“The world’s media is focused on the United States. When the iPhone4 was launched, it made headlines across all the US media, and much of the world. When the Nokia N3 was launched in 10 Indonesian cities which drew massive crowds, it went largely ignored in the US,” said Dr Dan Steinbock at the Malaysian launch of his book, Winning Across Global Markets: How Nokia Creates Strategic Advantage in a Fast-Changing World last Wednesday at the residence of the Finnish ambassador in Kuala Lumpur.
Steinbock, who is also the research director for international business at the India, China and America Institute which is headquartered in Atlanta and a fellow at the Shanghai Institute for International Studies, argued that Apple’s dominance is almost purely in the US, whereas Nokia leads in the world’s developing markets. “Apple draws 59% of its revenues from the US, its launch of the iPhone in India and China — two of the world’s largest markets — was largely a failure at the beginning,” said Steinbock.
Steinbock (left) with Finnish ambassador Tapio Saarela at the book launch. Nokia has lost its sizzle and needs to succeed in the US if it is to ensure its long-term global success, says Steinbock. Photo by Lee Lay Kin
According to Steinbock, in China, Apple’s tie-up with mobile service providers backfired as most Chinese prefer prepaid to contracts. While pre-orders of the iPhone4 in China amounted to 200,000 (compared with the six weeks it took to sell 100,000 units of the iPhone3Gs in 2009), it’s still a drop in the ocean of China’s market of 800 million mobile users.
In India, when the first iPhone was launched its high price point worked against it. “Apple and Airtel struck to the US$700 price tag for the phone in India. In relative terms, the price in India was about 68% of the annual GDP per capita. In the US, the GDP per capita is US$46,400. Now, would YOU pay US$31,500 for an iPhone?” asked Steinbock.
On the other hand, although Nokia’s market share in both India and China have been declining, they remained at 36% and 35% respectively in 2009 (according to research firm IDC). China represented US$8.6 billion in revenue for Nokia last year, about 16% of Nokia’s total sales, while India generated US$3.8 billion. “Nokia’s market share is eroding, but not collapsed,” pointed out Steinbock.
Ultimately, argued Steinbock, the winners of the smartphone war will be determined by global success. Nokia has a global strategy whereas other players like Apple and BlackBerry have a largely US-centric one. “It’s quite a contrast. Nokia entered the developing markets by customising their phones to each market. Apple, on the other hand, creates for the US and leverages on its popularity there for the rest of the globe,” he said.
But the US still matters
In an article written as a follow-up to his book, Steinbock said Nokia has learnt the hard way that the US market is not one they can afford to ignore any longer. Its recent top management shake-up and the appointment on Sept 21 of its first non-Finnish CEO, Stephen Elop, former president of Microsoft’s business division, indicate that the mobile manufacturer is poised for change.
“When former Nokia CEO Olli-Pekka Kallasvuo was appointed in 2006, he pledged to increase its market share in the US. At the time, it was 20% and today, it’s less than 8% — ranking behind not just RIM and Apple, but also Samsung and LG,” said Steinbock, adding that Kallasvuo’s failure to meet his promises led to his leaving.
But with Nokia’s global strength, does the US market really matter so much? For Nokia, one reason the US does matter is that 40% of its shares are held by US investors and 40% more by investors in other developed nations. “Many investors don’t understand, or don’t see Nokia’s success in developing markets. They read the news and listen to US and UK-based analysts. The media is so strong in the US that it shapes global perceptions,” said Steinbock.
There is also the matter of branding. If Apple is anything to go by, success in the US leads to great brand presence worldwide. “Nokia has lost its sizzle,” admitted Steinbock. “Nokia needs to succeed in the US if it is to ensure its long-term global success.”
What went wrong?
In the early 1990s, Nokia was the darling of Wall Street. It had stolen a march on the inventors of the mobile phone, Motorola, by focusing on developing phones with digital GSM (Global System for Mobile communications) which could carry both voice and data traffic. Motorola on the other hand was convinced that what customers wanted were smaller, better analogue or voice-only phones. “Forty-three million analogue customers can’t be wrong,” said Motorola’s chief Robert Weisshappel to his top executives in 1995. In contrast, a Nokia top executive boasted “We will never be like Motorola”, said Steinbock.
Yet the Finnish company’s shares have dropped by 60% since Apple introduced the iPhone in 2007. “Apple changed the game and Nokia was admittedly complacent. They thought that their success in the US was guaranteed by their success in Europe. What worked in the EU must work in the US — they were wrong,” said Steinbock.
One of the areas that Nokia failed to work on was its relationship with the US mobile service operators. “In the US, the operators own the customers. LG, Motorola and Samsung were customising their units specifically for the operators, Nokia didn’t,” said Steinbock. “Their success in Asia and South America was due to extensive research and a willingness to customise. They didn’t bring that into the US.”
Furthermore, Nokia’s management was so collective that initiatives were not conveyed with sufficient urgency. “I’ve told Nokia’s leaders that they are simply too bland and that being more visible would help. They shouldn’t be Steve Jobs who is one man and has come to mean as much or more than the company he leads. But they need to be more visible,” said Steinbock. “It was a good idea to appoint someone who comes from the market they most need to grow in,” he added, referring to Elop.
Will the N8 save Nokia?
In September, Nokia announced the launch of its multi-touch smartphone, the N8, that would hopefully compete with Apple’s iPhone4. “It’s had great feedback so far and is more affordable than the iPhone. Nokia has a lot riding on it. But is it too late?” queried Steinbock. “They need to back it up by focusing on developer communities and apps for its operating system (OS) — Symbian3. Their appointment of Elop, who comes from a software background at Microsoft, may be indicative of the direction the company will go,” said Steinbock. Elop, he added, also has a reputation as a change manager.
The N8 is scheduled for launch later this month in Malaysia and curently retails in Europe for €370 (RM1,600). In Malaysia, the iPhone4 retails at RM2,690 for the 32GB model and RM2,290 for the 16GB model.
“The next three to nine months are pivotal for Nokia. It must launch new and attractive products and services; decide whether to continue with its OS, Symbian or invest in Google’s Android; if it should rely on its app store Ovi or find alternatives; and if it should pursue development via mergers and acquisitions,” said Steinbock. “They also need a new design chief — that position is currently vacant. Apple has proven how important design can be to the success of a mobile phone.”
Capacity for change
Overall, Steinbock is confident of the mobile maker’s survival. “Nokia won’t collapse overnight — despite the publicity,” he said. “It retains its brand promises of affordability, quality and reliability and it has its strong global presence.”
Nokia is also a firm that has great capacity to accept change, having evolved from its roots as a forestry and paper mill in 1865, to include rubber manufacturing in 1910 and finally, electronics in 1967.
In his opening speech at the book launch, Tapio Saarela, Finnish ambassador to Malaysia, recalled: “About 60 years ago, my idea of Nokia was the nice rubber boots I had. Then a few years later, they were the tyres on my car. In 1986, I hosted the former Soviet leader, Mikhail Gorbachev, and Nokia presented him with a mobile phone. It weighed 1kg but it was mobile and he was very surprised. Three years ago, I presided over the opening of a new Nokia factory in Bucharest. It has come a very long way.”
“Historically, Nokia is strong in innovation and, with a home country of only five million people, it is strong in globalisation. But it must now win in both the G7 (countries) as well as the BRICI (Brazil, Russia, India, China and Indonesia) nations,”
said Steinbock.
This article appeared on the Management page, The Edge Financial Daily, Oct 4, 2010
The Power button on the top of the phone is very small and extremely unobtrusive. I've only had the phone for a day or so, but I'm already frustrated by how hard it is to hit that little button, because my finger can't seem to find it and I usually have to stop and turn the phone up so that I can see the button and then punch it.
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