Can Nokia's 'next billion' strategy save the company ?

Nokia is at a cross roads as it pins its recovery hopes on cornering emerging markets. But it will need to work hard to restore market confidence if ts 'next billion' strategy is to succeed.

Nokia’s announcement that it is to shed 10,000 employees is one more painful step the company’s embattled chief executive and president Stephen Elop has had to make and it is not going to be the last if the Finnish phone giant is to be turned around.

The company admitted as much when its 10,000 redundancies statement also said Nokia would be ‘substantially reducing its headcount and reducing its factory footprint’. While 10,000 is a lot of people it is less than 10% of Nokia’s 139,000 workforce.

The market reaction to Elop facing up to the harsh truth has been equally tough. Moody’s downgraded Nokia’s credit rating to junk status. But this does follow Fitch and Standard & Poor doing the same back in April after Nokia’s March report of an expected 1.4 billion euro loss.

How Nokia got here from such a worldwide market dominant position is worthy of a Harvard Business School MBA case study or doctoral thesis. But the simple truth is that Apple, Google and a gaggle of new phone companies out innovated Nokia and it has suffered for it.

With 18 months to go before the last of those 10,000 employees leaves, Nokia’s Lumia handsets, with their Microsoft Windows Phone OS, are already in 48 markets, often at competitive prices. The challenge for Elop is to see them turn the tide that has Google’s Android hoarding half the worldwide market.

This is no small task. Windows Phone’s (WP) market share is tiny. According to Kantar Worldpanel WP now has about 3% of most markets with its share highest in Germany and the US. However, in the view of Kantar’s global consumer insight director, Dominic Sunnebo, “in the US, LTE/4G handset capability is crucial…As [WP] handsets with this capability start to become more prevalent, we expect to see signs of Android, RIM and iOS customers switching to the Microsoft platform.” The Nokia Lumia 900 is LTE compatible.

While cynical market analysts may see this as a forlorn hope Nokia has one advantage few other companies share. Nokia has a significant presence in the developing world, though it has experienced greater competition in these emerging markets in recent years. Referred to as its “next billion strategy” the company could turn the tide here, engendering customer loyalty in countries such as India and China so it retains them when they eventually switch to smartphones.

When Elop announced his team after taking up his position in 2010 he appointed Mary McDowell as executive vice president of mobile phones. McDowell was to drive Nokia's "web for the next billion" strategy. In June 2011 Nokia launched three new Series 40 mobile phones, the C2-02, C2-03 and C2-06 and said it would continue with its Qt framework, as part of its recovery strategy. But McDowell has become one of the first of the 10,000, being replaced by Timo Toikkanen.

Nokia has seen a lot of change at the top since Elop joined, with Alberto Torres, Anssi Vanjoki and McDowell all gone. Nokia will need more stability at the top and a greater commitment to evolving its products if the restructuring is to make the market more confident that Elop’s painful steps are in the right direction.

Rob Coppinger is a technology writer.

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