Nokia’s technology isn’t a root cause of its current crisis. Don’t blame its engineers and designers either. The company still knows how to innovate. There’s a simpler and more strategic explanation for why this once-perennial market leader became second-rate.

Nokia ignored America. The company simply refused to compete energetically, ingeniously and respectfully in the U.S. America was treated as an innovation afterthought. Nokia tried to get away with preserving its market dominance in Europe and growing its leadership in Asia. The richest country in the world was, literally and figuratively, a third-class priority for the Finnish giant.

In scarcely five years, the disruptive emergence of Apple’s iPhone and Google’s Android revealed the magnitude of this strategic blunder. You can’t be a genuine global innovator if you’re a loser in America. Look at the numbers: From 2009 to 2010, Nokia’s global share of the smartphone market dropped from almost 47% to roughly 38%. Nokia’s North America numbers are even more eye-opening: Those numbers dropped from not quite 3.5% to under 3%. Nokia is barely a marginal smartphone player in America, where it accounts for barely 7% of Nokia’s smartphone business. That’s made the U.S. a poor platform for innovation.

The iPhone’s global share now approaches 16%. Android’s global smartphone share has shot from 4% in 2009 to almost 23% in 2010. In the U.S., their shares are 24% and 39% respectively. Each of Nokia’s most ruthless rivals has roughly 10 times more share of America’s market than it does.

Although China, India, and Latin America are undeniably huge potential markets, companies ignore the world’s richest country, its consumers, and its innovators at their peril. Nokia’s unwillingness or inability to bring its best game to America has undermined its brand as both a technical and market leader. Marginalizing America allowed two of Nokia’s most dangerous competitors to swiftly, safely, and smartly out-innovate it.

If an American global market leader treated India, China, or Brazil so dismissively, its top management would (rightly) be excoriated as insular and arrogant. But Nokia’s strategic choices have left it with a comparable outcome: an inability to learn, grow or profit in a market demonstrably hungry for mobile innovation. Behaving as if America doesn’t matter takes a peculiar ignorance or arrogance. It’s not an accident that Nokia’s (relatively) new CEO is a North American.

While celebrating ‘reverse innovation‘ as a way to import novelty into posi-industrial markets may be popular and politically correct, America’s entrepreneurs and consumers surely deserve at least as much attention as their Asian and European counterparts. America’s wealth of ideas remains greater than the wealth of its households. Only a foolish firm thinks otherwise.

Nokia’s new deal with Microsoft may or may not be the beginning of an essential turnaround. But the larger lesson here goes well beyond mobile technology and underserved geography. Real leaders do well wherever there’s real competition. They don’t de facto abandon the world’s wealthiest markets because they think they can do better elsewhere. Most important, they respect the inarguable reality that, while global innovators can emerge from anywhere, they are still most likely to emerge from the place where Google, Apple, and Facebook began. Techno-entrepreneurs who want to win in the world still need to win in America.

Michael Schrage

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