Is Singapore facing a ‘Nokia Situation’?

By: Shiwen Yap The world has changed significantly with fundamental shifts in technology, economics and the international order. Many solutions of the past no longer work in today’s world. A good example of how ‘business as usual’ can lead to a collapse is that of the technology major Nokia in the early 2000s. Lessons from Nokia’s case may enable Singapore to avoid facing a comparable ‘Nokia deterioration’. History doesn’t repeat itself, but has a tendency to rhyme. Singapore is currently beset by fluctuations in its domestic socioeconomic arrangements and the international political order. Arrangements that formerly protected and benefited it are shifting. Weaker international security frameworks amid the US-China strategic rivalry; an erosion of the international economic and legal order as countries pursue their self- interest in an antagonistic manner; and growing global populism and nationalism drive protectionism and inward-looking public policies. Additionally, like many countries, it faces growing income inequality, which feeds social disharmony and political discontent. This is exemplified in the Brexit and the civil unrest of Hong Kong. This is notwithstanding the disruption of the modern workplace and displacement of workers that comes with our ageing demographics, the industrial shifts brought about by the 4th Industrial Revolution, and the question of what happens when 99-year HDB leases end. Many of these factors do not favour Singapore’s technocratic top-down model. The lesson of Nokia’s decline On a historical basis, Nokia has proven adaptable to reinventing itself as it transitions from business to business, ranging from paper and electricity to rubber boots. But in the 1990’s, the Finnish firm divested of its various units and doubled down on mobile devices and telecoms. It developed its first smartphone as far back as 1996 and invested substantially in research and development. However, it could not commercialise much of this into consumer products. What it was unable to do, though, was to translate all that R. & D. spending into viable consumer products. Figures from research & advisory firm Gartner indicate that Nokia's smartphone market share in 2007 was 49.4 per cent and estimated to be earning more than 50 per cent of all profits in the mobile-phone industry. By 1H2013, it held only 3 per cent of the smartphone market. Arguably, this can be traced to a failure to properly integrate both hardware and software in their development process, unlike Apple which maintained both were of equal importance. In fact, Apple encouraged staff to operate in multi-disciplinary teams when designing products. Other factors at play include an underestimation of the smartphone phenomena and an overestimation of its brand strength. “The Decline and Fall of Nokia”, a company profile written by David J. Cord and published in April 2014, argues that Nokia's decline was also due to pervasive bureaucracy, leading to institutional paralysis and an inability to act; destructive internal competition and faulty organisational structure; and an incompetent middle management that inhibited its ability to commercialise innovations. Fundamentally, Nokia was enthralled to its past success and interpreted the future through a lens of hubris and complacency. Its decline was rooted in institutional reluctance to transition into a new era and an overestimation of its own brand strength. In a 2017 feature for INSEAD Knowledge, “The Strategic Decisions That Caused Nokia’s Failure”, Yvez Doz, INSEAD Emeritus Professor of Strategic Management, observed: “Nokia’s decline in mobile phones cannot be explained by a single, simple answer: Management decisions, dysfunctional organisational structures, growing bureaucracy and deep internal rivalries all played a part in preventing Nokia from recognising the shift from product-based competition to one based on platforms.” “Nokia’s mobile phone story exemplifies a common trait we see in mature, successful companies: Success breeds conservatism and hubris which, over time, results in a decline of the strategy processes leading to poor strategic decisions. Where once companies embraced new ideas and experimentation to spur growth, with success they become risk averse and less innovative. Such considerations will be crucial for companies that want to grow and avoid one of the biggest disruptive threats to their future – their own success.” Singapore’s context Reviewing the declines experienced by Nokia, as well as Blackberry, in the late 2000’s and the early 2010’s, parallels can be drawn to Singapore’s contemporary situation. INSEAD research argues that Nokia’s demise in mobile phones was rooted in “inferior technical and organisational choices made in the early and mid-2000s”, leading to its deterioration of a strong franchise. In an opinion piece, “What will it take for Singapore to succeed in it’s next lap?”, Manu Bhaskaran, head of research at economic consultancy Centennial Group Inc, notes: “A nation’s adjustment capacity depends on two factors — the government’s top-down capacity to effect necessary changes and the more spontaneous bottom-up adaptation efforts of companies, civil society and individuals. We [Singapore] would argue that our top down capacity was impressive in the past, remains intact in some areas, but has diminished overall. The bottom-up dimension has been weak in the past and remains so.” As a society, Singapore needs to refocus and capitalise on its strengths and re-look at how the different segments of society, private enterprise and the state interact. There is a fundamental need for its society to rebuild its capacity to take risks and learn from its failures, though this goes against ingrained conservatism and conformism. Bhaskaran argues for a need to “rebuild society’s capacity for rigorous self-inspection”, empowering individuals and non-public sector actors to experiment. Such actors can highlight trends the public sector may overlook or underestimate. Furthermore, they should have the freedom to question policies more deeply, rather than simply relying on government information and data. To an extent, the state of Singapore’s public capital markets arguably mirror this decline. Stock markets reflect the overall economy and its growth prospects. “Access to Public Capital Markets and Employment Growth”, by Borisov, Ellul and Sevilir, published by the Center for Economic and Policy Research in 2015, finds that post-IPO firms significantly increased investment in human capital. IPOs boosted firm-level long term employment decisions. Newly public firms access to both equity and debt markets highlights the vital role of public capital markets for job creation over long term horizons. Public equity market activity generates new revenue and expands the tax base, serving to support retirement adequacy. The lacklustre activity seen in Singapore now suggests possible further deterioration. Over the last five years, Singapore has lost out to regional bourses and cannot even be considered a rival to Hong Kong’s equity franchise. This trend is an indicator of its long- term competitiveness and sees Singapore-based brands such as Razer, Sea Ltd, and PropertyGuru pursuing IPOs abroad. Sharing his views on this state of affairs, Inderjit Singh Dhaliwal, formerly a parliamentarian with the PAP from 1996 to 2015, observes: “The world today is much more complex than the world 50 years ago when Singapore was founded. At that time, the population was less educated and depended on the handful of well qualified leaders to build a nation.“ “Today, not all the best talent is in government, they are everywhere in society. Governments no longer have the sole wisdom in solving future problems. The people need to play a bigger role in nation building and the government needs to trust the people more and be prepared to share the stage with the non-public sector actors. Singaporeans also need to stop their over-dependency on government, because the government cannot possibly solve all their problems and we should not expect them to do so.” If Singapore wishes to avoid emulating Nokia’s decline, broad and fundamental reforms are essential. Rather than stealing other peoples’ lunches, it might be wiser to work with willing partners to cook more meals, expand its menu and spice things up, lest people choose to eat at other tables. The views expressed here are those of the author/contributor and do not necessarily represent the views of The Independent Singapore. /TISG