beyondbrics

By Stefan Wagstyl and Kester Eddy

Nokia’s decision to include Hungary in its latest round of job cuts, announced on Wednesday, could not have come at a worse time for embattled prime minister Viktor Orbán.

A day after Orban praised the Finnish company in his annual state of the nation speech as a model investor for creating secure jobs, Nokia revealed plans to cut 2,300 posts in Hungary, among 4,000 going worldwide.

That’s a bit embarrassing, both for the Finns, who like to build good relations with host governments, and for Orbán, who is struggling to restore Hungary’s good name among international investors. More fundamentally, it’s also a sign of the growing difficulties faced by export-oriented east European economies in competing with east Asia.

Hard-pressed Nokia (NOK1: HEX) – shares down 53 per cent in 12 months – will end handset manufacture in Hungary, Mexico and Finland and focus work at these plants on final adjustments to finished phones. Meanwhile handset production will move to Nokia factories in Beijing and Masan, South Korea.

The job cuts will come on top of the 14,500 reductions the group has announced since Nokia linked up with Microsoft last year in response to a loss of smartphone market share to Apple, the US group. Nokia’s first handsets based on Microsoft Lumia software have been put together a supplier’s factory in Taiwan.

According to Nokia’s statement, Niklas Savander, executive vice president, markets, said:

With the planned changes, our factories at Komárom, Reynosa and Salo will continue to play an important role serving our smartphone customers. They give us a unique ability to both provide customization and be more responsive to customer needs.

Shifting device assembly to Asia is targeted at improving our time to market. By working more closely with our suppliers, we believe that we will be able to introduce innovations into the market more quickly and ultimately be more competitive. …We recognize the planned changes are difficult for our employees and we are committed to supporting our personnel and their local communities during the transition.

As well as the 2,300 posts lost in Komárom, in north western Hungary,  700 are going in Reynosa, Mexico, and 1,000 in Salo, Finland, at Nokia’s oldest plant. Eastern Europe also suffered in last year’s cuts, when Nokia closed a showcase plant near Cluj-Napoca, in north western Romania, that was opened only in 2008. Some 3,500 jobs were lost.

The cuts will reduce the Nokia payroll at Komárom to 2,100 and create pressures across the town, which sits on the border with Slovakia on the Danube. Some 20,000 live in Komárom on the Hungarian side of the river, and 40,000 in Slovak Komárno.

Mid-way between Budapest and Bratislava and not far from Vienna,  the Nokia site lies in an economically-developed region, which has attracted many foreign investors. However, since the 2008 crisis, foreign investment into Hungary has declined.

Tamás Szentesi, director of the Hét Vezér Apartment hotel and life-long resident of Komárom, told beyondbrics:

I think it’s a real loss for the town. The local tax Nokia contibutes to the municipality budget is pretty significant.

So the job losses mean a big step backwards. Then there is unemployment, that is going to grow and has to be coped with.

In November, as I remember, registered unemployed here was something over 1,700. I think we were a bit better than the Hungarian average, which is a bit above 11 per cent. But still, that’s significant in a town of 20,000 inhabitants. And remember, these employees are consumers in this town. That will hit business and entrepreneurs here.

It’s also important to know we have close connections with Komarno, across on the Slovak side, with a population of 40,000. I don’t know how many, but I do know Slovaks – including many ethnic Hungarians – come across to work in the industrial park, where Nokia is.

In Romania, Germany’s Robert Bosch, the world’s biggest car parts supplier,  is considering plans to invest about €77m ($101 m) at Nokia’s Cluj site but that does not mean that Komárom will easily find a replacement investor.

All this comes at a difficult time for Viktor Orbán. He is having to backtrack on policies as he tries to gain financial support from the European Union and the International Monetary Fund. The last thing he needs is a high-profile foreign company reducing its presence.

In his speech, Orbán said he “relied upon” companies such as Audi, Mercedes, Opel Bosch and Nokia to create secure jobs for Hungarians. He will be hoping none of the others has a nasty surprise in the pipeline.

Related reading:
Hungary: Orbán munches humble pie, beyondbrics
Hungary: Brussels in court threat, beyondbrics
Orban and the EU, FT