Chennai: Prakash Katama is a man at war with time. The director of operations at the Chennai factory of the world’s largest cell phone maker Nokia, intensely aware of lean and hungry competitors nipping at its heels, is on a crusade to shave weeks, even days, off his production cycle churning out cell phones for 100 countries.
“The pressure on us is ‘Don’t screw up,’” Katama told Mint during an interview in May.
Unfortunately, the factory manager’s suppliers are in no hurry to oblige him. They would once have tripped over themselves to do Nokia’s bidding, but that time has passed.
Photo by Sharp Images; graphic by Sandeep Bhatnagar/Mint
Katama’s scramble isn’t surprising, following the Espoo, Finland-based company’s widely reported squeeze in both the low-priced and high-end cell phone markets globally. It’s an urgency that’s been sounded by Nokia’s first non-Finn chief executive, the straight-talking Canadian Stephen Elop, who took over the reins last September.
In recent months, Elop has won applause for hiving off Nokia’s ineffective phone software Symbian to technology consultancy Accenture Plc and embracing his former employer Microsoft Corp.’s Windows platform. Still, the struggling handset maker is slated to lose its top spot in the fast-growing, lucrative, global smartphone market this quarter to Korean rival Samsung Electronics.
All eyes are now on Nokia to see if it can cling to the low- and mid-priced cell phone segments in India and overseas by shrinking costs at its 11 factories worldwide to fight nimbler, China-based competitors such as G’Five that are seeking to topple Nokia. (see interview)
“Nokia is trying to slow its slide in the market,” says Anshul Gupta, a telecom analyst with technology research group Gartner Inc. “I don’t see a complete turnaround where they can take back share from the local players and Chinese competitors.”
While handset sales in India —one of the world’s largest markets—are expected to jump 18% touching 215 million units this year, Nokia’s share has been plummeting. In 2010, the company controlled just 30% of the Indian market, a sharp fall from 54% in 2008, according to Gartner. That number dipped to 26% in the first quarter of 2011.
Inside Nokia’s Sriperumbudur factory outside Chennai, along the National Highway 4 that leads to India’s technology capital Bangalore, workers—80% of them women— surrounded by the incessant drone of machines, intently fix components on to circuit boards zooming past in sets of four along assembly lines.
Ritchie Rice, an 18-year Nokia veteran from Texas, is one of the managers at the India factory. During a tour of the factory floor, Rice says he has no knowledge of Nokia’s competitors. Yet, he is keenly aware of cost pressures. He knows if mobile handset batteries were made in India it would axe the high costs of shipping these critical components from China.
Nokia, which has about 20 producers of various phone parts around its factory in Tamil Nadu, is hoping to add five or six more global suppliers in India. Currently, just 20-30% of the factory’s phone components are manufactured in India—largely plastic items and packaging elements. A big chunk of inputs comes from China and the remaining make their way from Japan, South Korea and the US.
More part-makers orbiting the Nokia factory means speedier product and variant launches, declining costs and better profits. In the mobile phone business, technology becomes obsolete quickly and component prices fall. Handset-makers avoid stocking components, so as to profit from falling input costs and avert losses from hoarding soon-to-be-extinct technology.
Earlier this year, Katama convinced an existing keypad supplier to make more parts in Chennai, cutting the production time by two weeks. Still, several Nokia suppliers with gigantic, low-cost bases in China don’t see profit in setting up another operation in India. It may have been easier for the company—which made the handset that rang with the first mobile call ever to be made in India in 1995—to have its way with them a few years ago.
That’s the Nokia of today— its stature diminished, trying to come to terms with the new order.
Others have seemingly managed to avoid the pitfalls that befell Nokia.
“Samsung knew they cannot be an iPhone or a BlackBerry smartphone and it cannot compete with low-priced brands like G’Five,” says Arshit Pathak, the Noida, Uttar-Pradesh-based managing director of G’Five International India Ltd. In 2010, the Hong-Kong-based company made its debut in Gartner’s list of top 10 mobile handset makers.
“So, Samsung chose to focus on the mid-priced products,” Pathak added. “Nokia, unfortunately, doesn’t rule any market segment at this point of time.”
The world’s largest cell phone maker is facing intense competition in pretty much every segment of the handset business. And it hasn’t helped that Nokia was late to the dual-SIM (subscriber identity module) party.
About six years ago in India, there was a spike in sales of phones that allow users to subscribe to the services of two cellular operators without having to use separate handsets. Nokia executives rolled their eyes and dismissed it as a fad. Competitors say the market leader didn’t endorse this shift believing that it cannibalized the sale of another handset.
According to Katama, around 40% of phones sold today are dual-SIM.
Nokia reluctantly changed its position last year to launch its first dual-SIM model. But Nokia’s half-hearted effort bombed at the stores, and was taken off the production line. The company is now taking another shot at the dual-SIM market with two new models that it launched earlier this month.
“The dual-SIM is here to stay in the near future,” Nokia India’s director of sales, Vipul Sabharwal, told Mint in a telephone conversation, citing consumers’ quest for uninterrupted service, and the need to separate personal and business lives as some of the reasons for the popularity of these handsets.
Yet, Nokia struggles to play catch-up as the market has since moved on to triple-SIM and even quadruple (four)-SIM phones. The Finnish company’s top brass aren’t oblivious to these developments.
“We had a series of misses,” Nokia’s CEO Elop wrote in a widely-leaked internal memo this February. “We haven’t been delivering innovation fast enough. We’re not collaborating internally.”
Since then, the company— which started off making paper, rubber and cables more than 150 years ago—has battled rumours of its sale to Microsoft,bid adieu to its chief technology officer, lowered its earnings outlook, been battered by credit rating agencies and seen its stock hit 13-year lows.
The above reasons underline the urgent need of repair work in India—its largest market behind China. Cost cuts and product innovation in the subcontinent could counter some of Nokia’s global failings and even help sketch strategy for the next big source of growth for handset makers, Africa, an analyst said.
“Nokia’s vulnerability will be revealed if it loses its leadership in a large market like India,” says Prashant Singhal, who heads the Indian telecom practice for auditor Ernst and Young. “The company has to hasten decision-making and hotfoot innovations because success in India could give it a boost in upcoming markets such as Africa, which also has large populations and demand for phones across various price points.”