Here it is: CEO Jorma Ollila with the made-in-India phone

Early in the morning of March 11, Jorma Ollila hops into the car that will take him from a hotel in the heart of Chennai to Sri Perumbudur, an industrial township that lies 48 km to the south-west of the city. It is a Saturday, and the traffic is light, but the road to Sri Perumbudur is narrow in parts and boasts a couple of choke points created, ironically, by roadwork. Ollila, however, is unlikely to be caught in a gridlock. He is the Chairman and CEO of Nokia India and is headed for Sri Perumbudur for the opening of his company's first manufacturing facility in India.

Elections to the state assembly of Tamil Nadu are due in May and the Election Commission has barred ministers from both the state and the central government-Union Minister of it and Communications, Dayanidhi Maran is from the DMK, the main opposition party in the state of Tamil Nadu-from participating in the function. Maran has deputed his senior-most bureaucrat J.S. Sarma, and Tamil Nadu Chief Minister J. Jayalalithaa, an entire army of state officials to represent them at the function. Maran has also met with Ollila earlier in the day, and the state government's blessings are evident in the army of policemen stationed all along the road to Sri Perumbudur to ensure that the passage of anyone headed for the Nokia factory is smooth.

If Ollila looks out of the window anytime during the hour-long journey, he will see two things that are sure to make him happy: most of the policemen are communicating with their colleagues through mobile phones, not wireless radio-trunking handsets, and there are still enough people around who do not seem to be carrying mobile phones. If the man needs any reassurance that Nokia's decision to start manufacturing operations in India is the correct one, these should provide that. Then, it is unlikely he needs any.

Nokia India is estimated to have ended 2005 with revenues of m2.022 billion (Rs 10,716.6 crore). That's around six per cent of the parent's global revenues and almost 60 per cent of its revenues from China. India is the fourth largest market for Nokia (after China, the US, and the UK), and it could well end 2006, the third or the second largest. The number also means that Nokia India is the second largest multinational operating in India in terms of revenues, ahead of conglomerate GE, software behemoth Microsoft, chip-major Intel, consumer durables' powerhouses LG and Samsung and beverages firm PepsiCo. It also means that, if the company sticks to its current growth trajectory, it will end 2006 with more revenues than consumer products firm Hindustan Lever Limited, the gold standard for every marketing company in the country and several without.

105 Connections A Minute

In January 2006, India added 4.7 million mobile telephone connections, an average of 105 a minute. That took the total number of mobile telephony subscribers in India to 81 million. By the time of the official opening of Nokia's Chennai factory, that number had risen to over 85 million. There are other numbers, equally or even more impressive, doing the rounds. India's booming mobile telephony market is the subject of countless research reports. One (by Research & Markets) estimates that by 2007 India will become the third largest mobile telephony market in the world after China and the US; another (by Portio Research) that India will add 358 million mobile connections between 2006 and 2011 as compared to China's 354 (the same study extrapolates that by 2011, China and India together will boast over a billion mobile connections).

The more relevant number for Nokia, the market leader in the global mobile telephones market-its market share dropped from 35 per cent in 2003 to 31 per cent in 2004, but the company has since recovered and ended 2005 strongly with a market share of 33 per cent-is 123. That's the estimated number of mobile handsets per minute sold in India in January this year; that works out to around 5.5 million phones for the entire month. Of this, close to a million phones are sold on the grey market, a term that encompasses everything from phones bought overseas to those smuggled into India by traders and sold. That's a radical change from the period before 2002 when the grey market accounted for almost 90 per cent of all mobile phones sold in India. The reason: although customs duties had been reduced to 5 per cent, a high countervailing duty (CVD) of 16 per cent still made phones sold through the legal route some 47 per cent more expensive than those sold through the grey market.

Nokia is a young company compared to other global players, but its management has been very open to the localisation of strategy, one reason for our success Sanjeev Sharma General Manager, Nokia Mobile Phones

"We lobbied hard to create a legal and ethical market," recalls Sanjeev Sharma, General Manager, Nokia Mobile Phones (Customer & Market Operations), Nokia India. And so, when India removed the CVD on mobile phones, the company decided to get aggressive: it imported an unheard-of number of mobile phones; ran a campaign targeting the grey market; convinced retailers to reduce their own margins in an effort to match grey market prices (they were promised higher volumes); and, in effect, did everything in its powers to grow the market (and its own share in it).

Today, Nokia has a stranglehold over the market for GSM handsets (India has two rival mobile platforms, GSM and CDMA; of the 4.7 million connections added in January 2006, 3.5 million were GSM) with a market share (January 2006) of 76 per cent according to org-GFK, a tracking agency. The company's lowest share in the past 12 months was 68 per cent in September 2005. The market shares of its nearest competitors, Samsung and Sony Ericsson are 8 per cent each (January 2006). Market shares in the CDMA handset market are not tracked, perhaps because most phones are sold by the operators; unlike GSM phones that can be activated at the point of sale with a SIM (subscriber identity module) chip, these have to be activated at the factory itself or at a centre operated by the telco. Thus, for some time after CDMA-based telcos launched their services in India, subscribers wishing to change phones discovered to their horror that they would have to change numbers too. That has since changed and Sharma claims Nokia, which doesn't deal directly with the CDMA telcos and has instead chosen to advertise its CDMA handsets in an effort to push retail sales, has forced these companies to offer their subscribers the facility of changing phones without changing numbers. "We created the replacement market in CDMA," he says.

Nokia, admit rivals, is the company to beat in India. In December 2005, Motorola launched its first made-in-India phone targeted at the mass market. "The top leadership of our High Growth Markets (HGMs) unit is based in India," says Sudhir Agarwal, Motorola's Director, Sales (Mobile Devices), India, Nepal and Sri Lanka. "India is the primary engine in Motorola's emerging/HGMs strategy." It is that for most other companies in the business too.

68 Days; 1 Million Phones

The Nokia factory at Sri Perumbudur is spread across 210.87 acres (the entire campus is called the Nokia Telecom Industry Park); the main building, which occupies a space of 330,850 sq. ft. is a colourless (except for a large Nokia logo on the side) low-rise structure of the kind preferred by electronics companies all over the world. If the surroundings look dug-up, it is because the company hasn't yet focussed on that; Nokia received the land for the factory in mid-2005; the factory was up and running in 23 weeks; and commercial production started on January 2, 2006. By the time of the official opening, the factory has already rolled out some 1 million handsets.

Inside, an impromptu hall for the opening has been carved out of the factory floor. The Prime Minister of Finland, Matti Vanhanen, has flown down for the opening. And there are as many employees and customers trying to capture a piece of the action on their mobile phone cameras for posterity, as there are cameramen and photographers trying to on professional equipment. "We make and sell more digital cameras than anyone else," laughs Ollila as an aside during an interview with Business Today later in the day, referring to the number of camera phones shipped by the company (around 100 million in 2005).

Q&A: Jorma Ollila/Chairman and CEO/ Nokia "Our Company is not Known for Giving in"

You started off in Europe. Today, you find that India is a large market. In the next five to 10 years, it is quite possible that India and China together will account for more than half the company's revenues... Not impossible. So, how does that change a company? How does it change a company's culture, the way it thinks? Your home base may have been historically important but increasingly, other things (markets) are becoming important. Not just in terms of marketing and sales, which is obvious, but also in R&D, manufacturing, and particularly in terms of Human Resources. You have to take a truly global view. I think we started thinking that way in 1995, 1996, but these are long processes and don't happen in a year or two. Now, it (the globalisation) means we have to have a very diverse management team; we need to have meetings regularly in different parts of the world. You have to be consciously and unconsciously willing to make very diverse recruitments and use it to your advantage when the time comes. It's a much more demanding job for the top management. Today, Nokia probably has amongst the strongest consumer brands. Has the thought ever crossed your mind that you could leverage this to launch products, say in the consumer entertainment space? One of things we learned because we moved from a conglomerate to a focussed company is that you need to focus on what you are best at. I think we have plenty on our plate being a premier company supplying mobile handsets and infrastructure. Your networks, infrastructure and managed services business seems to be taking off. It did very well in the last quarter of 2005... In 2004 and early 2005, everybody had their questions on how the business would evolve and we have clearly shown that not only is there life in that business but that it is part of our future. The years 2004 and 2005 were also interesting because you first lost a bit of market share and then regained part of that... We are very much back. Much of the credit for the turnaround is attributed to design and new products. Do you think there was something else you did in this period that helped? Anybody who thought in 2004 that this company Nokia did not have such a great future was underestimating the guts in our organisation. Our culture is such that people aren't known for giving in. We are at our strongest when we are under pressure. What did we do? I think it's about product, it's about focus, and a lot of it, about attitude. We always had the technology. I think we just got a bit defocussed. And it all happened in a situation where some of our competitors really got their act together. For me, what happened was normal. Somebody asked my wife, `Was that a tough period for the family?' and she didn't even remember (what was being talked about). These things happen. Your company is very successful in India and it is also very successful in China. How do you think the two markets compare? There are lots of similarities. It (the telecom market) was very heavily regulated in both countries earlier on. In terms of differences, there is a timing difference (China opened up its market earlier than India). You also have cultural differences and how the business works. There is much more operator competition in India, and that is bringing a lot of dynamism. Do you think manufacturing handsets and infrastructure equipment in India could change the dynamics of the market? For instance, could prices come down further? No, I think this is a very competitive market. Prices will find their own level. I think the size of the market now justifies local manufacturing. Coming across the border no longer makes sense. I would say that the next major dynamic effect will be if the manufacturers find India a good base to manufacture and export. From the point of view of an opportunity for the country, I think that is the biggest one. I think we are breaking ground here. This will probably be your last visit as CEO... I am afraid that might just be so. I hope I can come here in a different role. When you look back at your stint at Nokia, what do you see as your legacy? When I look at the Nokia people here and listen to what they have to say, you have here people who are extremely proud that they are the first to open such a plant. They built the plant in 23 weeks; no one believed it would be possible. Somebody said we had a bit of a market share issue in 2004. Our people said they'd put it right and they did it in 18 months. Nobody would have thought that possible. It is this attitude that I think I have had an instrumental role in building. I hope this is a legacy that will last. There are lots of other things but this attitude to work as a team, to work as a company, to never give in, to go for your next thing, to set goals that seem unbeatable, I think this is the thing I leave behind.

The man of the moment has to be Jukka Lehtela; his card reads Director, India Operations, but it could well read Nokia-head (to reflect his obsession with the company). He has worked for the company for 20 years; his wife Pia Lax-Lehtela works for it too (she is Purchase Manager in Sri Perumbudur); and his youngest daughter has spent two vacations working for Nokia. Nokia, the man says, first considered setting up a manufacturing facility in India a decade ago; only, the market didn't warrant it. In December 2004, when the company revisited the issue, it decided that the market was ready, not just from the point of view of mobile handsets but from also that of network equipment. Nokia, after all, makes both. In 2005, for instance, 19.17 per cent of the company's revenues of m34.19 billion (Rs 181,207 crore) came from this.

The Sri Perumbudur factory is the only one of Nokia's 15 manufacturing plants in the world that makes both phones and network equipment. "We figured that in a country that is booming we should be able to better serve our customers were we based here," says Lehtela. He points to the phone in his hand, a new avatar of the old Nokia 1100 that was launched as a 'Made for India' phone (it came with a dustcover and a torch, was slip-proof, and could support Hindi). This new version comes with a saffron back cover with a green 'Made in India' script (a play on the colours of the Indian flag) and a Hindi keypad. Lehtela won't comment on the capacity of the plant or the handset models it will roll out. The first isn't relevant, he insists, because, the factory can be rapidly tuned to work at a higher capacity (for the record, the typical capacity of a plant such as Nokia's Chennai one, at full tilt, is between 20 million and 25 million units).

We figured that we should be able to better serve our customers were we based here Jukka Lehtela Director, India Operations, Nokia

Instead, Lehtela and Ollila would rather talk about how Nokia is helping the cause of hardware manufacture in India. The Nokia Telecom Industry Park (it is a Special Economic Zone, SEZ) has already attracted two component makers, says Lehtela, and it will eventually house between eight and 10 of them. Sometime this year, the company plans to start exporting handsets made here to India's neighbours in the sub-continent, maybe even to Malaysia and Indonesia. "We may export 30 to 40 per cent (of our production) next year," says Lehtela. "From the point of the view of an opportunity for the country, I think this (hardware manufacture and its eventual export) is the biggest one," beams Ollila. "I think we are breaking ground here."

36 Contracts; 28 Countries

In February 2004, Bharti Tele-Ventures signed a three-year, $400 million (Rs 1,800 crore) managed services deal with Ericsson in 13 circles. Although the term managed services had been around in the telecom lexicon for almost a decade at the time, the deal was revolutionary, and not just in the Indian context. Essentially, managed services encompasses everything from providing and maintaining equipment to network management and quality assurance.

Nokia was a late entrant into this market. Swedish telecom major Ericsson had parlayed its dominant share in the network equipment business in India into an early lead in managed services. Since then, Nokia seems to have worked its way back. Three months after Bharti's epochal deal with Ericsson, the company signed a similar one with Nokia, this one a three-year, five-circle $275 million (Rs 1,238 crore) one. Between then and now, Nokia has signed similar deals with BSNL, Idea, and most recently, Hutch (a five-year, nine-circle one for an undisclosed amount).

By some estimates, Nokia was #2 in the networks business after Ericsson in 2004; now, says, Ashish Chowdhary, Country Head, India, Nokia Networks, the company is "the leading supplier to networks". A spokesperson for Ericsson, however, insists that the company still remains the market leader. Around a third of Nokia's revenues in India comes from the network business, a proportion that is far higher than the global aggregate of 19.17 per cent. Chowdhary is pleasantly surprised that Indian telcos have moved towards managed services "at such an early stage in their lifecycle"; he points out that the phenomenon was once considered a "mature market strategy." Not that he is complaining.

Economies of scale really matter in the (network) managed services business. You get better at it the more you do; you gain a lot of experience Ashish Chowdhary Country Head, Nokia Networks

The performance of its network business in India may have played a part in influencing the company to decide that the Sri Perumbudur facility should also house its new Global Networks Solutions Centre. The company will manage networks (or parts of them) of telcos in the Asia Pacific region, West Asia, Africa, even Europe that have signed a managed services contract with it; in all, 36 companies across 28 countries have such an arrangement with Nokia (the Ericsson spokesperson adds that the company has two such centres in India).

The presence of a large and growing domestic market has clearly influenced Nokia to look at India from several perspectives: as a market, as a manufacturing and export base, and as a Business Process Outsourcing destination for its managed services business. Which is as it should be for a global company. Only, by one definition, Nokia isn't so global after all.

58,900; 40% in Finland

At the end of 2005, Nokia employed around 58,900 people worldwide. Of this number, 40 per cent is the company's workforce in Finland itself. Less than 10 per cent of the workforce is based in China, its #1 market. While that in itself isn't cause for concern, what is could be the fact that because of the kind of business it is in, Nokia could well become the world's first multinational company to derive over half its revenues from India and China. "Your home base may have been historically important but increasingly, other things (markets) are becoming important," says Ollila, admitting that the company will have to change the way it thinks to succeed in such an environment.

If there is one thing going for Nokia, apart from what Ollila calls its culture of "not giving in", it is its relatively strong financial position. The company ended 2005 with revenues of m34.19 billion (Rs 181,2007 crore) and a net profit of M3.61 billion (Rs 19,133 crore). A report from Merrill Lynch points out that 2005 "was the first year since 2001 that Nokia grew its revenues and EPS."

The report goes on to raise its price target to m19.4 (Rs 1,028)-the stock currently trades at m17 (Rs 901)-but warns that this is dependant on "high emerging market subscriber growth and Nokia's ability to execute its emerging markets and mix shift strategies."

In the handset business in India, this translates, in part, into how effectively the company distributes its products. Today, Nokia has to address the same issues that consumer products companies seeking to tap the semi-urban and rural hinterland do. Sharma explains that the company's response has been to "go to market jointly with operators" when they expand their services and "create micro distributors," who are essentially small entrepreneurs who run their operations out of their homes. "We hope to be in 5,000 towns by the end of 2007," says Sharma, who is being rewarded for the company's performance in India with a larger regional role based out of Singapore. He adds that he wants to come back after a few years. "India is the telecom market to be in," he gushes.

Nokia can only gain if it picks up a thing or two from the company that it could overtake sometime this year to become the biggest consumer products firm in India, Hindustan Lever Limited (in one of those coincidences, Sharma's successor, D. Shivkumar, once worked for it), which is considered to be an Indian company (and not a multinational) by most Indians.

-additional reporting by Nitya Varadarajan and Shaleen Agrawal