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."
