In each case, two to four most populous nations accounted for the majority of subscribers in the region.

In the mobile business (as in many other technology-intensive sectors), global industry leadership does not mean leading in all markets. Rather, it means dominating about a dozen strategic `must-win' markets.

In the 1980s, the Asian market was Japan. Like Nordic leadership in Western Europe in the 1990s, this superiority was not sustainable. At the end of 2000, China had overtaken Japan as the leading country market in the Asia-Pacific. It had one-third of the regional market share, against Japan, Korea and Thailand. These four market leaders accounted for 80 per cent of the total market and were the lead markets of the region.

India held significant potential, but the country's wireless penetration was very low until the late 1990s.

The next `next big markets'

Ideally, the next `next big markets' should have a large population, rising per capita income and relatively low penetration.

In 2003, China led the World Bank's rankings of the most populous nations with 1.3 billion inhabitants. India was second, with 1.1 billion people. And the two were followed by Indonesia (215 million, 4th), and the Philippines (82 million, 13th).

Average income per capita should be measured with purchasing power parity (GNI per capita 2003). In the worldwide rankings, China was 119th, followed by the Philippines (128th), Indonesia (142nd), and India (146th). What about penetration? Between 1998 and 2003, India's mobile population grew from 1.2 million to 26.2 million, which translates to 85 per cent in annual growth. That was well ahead the explosive growth in China (62 per cent), Bangladesh (79 per cent), Indonesia (78 per cent), Pakistan and the Philippines (66 per cent).

Furthermore, mobile penetration was already 27 per cent in the Philippines, 21 per cent in China, and close to 9 per cent even in Indonesia. In India, it was still just 2.5 per cent. After China, India was the next `next big market.' Indeed, compared to the massive hypergrowth markets of China and India, none of the potential `next big markets' are quite as impressive.

Drivers in the emerging markets

Success in the emerging markets has often resulted from the interplay of three drivers — consolidation among mobile operators, CPP (`calling party pays'), and, particularly, prepaid services.

Initially an instrument to raise revenues among low-income users in Europe, once excluded by monthly payments and credit cheques, prepaid services drive the mobile boom in many emerging markets.

In 1995 fewer than 2 per cent of people in most Latin American countries had cell-phones. The introduction of prepaid service sent use skyrocketing.

Mobile subscribers jumped from 21 million in 1998 to 176 million in 2004, turning one in three Latin Americans into a cell-phone user.

Today, three multinational operators (América Móvil, Telefónica and Telecom Italia) serve about 76 per cent of the Latin American market.

The `calling-party pays' model was widely adopted in the late 1990s. Some 90 per cent of net additions in Latin America are prepaid subscribers. Many of the advanced data services are available for prepaid users.

The darker side of the story is that, by end-2008, average revenue per user (ARPU) in Latin America is expected to be less than $13, posing a profitability challenge to operators.

In both maturing and emerging markets, effective acquisition and retention strategies are becoming critical to survival. Keeping current subscribers is a lot cheaper than attracting new ones.

Dynamics of maturing/emerging markets

The mobile industry is not only innovating in the world's most developed economies. It is also globalising. This evolution has two faces.

On the one hand, the most novel technologies and advanced systems are giving rise to sophisticated new services, which are first pioneered, marketed and sold in the mobile lead markets.

Most subscribers, however, are outside these OECD markets. In addition to disruptive innovation, the mobile industry is driven by double-digit growth markets. These are no longer in the US, which enjoyed superiority in the mobile business from the 1910s to the mid-1990s. Nor are they in Western Europe, which captured innovation leadership amidst the digital transition, or in Japan, which has dominated service innovation since the end of the 1990s.

In 1998, there were some 200 million mobile customers worldwide.

At the end of 2004, the figure had climbed to some 1.6 billion. By 2006, it is expected to be close to 2.6 billion. Rapid growth markets are no longer in the OECD economies, but in emerging markets — particularly in China and India.

By the year-end, the number of subscribers in China is expected to exceed 400 million. In India, the growth in mobiles reached 55 million in early 2005.

Mobile industry has been globalising for years, but now this process has proceeded to a qualitatively new stage.

Maturing markets remain necessary to industry growth, but are no longer sufficient for industry leadership. Emerging markets have become critical to industry leadership.

Because of scale economies, size matters. Big is beautiful, but scale does not make emerging markets attractive. Rapid economic growth does — as evidenced by India and China.

It takes two

In the maturing markets, high-growth years are behind, penetration is saturating, rivals are consolidating, and competition is about replacement demand and value.

In the emerging markets, high-growth years have only begun, penetration is low, rivals are often fragmented, and competition is about original demand and volume.

In the maturing economies, the handset market is evolving into a mature consumer electronics segment, with a huge user population that periodically upgrades devices to take advantage of new offerings.

In the emerging economies, digital cellular and prepaid markets are still growing rapidly and gaining new, first-time users.

Smart industry competitors do not attempt to fight the change; they embrace it.

Last June, Nokia outlined its strategy to bring the benefits of mobility to new growth markets, while introducing two new mobile phones — Nokia 1110 and 1600 — for first-time users and consumers in growth markets like Africa.

By the end of this year, Nokia anticipates Africa will be home to 100 million subscribers and expects the African subscriber base to double to 200 million by 2009.

With mobile voice and data, the mobile leaders seek to accelerate the adoption of mobile multimedia services in maturing markets — while enabling emerging markets to leapfrog dated technology solutions.

The interplay of innovation and diffusion is under transformation. Think of the car industry in the early post-War era.

The most innovative and desirable models were designed, produced and marketed in the US; first for the wealthy but, over time, for the not-so-wealthy too. Today, this interplay occurs on a worldwide basis.

The future

The faster the growth of the mobile in China and India, the better will be the chances of profitability for the mobile giants in Europe and the US — as the world's industry giants begin to look more like the customers they are supposed to serve.

In the 1980s, worldwide fashions still originated from California. Today, new fads and influences can pop up in many corners of the world, from Silicon Valley to Helsinki and London, from Seoul to Tokyo.

Tomorrow, these feedback effects will escalate, from Hong Kong to Shanghai, from Bangalore to Mumbai.

Going glocal

LAST April saw top executives of Nokia Corporation visit the Rs 650-crore manufacturing plant coming up at Sriperumbudur, north of Chennai.

The plant, likely to begin operations in April 2006, is the mobile handset maker's tenth such global facility.

The acceleration of Nokia's role in India — via R&D, exports, and foreign direct investment — started in 1999. At first, the Nokians began to sponsor Ph.D. students (high-speed networking) at the Indian Institute of Technology Delhi, while signing new research cooperation agreements with the Indian Institute of Science in Bangalore.

"We anticipate continued expansion in India's universities, as well as in the Indian research and development market," said Dr Sudhir Dixit, R&D manager of Nokia Research Centre in Boston, Massachusetts. The Nokians hoped to take advantage of India as a marketplace, production facility and — perhaps, most importantly — an emerging world-class software/R&D hub.

As India has become one of the world's fastest growing markets in terms of mobile subscriber growth, the Finnish vendor has also been pushing deals with India's leading operators. By 2004, Nokia won four major infrastructure contracts in India, and was supplying mobile infrastructure to five of the largest operators in India.

In October 2004, Bharat Sanchar Nigam Limited (BSNL) chose Nokia to expand its GSM/EDGE and GPRS network in North India in a deal valued at over 200 million euro (approximately Rs 108,76,475,500). In April 2005, Nokia announced that it would set up a manufacturing facility for mobile devices at Chennai.

"Establishing a new factory in India is an important step in the continuous development of our global manufacturing network," said the Nokia President, Mr Pekka Ala-Pietilä.

Nokia foresaw ramping up the factory gradually with the work-force reaching approximately 2,000 employees when production goes full-scale.

A month later, Nokia announced it would establish a high-end base station controller manufacturing unit in Chennai. "Chennai was a natural choice for us as we are already establishing a production facility there," said Simon Beresford-Wylie, Executive Vice-President and General Manager of Nokia Networks.

Last December, Nokia also tapped Chennai as the new Nokia Global Networks Solutions Centre site, which will perform network operation tasks for selected operator customers in the Asia Pacific region as well as Europe, the Middle East and Africa, while playing a key role as part of Nokia's expanding and innovative managed services offering.

The end-to-end operations, Nokia's strategists hope, will allow the company to reduce the Indian operators' time to market for both network equipment and terminals, while achieving the government's target of 200 million mobile subscribers by 2008.

Clearly, while it is the Finnish Nokia that is building India's mobile infrastructure — but it is the Indian Nokia that is redefining Nokia itself.

(The author is the ICT Research Director of the India, China and America Institute, and the Faculty Spokesman of FAME, a mobile initiative by the CMO Council representing some 1,500 leading technology companies. He can be reached at dsmba@hotmail.com)

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