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Gadgets German State Demands $60.5M From Nokia
Jason Mick (Blog) - February 8, 2008 4:30 PM

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35 comment(s) - last by Alias1431.. on Feb 25 at 11:00 PM

Nokia states its astonishment at the audacity of German government's demand of refund of 1999 subsidies for Bochum plant

The dispute between cell phone giant Nokia and the German government began when Nokia announced plans to close down the last cell phone plant in Germany, located in the city of Bochum. The move led to angry protests against the Finland-based company. The protests became particularly heated when Finland announced that it would be relocating the production to neighboring Romania.

Nokia said that it had no alternative, but to shut down the plant. It said that the move wasn't carried out to spite Germans, but was just a harsh business necessity for what it calls an unprofitable plant.

The less-than-thrilled Germans have found an ally in their government. The German government looks to play a little hard ball with Nokia, by demanding subsidies it provided to the plant for renovations back in 1999 be refunded. The German state of North Rhine-Westphalia (NRW) issued the mandate on Wednesday. The demand refund totals to 41.3 million euros ($60.5 million). The subsidies had been used to convert what had been a TV plant into the current cell phone plant.

Nokia describes itself as "astonished" at the move. It said that it and its representative, Deutsche Bank found the claims to be ridiculous and that they had submitted all pertinent papers to the NRW Bank and the NRW government. It claims its requests for information from the NRW government have been denied and that the government is refusing to provide details of the grounds which it feels it can claim a refund on.

According to Nokia, from 2001 an annual average of some 3,200 Nokia and third-party employees were employed at the site, more than filling the requirements of the subsidy, which mandated 2,860 jobs. The company points out that it invested over 320 million euros of its own into the site, greatly surpassing the subsidies. Nokia also points out that increases it is taxes and social payments exceed the amount of the subsidies. Nokia states emphatically, "The facts currently available do not support the planned attempt of the NRW Bank and local government to try to recall the subsidies."

It looks as if Nokia and NRW may soon find themselves battling each other in German, or possible European Union court if the conflict is not resolved.

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No to offsourcing

By odessit740 on 2/8/08, Rating: 0

RE: No to offsourcing

By vhx on 2/8/2008 7:52:28 PM , Rating: 2

And? This happens all the time.

Nokia won't be paying anything.

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RE: No to offsourcing

By Martimus on 2/8/08, Rating: 0

RE: No to offsourcing

By xsilver on 2/8/2008 9:39:53 PM , Rating: 3

Actually I would say this should be a harsh lesson to governments that expect long term relationships with companies.
The german government should have signed some agreement to some effect which states: "this plant shall remain fully operational for XX years otherwise $XXXX dollars shall be the penalty"
That will light a rocket up some of those multinational companies.

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RE: No to offsourcing

By Gul Westfale on 2/8/2008 10:25:00 PM , Rating: 3

exactly. i'm surprised my idiot government (i'm from NRW, if you can't tell by my name) didn't sign such a deal before giving them money... i guess they outlined how many jobs nokia should create, but not for how long... D'OH!

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RE: No to offsourcing

By intelcpu on 2/9/2008 12:52:59 AM , Rating: 2

Anyway nokia will safe huge taxes in Rumenia witch is the new location, im also thinking on this option:-) and Rumenia is in the European Union:-)

On the other hand nokia could lose its good image so the maketing section will have some work. in this days marketing costs huge sums of euros. But i think they know well what they are doning as the biggest mobile phone manufacturer (77.07 million mobile phones sold last quarter) in the world.

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RE: No to offsourcing

By Polynikes on 2/9/2008 10:07:17 AM , Rating: 3

That certainly would've avoided this mess. It's the government's own fault this happened.

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RE: No to offsourcing

By wookie1 on 2/9/2008 1:45:55 AM , Rating: 3

The company has no responsibility to its employees, other than to pay them for the work they have completed and provide a safe working environment. The company has a responsibility to its shareholders to provide a maximum return on investment. That is, after all, why shareholders invest their money so that the company can operate. Businesses operate to make a profit, that is all.

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RE: No to offsourcing

By Hare on 2/9/2008 3:10:22 AM , Rating: 3

Nokia has over 100 000 employees. Don't you think that maintaining competitiveness is for the good of these other employees? Of course the locals (3000 people including third parties) are upset for losing jobs but you have to look at the big picture. If you look at the figures it looks like Nokia did their part and hasn't just "taken" the subsidies and left.

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RE: No to offsourcing

By Zensen on 2/9/2008 7:22:06 AM , Rating: 2

this is just as bad as banks and their interest rates.. if you can sue nokia, sue the banks. Germans banks would be a good start.

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RE: No to offsourcing

By Emryse on 2/9/2008 1:09:34 PM , Rating: 3

While you offer many explanations, your argument is not sound.

If Nokia did in fact provide enough jobs to honor the initial agreement, then it doesn't matter what they're attempting to do now in terms of relocation.

IF in fact it was the German gov't intent to keep the plant around longer, they should have looked further down the road when planning out the initial agreement that got Nokia there in the first place.

That's what I hate so much about most politicians today (and business CEOs for that matter); they don't consider the "long haul" - they're only in it for the 2-4 year term they plan to be steering the ship.

Germany has no one to blame, but themseleves.

As for your overall general application to the protection of national interests - you do that by rewarding companies doing business in-country with less taxes. Conversly, you also place balancing factors on businesses who choose to operate in the US for advantages, but outsource key employment overseas.

You can do this by simply charging much higher fees than the products being made locally. Even if the company chooses to pass those expenses on to the customer, it won't work, as people vote with their wallets.

But there's a third, and even more critical factor at stake. If you compare operations, especially in manufacturing at outsourced locations, vice those happening in many of the consumer countries, you find a major disparity in the quality of production. Companies aren't just outsourcing because it's cheaper. They're also outsourcing because it's typically a better product that gets built - that's unfortunate; the more consumeristic a society gets... apparently the more lazy as well.

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RE: No to offsourcing

By Hare on 2/9/2008 4:35:53 PM , Rating: 2

quote:
You can do this by simply charging much higher fees than the products being made locally. Even if the company chooses to pass those expenses on to the customer, it won't work, as people vote with their wallets.

That's exactly what can't be done and shouldn't be done.

The EU is an economic union. That means free movement of goods, services and capital. You can't discriminate products just because they happen to be from another country. "Article 12 of the EC Treaty prohibits discrimination on the basis of nationality and is one of its fundamental provisions."

Four Freedoms
http://en.wikipedia.org/wiki/Four_Freedoms_%28Euro...

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RE: No to offsourcing

By Emryse on 2/11/2008 9:40:41 PM , Rating: 2

Hare,

You're right: I wasn't clear in the application of my above post. The portion of my above post you quoted is a "lesson learned" for the United States - and an example of why the EU doesn't make sense to me in the context of a competition-based business model.

My point is that for the US, we want to foster economic relationships - but they must first and foremost benefit us. Therefore, if this situation had happened in the US, before allowing Nokia in the door, the smart thing to do would be lay out a long-term agreement that ensures if a company wants to become a significant contributor of the local economy (and get host gov't funding to do so), then it will have to provide a significantly larger return on investment over the long-haul.

That's how I manage my own money - and that's how I want my tax dollars leveraged. I'm not saying it always works out that way, but ideally it should.

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Nokia's unethical behavior

By CubicleDilbert on 2/9/2008 4:11:20 AM , Rating: 1

One of the main problems in this case is Nokia's extremely unethical behavior.
Up to the end of November they acted as if nothing happened, they did business as usual in Bochum/Germany. Hiring people, making business plans, communicating the great Nokia community of the people. Nokia: Connecting people.
Bochum is profitable (12-15% EBIT), a lot of R&D.

Unfortunately due to fu****ng useless Nokia business strategy in the past, a strategy which is mainly done in Finnland, their new CEO decided to turn Nokia upside down and re-invent. Of course, as a business person I say this is a good idea.
I have been dealing in business terms with Nokia in Finnland a lot and, yes they are sometimes more than arrogant. They know they are number one by far.

Bad in ethical terms is the fixes minimum margin of 20% EBIT that subsidiaries have to maintain. Anything below will be killed. So they killed Bochum (12-15% EBIT).
They didn't tell them that at the same time a fully second plant is being built in Romanian Transsylvania (yeah, check the geography!) with huge local tax incentives.

It is like Intel Oregon telling their folks that next month their plant is located in Bangalore and that Oregon is being shut next week. Thank's for your efforts and cooperation.

And of course, Nokia cares about their employees!
Any German interested in keeping their job is welcome to work in Romania (at local wages... EUR 20/day).

Nokia no more... I hope their business in Germany is really dramatically going down.

RE: Nokia's unethical behavior

By UncleJoe on 2/9/2008 5:29:47 PM , Rating: 3

Sorry, but from Finnish point of view theres nothing new in this kind of practices. (I don't say I'm happy about what's happening in Bochum.) Actually (quite ironic) there was Fujitsu Siemens (German company) computer factory in place called Kilo in Finland and factory was profitable but with very help of IG metal that profitable plant was closed and workers got sacked when production was moved to not so profitable German plant. Now there resides Nokia buildings instead. So this kind of practices are used allso by German companies and have been used many times before - so if you want to moralize and cry about don't do it just towards Nokia but allso other companies including German ones.
Actually that Fujitsu Siemens thing is going to EU courts soon and outcome of that might also have affect on how possible complains about Nokia/Bochum will be dealt if it ends up to EU court.

Here's some facts for you:
http://www.eurofound.europa.eu/eiro/2000/02/featur...

Or are German workers only ones who matter ?

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RE: Nokia's unethical behavior

By CubicleDilbert on 2/10/2008 7:42:24 AM , Rating: 2

Just my own comments on yours:

1.) IG metall is the major pain in the ass in Germany. No, maybe in whole Europe!

2.) Subsidies should be completely abolished in Europe. They are intended to stimulate the creation of new industries in desolate areas. But they are actually a totally incompetent and disastrious way to distort competition on taxpayer's money. And I mean European taxpayer. The outcome is a herd mentality of corporations moving from subsidies pastures to subidies pastures. Governments should create a solid working environment for corporations with low taxes and incentives for educated workers. Just as it works in Switzerland or Singapore.
There should be no subsidies (out from taxpayer's pocket) but long-term financially lucrative environments.

3.) Fujitsu Siemens is a joint venture of Fujitsu (the owner) and Siemens (junior partner). They are governed by Fujitsu (Japanese), just as Benq Siemens is governed by Benq (Taiwan) and Nokia Siemens Networks is governed by Nokia (who will close down Nokia Siemens in Munich sooner than later as I heard from reliable sources)

Nokia Bochum last fiscal year made around EUR 100 Million profit, which is not enough for Nokia. That is something that even a consultant is hard to swallow. Recommend to close it down and rebuilt in Aserbajan oder Romania. Then profits would be maybe EUR 150 Million.
Why not close Nokia in expensive Finnland and relocate headquarters to Ghuanzou?
That's what Benq did with Benq Siemens.
So much for "Globalization".

Jobs are globalized, but products are not. Try to import a cheap Nokia phone from Asia into Europe and you run into Nokia lawyers immediately.

No, I do not work for Nokia, nor Benq or their competitor.

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RE: Nokia's unethical behavior

By random git on 2/10/2008 5:28:33 PM , Rating: 2

About your point number 2), if you're for free non-governmentally controlled trade why are you ranting about outsourcing? Do you mean protectionism with "creating long-term financially lucrative environments"?

As for the rest of the rant finnish engineers are about half the price of those in west european countries. Maybe that's why they are moving away from munich? Also, the corporation has the finnish society by the balls so it's sure to get what it wants eg. low corporate taxes and a good media image etc. The latter, at least, is something Germany can't provide.

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In lieu of..

By SavagePotato on 2/8/2008 5:49:36 PM , Rating: 2

The German government will accept the GGG dvd collection in lieu of payment.

At least it won't come down to violence.

RE: In lieu of..

By 67STANG on 2/8/2008 6:12:30 PM , Rating: 2

Arrrr! (I say as i put on my pirate outfit)

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Cellular 'buttons':

By Clauzii on 2/8/2008 7:53:33 PM , Rating: 3

- "Hey, call someone!"
- "Sorry, sir, 'they' took our phones..."

When did Finland and Nokia become interchangeable?

By Mr Alpha on 2/9/2008 9:21:04 AM , Rating: 3

quote:
The protests became particularly heated when Finland announced that it would be relocating the production to neighboring Romania.

Shouldn't it be "when Nokia announced"?

yes

By kjboughton on 2/8/08, Rating: 0

RE: yes

By IntelGirl on 2/8/2008 11:27:41 PM , Rating: 1

I wouldn't be surprised if it was Bush's fault. He's a money laundering corporate slave.

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RE: yes

By Ringold on 2/10/2008 12:18:34 AM , Rating: 1

A question for a liberal. What happens in a couple years if, say, Obama or the Hildabeast is elected? Who will you have to kick around then? Will all evil in the world still somehow be the fault of Bush?

Or would you then turn around and blame Reid, Pelosi, and the President? I somehow doubt that one.

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So what can Germany do?

By ImSpartacus on 2/8/2008 7:53:05 PM , Rating: 2

Can Germany actually do anything to Nokia?

I hope WWIII doesn't start with Germany attacking Nokia...

I'm not your stepping stone?

By Roffles on 2/9/2008 12:17:26 AM , Rating: 2

I find it fascinating to see that Germany will take a nationwide stance against an outside company [Nokia] "experimenting" with its citizens for economic success. “Our profit margin isn’t acceptable because German citizens demand more money for a higher quality of life...let’s move to the still developing and easily exploitable ex-communist nation of Romania to improve our profit margin.”

Of course it's a two-lane road and German politics are foreign to me. Maybe the Germans should modify their international business treaties to ensure this doesn't happen again (if they haven't already seeing as this is from so long ago). Many towns in the USA have flourished and then turned into crime ridden ghost towns as a result of these practices. I'm curious to see how this turns out.

RE: I'm not your stepping stone?

By Ringold on 2/10/08, Rating: 0

By Ringold on 2/10/2008 12:13:35 AM , Rating: 0

quote:
Many towns in the USA have flourished and then turned into crime ridden ghost towns as a result of these practices.

Thats mischaracterizing it slightly. A more accurate statement would be that many towns in the USA flourished during our nation's manufacturing period, the workers failed to properly anticipate the inevitable advancement of technology and invest in additional skills, and when the hammer finally fell and the rest of the national economy left them behind, they then found themselves between a rock and a hard place. Instead of saving for hard times and using that to pick up a trade at a community college, instead of working hard to at least raise decent kids, they stagnated. Then cue the rise in crime and a lost generation or two of kids.

If Germany hasn't figured out that the future looks like England and America (almost total service-based economy) and hasn't started preparing itself then, frankly, they deserve whats coming. To be fair, Germany I know has made a lot of reforms, but they've still got a long way to go.

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