Entry of 3G will change the market dynamcis for Nokia
INTERVEW with Olli-Pekka Kallasvuo, President & CEO, Nokia Corporation
It’s a fact that Olli-Pekka Kallasvuo (OPK) states very proudly: There are more Indians in Nokia’s Finland HQ than Finns in India’s HQ in Gurgaon. But then it’s the way of life for Nokia. After all, India happens to be Nokia’s second-largest market and a key base for global operations. On his annual visit, OPK was in India last monthon a three-day tour, the highlight of which was his chairing the prestigious ET Awards jury for selecting the 2009 award winners. He spoke exclusively to ET on the world economy, trends in mobile handset market and the transformation he is trying to bring about in Nokia. Excerpts:
It’s been three quarters of gloom. Do you see a recovery in the global economy?
I think it will take quite a while for the world to recover from the downturn. It relates to unemployment, it relates to how much money is being spent for stimulus before it starts to have an impact. It will take a while and that money will need to be re-earned. There has been a reset in the global economy but it will take place at a lower level.
Do you think that the ultimate device debate is settled in handset’s favour?
Mobile handsets have been successful in capturing value from the adjacent categories. It’s not a telephone but a multifunctional device with music, camera, imaging and so on. Now we are adding even more functionality on top of that platform with the help on new application software services. Conceptually, we continue to do the same, we continue to add value to the mobile handset — and it’s very clear that as PCs or what we know as PCs, or notebooks and mobile computers, their markets are getting closer to each other.
Definitely new types of devices will also emerge as well in this converging device market. And the first examples of this have been notebooks. In that way the possibility of a consumer to choose a device that suits his or her needs will only increase. I don’t think that it’s the mobile device versus anything else. It’s a question about the convergence space where a lot of opportunities will arise.
The competitive landscape for Nokia has changed rapidly with new competitors coming in from all corners. Firstly, it was only Ericsson and Motorola, then Research In Motion and Apple. Koreans want a slice of the market too, and even Google is in the fray now.]
The point here is that we are talking about several industries coming together. The definition of the industry is changing and we are redefining what an industry is. As the industry expands into newer categories, new players come to that converging industry. What it means for us is that we have new competition on the one hand and, on the other hand, it’s the best possible illustration of the fact that the space we are in is interesting. We need to be competitive against the both traditional competitors and new competition.
A lot of industries are going through a fundamental structural shift. You spoke in your AGM speech about some fundamental shifts in the handset business too. What are they?
The fundamental changes are primarily about adding the services layer on top of the handset. We’re adding the contextuality, the social dimension, the location dimension and this for Nokia is a major transformation. We’ve been talking about the target of 300 million subscribers, or active users, by 2011. That’s a target we could not have imagined earlier when we were simply selling devices as opposed to also getting on board users for our services. That’s a big change.
You have spoken about co-operating with the competitors. Why does a market leader want to work with competition?
The borderlines of the industries are being redefined. Of course, there is much more complexity and possibility in that area. And in a complex world, you need to sometimes both partner and compete with same people depending on the area you are in.
A good example in this is we are working with Microsoft in some areas, at some times we are also competing with them. Going forward, many people will have to show this flexibility. Another dimension is that it’s more and more about ecosystems competing as supposed to companies competing only. The ecosystem will necessitate partnerships in much wider way than has been in the past.
What is your view on some of the large Chinese handset manufacturers, whose names may not be very well known but they could be the next big players?
The largest Chinese handset manufacturer is Nokia. Also the biggest in Korea, because we’ve got the biggest factory there. And India. (laughs). It is correct that some Chinese competition has definitely entered the market. We also have more competition in grey markets. India should be alert to this, it should look at the safety concerns that may be relevant here when it comes to grey market goods.
Nokia’s growth in India has been a 100-metre dash — nearly Rs 25,000 crore sales in 14 years. But that kind of hypergrowth is unsustainable. What do you think will be the next biggest growth drivers in India? Is it the fastest rate of growth that you’ve seen anywhere in the world?
We have seen similar fast growth in China, Brazil and definitely India is in the same league. It is about selling even more sophisticated handsets to India with services piled on top of that. Nokia live tools is the perfect example of this. 85% of people have been renewing their subscriptions of the live tools. That’s a good retention number.
And, of course, India has been a market that has not only been low-end. It’s a common perception but that’s incorrect. It has been low-end shifted, now we must target to sell more and more sophisticated handsets to our Indian consumers. Also, 3G will come to India soon and it will mean that the possibilities to use handsets. It will inject some energy in the Indian market. It is now happening in China. Of the big markets, India is still pending.
Another area where Nokia has taken a lead was by putting an Indian woman — Lalita Gupte on the Nokia board. What prompted that move?
First, I would claim that of all the companies in the world with similar market cap, Nokia is one of the most global in terms of market positions, geographical distribution, management; for example my CFO is based in NY, I am in Helsinki. Our board has great diversity too — India, France, Germany, Sweden, the US — they’re all represented.
It’s a question of finding an excellent profile to fit into your board and looking at the diversity you want to bring and local knowledge as well. She (Gupte) met the criteria. Diversity is great because it brings new dimensions to any discussion and in that way can create positive friction that generates innovation. If everybody thinks alike, innovation is less likely to happen.
What is really admirable about Nokia is how a small company from Finland has gone into a truly global case study, whether in terms of R&D, manufacturing facilities or in terms of markets. Why is it that traditional manufacturing giants like Japan didn’t do the same?
When you don’t have a large home market, it helps you a lot. It makes you flexible, faster and more aggressive at penetrating new markets. When you have a sizeable home market, you tend to limit your thinking.
