NOKIA Wake-Up Call

by Steven van Groningen on 4 October, 2011

The news that Nokia is closing its facilities near Cluj and leaving Romania hit the news last week. This is not good news and has led to a flow of declarations and statements about the lack of attractiveness of Romania as destination for foreign investment. I was also asked to comment on this several times, probably because I am the current president of the Foreign Investors Council. I thought it useful to group some of my thoughts on this on my blog.  As always, this is my personal point of view.

Why is Nokia pulling out of Romania?

I don’t know if the fact that Nokia is leaving Romania has anything to do with Romania. If all there is to it is that they need a place with lower salaries to produce at a lower cost, there is not much we can do about it. Not unlike the situation in which someone who doesn’t have enough money for a Dacia Logan wants to buy a Tata Nano. We could lower the price of the Logan to that of the Nano, but that would not be good business if we believe our Logan has more to offer. Maybe Nokia has less to offer and needs to lower it prices and therefor its costs, who knows. I changed to an iPhone the moment it came out and never looked back.

What is or should be our competitive advantage ?

If Nokia is leaving because it found a place with lower salaries, we should only be concerned if we believe that our competitive advantage is to have lower salaries. In that case, if we find out that there are other places where salaries are lower, we need to lower salaries to remain competitive, isn’t it? I don’t know why they are leaving, all I want to point out is that we need to understand a few things better before jumping to conclusions and of course I don’t believe we should be competitive just by having lower salaries. Part of what needs to be done is to understand the factors that foreign investors take into account when making investment decisions and see what we can do to improve our attractiveness in those areas.

How bad is it ?

For the 2.200 or more people that will lose their job the decision of NOKIA is dramatic. In order to assess how dramatic the impact on country level will be we need more information to assess the situation better, information I didn’t find so far in the press.

Yes Nokia is a big exporter but they are also a big importer, the real question is how much value they created in Romania itself, in other words, what the net effect on exports will be and what the net value, created in Romania, amounted to.

How good is it?

So, without understanding how bad it is for Romania that Nokia is leaving, let’s look at the good part. I don’t think we have paid enough attention to the importance of foreign investment in the past. The news that Nokia is leaving has sparked a debate about how attractive Romania is for foreign investment. I don’t want to dwell here on the importance of foreign investment. I assume we agree that we need economic growth, for which we need money to invest which we don’t have ourselves and needs therefor to be brought in from abroad in the form of loans, remittances or foreign direct investment. The more attractive we are, the more we will get and the lower the costs.

A Wake Up Call

What is most welcome is a debate about the competitiveness of Romania and its attractiveness to foreign investors. It is entirely possible that Nokia is leaving because of a combination of factors of which labor costs is only one. It is always a good idea to make sure that we are competitive enough to ensure the levels of foreign investment we need to stimulate economic growth. In order to assess this we don’t need to wait until an investor is leaving, this should be a constant preoccupation. Let’s hope that we don’t just see a few politically motivated statements but some concrete measures. If that is the case, Nokia just gave us a wake up call.

 

 

 

{ 9 comments… read them below or add one }

Juan Huitz October 5, 2011 at 06:44

My view is that, perhaps ironically, Nokia’s departure has more to do with their own competitive position than Romania. They were routed by Apple and other smart phone makers. They missed a massive change developing in their own core market and are now cutting back to a defensive position, perhaps permanently. That’s the real lesson here, a classic. I say ironically because Romania I believe has little to offer foreign investors. Infrastructure is a mess and bureaucracy and corruption common. The only real advantage is that it is in the European Union but so are other comparably low cost states. I am told by locales that Nokia was promised roads around their factory that never came. So, I welcome the debate and hope that this state realizes that doing business is a two way street and not just a game of taking. A bit of planning wouldn’t hurt either.

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Calin October 5, 2011 at 09:10

Thanks for this unemotional article.

So my couple of 2 cents:
– in this Nokia case I also do not think they are leaving because of us (Romanian government) it is just a (bad) strategy of Nokia to focus on low priced phones and in this case you cannot compete with Chinese labor costs
– foreign investors are welcome anytime, but we cannot rely too much on them, they should be considered as a cherry on the pie or as a bonus. I think what is the most attractive to them is stability in laws and infrastructure, not necessarily some incentives in lower taxes on buildings or profit
– from the employees point if view is painful, and Nokia case is showing once again that working in big companies do not offer anymore stability, big does not mean safe anymore. The schooling system is preparing us in a unsuitable way for life. More about this in this well written material:

http://changethis.com/manifesto/download/66.01.Brainwashed

Maybe I posted this link here before, but I will do it every time when I think is needed. :)
– finally, I was in love with Nokia in the past, did not switch to iphone although I had the first version for 2 months, because I find qwerty keyboard on the phone very useful. It is very difficult for me to understand how a company with so many resources can screw it up so bad from the product management point if view, so I think what really Nokia needs to do is focus thus narrowing their phones range and improving their OS. again this is another warning that BIG does not mean unavailable. As soon as I will have the money I will switch to HTC Cha Cha, not for for facebook facilities :) but for the qwerty and Android stuff.

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Luminita October 5, 2011 at 17:44

Noi trebuie sa intelegem ca daca nu facem aceeasi munca la un cost comparabil cu altii, companiile o sa-i aleaga pe ceilalti. Pe de alta parte, Nokia a primit subventii majore de la statul german pt a deschide punctul de la Bochum. In anul in care aceste subventii (taxe, impozite etc) au expirat, Nokia s-a mutat! La noi! Mai pe sleau,cand a venit si randul statului german sa incaseze ceva,brusc Nokia a disparut. Cred ca acelasi lucru s-a intamplat si in RO! se va intampla acelasi lucru cu orice investitor strain. Iar incercarea de a boicota importurile de Nokia e de un penibil …!!!

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SvG October 5, 2011 at 22:20

Intradevar, daca existe nevoia sa oferim subventii ca sa convingem un investitor sa vine, atunci ceva nu este in regula. Ar trebuie sa fim competitiv si atractiv fara subventii. Poate ajute temporar dar nu poate fi strucural.

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Constantin Stan October 5, 2011 at 21:42

Few months ago, I negociated a process improvement contract with Nokia directors from the Romanian site. Being a long term contract, (2,5 years), I was a little bit surprised by the fact that they asked me to renew the contract each 3 months. Asking why, they honestly told me that some strategic decisions may occur anytime..
What I want to say?
1. It was known that things are not going well (even my contract for productivity increase and six sigma implementation it is a prove).
2. It was known that radical decisions might be taken.

So, I agree that the main reason for Nokia leaving is not the fact that they don’t like Romanians, it’s not an emotional decision, but purely business related decisions.

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Luminita October 6, 2011 at 00:35

Subventiile reprezinta o solutie economica viabila, la care adaugam mana de lucru foarte ieftina (am ajuns un fel de concurenta pt chinezi!). Din pacate,n-am reusit sa le oferim infrastructura, un mediu economic stabil si forta de lucru ultracalificata. Dar toate acestea le-au fost oferite de catre statul german! Si totusi au plecat si de acolo! Prin urmare,unde e problema? As fi tentata sa spun ca lipsa de caracter,dar as putea fi acuzata de idealism,ceea ce nu e cazul…

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Calin October 7, 2011 at 13:42

@Luminita, repet, nu cred ca infrastructura din Ro era o problema pt Nokia si nici calitatea oamenilor din productie. La cite proceduri are o multinationala ca si ea, daca stiai sa citesti te descurcai cumva. Nokia a decis sa se focalizece pe telefoane la pret mic si acolo orice cent conteaza.
Potentialul Romaniei sta in educatie si daca avem o viziune pe tema asta, atunci (si) pe viitor putem fi exportatori de creiere, dar sa stim si sa facem bani cu treaba asta ca si stat. Nu mi se pare normal ca eu sa investesc in instruirea unui om iar cind acesta sa inceapa sa dea inapoi ceea ce a primit, sa mearga in Canada si alte tari si sa contribuie acolo cu ceea ce a invatat. Da, exista libertatea de miscare pe care nu o pot ingradi-o dar mi-e ciuda ca pierdem valori.

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Manuela October 6, 2011 at 12:43

The capital has its own logic and interests.Nokia has taken a business decision, full stop.If it is good or bad, does not count. We Rumanians, need to understand that in the absence of our own national economy development strategic plan, without leaders with vision and determination (in politics or in business) will remain just a place where others better than us will use our resources and territory as long they see an interest and then will leave without regret. There is no mercy in business for business is war!
It was no difficult to guess that in a facility where nothing was created or produced but assembled, there is no hope for long terms. We cannot compete in terms of low wages with Asia and should not do that.
We should be prepared and flexible and our people must understand that there are no working places guaranteed for life.

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Luminita October 7, 2011 at 21:24

@ Calin – http://www.spiegel.de/international/germany/0,1518,529218,00.html Foarte frumoase teoriile cu piata libera,strategii economice,profit,valoarea muncii etc. Compania vrea profit, costuri mici, nu-i pasa de nimic si de nimeni! Toate acestea au sens si le inteleg doar daca o face PE BANII EI! Cand avem nevoie de bani de la statul roman sau german si promitem ca ne implicam in comunitate creand locuri de munca, avem responsabilitate sociala! Dupa ce au primit banii s-au transformat in capitalisti si gandim in cifre si strategii. DOAR CA suntem capitalisti reci cu capitalul altora!!! Draga Calin, NOKIA nu merita compasiunea ta! Au primit subventii, au facut profit. Pe mine ma doare prostia statului roman. Cum sa dai o finantare de 30 milioane de euro si sa negociezi atat de prost? Si de ce e contractul secretizat? Ce naiba le-a mai dat? Sa nu-mi aduc aminte de expresia aia: “si……. si cu banii luati!” (scuze, domnule van Groningen!). Clar,NOKIA a pierdut masiv din cota de piata, iar lucrurile nu au evoluat spre bine nici anul acesta. Dar e vina lor, nu a statului roman! In ceea ce priveste exodul de creiere, iti dau dreptate doar pe jumatate. E trist dar nu poti pretinde unui om sa munceasca ca prostul, sa fie umilit ca ultimul talhar si sa fie platit ca un sclav! Intamplarea asta cu plecarea concernului poate ii pune pe ganduri pe cei care au impresia ca daca lucreaza intr-o multinationala au un job sigur si pot visa la promovare si un trai decent. Infrastructura, offf…, nu a reprezentat un impediment pt Nokia, ci pt alti investitori (ex. Meetal Steel Galati, etc.). Si ca sa inchei intr-o nota optimista : INCEPE LOTERIA VIZELOR ! :))

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