Why Nokia is No. 1 in China

The Finnish company's dominance on the mainland is due to its ability to learn the rules of the region and adapt its strategy to the local market

Nokia is the standout example of a firm that was able to learn the rules of the game in China and swiftly revamp its strategy for the local market.

The firm recently announced that it sold 70.7 million mobile phones in China last year, up 38.6% year-on-year. That made China Nokia’s largest mobile phone market, accounting for 16% of its global sales.

As of the final quarter of 2007, Nokia held a 35.3% share of the mobile phone market in China, according to Analysys International, a Beijing-based tech research house. Samsung was its closest competitor, with 13.2%.

The Finnish company’s dominance in China doesn’t seem likely to end anytime soon. Nokia said it has inked a deal to sell approximately US$2 billion worth of handsets to China Postel, a subsidiary of China P&T Appliances.

Analysts said that Nokia’s success here has been built in large part on a revamped distribution strategy. Originally it focused on building relationships with national distributors but then jettisoned many of them in favor of alliances with smaller provincial players.

“We did go through some big changes,” said David Tang, vice president of Greater China sales for Nokia. “We felt that we needed to have partners who focus on regional locations, so we enhanced our regional distributors, the so-called fulfillment distributors, which are primarily provincially based.”Industry watchers also said Nokia has done more than just make China the end market for its products or a cheap manufacturing base. The company went an extra step by empowering its engineers and designers, thus making China one of the pillars of its global research and development efforts.

To this end, Tang said that over 50% of the phones Nokia sold worldwide last year were developed at the company’s “ dcreation center” in Beijing.

With China’s mobile penetration rate somewhere between 40% and 50% – compared to over 80% in the US – domestic and foreign companies are all fighting to boost their market share. In addition to competing with handset vendors operating legally in China, Tang noted that Nokia also faces competition from counterfeiters and fly-by-night manufacturers operating without the proper licenses.

“Right now there’s no official credible study of how many [illegal phones] there are, but I would believe it’s a substantial number,” he said.

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