Nokia has right idea in China, but will that matter?

Finnish handset maker outselling iPhone in China, at least for now

On Wednesday I blogged about how Microsoft doesn't take its partnership with Nokia as seriously as the Finnish device maker does, which leaves Nokia in a vulnerable position at a time when it is staking its future on Windows phones. Redmond this week may have undercut Nokia's efforts to carve out even a modest amount of market share among U.S. smartphone owners with the introduction of Windows 8 -- which won't be available to anyone who bought Nokia's Lumia 900 earlier this year -- but the struggling mobile phone manufacturer wisely isn't betting the farm on the American market. As the Wall Street Journal notes Thursday, Nokia's drastic turnaround efforts -- massive layoffs and executive head-chopping -- won't come at the expense of its focus on China. At least that's according to a well-placed source who, for once, is quoted by name:

"The company has made a decision to continue investing heavily in Asia in terms of product development," Olivier Puech, the president of Nokia's Asia-Pacific operations, said in an interview Wednesday. "We will not compromise our commitment to China," he said on the sidelines of the Mobile Asia Expo, which opened in Shanghai.

The WSJ goes on to describe the intense competition in China's handset market, though Nokia is far better positioned in China than it is in the U.S., where the iPhone and Android devices dominate. To put the opportunities presented by China's mobile market in perspective, consider that not only is China the world's largest nation by population (1.3 billion), its people comprise nearly 20% of all humans currently living on the planet. More importantly, while the U.S. is a relatively mature market for mobile phones, China is an emerging market. The 23.9 million units sold in last year's third quarter amounts to a sliver of China's potential mobile phone owners. Exclude the 29% of China's population either under age 15 or over age 65, and the country has 923 million possible mobile customers. Last year's Q3 put cell phones in the hands of 2.6% of that group. There's a lot of upside for handset makers in China. And not only is Nokia making headway in China, the Lumia actually leads the iPhone in market share by 15%, according to Northeastern University marketing professor Fareena Sultan. But, as Sultan explains in a Q&A posted on phys.org:

One reason for its market share supe­ri­ority could be that Microsoft is working with China Mobile, which has 70 per­cent of the sub­scriber base in China. Apple’s iPhone, it should be pointed out, does not work with China’s own 3G system, but China Mobile is inter­ested in con­tin­uing to talk with Apple to work on com­pat­ible net­works.

Assuming it's in Apple's best interests to offer its phones through a carrier that owns 70% of the world's largest handset market -- and that's an assumption we can safely make -- it's pretty much a guarantee that ongoing talks between China Mobile and Cupertino will result in a deal, and sooner than later. After that, Nokia will be hard-pressed to keep its lead over the iPhone in China. And that's when it's commitment to China will be tested.

Chris Nerney writes ITworld's Tech Business Today blog. Follow Chris on Twitter at @ChrisNerney. For the latest IT news, analysis and how-tos, follow ITworld on Twitter, Facebook, and Google+.

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