreed a deal to acquire HERE from
Nokia in July in a €2.8bn deal. The deal was finalized on December 7[11]
. They have promised
that HERE will be an independent company, and they plan to invite other major OEMs to invest
in HERE and “run the service as an open platform for everyone”. This cooperation will mean
more vehicles feeding data into the HERE platform.
The Evolving Car and Automotive Industry
Figure 2: Stages of Autonomous Driving
(Roland Berger Strategy Consultants, 2015)

3. 1. Analyze the acquisition of Nokia’s Here maps. What is the carmakers’ (Audi, BMW,
and Mercedes) strategic rationale?
The acquisition of HERE is a related horizontal diversification and the strategic rationale of this
move is analyzed below using Porter’s Essential Tests:
Figure 3: Porter’s Essential Tests
HERE is already a market leader in mapping and location services in the automotive industry.
For example, at the Frankfurt IAA in 2015, HERE had its mapping system in 49 of the 54 new
commercial car models.[5]
The following also explain the OEMs’ rationale:
 Disruptive Technology
The Connected Car and Autonomous Vehicle are disruptive innovations in the short
term and long term and the three OEMs, who are market leaders in premium car
manufacturing, have seen the need to embrace them. HERE is a leading player in the
development of these innovations.
 Creating Entry Barriers to New Competition
The automotive industry ecosystem is changing, and new powerful players are coming
in. This acquisition helps to create entry barriers to Google and Apple - who aim to take
control of the Connected Car’s dashboard with their Infotainment products[6]
(Android
Auto and CarPlay) and crucial map services - by giving them access to HERE’s resources
and capabilities.
Attractivenes
s
Entry Cost Synergies

4.  To avoid future strategic dependency on mapping and location companies like Google
As seen in the Smartphone industry, where Google’s “free” Android Operating System
gives it huge bargaining power, the automakers are wary of this scenario playing out in
their industry in future. Location Intelligence is a significant component of the evolving
innovations in their industry, and having HERE as a subsidiary is a step towards
preserving their bargaining power in the value chain and consumer perception of their
brands
 Having HERE as an independent subsidiary also promises future profits from a rapidly
growing market.
HERE is considered the gold-standard for maps in the industry, and is playing in markets
where explosive growth is expected in the short and long term.
2. The Evolving Auto Industry Value Chain
Figure 4: The Automobile Industry Value Chain
(NOEALT, 2009)
The above is the traditional automotive industry value chain.
In this traditional ecosystem, the OEMs capture the most value, due to the relatively high
concentration a
t the OEM level in comparison with suppliers.
However, in recent times, the big Tier 1 suppliers like Bosch, Magna and Continental have been
creating and capturing more and more value than the OEMs. As OEMs grew and became global,
they encouraged suppliers to also expand in order to ensure a reliable supplier base. Few big
and global suppliers emerged, and OEMs were able to focus on marketing and sales. According

5. to MarketRealist.com, suppliers invest more in R&D and innovation than the OEMs. [2]
“Bosch is
the biggest supplier globally. It spent 9.9% of its sales on R&D in 2013. In contrast, General
Motors spent 3.5% of its sales on R&D.” The suppliers have been able to develop products with
differentiating potential has this led to higher OEM willingness to pay and OEMs becoming
dependent on the major suppliers. The graph below from Statista.com shows the increasing
supplier value creation in the industry.
Figure 5: Proportion of Value Added by Automotive Suppliers
(Statista, 2015)
The graph below shows that suppliers made better margins than the OEMs in all but three
years between 2001 and 2014.

6. Figure 6: OEM and Supplier EBIT Margin 2001-2014e
(Roland Berger Strategy Consultants, December)
The Changing Industry Ecosystem
With the new technological disruptions in the industry, new non-automotive players are
entering. Some of these players are giants in other industries and are developing new
technologies that will transform the car and how customers use it. Below is a list of some areas
where future developments will center and the major players.
a. Autonomous Driving
The development of “Prediction and Decision Algorithms” Players include Google, Uber,
the OEMs and major suppliers. Apple is also reported to be secretly working on this.
Self-driving cars will also need processors to run, and Intel is hoping to equip these cars
with its Atom and Core processors.
b. Highly Accurate and Contextually Aware Maps
This market is currently led by HERE maps. Other companies include Google, Apple and
TomTom.

7. c. Ride-sharing Companies
Uber is investing in self-driving technology because it believes end-users will want
mobility as a service, and not see the need to own a car anymore. This is a real
possibility in future.
d. App Developers
The connected car and self-driving car will need smartphone apps modified to work on
car operating systems, and new “car apps” to satisfy consumer needs.
e. Safety
Sensor technologies to warn cars of imminent danger. Mobileye is a big player here.[14]
f. Infotainment and Vehicle Driver Interface
Players include Blackberry QNX, HERE Auto, Apple, Google and Microsoft.
g. Internet Connectivity
The car will need to be connected to the internet. Mobile telecommunication
companies have started to open a niche for themselves in the ecosystem.
h. Security
Cars will become susceptible to hacking, which may spell danger for the safety of the
passengers. Technology players like IBM and CISCO are already working on developing
these systems.
i. V2X Technologies
Vehicle will need to communicate with other vehicles and everything around them
including infrastructure. HERE is also involved here with its Live Roads and Smart Cities
technology developments.
With these new entrants joining the industry, the share of value is poised to change.
OEMs, Technology and IT Companies
The acquisition of HERE goes some way to give the automakers a good positioning for the
future. Their plans to make HERE an open platform and invite the other major OEMs to invest in
it show that the incumbents want to fend off the threats from the new entrants. However,
alliances between OEMs have been unsuccessful in the past due to the degree of rivalry in the

8. industry. This acquisition could see other big automakers jump ship to work with TomTom to
avoid doing business with competition. Google or Apple could also buy TomTom and provide a
third-party mapping solution to other OEMs.[7]
There are different possibilities for which players will capture the most value in the future
depending on which players are able to develop the most cost effective systems and
monetization business models for Autonomous Driving. High prices could create barriers to
consumer-adoption of Autonomous Vehicles.[12]
It also depends on how the OEMs can work
together to control the IT and technology entrants’ access to their cars and end-users, and
create entry barriers to them in the development of the autonomous vehicle.
The OEMs could also become contract manufacturers for ride-sharing companies in the end.
Suppliers
Also, since the cars will drive themselves, customers will be more interested in the services they
enjoy in the car than with driving dynamics. Therefore, the traditional suppliers market will see
consolidations, mergers and acquisitions. Some large Tier 1 suppliers, like Continental and
Bosch, have made self-driving technology the core of their long-term strategy to ensure they
maintain their relevance in the industry.
With the acquisition of HERE, the OEMs have shown their resolve to keep hold of their
relevance. Therefore, in future they will capture the most value. They could start their own
ride-sharing companies and play in that niche if car sharing becomes the norm.
3. Is HERE Better-off as Part of an Automotive Consortium?
HERE is better off as a company as a part of the OEM consortium. This acquisition brings:
1. Capitalization and Investment
In its latter years under Nokia, HERE was in a business that was in a transformation
process, shifting its focus to mobile technology development and was not prepared to
invest in a business unit it planned to divest. This acquisition puts HERE in a great
position. The OEMs, like HERE, are deeply involved in autonomous driving technology
developments, and they can and will invest in HERE to support and accelerate its R&D
efforts.
2. Resource Access
HERE will need location data from as many sources as possible to accelerate
development of real-time maps. Joining this consortium gives it access to data from
AUDI, BMW and Daimler vehicles, as well as OEMs who will invest in HERE and/or use its
open platform services in future. This will give HERE competitive advantage over its
rivals.’

9. 3. Independence
In an interview published on the company’s blog, [8]
CEO Sean Fernback said that HERE
had become and will remain an independent company to serve existing customers, be
open to new ones and opportunities for growth and value creation. This gives HERE the
opportunity to develop new solutions for the auto industry that it would, perhaps, have
been unable to explore as a Nokia subsidiary.
Conclusion
HERE might lose some automotive industry customers in the beginning due to the already
mentioned reluctance of other auto manufacturers to do business with competition. However,
if the consortium can get them to invest in and use the HERE platform, the OEMs and HERE can
both generate significant competitive advantage from this acquisition.

10. REFERENCES
1. HERE Company website
https://company.here.com/here/. Accessed December 2015
2. Suppliers’ power is increasing in the automobile industry
By Henry Kallstrom, February 2015. Accessed December 2015
http://marketrealist.com/2015/02/suppliers-power-increasing-automobile-industry/
3. Nokia Plans to Divest Here. Is the Company Undervalued?
Sarwant Singh, April 2015 FORBES
http://www.forbes.com/sites/sarwantsingh/2015/04/16/nokias-plans-to-divest-here-is-
the-company-under-valued/
4. HERE introduces HD maps for highly automated vehicle testing
Leo Kent, July 2015. Accessed December 2015
http://360.here.com/2015/07/20/here-introduces-hd-maps-for-highly-automated-
vehicle-testing/
5. HERE maps lead the way in 91% of new cars at IAA.
Ian Delaney, Sep 2015. Accessed December 2015
http://360.here.com/2015/09/10/here-maps-lead-the-way-in-91-of-new-cars-at-iaa/
6. Smartphones on Wheels – the Economist
From the Print edition, Technology Quarterly, 2015
http://www.economist.com/news/technology-quarterly/21615060-way-cars-are-made-
bought-and-driven-changing-mobile-communications
7. How German Automakers Will Use Nokia's Mapping Unit To Counter Google And Apple
Doug Newcomb, Forbes.com July 2015. Accessed in December 2015
http://www.forbes.com/sites/dougnewcomb/2015/07/22/why-german-automakers-
want-to-acquire-nokias-here-mapping-division/
8. The Future is HERE
Pino Bonetti, HERE 360 blog, August 2015. Accessed December 2015
http://360.here.com/2015/08/03/the-future-is-here/
9. HERE Acquisition By The Germans: Open Innovation On The Cards
Sarvant Singh, Forbes.com, August 2015. Accessed December 2015
http://www.forbes.com/sites/sarwantsingh/2015/08/05/here-acquisition-by-the-
germans-opens-innovation-on-the-cards/
10. Connected Car Study 2015 – Racing Ahead with Autonomous Cars and Digital Innovation

11. Felix Kuhnert et al. 2015. Accessed December 2015
Strategy& PwC
11. Starting today, it’s a new world for HERE…
Pino Bonetti, HERE 360 blog, December 2015. Accessed December 2015
http://360.here.com/2015/12/07/new-world-here/
12. Autonomous driving - Disruptive innovation that promises to change the automotive
industry as we know it — it's time for every player to think:act!
Wolfgang Bernhart et al, November 2014. Accessed December 2015
Roland Berger Strategy Consultants
13. Nokia unveils its connected car platform: Here Auto
Kevin Fitchard, August 2013. Accessed December 2015
GIGAOM.com
https://gigaom.com/2013/08/30/nokia-unveils-its-connected-car-platform-here-auto/
14. 10 Autonomous Driving Companies To Watch
Chuck Tannert, January 2014. Accessed December 2015.
Fastcompany.com
http://www.fastcompany.com/3024362/innovation-agents/10-autonomous-driving-
companies-to-watch