Headed East

In a move to lower operating costs, Nokia is shifting more of its production from Europe to Asia.

The Finnish mobile-phone maker has decided to close its plant in Cluj, Romania, just three years after opening it. The plant replaced a former factory in Bochum, Germany.

The move comes as Nokia continues to lose ground on the smartphone market.

In the secod quarter of 2011, Nokia lost its leading position in the smartphone market to Apple, according to the consultancy Canalys in London. Before that, the company relinquished its number-one position in operating systems, with its Symbian platform being pushed aside by Google's Android.

Cutting jobs for more efficiency

In response to its shrinking market share, Nokia announced plans to cut operating costs earlier this year and is now moving ahead to execute them.

The company will end production at its plant in Cluj, Romania by the end of 2011. Around 2,200 workers will lose their jobs.

In the future, Nokia intends to concentrate production in China, India, South Korea and Brazil, according to Nokia CEO Stephen Elop. The Asian factories, in particular, will "provide greater scale and proximity benefits," he said in a statement.

For Pete Cunningham, a mobile phone industry analyst with Canalys, the move doesn't come as a surprise.

"Nokia finds itself in tough times, so it is making some tough strategic decisions," he told Deutsche Welle, adding that the challenge for Nokia is not necessarily to streamline manufacturing: "The major factor is how competitive Nokia's products are on the market."

Closing a plant that was just opened

Nokia left Bochum, Germany, arguing that labor costs in Germany were 10 times higher than in Romania. The move cost, 2,300 jobs in Germany.

Politicians and unions were especially upset about the move because Nokia had received subsidies from the state of North Rhine-Westphalia where Bochum is located.

After state prosecutors abandoned their investigation into subsidy fraud, Nokia and the government of North Rhine-Westphalia each paid 20 million euros ($27 million) into an economic aid program to Bochum.

Wolfgang Nettelstroth of the IG Metall union in North Rhine-Westphalia is still upset about Nokia's retreat from Bochum and accuses the company of subsidy fraud following its decision to close the Romania plant closure.

"What we see here is a subsidy caravan, with Nokia moving production to places where they get subsidies and then closing production after a couple of years," he told Deutsche Welle. "Nokia misused subsidies here in Germany, and apparently, the now did it in Romania, too. That appears to be part of the company strategy, but it's not a very successful strategy."

Besides closing down production in Cluj, Nokia also intends to review manufacturing operations in Finland, Hungary, and Mexico, with possible job cuts looming in 2012. Although Nokia has not commented on the number of jobs it might be cut as a consequence, experts expect that at least half of its 2,000 employees in Salo, Finland, could be laid off.

Stronger together?

Nokia's navigational services and digital mapping will also be revamped and could see 1,300 job cuts worldwide, including operations in Bonn, Germany, and Malvern in the US state of Pennsylvania.

In February, Nokia joined Microsoft to announce that the Windows Phone operating system would replace the Symbian platform.

More than half a year later, however, Nokia has yet to release its first Windows Phone-based handset. Competitor HTC beat Nokia to it, releasing two smart phones using Windows Phone new software version early in September.

That, Cunningham concedes, was a blow to Nokia. But the issue, he said, is not when the company launches its first smart phone using the Windows operating system but "how quickly Nokia can transition its entire portfolio from Symbian to Windows."

Nokia has its work cut out, Cunningham said, pointing to "a few tough quarters ahead."

Author: Andrea Rönsberg
Editor: John Blau