The Hindu Business Line : India, by choice

As Executive Vice-President of Customer and Market Operations, Robert Andersson is responsible for Nokia's sales organisation as well as manufacturing, logistics and sourcing for mobile phones, multimedia and enterprise solutions for mobile devices. Nokia, the Finnish mobile handset and telecom network equipment manufacturer, inaugurated its plant near Chennai for making handsets and network equipment. Andersson, who has a Master of Science (Economics) and a Master of Business Administration, has been with Nokia since 1985. During his recent visit to Chennai, Andersson spoke to eWorld about Nokia's strategy and plans. In this interview, he explains that Nokia's decision to set up a plant in India was driven more by the need to be close to a growing customer base than one of costs. Excerpts:

Was your decision to set up a plant in India, especially Chennai, driven by the growth that you anticipate in the Indian market or was cost a major consideration?

We have been phased in our long-term planning. A couple of years ago we realised that we would need to expand capacity. What is the best alternative I have? In some cases you have real estate blocking your expansion. The other thing is the benefit of being in a different location. We have been seeing that India will become a market where we will manufacture. Even 10 years ago there was a suggestion within Nokia whether we should set up a plant (in India). It was absolutely the right decision not to set up plant at that moment, because the market wasn't there. The pick-up of the market was much slower than we ever anticipated during the larger part of 1990s. I think it was only in 2002 - when tariffs and duties came down, the component import duties came down from 28 per cent to 14 per cent, and component import rules were changed - that the market picked up. Duties and tariffs have been reduced subsequently as well. If anything, we should have been here (only) a year earlier.

Is there an optimum size in terms of capacity or the number of people you employ?

We don't favour huge locations, because of our concept of wanting to bring our partners and suppliers with us. At the plant (Chennai), there is a huge fenced area, within which there will be 10 plants, our partners' and ours. (So)there is a limit to how far you can go in terms of expansion. We produced 265 million handsets last year in nine plants, which is on an average 30 million handsets per plant. I would say that this plant has all the elements of becoming a high volume plant (or thatwhich produces 30 million pieces per year.

In terms of cost, how would India compare? China is always cited as an example.

With regard to costs, assuming that there are no duties and other tariffs as non-trade barriers, India is competitive versus China versus Mexico and so on. I don't have apples-to-apples comparison. I would say that it is not the cost of labour that brings us to India. It is the market place, the market opportunity and being close to the market, being close to the demand-supply network. Being able to act and react quickly seeing the development in the market place. And also closeness in the sense that we don't need to fly in jumbo jets full of handsets from China or Korea. We also don't produce into warehouse but produce against orders. We don't have a warehouse here. It is kind of just-in-time and that is one of the big advantages that we have compared to many of our competitors. This is the model followed worldwide. And it is also one of the reasons why we like to have our suppliers close to us because then we can eliminate various non-value adding inventory.

Cost is not the key driver. Being close to the market is the most important. And typically the labour time that is put into a device like this for instance (a handset) is we are talking about minutes, we are talking about low minutes, not tens of minutes or hours. So if a person makes $5 or $10 or $2 in the end for the cost of the device, if it is a minute of labour time, then it is not bad. Every cost element counts but that is not such a key driver for our decision.

Nokia has earlier said that local design and not local manufacture brings down prices.

It is absolutely true. Let us assume you pay $6 per hour. Then one minute (of labour) is 10 cents. The rest is mainly component prices and depreciation and logistics. The fact that we are making this in India is not from a labour perspective. the same components we will buy from China or Mexico or Finland or Hungary or Germany. It is the same production line. And you can't manufacture these with a higher labour because the PC boards, the components are so small that the human eye can't do it anymore. You have to have these sewing machines that put 300 components on the board in a few seconds. And you can't solder by hand. Till 10 years ago, we had people soldering manually and placing components. Now it is automated. In a way the labour content there isn't huge. The cost saving from manufacturing in India is more related to being close to the market and being able to run a cost-effective demand-supply network. People hopefully also like buying "Made in India." People will see that Nokia is committed to India and there will be some benefits coming from that.

What is the capacity at the Chennai plant?

We do not have an absolute plan for the capacity. For competitive reasons we don't disclose our ambition level. I gave you a strong indication that if you can make one million units in about six weeks, you don't need to be a rocket engineer to figure out that we can make a few millions in a normal month. You also saw that there was plenty of free space in the plant. It is not even half-full with equipment. We would be able to scale that facility to respond to the needs of the Indian market and hopefully also to exports. One other reason why we don't go out and make big statements is also that we have never manufactured mobile handsets in India before. Our future investments and commitment depend on how well everything goes. If we will be faced with labour problems, logistical problems, interventions of different kinds, that will reduce our willingness to further invest. We would play it by the ear. We would see how successful we are, how cost-competitive we are and then we will move on. We have the shell, within which we can expand.

Do you anticipate any of those problems? Have you faced any of those problems in the plants you have set up in the other countries?

We have been lucky. The governments and the partners that we work with see the benefit in working with us. We never have any problems with them. Sometimes governmental relationship can be unpredictable, difficult. We haven't had big problems. The third element is labour. We have been lucky not to have major labour disputes but I am just being cautious.

You have said that you are going to manufacture only the GSM handsets at the Chennai plant. Does it mean that you expect only the GSM market to grow in India and not the CDMA market at the same pace?

For the moment, we are looking at GSM only. If and when it becomes economically and otherwise feasible, we can, with minor investments, expand into other technologies as well. In our plant in South Korea we manufacture GSM and CDMA, using partly the same investments.

On the retail side that Nokia has such a majority share, the fall has been quite significant in recent times that you did not see the clamp shell model as being important.

You are talking about the global market? In India, the clamp shell design hasn't really been that much preferred. Our position in India is strong and we intend to keep it that way. Globally you may have heard that for many years we have reiterated our ambition and target for a 40 per cent global market share. At the same time, we have never put an absolute deadline or date for achieving that market share. Market share is more like a mindset for us. We shouldn't be happy with what we have, we have to go for more. Our global market share last year was 33 per cent and our market share in quarter four was 34 per cent. We gained some market share towards the end of last year. For a 40 per cent market share, we need great products, we need to be customer-focussed and we need to execute in an excellent way. We cannot miss any major market segments, we cannot miss any major technologies and we cannot miss any major designs.

Any new technologies that are coming that you need to keep your eye on?

A lot of change. It is an exciting world we are living in right now. Just looking at what is happening in the market place, we see mobile TV coming in the most developed markets, we see IP convergence, Internet telephony starting to happen. We see TV coming into the mobile world. We see music growing fast. I would say imaging or picture taking has already been digitised. This year is probably the year of music and mobile TV. Those are sort of leading edge. They are basically in the more advanced or higher GDP markets where people can afford to spend. We will be bringing these devices into India as well.

You were talking about achieving 40 per cent market share as your target. Which means most of the growth would have to come from Asia.

I think that is pretty clear. Asia and Africa, and then West Asia as well. Some of the African markets, Nigeria has 135 million people and they have got oil. They would be investing that oil money into infrastructure and it is starting to happen. Pakistan has low penetration levels, but it is starting to grow. The majority of the growth is coming from the areas and markets that don't have high penetration levels.

Would you be expanding capacities in these regions?

Probably. But we will see how and when and where.

Which are the likely countries?

There was news on Bloomberg that Nokia was building a Euro 200 million plant in Romania. I can assure you that that wasn't true. But I can also assure you that we are looking continuously. The reason why probably that news came out was because we have had teams looking at Eastern Europe to be aware of the opportunities. If we are happy with our investments in India, I am sure we are here for the long haul and we will stay invested.

How long do you think it will take for the operations here to stabilise?

I think my expectation is that by the end of this year (2006) we will have a well established facility.

On your distribution in India, the nature of your relationship with HCL has changed slightly. Would you go beyond that? You were exclusive HCL and now you are going to be doing it along with HCL. Would you care to comment on that?

This is unfortunate that it has been a little bit blown out of proportion and HCL's share price has suffered more than, I believe, it would have needed to. We have never had an exclusive agreement with anybody in distribution. HCL has been our sole GSM distributor in India. We agreed that Nokia will go deeper in distribution and we will share the growth of the market so that we will go further down into the regions and emerging rural areas. Together with HCL we will address the market place in the best possible way.

The focus for Nokia would be rural?

Let us say that we have certain geographical areas that we are covering. In a way we are saying HCL will be doing this and we are doing that. It is partly driven by our expansion deeper into the market and the fact that it is in a way an increasingly large undertaking to cover India. For one, Nokia wants to take a stronger part in this to some extent and we are also working with more local partners in more rural areas. I believe that it is a bit unfortunate that it has been interpreted in such a way that it has become a negative story when I think it could have been a neutrally positive story. It is a shame that it has taken such a twist.

As far as your relationship with HCL is concerned, is it exclusive to Nokia. That is, they cannot market any other brand of mobile phones?

I don't know. I don't think so. There is no change in that respect. They will continue to deal with us as before and we have not agreed that they will take another brand.

Picture by Bijoy Ghosh

nramki@thehindu.co.in