Nokia's big plans for India

 On a three-day tour of India in late August, the first since he became president and chief executive of Finnish telecom giant Nokia (NOK) last year, Olli-Pekka Kallasvuo highlighted just how important the fast-growing Indian telecom market has become. He visited Nokia's manufacturing facility in Chennai and met telecom regulators in New Delhi and corporate customers in Mumbai. Nokia has long dominated the Indian mobile handset market, with a 70% share, and on his trip Kallasvuo announced that India is now Nokia's second-largest market, displacing the U.S. and behind only China. Moreover, he also revealed that Nokia has chosen India to be the global hub for Nokia Siemens Networks, the two companies' telecom infrastructure joint venture.

Kallasvuo talked to BusinessWeek's Nandini Lakshman in Mumbai about the importance of emerging markets and whether the lessons he learned from some were applicable to the others. Edited excerpts of their conversation follow.

Is this your first visit to India‾

I've come here many times, but it's my first visit as a CEO. Coming after two years, I've noticed that India has changed a lot in telecommunications in terms of becoming so much more versatile. It's not just a low-end-handsets market but has a wide offering. The distribution is in place, there's lots of sophisticated retail. They are the right kind of changes.

How has Nokia's popularity in the Indian market changed the way you are looking at research and development or the way your business model works‾

We are not looking at it differently. We look at the Indian market as versatile, complex, and interesting, but our business model is the same. In fact, we have expanded in India rapidly and have 9,000 people. Some of the people here are serving the global market. We are going to do even more of this"”using the Indian talent pool for global services. There are lots of opportunities there.

We just announced that we are locating the global headquarters of the Nokia Siemens Networks service unit in India. This unit will have a big global responsibility. It is exciting for our employees in India as well.

India recently replaced the U.S. as Nokia's second-largest global market after China. Does this bring Nokia closer to the goal of reaching the next billion users‾

Definitely. India will play a big role in that one. In India [alone] the potential is 1 billion.

How important are the emerging markets for Nokia's growth today‾

They are very important. But it's key to understand here that India is quite a versatile market when it comes to a mobile device. The Nokia N-series and E-series generate 25% of our sales in India, and those are the mid-tier and high-end devices. So you can't say that it's an entry market where just low-end phones are sold.

Penetration is important in India, where you get the first-time mobile-phone user. But at the same time, there's a big replacement and upgrading market moving toward more sophisticated phones. When it comes to software, it depends on what kind of phones are sold here. It's a different entry market where software is important"”for example, Internet browsing through mobile phones. India is an advanced market in many ways, and I can't classify it as an entry market or an emerging market.

Nokia is rolling out a range of seven new phones for emerging markets.

 

Is this the first time that you have developed models for such specific markets‾

I don't think we are talking of emerging-markets phones. We talk about different price-point phones. But the difference is not dramatic. We have been in the business of making low-price-point phones for a long time and will continue doing that.

I think it's fair to say we have invested more than our competitors in the low-end segment. Maybe we saw this business opportunity earlier in this market and began investing. Maybe we saw the potential earlier than our competitors did.

Is Nokia making profits at the low end, and if so, can you sustain them‾

The point is that we are making money at all ends of the market. There are many other factors that will impact the profitability of certain phones in addition to the price. It's a complex calculation here, where the price is high when it's new, and then comes down when it becomes old. It's not that simplistic.

What are some of your takeaways from both India and China‾ Have you replicated the lessons in any of the other emerging markets‾

In both these markets, the distribution challenges have been bigger than in many others. It's the huge size of the markets, the lack of infrastructure. Here, building distribution to get to the rural market is a challenge. I think we have learned a lot in these markets, which have been applied in others, particularly Africa. We are seeing things happening in Africa from the mobile-communications-market point of view that we saw happening in India maybe five or six years ago.

For instance, we learned how to arrange logistics infrastructure in markets or areas where it didn't exist earlier. And how to build distribution in markets where you really have to build it yourself. There are very few companies that are market leaders both in India and China. We don't disclose our country market shares, but distribution has been the key for our success in India and China.

Nokia has a 70% share in India. With handset prices going as low as $19, can you continue to hold on to that dominant position‾

There's a clear target given to our India team that they must take market share.

Are you customizing phones for Africa as well‾

We are always looking at making phones that appeal to certain customer groups. At the moment we don't have a phone made for Africa. We have had phones made for India. The Nokia 1100 phone was made with a torchlight and antislip grip for India.

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