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Nokia reinvents itself in a new era

By Wang Xing (China Daily)
Updated: 2008-07-14 10:25

Few foreign companies have gained the same success in China as Nokia. The Finnish mobile phone vendor recently announced that it sold 70.7 million handsets in China last year, an increase of 38.6 percent year-on-year. Its market share reached over 35 percent in the country.

It not only knocked off multinational peers such as Motorola that used to dominate China's cellphone market, but also beat hundreds of domestic catch-ups that were theoretically better positioned to cater to local needs and domestic distributors.

Since 2005, China has been Nokia's largest single market and the country's huge low-cost manufacturing and design capacity has sustained the company's clout in the global market.

However, Colin Giles, Nokia's senior vice-president and president of Nokia China, says it was still a surprise in 2005 when China became Nokia's biggest player.

"At the time, many thought the United States would be the biggest, so to some extent it has been a surprise," Giles says.

"But in all of our plans and forecasts, it is clear that China will continue to be the world's biggest market for mobile phones and will continue to play a very strong role in the industry globally."

Unlike Motorola, Nokia had a humble start in China. Although it opened its first office on the mainland in 1985, its international peers later overshadowed its debut with brick-like mobile phones that dominated the Chinese market from the late 1980s into the early 1990s.

The company's business saw a turnaround in 1994 when Wu Jichuan, then minister of communications, posts and telegraphs, was invited to make a test call in an industry forum based on the GSM technology with former Nokia CEO Jorma Ollila, who sensed an opportunity in China's upcoming second-generation mobile network and decided to increase the company's investment in the country.

Nokia boosted its presence when it built additional factories and established joint ventures with local partners.

First impressive ad

In the early days of China's mobile phone market, handsets were only seen as a tool to make calls. People had little idea about cellphone brands because the phones were government allocated and not sold directly.

Giles says Nokia was not well known at the time. "And those consumers who knew about Nokia thought it was Japanese brand," he says.

In order to establish its brand with Chinese consumers, Nokia initiated its first successful TV advertising campaign in the country.

It featured two European-style statues in a park with a man sitting behind them on a park bench. A phone rang and people thought he was going to pull out his mobile phone, but he didn't. One statue pulled out a mobile phone and said, "Hello?" then turned to the other and said, "It's for you. It's your mama."

Although the ad seemed a little eccentric to most Chinese consumers who had been used to plain advertisement slogans, it was quite popular and many Chinese still remember it today.

"Actually, for that particular ad, we were focusing on our European credibility. We are a European company, not Japanese," Giles says. "I think it also developed a very fun, humorous and human side of Nokia and it helped to develop the brand position during those years."

Boosted by the marketing campaign, Nokia's revenue surged in the following years as the country built up its second-generation network that significantly promoted the use of mobile phones.

According to figures from the National Bureau of Statistics, mobile phone users reached 13.23 million in China in 1997. The number grew to 43.3 million by 1999, with over 90 percent of them using handsets from global companies such as Motorola and Nokia.

Stumble business

After a rapid growth in the late 1990s, Nokia's business was seriously challenged in China in the early 2000s.

By the end of 1998, the Chinese government mandated a licensing system for mobile phone manufacturers in an effort to encourage the development of domestic players.

The new manufacturers quickly swept the market with products that had acceptable quality at a much lower price. They also occupied the emerging rural market that the international mobile vendors hadn't yet tapped.

By 2003, market share of domestic mobile phone manufacturers surpassed 55 percent, according to figures from the government, and squeezed many foreign players such as Siemens, Alcatel, and Panasonic out of the market.

For Nokia, the challenge came mainly from product design and distribution strategy. During that time, Nokia hadn't paid enough attention to the emerging trend for clamshell phones, much different from the company's classic straight handsets.

The company also suffered from a centralized distribution system that no longer worked for the emerging rural market where potential users were highly scattered.

Lucky trip

Nokia had planned an aggressive price reduction plan to combat the loss but the idea was scrapped after Giles happened to be visiting Chengdu in Sichuan province.

During the four-day trip, he visited a mobile phone street (most Chinese cities have at least one mobile phone street packed with cellphone vendors) and talked to many there, including operators, distributors, shop clerks, sales people and merchandizing people.

He discovered that Nokia's rigid distribution strategy prevented consumers from getting its products.

"I had agreed with my boss, who was based in Singapore at the time, to make some changes in our pricing and make our pricing strategy a bit more aggressive," he recalls.

"When I was in Chengdu, I called him up and said, 'Cancel it. The problem is not that we need to be more aggressive in pricing. We need to ensure we have the right products to market through the right customer understanding, and we need to completely reconfigure our distribution systems to improve the way we manage retail."

After that, Nokia has started to revamp its distribution channel by reducing the number of national distributors while increasing the domestic, or provincial, distributors. It also hired third-party sales representatives and opened its own-branded shops.

At the same time, the company aggressively increased its R&D activities in China, which significantly accelerated the company's response to the market needs.

In the following years, Nokia regained its momentum and its sales revenue surged from about 2.6 billion euros in 2004 to 6.4 billion euros last year, accounting for 13 percent of its global revenue.

"Our industry is built upon scale, so you need to have a certain percentage of the world's market share," Giles says.

New era

Nokia is still reinventing itself in a new era when Internet and mobile phones are converging.

At the end of 2006, the company announced it was entering the world of the Internet with an Internet tablet, a wireless appliance that allows the user to browse the Internet and communicate using Wi-Fi networks or with mobile phones via Bluetooth. The move aims to fight increasing challenges from new players such as Apple Inc, Google Inc and Amazon. China, which has the world's largest Internet population, is a market that Nokia cannot afford to lose on this new battleground.

"The most compelling change for us is the move toward the Internet," says Colin. "That story has already begun."