Tomorrow, the Moon: Nokia’s plans for rural China

Nokia is making waves in the handset market in rural China, targeted as their next big emerging market. If their success is sustained, it will become a case study in the annals of how a multinational can create an entirely new marketfor itself in a highly competitive and challenging environment, home turf of the ‘cheap Chinese imports’ themselves. With 40% marketshare globally and the alternate name for ‘mobile phone’ in India, Nokia has few untapped markets left. This will be one foray worth watching.

Turning conventional business wisdom on its head, their approach seems to have little to do with price reduction or advertising promotions. Instead, they have launched an ambitious plan to improve early childhood education and development for 70,000 children in rural China by opening 1200 centers as mentioned on the auspicious date of August 8th, 2008, by CSR China,

“Education is a core component of our corporate social responsibility programme,” said Colin Giles, President of Nokia China. “Children are our future, and success lies in investing in the future. The success that Nokia enjoys today comes from the support of Chinese consumers. As a responsible corporate citizen, Nokia is pleased to contribute to the care and education of disadvantaged children in China in collaboration with Plan China. Our goal is to create a better environment for rural preschool children. The Heart to Heart, Hand to Hand Project will improve the care and education system for disadvantaged children in rural China and create a more healthy and harmonious environment for them.”

Next, they’ve been in the field listening to voice of their rural audience. They’ve revamped product design and distribution – critical issues when entering a new market that is socially and economically, as well as culturally, very different from your own. Of course, we know Nokia has embraced being human-centered and does not stint on ethnographic and design research in the field. Nor do departments other than design ignore the information gathered from the field.

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.

Expanding distribution in the hinterlands by literally piggy backing on the entrepreneurial Chinese, Nokia’s sales are reflecting their increased efforts,

This year alone Nokia has increased the number of its distribution outlets in China by about 20 percent. There are now about 48,000 locations in hundreds of cities around China where Nokia phones are available. Motorola’s sales network comprises about 30,000 shops.

Distribution in China is hampered by the large size of the country, and by the uneven levels of development in different areas. Nokia has received unexpected help from enterprise-minded Chinese. In ascertaining its own distribution channels, Nokia noticed that in more remote towns, merchants themselves have sought to expand their operations.

“They packed telephones in their backpacks, hopped on a bus, and went to sell in smaller towns. This brought new distribution channels that we were not involved in”, Giles says.

Announcing back in 2005 that China, particularly rural China, would be Nokia’s next big growth area, where are they now in 2008? BusinessWeek says on 28th August,

“For years, Motorola was No. 1 or No. 2 in the China mobile-phone market. But its share has plummeted from more than 21% in 2006 to an estimated 7.9% this year, according to market researcher Gartner. In contrast, Nokia’s share has topped 38% of the market, while Samsung is likely to grab 8.3% this year to move up to No. 2.”

Tsk, but I’m not going to say one word against Moto in China, I’d like to keep my friends. Back to the news, the UNDP says Nokia has joined forces to help earthquake victims recover from the disaster, from a release on the same date 28 Aug. I guess being nice pays, because not only are they threatening the ‘cheap chinese mobile phones’ themselves with aggressive pricing on top of a reputable global brand,

“Surviving mobile phone makers in China are getting involved in a battle for a larger gross profit shortly after Finland-based mobile phone giant Nokia Corporation took a price-cutting policy.”

they’ve just announced their latest marketshare, its 41.02% of the Chinese market reports Xinhua just a week ago.

What’s next?

The mobile internet, of course.

“The most compelling change for us is the move toward the Internet,” says Colin. “That story has already begun.”

~ written with pleasure on this day at my desk in Singapore

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