January 15, 2008 – Business Management Article

Finnish cellphone maker, Nokia is planning to close its mobile devices plant in Bochum, Germany by mid-2008, stating that it is not competitive enough. Nokia, the world’s top cellphone maker, may cut up to 2,300 staff. Nokia is moving production to lower-cost regions and to its existing plants, mainly in Romania. Even with additional investment, Nokia’s German plant was proving uncompetitive chiefly because labor costs were almost ten times higher in Germany as compared to Romania. All non-production operations will be closed.

Read case study on Nokia’s Business Strategy in India (pdf file)

In March, last year, Nokia had announced its plan to set up a mobile phone plant in Romania. Nokia had invested 60 million euros ($89 million) in its Romania plant. A majority of Nokia’s cellphone production is in lower-cost countries like Hungary, Bulgaria, Romania, China and India. Nokia also has manufacturing operations in high-cost country Finland. However, the Finnish manufacturing site has been re-focused onto high-end production, and research and development. So it is unlikely to be closed any time soon.

Market changes and cutthroat price competition in the production of mobile devices has led to this move. To the German mobile devices/telecommuniations manufacturing industry, Nokia closing its manufacturing plant is another setback after 3,000 employees lost their jobs at BenQ which declared bankruptcy about a year earlier. By 2010 end, Nokia Siemens Networks is also aiming to cut almost 15 percent of its global workforce. Around 2,290 of these are likely to be in Germany. Nokia also plans to sell its automotive accessory business and is in talks with India’s Sasken Technologies to sell its research and development unit.

Meanwhile, the union [IG Metall and member of the supervisory board of Nokia GmbH (Germany)] are planning action against Nokia. Deputy Economy Minister Hartmut Schauerte said understood the anger of workers at the plant. He further said that, “Germany is globally competitive, Numerous success stories of German export-oriented firms testify to this. Unfortunately, Nokia has evidently not managed to take advantage of this potential despite considerable state support. The German government is in permanent contact with the company and is ready for intensive discussions if the company is prepared to reconsider its decision.” He vowed to stop Nokia getting financial assistance from the European Union to carry out the relocation.

Mobile Devices, Nokia, Motorola, iPhone