The Finnish company's China chairman talks about the challenges of doing business under Beijing's watchful eye.
When Folke Ahlback. chairman of Nokia (China) Invest ment Co., arrived in Beijing six years ago, the !oc office consisted of about 250 staffers working in a 'rmer Beijing movi theater. Since then, he's built Nokia's China operation into a sales powerhouse with 5,000 employees. In 1999. it contributed 14% of Nokia Corp's global sales.
Small wonder Nokia has invested more than $1 billion in the Chinese market. Already, there are more than 70 million wireless subscribers in the Middle Kingdom, with 2 million new users signing up each month. Ahlback, also a Nokia senior vice-president, recently spoke about his company's operations in China with Irene M. Kunii, a Business Week correspondent covering telecommunications. Here are excerpts from their conversation:
Q: Has there been any downturn in your China business?
A: There have been no cancellation of orders. Growth has continued to climb steadily... We're satisfied, since China's gross domestic product is on the 8% level.
Q: Nokia seems to have good relations with its Chinese partners. Why is that? And how many partners are there?
A: Chinese and Finns have some common characteristics. They don't brag and are modest. They are aware that life isn't easy. It makes you a little more humble. We have seven joint ventures, and all but one are state-owned.
Q: You're transferring sophisticated technology to these partners. Are you concerned that they might take your market share in the future?
A: Because the telecom industry is so important [in China]. there are rules and regulations. You transfer technology and you get market access. It's a mix between a central and a planned economy. We've learned that every country has its own characteristics. In 1998, China became the second most important market for Nokia [after the U.S.].
Q: How much market share do Chinese handset makers have?
A: The MIl's [Ministry of Information Industry] task is to make sure that 30% will be Chinese. It's likely to be in the range of 5% to 10% now.
Q: Are you concerned that China is backing the development of yet another third-generation, or 3G. cellular standard, TDSCDMA?
A: We are firm believers that.., regardless of what choice will be made, the point is to make an evolutionary path to wide- band CDMA (or W-CDMA, the 3G standard backed by Japan and Europe). If we don't do this, we haven't achieved our path.
Q: But what of this new standard under development with Siemens?
A: As with any standard, there are two steps. First is to make it a standard. We welcome the fact that China is involved in standardization. Consumers are interested only in features, and not the technology. So the test for TD-SCDMA will be the market. Nokia is supporting this standard and is involved in R&D.
Q: Will the mobile Internet take off in China the way it has in Japan? As you know, there the emphasis is on entertainment sites.
A: China is a big country, and it's [in the process of] building one of the world's biggest and most modern mobile-phone systems. But it is a developing country, so it will be very careful about how it's going to use it. So, for 3G. we shouldn't talk about content but rather how to enhance the business. The target for the Chinese government is to make investment decisions that will help industry to be more efficient.
Q: Does that mean Chinese won't be downloading games to their handsets?
A: The Chinese government's first concern is to give the Chinese [mobile] infrastructure to business. They'll get the state- of-the-art technology first. Then the government will give consumers what they want. Big consumer segments will want the same as everyone else. The whole of Chinese society would like to be connected [to the mobile Internet.]
Q: Will Chinese companies contribute to the development of content and applications for the mobile Net?
A: We think there will be hundreds of companies [doing this] in China and thousands worldwide. I'm sure the Chinese government wants Chinese businesses to play a big role in wireless cellular operations.
Q: Would it be possible for Nokia to operate independently in China and thus protect its intellectual property?
A: In China, it's very advisable to work with partners. I would not advise anyone to go to China without a partner for such a complicated business like telecoms. After building a business together, your joint-venture partner becomes your trusted partner.
Q: That's fine, but look what happened to the foreign partners of mobile operator China Unicorn [which had its foreign jointventure agreements with Unicorn terminated last year].
A: It was political. They developed an investment structure that went against the government's policies, so Chinese officials decided they should dissolve it.
Q: Is this a good place to set up a business in terms of being able to hire promising engineers?
A: In China, we have a big supply of educated people. It ' didn't take us long to ramp up operations'less than 12 months per factory. Between 1996 [and] 1999, we have built manufacturing capability in China, not only for China but also the world. We made China a manufacturing center, along with the U.S. and Europe.
Q: What does Nokia headquarters think of your China strategy, where you offer technology in exchange for market access?
A: My message to headquarters is that nothing comes easy.
Managers in the twenty-first century are being challenged to operate in an increasingly complex, interdependent, and dynamic global environment. Those involved in global business have to adjust their strategies and management styles to those regions of the world in which they want to operate, whether directly or through some form of alliance. This global arena is illustrated in the opening profile'an
interview with the Finnish company Nokia's Folke Ahiback, chairman of the Nokia (China) Investment Company.1 Typical challenges that he has faced are those involving politics, culture, and the use, transfer, and protection of technology. In addition, the opportunities and risks of the global marketplace increasingly bring with them the societal obligations of operating in a global community. An example is the dilemma faced by western drug manufacturers, which came to the forefront in spring 2001, of how to fulfill their responsibilities to stockholders, acquire capital for research, protect their patents, and also be good global citizens by responding to the cry for free or low-cost drugs for AIDS in poor countries.2 Managers in those companies are struggling to find ways to balance their social responsibilities, their image, and their competitive strategies.
To compete aggressively, firms must make considerable investments overseas'not only capital investment but also investment in well-trained managers with the skills essential to working effectively in a multicultural environment. In any foreign environment, managers need to handle a set of dynamic and fast-changing variables, including the all-pervasive variable of culture, which affects every facet of daily management. Added to this 'behavioral software' is the challenge of the burgeoning use of technological software and the borderless Internet that is rapidly changing the dynamics of competition and operations. Global management, then, is the process of developing strategies, designing and operating systems, and working with people around the world to ensure sustained competitive advantage. Those management functions are shaped by the prevailing conditions and ongoing developments in the world, as outlined in the following sections.
Opening Profile: Nokia is China Strategy: Exchanging Technology for Market Access : Economic article from Global Management Catagory Opening Profile: Nokia is China Strategy: Exchanging Technology for Market Access
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