The Lessons from Nokia's Decline

      February 15, 2011 13:04

      Cho Hyung-rae

      The downfall of Nokia, once the world's largest mobile phone maker, is a clear reminder of the consequences of failing to keep up to the minute with market trends. Over the past two decades, the Finnish company epitomized corporate innovation and good governance. In 1991, it was the first to commercialize the GSM mode, which became the European standard, enabling Nokia to grab a 40 percent share of the global phone market.

      But it was more than just a money-making machine. It aimed to make affordable products under an egalitarian business philosophy, rolling out phones that cost less than US$5 a piece that gave people in India and Africa access to mobile communication who could not otherwise have afforded it.

      It had no rivals in terms of its 42,000 core technologies, most of which it allowed competitors to use for free, enabling the mobile communication market to expand. In embodying win-win relationships with the competition, it deliberately set itself apart from the U.S.' Qualcomm, which did everything to ensure it got every last penny in royalties.

      The first modern smartphone was the Nokia 9000 series, which was introduced in 1996. Nokia was responsible for one-third of Finland's exports, and former CEO Jorma Ollila, who led the company in its heyday, was more respected than the country's president. In fact, Ollila was frequently touted as a strong candidate for the presidency himself.

      Now, Nokia is on its way downhill, defeated by Apple, which has only three years of experience in making mobile phones. Nokia has taken radical steps to halt its decline, including hiring a foreign CEO for the first time in its 140-year corporate history, but saw its market share slide to less than 30 percent. Its share of the smartphone market has also slid to the 30 percent level from 50 percent.

      What is striking is that the very technology that set Nokia apart from its rivals has ended up slowing it down. It has yet to release a single Android smartphone. Even as the global smartphone market is being carved between the Apple iPhone and Android-based ones, Nokia remains fixated on Symbian, which it developed. It is making the mistake even though it knows that consumers who have been dazzled by the iPhone are not about to choose the simplistic Sybmian operating system.

      Of course it cannot be easy to dump an operating system that took 10 years to develop at a cost of billions of dollars. But Nokia made the same blunders when it rolled out its first touch-screen phone. Unlike Samsung, LG and Motorola, which were quick to follow Apple in catching up with the trends, Nokia took more than six months to roll out rival products. Perhaps it did not want to embrace what it may have considered to be an American fad.

      Watching Nokia's demise prompts the question whether it is right to criticize Korean businesses for merely following global standards. Winning the global race to develop these standards allows companies like Apple to achieve profits that amount to a whopping 30 percent of sales. But losing the race can lead to disaster. Perhaps it is a good strategy to remain quick and nimble in following the trend, as Korean businesses have done, and maintain a solid second place.

      By Cho Hyung-rae from the Chosun Ilbo's News Desk

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