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In the January edition of WIRED magazine, in an article entitled “Shanzhai,” Frog Design‘s Jan Chipcase takes writer Bobbie Johnson on a tour of Shanghai’s electronics markets. If Chipcase’s name does not ring a bell right away, you may have encountered one of the articles that were written about him when he was Nokia‘s (NYSE:NOK) leading human interface designer and wandering cultural anthropologist.

The Invisible Competition

Chipcase makes great copy. In the course of perusing the fetid underbelly of China’s mobile phone industry, he offers entertaining pearls of insight. Of particular interest was this little chestnut:

Although some shanzhai phones are obvious imitations, others are harder to spot as fakes. Pausing by a stall, Chipchase rolls one example around in his palm, feeling its weight and examining it. Counterfeit phones usually have surprising features: Unexpected video cameras, extra ports or unusual connectors. He notes that it’s worth checking for a spare SIM-card slot: many pirate handsets are targeted at consumers who run a second line to get cheap calls by switching between telecom providers.

“Dual SIM is probably the most easy to spot,” he says, pointing to the extra slot. Whereas legitimate mobile companies have shied away from second slots, shanzhai manufacturers were quick to spot consumer demand. “They met it, while the incumbents had trouble meeting it because of their existing relationships.” [Emphasis mine.]

Indeed?

Motorola (NYSE:MMI), whom I think could be classified as a “legitimate” mobile company, began offering dual SIM phones, MING A1800 and the VE-75, three years ago, and has been selling dual SIM devices in China ever since. One example: Motorola’s XT 800, launched in December 2009, is a dual SIM Android device. (Full disclosure: Motorola is a client.)

We could chalk this up to the reporter not fully understanding what Chipcase meant, or to Chipcase not knowing what the competition was up to. (He is, after all, an interface designer, not a sales, marketing, or strategy guy.) Until we read this, anyway:

Shanzhai has shown that there is consumer demand for more than one SIM-card slot. So last summer Nokia announced the introduction of two dual-SIM phones, the C1 and C2. The launch tallied with Chipchase’s vision: manufacturers borrow from each other and quickly iterate, responding to local tastes, while also improving products. Rather than cheap knock-offs, shanzhai represents a radical new model of business innovation.

Whoops.

Out of Touch, or Just Broken?

So here is the score: Either we are to believe that both Nokia and one of its most important, globally plugged-in designers were ignorant of the fact that a global competitor had beaten them to a major design feature by over two years in the world’s largest mobile device market, or that they are being willfully ignorant of the facts.

If the former, the most benign way to read these quotes, this serves as prima facie evidence that Nokia was, as of nine months ago, seriously out of touch with its markets, and it had been for at least two years. The implications are alarming: the people hired to bring essential market intelligence of this nature back to the designers and executives in Espoo were unaware that the competition had already gazumped them on a critical feature.

But even if Nokia and Chipcase knew they had been beaten by a competitor and tried to hide it behind PR spin (apparently effective as far as WIRED was concerned), the dual SIM matter suggests that Nokia’s product development problems go deeper than a smartphone operating system. Even when Nokia is copying innovations from others, it is unforgivably slow in doing so. Think of it: Nokia was two years behind Motorola, whose mobile phone division was distracted at the time by its most tumultuous upheaval in at least a quarter century.

The Platform Isn’t Just Burning; It’s Structurally Unsound

It is possible that Nokia CEO Stephen Elop understands how deep his product development problems go, and that he is already trying to fix the problem. He may realize that Nokia needs to create an entirely new approach to – and infrastructure for – more market-centric product development, and to stop assuming that simply doing business somewhere and occasionally sending your designers there to take pictures puts you in touch with the market.

Sometime this fall, Nokia will launch a new generation of smart phones to answer the four year old challenge of iPhone (NASDAQ:AAPL) and the three-year-old challenge of Android (NASDAQ:GOOG). The success or failure of those devices, based on Microsoft’s (NASDAQ:MSFT) Windows Phone 7, will determine Elop’s future, and possibly Nokia’s. Elop knows this, so we can expect Nokia to unleash an expensive global sales and marketing blitz to support the launch (as will Microsoft.) No doubt, the sheer volume of noise will help initial sales figures.

So if nothing else, Nokia is buying itself some time. The company’s true test will come later, probably in late 2012, after the market has taken the measure of Nokia’s partnership with Microsoft, and, critically, whether Elop will have built a product development team that can get the company back up to the front of the industry. Or, at least, not 2-4 years behind it.

But it won’t be easy. Apple, Samsung, RIMM, LG, Motorola and the shanzhai guys all have a running start.

Source: Bad Things Happening at Nokia's Product Development