Nokia tackles profit, growth in emerging markets

Finnish mobile phone company Nokia faces an interesting dilemma - ensuring that its fastest growing markets are also profitable ones.According to Nokia's chairman and chief executive officer, Jorma Ollila, the company is squarely focused on the emerging markets of China, India, Vietnam, Indonesia and the Philippines, for future sales opportunities for both handsets and network.

Finnish mobile phone company Nokia faces an interesting dilemma - ensuring that its fastest growing markets are also profitable ones.

According to Nokia's chairman and chief executive officer, Jorma Ollila, the company is squarely focused on the emerging markets of China, India, Vietnam, Indonesia and the Philippines, for future sales opportunities for both handsets and network. But the key to success here is working in economies where consumers have far less disposable income to spend on mobile telephony.

"In emerging economies ... the beauty of mobile communication has been that it has brought communication capability in an affordable way to millions and million so of people who never had before the opportunity to own a phone, or even to make a phone call," Ollila says. "And here we have an opportunity to really make a paradigm change in terms of giving a chance in terms of communication to people in different parts of the world".

That means creating complete mobile packages that are both cheap and compelling for the consumer, and can deliver profitable business for the network operator.

Ollila says the key drivers for Nokia are the relationships it has with both consumer and carrier customers, having products that users want, and the strength of its brand and the promise that it brings to consumers.

However, when it comes to working in emerging markets, optimisation is critical. According to Nokia's executive vice president and general manger for mobile phones, Olli-Pekka Kallasvuo, this means developing network equipment that is geared towards basic needs such as voice and text messaging, while driving cost out of its manufacturing process.

"In the emerging world, the total cost of ownership is very important," Kallasvuo. "You have to take care of that total cost from the network perspective, covering both the cap-ex and the op-ex. You have to also look at the terminal side, and made sure that the terminals are optimised from a cost perspective".

Kallasvuo says this means greater focus on economies of scale, and has meant moving towards more componentised manufacturing. Also, roughly 50 percent of its suppliers are not paid until their components hit the assembly line. The goal is to take this to 100 percent.

"It means that it is not only designing the product, it is developing the manufacturing lines, the distribution change. So it's a surprisingly complex process".

"And here we believe that with the help of innovation, in order to reach the levels where you can reach new tiers, you have to innovate, and have big chunks of innovation. And it is difficult. And here we believe it is achievable to reach the level of 5 euros to 6 euros as an average revenue per user per month and still create good revenue for operators. And when that is achieved ... it means that we can cover a much broader population".

In the developed world, Kallasvuo says Nokia is focused on fixed line replacement. He says roughly 40 percent of mobile phone owners in Finland have it as their sole communication device. "And if you narrow the segment to cover 15-24 years, the percentage is as high as 66 percent. Therefore we see strong movements and drivers which are underscoring the mobility part, but it is then materialising as a business opportunity in quite different forms".