June 26, 2000
Nokia Plans to Come From Behind
In Booming Japanese Phone Market
By ROBERT A. GUTH
Staff Reporter of THE WALL STREET JOURNAL
Tokyo -- You might say that at 6-feet 10-inches tall, Heikki Kasko holds
the commanding heights in Japan's thriving cellular phone market. So why
doesn't his company, mobile-phone giant Nokia Corp., have the same
stature here?
Finland-based Nokia is the world's largest maker of mobile phones,
boasting nearly 30% of the global market for the phones, a leading role in
Europe and a growing presence in the U.S., the single largest market. And
with a stock-market capitalization of $273 billion -- larger than that of
International Business Machines Corp. -- it's even a giant on Wall Street.
But in Japan, the world's second-largest cellular market, Nokia is barely on
the map. It has toiled for six years selling phones in Japan, but is an
also-ran, with around 1% of the market. It spends vast amounts of money
tailoring its products to Japan, only to watch most consumers pass them by
for models from entrenched local heavies NEC Corp., Matsushita
Communication Industrial Co. and Fujitsu Ltd.
"If I were Nokia I would
give up on Japan," says one
Japanese mobile-industry
executive. "You don't see
Japanese candy makers
trying to sell to the U.S. just
because it's a big market.
The tastes are different."
Growing Clout
Yet Nokia soldiers on, and
therein lies a lesson about
the growing clout of the
Japanese mobile market.
Japan's rapid spread of cell-phone ownership and the boom of Internet
services over cellular phones are giving foreign vendors such as Nokia a
front-row seat at the marriage of the Internet and mobile phone.
Though Nokia's home market is also a mobile hot bed, many industry
executives have been surprised at the lead Japan has taken in
commercializing mobile Internet services. These services are being driven
by young people who use phones to find new restaurants, download
animated characters and play online games, including one where you
compete to catch digital fish. Japan's role as a field of innovation is likely
only to increase, as it soon will be the first big country to roll out
third-generation, or 3G, mobile service, which will give handsets
high-speed connections to the Internet. The technology could be the
catalyst for video and other advanced data services delivered to mobile
devices.
So, the world's leading cell-phone maker thinks it must fight it out in Japan
and apply the lessons learned to its global business. Leading Nokia's effort
is the avuncular Mr. Kasko, chief representative of Nokia Group here and
a former amateur basketball star who says he views business as a game
that can be won by teamwork and diligent practice.
"First of all, it's a big market,
and so our target is to become
a bigger player," says
Tokyo-based Mr. Kasko, 46.
And besides, "it's a learning
opportunity."
The biggest beneficiary of the
boom is NTT DoCoMo Inc.,
Japan's leading cellular service
provider. But after that, the
spoils are going to the
companies that DoCoMo
years ago knighted as its
preferred suppliers, including
NEC, Fujitsu, Mitsubishi
Electric Corp. and Matsushita,
the company behind the
Panasonic brand. Others not in
the top tier, including Nokia
and L.M. Ericsson, bring up
the rear. The DoCoMo system
has even left
consumer-electronics giant
Sony Corp. in the dust,
because Sony isn't one of the
preferred suppliers.
Semipro League
Mr. Kasko knows what it's
like to come from behind. He didn't start playing basketball seriously until
he was 20 years old, and within three years made the Finnish national
team. He continued to play in a semipro league for years after beginning his
career at an elevator company near Helsinki, practicing every night after
work and racking up sometimes 90 games a year.
In 1984 he moved to the Finnish unit of IBM. When Big Blue hit the skids
in the early 1990s, Mr. Kasko was on the executive team charged with
laying off nearly half of IBM Finland's 900 workers. "That's when I learned
an organization has to be mean and lean," he says. In 1995, Nokia
poached him away to head up its telecom-infrastructure business in
Southeast Asia. Ten days after Mr. Kasko joined, Nokia shipped him to
Thailand. He had a day and a half tutoring from his predecessor and then
was on his own. "It was like a Finnish sauna," he says, recalling a time in
Bangkok that his dripping sweat clouded up papers on his desk.
Crucial Task
Taking over Nokia Group in Japan last September, Mr. Kasko inherited a
500-person group that includes a major procurement operation for Nokia
world-wide -- a crucial task, since Nokia buys a lot of components from
Japan, like screens and chips, that go into its cell phones.
Even more important, though, will be his role in helping guide Nokia's
adoption of 3G. When it hits in Japan next year, manufacturers will have a
chance to fine-tune handsets in Japan before other markets adopt 3G.
And, in the handset business, since higher production volumes mean lower
costs, vendors hope Japan's penchant for new gadgets can help them raise
overall sales of 3G phones.
The 3G shift will be a big test for Nokia, which has achieved its global
dominance in part through its expertise in a mobile network technology
called GSM, which is used throughout Europe and in many markets
outside of Japan. With the debut of 3G, Nokia's GSM edge won't be as
sharp. Once the faster 3G networks get rolled out, the Japanese
companies that have been small players world-wide -- but are eating
Nokia's lunch in Japan -- think they have a better chance to compete with
Nokia on a global stage.
Those companies have been honing their skills since 1994, when
deregulation set off an explosion of Japan's cellular market. Since
DoCoMo owns the network technology used in Japan -- which isn't
compatible with GSM -- the windfall went to DoCoMo's supplier group,
which had an inside track to the technology, called PDC. As DoCoMo
improved phone technology, that group would always lead the pack with
the smallest and lightest phones with the best features.
What's more, unlike major markets elsewhere, handsets in Japan are sold
exclusively through the cellular-service operators, forcing phone makers to
adhere to operators' strict specifications over a phone's features. In Japan,
Nokia tried to leverage its global might by selling tweaked versions of its
European models. But those proved too bulky and sold only modestly.
Nokia really got smacked in late 1997, when competitors' phones in Japan
surged past Nokia's in performance features like battery life. Reacting,
Nokia expanded its local development team and fast-tracked plans to
improve its Japan phones, says Nigel Rundstrom, vice president at Nokia's
Japan unit.
Nokia also discovered that Japanese operators frown on bright colors, one
characteristic that defines Nokia phones worldwide. Low-key colors were
the rule, and no matte finishes. "Everyone felt that silver was ... a color that
suggested modern, technological, advanced," so Nokia toned down its
phone colors, says William Sermon, Nokia's group design director.
Following the Pack
At least once, it followed the pack too far. On one model, Nokia bowed
to the needs of an operator and designed a phone without Nokia's
signature feature, a plastic door that slides open to reveal the phone's
keypad. After the product hit the market, some core Nokia users and
influential writers for consumer magazines shot down the phone for its lack
of the slide.
Nokia's biggest challenge in Japan is still speed. Japanese makers roll out
new products every three to six months, and are continuously pushing
smaller and lighter designs far faster than other markets. The Japan market
is organized around seasons when Japanese tend to open their wallets. In
the spring it's the "freshmen peak," when new college grads start their first
jobs. Come July, the "summer bonus" peak hits. Miss one cycle, and your
product is doomed.
"It's almost like you're in a greenhouse where you are propagating and
forcing things at a faster rate than if you grew them out in the field," says
Mr. Sermon, the design director. "I don't think anybody's clock runs as fast
as the Japanese clock."
To improve Nokia's delivery time, Mr. Kasko reorganized Nokia's
development teams so they could work more closely with operators. Mr.
Kasko emphasizes the company's need to maintain a tough balance:
bending to Japan's stringent market while pushing Nokia as a unique brand.
While Nokia's market share has yet to show Mr. Kasko's influence, he is
turning heads in other ways. At a reception last year in Geneva for Japan's
telecommunications minister, some guests passed by the minister to meet
the giant in their midst, towering above the other, mostly Japanese,
attendees. The president of one Japanese telecommunications company
puzzled: "Who is that guy?" It will be Mr. Kasco's job to ensure that
everyone in the industry soon knows the answer.
Write to Rob Guth at rob.guth@wsj.com |
