Monday, August 27, 2007
Nokia (NOK) announced recently that India has surpassed U.S. as its second largest market next to China. This is largely due to its unique manufacturing plant set-up in Chennai. The investment, much against the common thinking (India is not for manufacturing), seems to have paid off with 50% of those phones (60 million in the last 18 months) being consumed internally.
Another staggering piece of statistics is that 46% of an estimated 118 million Indian mobile subscribers use Nokia phones. To cap it, the Telecom Regulatory Authority of India (TRAI) has annouced 7.3 million additional mobile subscribers in June alone. So, if Nokia can sustain this market share, which they hope to based on their infrastructure investment and their long-standing brand-name in India, it will be a happy story to the coffers.
On the other hand, I do want to signal some caution -
. The demographic of Indian mobile subscribers is slowly morphing. When the mobile revolution started, it was either the executive or the jazzy college-going kid. Later, it was in the hands of every other college kid, meaning that the middle-class Indian was coming around to the fact that the mobile is after all not a spoiling influence on the kid but more a utility. Now, more and more people are realizing this. Moreover, the introduction and popularization of the ultra-low cost phones has gotten more of the working class and the rural India, traditionally conservative and very utilitarian spenders, to start using mobile phones. This trend is likely to continue. My take is that while there will always be a market for the higher-segment phones, the ultra-low cost phone market will play a key role and that section of the paying public is likely to dominate the mobile subscribers in the near future.
. On the higher-end, the paying customer wants the latest. India is no longer two or three years behind in technology. People want and get the latest and are willing to pay up.
These two factors will be important in defining the future of Nokia or any company for that matter in India. Any company that wishes to break into this market will have to strike a nice balance. All it takes is a RAZR or iPhone type technology-hype to tilt the market balance. Nokia may be up to this challenge given that they have set-up local design centers to read the pulse of Indians and give them the phones they need. But the Finnish company better be on their toes or they could be left high and dry.
On the other hand, the growing ultra-low segment typically operates on low margins. I am not sure how Nokia wishes to address this segment considering that Indian manufacturing plants may not be able to compete with their Chinese counter-parts. The 'Classic' from Reliance is a classic example of cheap and good-looking phones.
Thus with pressure from even carriers such as Reliance, Nokia has its task cut out here and faces an uphill battle to sustain the market share. It may however be helped by its well-built brand image and its pioneer status.