Case 3 Nokia: Business Interests vs German Pressures
What are the trends in the mobile handset industry? What is Nokia`s strategy and how has globalization changed its way of operation?
Market growth for mobile phones was predicted to slow down from 2008 and the demand in the developed countries has been saturating. At the same time the demand for mobile devices started to rise on the markets of the Middle East, Southeast Asia, Africa, China, India and Eastern European countries. There cheaper models were in greater demand, so the producers started providing low-cost handsets. As a result low-cost manufacturing was a priority. That is the case with Nokia, too. The Finnish company`s biggest markets were China and India, so it decided to follow the trend of low-cost manufacturing and to move its production from Germany to a new plant in Romania, where the production costs would be less.
Was the German backlash against Nokia justified? How can nations make themselves more competitive? There can be two answers to this question, depending on the point of view. As a company, Nokia is interested in low costs and high productivity. Germany is known for its high wages ( 26 $ per hour compared with $21 in America and $17 in Britain), very strict labour laws, powerful works council and unions and high taxes. Since 2004 a lot of countries in Central and Eastern Europe has joined the European Union and has become an alluring place for investors - a lot of companies decided to relocate their production in CEE countries. As a comparison, the average monthly salary in Romania is about $318, which is one- tenth of the average wage of workers in Bochum. The plant in Germany was profitable, but the costs were too high. In Germany`s point of view Nokia`s decision was unjustified and inhumane. The closure of the plant in Bochum would leave 2,300 people without a job and would affect a lot of suppliers and temporary employment agencies, too. What is more, the plant in...
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