What will happen to Nokia when using mobile phones for speaking loses importance?
MONEY TALKS
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By Juha-Pekka Raeste
On my recent trip to Asia, a young Nokia manager happened to sit next to me. As is customary for Nokia, the man declined to reveal his name to a reporter, but after all, one can often speak more candidly when remaining anonymous.
The manager was concerned about the hustle and bustle going on especially at South Korean mobile handset manufacturers.
"They work 14-hour days in Korea", the manager exclaimed. "And mobile services are offered to consumers with much less hassle than in Finland."
It was soon apparent that the manager was quite annoyed with the Finnish wage level, and with Nokia’s wages in particular. German and American colleagues earn many times more for doing the same job.
The manager even confessed to having pondered from time to time whether he could sell his know-how to some Korean company and get rich.
"But maybe this current position is an investment in the future", the diligent company man sighed.
One in four new mobile handsets are already South Korean.
According to the global sales statistics published by research institute Gartner last week, electronics giant Samsung has surpassed U.S. company Motorola and become the world’s second largest mobile phone maker after Nokia.
LG, another South Korean conglomerate, passed Japanese-Swedish Sony Ericsson in mobile handset sales at the same time, becoming the world’s fifth largest player in the field.
According to the predictions of equipment manufacturers, growth in mobile handset sales will be centred in Asia over the next few years, and a growing amount of production will also be transferred there.
One key change that is taking place presently has to do with the number of mobile handset models.
When mobile phone makers and their subcontractors used to struggle with around twenty models, the current number of models is ten times as large. More than one hundred models are easily in production at one time.
Many of these models are manufactured for only six months. At the same time, the range of features in mobile phones is growing so much that the piece that enables speaking easily becomes the cheapest part of the phone.
"Mobile phones are becoming personalised in the same way as cars. Everyone can choose the colour and package of features that pleases them", the director of a subcontractor that makes mobile phone covers predicts.
In earlier days, the largest mobile phone manufacturers received clear economies of scale from the fact that huge numbers of one model could be produced. For example, estimates place the sales of one of Nokia’s former hit phones at over 150 million handsets.
Now it seems that the days when companies could focus on one single model are over, and manufacturers must adapt their production processes to allow for quickly changing fashion trends.
At the same time, the production times of mobile handsets from the drawing board to a finished product on store shelves have grown shorter.
Small South Korean manufacturers brag about launching their products within five months of starting the designing process. Western competitors achieve the same in one year.
Subcontractors predict that this "pass-through time" will tighten over the next few years to three months.
As the market leader, Nokia has a clear competitive advantage by virtue of its brand name alone. The worldwide marketing of the brand costs less per phone than for smaller competitors.
But if and when mobile handsets become general terminals where the qualities that count have to do with the display, camera, MP3 player, television, and internet browser, then versatile consumer electronics giants such as Samsung and LG have a strong foothold.
At such a time, Nokia may suffer the same fate as with its N-Gage game deck. It will face the humbling task of trying to conquer markets where it has no prior experience.
During its days of greatness, Nokia grew accustomed to not revealing the speeds of the processors in its phones, or hardly any other information, so that competitors could not claim their products are better by comparing technical details.
The company did not want to see the mobile handset business turn into a bulk sector like PC sales and consumer electronics.
Consumers can most likely no longer be fooled with the new features of cameras, MP3 players, or other new add-ons.
According to electronics vendors, the buyers of digital cameras, for example, carefully examine different quality and price comparisons.
"The typical buyer is a man dressed in a leather jacket who tours the stores that came up cheapest in an online comparison. He is active on a Saturday, and he even tries to haggle. It is a cruel business", one vendor sighs.
Helsingin Sanomat / First published in print 12.12.2004
JUHA-PEKKA RAESTE / Helsingin Sanomat
juha-pekka.raeste@hs.fi
