Nokia's talking margins

KOLKATA: Finnish mobile phone giant Nokia, which is globally witnessing a fall in its device average selling price (ASP), is going to revamp its business model in India to remain cost-competitive and maintain margins. Nokia India has drawn up a new strategy whereby it will outsource all non-core operations, keep a low-cost structure and maintain a trim headcount.

On the brand front, the company will focus more on the replacement market in India across both, GSM and CDMA segments. “At a time when there is a general price erosion with ASPs decliming, we need to put a cap on costs. Hence, we will outsource several functions and keep only the higher order strategic functions within the company,” Nokia India managing director D Shivakumar told ET.

Nokia India recently outsourced some of its backend operations and is examining future possibilities. “We have to convert fixed costs into variable costs. This includes keeping a trim headcount in India. But this does not mean we will lay off employees or keep a cap on future recruitment,” Mr Shivakumar said.

The company’s Indian arm, of late, has received more attention in Nokia’s global matrix after India emerged as its second-largest market. Incidentally, the Indian subsidiary also has the second-largest headcount base after Finland, with 10,000 employees. “In fact, we currently employ 10-12 employees per day in India,” said Mr Shivakumar.

Incidentally, Nokia recently reported a global fall in ASPs from E90 in Q2 2007 to E82 in Q3 2007. However, Mr Shivakumar did not disclose Nokia India’s ASP, but said it is globally comparable. “Entry-level low-priced phones, which is a huge segment in India, does not necessarily mean low margins. This segment provides reasonable margins,” Mr Shivakumar added.

Nokia India will also focus on the replacement market in India which provides much better ASPs and net margins. It now wants to bundle India-specific content (such as music and video clips) with its premium phones, including the N series. This is specially since Nokia’s study reflects that Indian consumers like to flaunt their mobile phones.

“The average life of a mobile phone is around 14 months in India which is falling every quarter. We will now drive this segment with newer innovations and form factors. It is the replacement segment that will become the future growth driver in India,” said Mr Shivakumar.