N8 to be co's next killer phone for Indian mkt: Nokia

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It is a well known fact that Nokia dominates the Indian mobile handset market. It has got between 55% and 60% of the market share. The company reported an estimated sales last year of Rs 14,100 crore. However, the not such a well known fact is that if you combine Nokia's handset business with the business of Nokia-Siemens, sales tot up to about Rs 25,000 crore. That makes it one of the largest MNCs in the country. It's even bigger than Hindustan Unilever, and just a little smaller than Maruti Suzuki.

But if we define MNC in the classical sense, or the wholly foreign owned company, Nokia's handset business alone makes it the biggest MNC in India, bigger than even GE.

In an interview with CNBC-TV18's President and Editorial Director of TV Business Media, Senthil Chengalvarayan, D Shivakumar, VP & MD, Nokia India spoke about about the company's India strategy, the challenges the company faces and the opportunity he sees in the Indian market.

Here is a verbatim transcript of the interview. Also watch the accompanying video.

Q: Let's just try and get your version of the number because I know that the IDC number of a 52% or 55% market share which has dropped from 58% is not something you would agree with because it doesn't capture your Chennai manufacturing entirely?

A: I think the key thing of this market is that shares go up and down. But I think with innovation and with good branding and marketing things change dramatically. Things have changed dramatically even in the last three months with what we have done around our portfolio. Nearly half our business last quarter have come from new products. One of our products has become the second largest company in this country with sales more than any other mobile handset.

Q: Which product is this?

A: This product is called 2690. So things change dramatically. So I think some of these numbers which you quote are at a point of time. But you have seen Nokia over 15 years in this country, we have always been a strong player and I think we will always be a strong player.

Q: You have always been a strong player. I was going to start talking about challenges but since you mentioned 15 years. Let's just flash back to 1995. It was a wide open market and it wasn't a market that had only you at the play. It had very big names coming in. You had Ericsson, you had Motorola, you had LG, Samsung. Yet you managed to get a hugely dominant share, I mean an unnaturally large dominant share in the beginning. What was it? What was the one single factor? Was it your focus because others were selling mobiles also?

A: Yes. Nokia focused on three things. Going back to 1995, the Nokia global board met in Delhi in 1995 when there was no business. Now that calls for enormous vision and foresight to say, we are going to come into this country and we have no business right now. We setup the business in 1995, the first call was made on a Nokia phone on a Nokia network.

When Nokia setup its business we said we will focus on three things. We will focus on building the brand, second we will focus on getting great quality people and third we will focus on great distribution. In distribution, we partnered with HCL who continue to be our strong partners over 15 years. Every other company changed its distributor except Nokia.

In terms of people we have always looked to the future to get people into the company. When we are USD 1 billion business we are asking ourselves what kind of leadership do we require for USD 2 billion, to run a USD 2 billion business. When we are a USD 3 billion business we said what do we require to run a USD 5 billion to USD 6 billion business. So we have always got people with much higher capacities in the size of the business. Many businesses fit leadership to the current sales turnover, we didn't do that.

Q: Let's just take a look at the way you attack distribution as you said distribution was very important. You attack it almost like a FMCG. Today there are over 100,000 retail outlets that sell mobile handsets and I think, I don't know what the number is. At least 70% sell only Nokia?

A: Yes.

Q: Is that strategy unique to India?

A: I think it's a strategy very unique to India and I think it evolved. I think my predecessors Parikshit (Parikshit Bhasin) and Sanjeev (Sanjeev Sharma) had a big role to play in it. I think I have built on what they started as a foundation.

Q: So it was a deliberate track to go, strategy to say we will treat this like an FMCG?

A: Yes it was a deliberate one. And also I think the big challenge in the last 15 years for us has been to create a unique distribution channel for a digital product like a mobile phones. In most countries mobile phones have gone with the consumer electronics channel.

But because we had high taxes in this country the market was great. As a result of it most of the traditional digital distribution channels did not touch mobile phones. They wanted exorbitant margins to do that. So Nokia and HCL had no choice but they went on their own and built a completely new distribution system. As a result of which they got in 200,000 completely new people into this trade who understood how to run this business which is a high innovation business where new products come and go every six months. Products fail every six days, successes last 18 months.

Q: So you are saying if the taxes had been normal in the beginning you may have gone the traditional route?

A: Absolutely. If they had been normal in the beginning then it's quite likely that the market would have gone via the consumer electronics route and not this FMCG route and I think that's what happened.

Q: Do you think it would have done as well?

A: Difficult to say. But I think what this really did was it allowed the handset bands to focus on handset, it allowed the operator to focus on his business. So in a sense it gave not only us an advantage, I think it gave the consumer the best possible choice in this country.

Q: Building the brand. Conventional wisdom will always tell you that one brand cannot mean the same thing for all classes of people. But yet you built an umbrella brand for Nokia selling handsets from Rs 1,000 all the way to Rs 50,000. How did that strategy come? What forced you in that strategy? Is that again a Nokia strategy across the world?

A: Yes it is. If you look at the technology industry you will see in consumer durables you will see in any of the technology part of the business, you cannot have more than one brand. It is normally one brand. Many people have tried a second brand and a third brand and everybody have failed. Every consumer durable company has tried a second or third brand.

Why is that? There is a basic reason for it which is in the technology space the consumers have a very clear idea of price, value, quality point. For example, a 14" TV compared to a 25" TV compared to a 30" TV or an LCD they are very clear. The same thing with DVDs. So they have in their own mind a ranking of, at what price do I buy what.

Q: In any other industry you mentioned it is the variance in terms of value from Rs 1,000 to Rs 50,000.

A: In fact if you look at the price premium of the lowest offering from a brand to highest offering I think cigarettes would be 1:15 or so. We would be 1:30 or 1.40. We are one of the highest because our lowest priced phone might be about Rs 1,500 and our highest priced phone would be about Rs 40,000. So we have a huge range.

Q: Can this continue with the advent of the iPhone and the Blackberry which are considered to be high end and they only cater to the high end. So how do you ensure that your customer is high end or not seduced by that is clearly up market?

A: As a market evolves anywhere, there will always be segments which carve out themselves. Sometimes those segments are single function segments. Kindle is a single function device. So when you have a multi function device coming then the single function device will always have a challenge.

So as a market evolves you have some pockets which are single function pockets and some pockets which are multi functional. So you will always have that. But I think Nokia's biggest advantage is that it is a multi function socially connecting phone which is the huge advantage. It is just not a single function or an EDGE phone.

Q: Is this the toughest time that you are facing. Let me tell you why I am asking the question because perception outside is that you are being attacked now at both ends. At the top end you are being faced with tremendous attractive products from the iPhone, from Blackberry, you will get the Android coming in. At the lower end you are being attacked by a market which has been fairly important for you. You are attacked by local brands which are Chinese phones, very cheap, lots of technology. Recently we had smart phone from Spice which has been launched at Rs10,000 you are attacked from both those ends? How difficult is it? How bad is it?

A: I would say starting with your question this is not the first time we have been attacked. If I go back to 2006 there was huge pressure on us, we were told at Nokia that you do not have any slim phones and the whole market is going slim, and you do not have it and that is why you are losing. Then Nokia introduced 6300 and then there was no debate about slim phones and what happened to Nokia and what happened to the competition. In 2007 we were told that you do not have music phones and that was the next big thing. Again now today there is no debate.

I think in a innovative market like cell phones if there are 10 innovations that come out, a company like Nokia might get 6 to 7 right. You'll always miss one or two. But when you catch up and do it in the Nokia way you regain lost ground very quickly which what has happened to us let us take the last few weeks or months. So the cell phone industry is one where you will always be challenged every day.