Nokia and the insistent ringing of competition

By John Gapper

In 1983, Nike enjoyed dominance of its industry, with a market share of more than 35 percent, having crushed Adidas, its original rival. But a tiny competitor was about to knock it sideways: Reebok.

A similar situation exists today with Nokia and Samsung. Although the Finnish company's share of the global market for mobile handsets is similar to Nike's in athletic shoes 21 years ago, its South Korean competitor has momentum. Samsung's camera phones, with twisting flip-up screens that allow users to take, send and display photos quickly and easily, are hot; Nokia's are not.

Samsung's market capitalization exceeded that of Nokia last week as this fact became evident in the companies' first-quarter results. Even more annoying for Nokia is the transfer of something intangible, yet highly valuable: market leadership. The high end of the market phones that retail for $300 or more in the US - is no longer Nokia's. Samsung makes the expensive camera phone that a young consumer wants to have.

Nokia seems to realise how potentially serious its situation is, but two obstacles stand in the way of Nokia regaining authority. One (product design) should be solvable, given the company's heritage. The other (that Samsung is South Korean) will be harder to tackle, as other western companies are likely to find as well.

Design should be Nokia's strength, since it originally overtook Motorola by turning handsets into handsome and desirable consumer goods, rather than bland technological objects. Yet in its recent models, Nokia appears to have forgotten the first rule of modernist design - that form follows function. Instead, it has placed most emphasis on making its handsets colorful and zappy, with snap-on covers.

Samsung's approach to digital communication has more substance. Its twisting flip-up screen is a neat way of making the most of camera technology. The screen can even be folded outwards, so friends' photos appear when they call.

There is no obvious reason why Nokia should not regain its lead in design. But Samsung has another advantage which is more difficult for any European rival to counter: the willingness of young South Koreans to pay high prices for new electronic devices. In terms of access to broadband and telecommunications infrastructure, Samsung happens to be sitting in one of the world's most wired - and wireless markets.

Nokia had a similar advantage in Finland in the 1990s and exploited it to establish a strong presence round the world, including in Asia. But Europe has trailed Asia in high-speed mobile services.

South Korea has more than 5m subscribers to third-generation services. That has helped Samsung to develop better designs for camera handsets at home before applying the lessons in Europe and the US.

One thing Samsung learnt - and Nokia did not - was to make its camera handsets small. Masamichi Udagawa, co-founder of Antenna Design in New York, says he was 'shocked' when he saw one of Nokia's first camera phones in Tokyo; companies such as Panasonic and Sharp were already making much smaller models for Japan. 'It was a nice design, with a sliding lid, but its sheer size made it unacceptable,' he says.

For consumer companies in Europe and US, Nokia's experience points to a broader challenge. Nike has remained innovative by developing a range of premium-priced shoes in the US and then selling them around the world.

Samsung has shown that companies in Asian economies can use their own domestic markets to develop global products. Of course, Japanese companies, including Sony and Toyota, have done that for several decades, blending design and technology in ways unmatched by western companies. But countries such as South Korea have a demographic advantage over Japan and Europe - a plentiful supply of young people. As south­-east Asian economies develop, those consumers will become increasingly valuable.

From the Financial Times