“No power?” a booming, baritone voice yells in one commercial. “No problem!” It’s an advertisement for a fridge made by Samsung, the vertically integrated South Korean conglomerate with around 220,000 employees. This particular fridge, with three hours of backup power, has been custom built for Nigeria’s daily power outages. And in a sign that the company is dead set on taking share: The fridge comes with a free Samsung smartphone.
Though RIM has a head start, it’s a much smaller company, and getting smaller. The Waterloo, Ont., firm will have only 11,500 employees by the time its current layoffs are through.
So as RIM shrinks, it will be hard pressed to grow – in an increasingly global, increasingly commoditized business, and against companies more than 10 times its size.
And in these far flung locales, RIM is up against the industry’s grizzled veterans. Nokia, though troubled as well, has run a high-volume, low-margin business through these rough-and-tumble markets with a sophisticated global supply chain for years. And Samsung, with a broad product range, has the scale to have repair centres scattered across Nigeria.
RIM knows that’s a tough game to play. “Look, at the end of the day, it would be nice to have people in every corner of Nigeria, but ... I don’t think that’s realistic,” says RIM’s Mr. Wepener. “We’re not always going to look to match every single competitor in terms of the number of resources. To us, it’s important is to make sure that customers get the best experience, and if they don’t, to look at how we address the gaps.”
There is a long runway for RIM’s growth here, but others are moving just as fast, or even faster. According to data from global research firm IDC, RIM shipped around 222,000 devices in Nigeria in the second quarter of this year, up from 130,000 in the first quarter. Samsung shipped 72,000 smartphones in the second quarter, up fivefold. That cut into RIM’s market share, which slipped to 64 per cent from 68 per cent.
But the crucial question is: Can RIM make a solid profit in the developing world? Already there are signs that competition is cutting into profitability abroad. As RIM’s international sales climb, its profit margins have dropped.
International markets have grown to about 60 per cent of RIM’s revenue in fiscal 2012, up from 27 per cent in fiscal 2010, notes Byron Capital Markets analyst Tom Astle. Over the same period, RIM’s gross profit margins dropped to 36 per cent from 44 per cent.
“Competition from low-end Android phones has been a recent factor in all regions,” including North America, Mr. Astle says. “But the product mix/price pressure in international markets would be a big part of the decline in margins over the last few years.”
And RIM is not just up against developed world rivals in these markets. When RIM CEO Thorsten Heins refers to “pressure” in emerging markets, he is mainly talking about Chinese companies such as Huawei Technologies, ZTE and Tecno. Few Westerners have heard of such names, but Tecno, for example, is ranked by IDC as the third-largest provider of simple mobile phones in Nigeria, behind Nokia and Samsung.
“The Chinese phones here are crazy, and they’re very aggressive – unknown brands you’ve never heard of,” says Wael Ammar, chief commercial officer of Nigeria for Etisalat, a major Middle East and Africa wireless carrier. “This is the new wave of smartphones.”
For investors, and Canadians who care about RIM’s destiny as an independent public company, it is clear RIM hopes emerging markets can help sustain the company through a brutal transition that has shaken the company’s top management and led to about 7,000 layoffs since the summer of 2011.
Unlike in North America and parts of Western Europe, RIM has not yet had its momentum halted by rivals’ success, explains IDC mobile analyst Kevin Restivo.
“There’s absolutely a business in what they’re doing, and there will be a business for the foreseeable future,” Mr. Restivo says. “There’s significant growth in all these markets, but RIM has to pick and choose its spots in order to maintain its growth. ... There’s no escaping the global smartphone heavyweights.”
Customers in the developing world are typically not the high-margin corporate users RIM built its business on. They are much lower-margin consumer users who often purchase lower-cost or second-hand phones and are frugal about monthly plans.