Tuesday, September 14, 2010

Nokia's Downfall Holds Three Lessons for Malaysia

The title caption paraphrases an article by Bloomberg's Matthew Lynn here. Lynn's article was directed at tracing the rise and decline of Nokia and applying it to the economic challenges now facing Europe. The same points apply to Malaysia. Read on:

What was the most successful European company of the 1990s? Easy. The Finnish mobile phone manufacturer Nokia Oyj. And the most disappointing one of the 2000s? Easy again. Nokia.

A company once held up as an example of how Europe could still compete in technology and create new industrial giants, Nokia has been in steep decline -- a point emphasized last week by its decision to hire the first non-Finn as chief executive officer, charged with turning the business around.

And just as the company’s rise held lessons about how Europe could succeed, its downfall tells us much about why the region so often fails. Nokia rested too comfortably on its laurels. It was never willing to re-invent its business, even if it meant completely changing its products. It was never located at the heart of the information technology industry, among competitors who might force it to keep innovating. Other European companies should study Nokia’s fate to make sure they don’t repeat it.

A decade ago, Nokia was the most successful business Europe had produced in a generation. It captured the emerging market for mobile phones and built the industry’s most powerful brand.

Politicians lined up to praise the company as an example of how Europe could still prosper in the 21st century. No less a figure than Romano Prodi, president of the European Commission, drew attention to the success of Nokia and its rival, Sweden’s Ericsson AB, in a speech in 2002.

“Their achievement in mobile telephones helped to create two vibrant clusters, around Oulu in Finland and Stockholm in Sweden, which have attracted a large number of startups as well as investment from foreign companies,” Prodi said. “These examples demonstrate that European regions are capable of developing new, high-tech clusters.”

Reversal of Fortune

It doesn’t look so good now. In the last three years, the news out of Nokia has only been bad. Since Apple Inc. introduced its iPhone in January 2007, Nokia shares have fallen by 47 percent. The company’s brand, once one of the coolest in the world, is battered. In a ranking of global brands by Millward Brown Optimor this year, Nokia ranked No. 43, dropping 30 places in 12 months. Its profit margins have been shrinking, along with the average price of its phones and its market share.

True, it still has more than one-third of global mobile phone sales. But it looks stranded in the middle of the market. Korean electronics manufacturers such as Samsung Electronics Co. are leading the main consumer market. Apple’s iPhone and Research In Motion Ltd.’s BlackBerry dominate the upscale, smartphone industry.

Importing Leadership

Last week, Nokia recognized the scale of its challenges, hiring Stephen Elop, the head ofMicrosoft Corp.’s business unit, to turn the company around. Can he succeed? Everyone will wish him well. But if the guy knows so much about phones, he’s kept it a secret. Microsoft has never made any progress in that industry.

The cruel truth is that for all its residual market share, Nokia looks like a has-been. It misread the way the mobile phone industry was merging with computing and social networking. It is probably now too late to turn that around.

There are uncomfortable lessons here for European industry.

First, never rest on your laurels. Nokia got to the top of its industry quickly. But once there, it became complacent in an industry where laziness is fatal. It worried too much about hanging onto its market share, rather than creating new products to excite customers.

Failing to Mature

Second, Nokia was unwilling to challenge itself. The company clung to the model that mobile phones were mainly about calling people. It failed to notice that they were just as much about checking your e-mail, finding a good restaurant nearby, and updating your Twitter page.

Finally, it wasn’t located near a cluster of similar companies. Building a technology giant in Finland was a great achievement. But Nokia wasn’t surrounded by Web companies or consumer-electronics manufacturers. That meant it wasn’t in the mix of innovative ideas, which would have forced it to question its assumptions every day. The company should have relocated to California. Sure, that would have caused an outcry at home. But that’s better than watching its slow decline into irrelevance.

It may be too late for Nokia to turn itself around. But Europe still has companies that dominate industries such as oil, aerospace, pharmaceuticals, automobiles and financial services.

They are all prone to similar missteps. Are the auto manufacturers doing enough to prepare for the arrival of electric cars? Are the drugs companies ready for the merging of computing and biotechnology? Are banks positioned for a decade when debt is steadily reduced, not increased? Probably not.

Politicians and business experts spent a lot of time praising Nokia and trying to learn from its rise. They should devote as much time studying the lessons of its downfall. If they don’t, much of the rest of European industry will repeat its mistakes. And Europe can’t afford to lose many more world leaders.


Anonymous said...

Reminds me of the story of Swiss watchmakers and the success story of Swatch. In whatever industry you are in, you need to keep an eye on the trend developing, more so when you are the market leader. Technology moves fast.

Goggle decided to open the market wide by allowing Android to be used by whoever is interested. They would seem to be a worthy challenger to Apple.


semuanya OK kot said...

It is not necessary to be located near competitors etc. Today, business, innovation and even artistic collaboration are done over comm links. Singers collaborate on the same song, employees work for people they have not met, etc. This is the beginning of a new world where "more" and "same" are not necessarily better.

The mania for bricks and asphalt is a big part of the mess we are in. I will end by saying that Cyberjaya is a shining example.

Anonymous said...

Are you sure Matthew Lynn understand mobile industry or he just wacthes Nokia figure?

Careful when comparing Toyota and Ferrari....

Nokia consists of dumb/feature phone, smartphone and telco equipment. Smartphone (ie. Aplle and RIM) unit sales for No.2, No.3 and No.4 together equal to nokia sales. All pc vendors jumping into smartphone market, Dell, HP, etc. Mobile phones sell 1.3 Billion units annually and 4 out of 10 are Nokia. 25% of world population are Nokia customer.

Downfall or making adjustment...

Who won, Windows vs Macintosh?

Anonymous said...

“First, never rest on your laurels. Nokia got to the top of its industry quickly. But once there, it became complacent in an industry where laziness is fatal.” Nokia is 145 years old company, let look into its history.

1865 Nokia was established as a pulp and paper mill in Finland. (By the way, paper is media use for communication)

1960s, they expanded into the rubber and cable industries through a series of mergers.

1975, they expanded into many industries such as computers, consumer electronics, and cell phones.

1979, Nokia and Mobria entered into a joint venture, which Nokia took over later to design and manufacture mobile phones.

Since 1998, Nokia has been the market leader in the mobile phone industry transcending the boundaries between countries and continents.

2002, Nokia split its mobile phone division pillar into nine separate business centres based on geography, charging them with working on specific markets independently, especially Russia, China and India. Nokia had finally learnt from its folly of neglecting these growth markets.

2003, Nokia reorganized by dividing the company into four divisions: mobile phones, multimedia phones, enterprise solutions and networks.

2008, Nokia restructured itself into three main functional groups: Markets, Devices and Software & Services and, Nokia-Siemens Network.
Nokia focused on four main aspects in its current restructuring process:
1. Product focus: Nokia was manufacturing 70 models world wide
2. Functionality focus: Technical and functional expertise was important for cutting edge technology
3. Geographic focus: Expanding global footprint
4. Focus on Internet services: Exploring future possibilities
Nokia's entry into the mobile internet application development (such as ovistore, ovimail, ovimap, etc) is important for its future growth. Nokia sees this as the next step to stay ahead of the competition.

Is Nokia on the right track?
Whether or not it succeeds will depend on how it is able to change itself from what it is now to what it should be to meet the demands of a new era. Nokia, over the years, has evolved both organically and inorganically. It has always kept an eye on the future and worked towards achievement of its future goals.