Nokia plans to merge JVs in China
By Li Weitao (China Business Weekly)
Updated: 2004-10-18 15:00

Finnish telecoms giant Nokia has received Chinese government approval to merge its four manufacturing joint ventures in the country, which is expected to boost the firm's business in the world's most-dynamic telecoms market.

That initiative is widely expected to set an example for other multinationals, a great number of whom want to integrate their sprawling businesses in China amid stiff competition.

Nokia plans to merge its four joint ventures into a new entity, which will be operational in January, said David Tang, vice-president of Nokia (China) Investment Co Ltd.

Tang made the announcement last week, on the sidelines of the Shenzhen High-tech Fair.

The restructuring involves a 50-50 joint venture between Nokia and China's handset maker Capitel; a telecoms gear manufacturing company in Beijing; a plant in Dongguan, in South China's Guangdong Province; and a joint venture in Suzhou, in East China's Jiangsu Province.

The firm, which will be based in Beijing, will become the largest manufacturing and exporting company in China's mobile telecoms sector.

Nokia will hold more than 60 per cent of the new firm, Tang said. He declined to specify on the firm's shareholding structure.

The firm's four Chinese partners will have stakes in the company, which will produce mobile phones and network equipment.

"Nokia is the first multinational in China to merge joint ventures across provinces, on a large scale," Tang said.

"And our successful merger has set a good example for other firms in the industry."

Multinationals have traditionally formed numerous joint ventures in China -- mainly to achieve localization -- since the early days of their entry into the country.

Nowadays, most are trying to gain more control over the joint ventures, and to integrate their sprawling businesses to cut operating costs and improve efficiency.

For example, the allocation of resources among Nokia's four joint ventures involves trading between different companies, whose transactions and settlements take time and dents Nokia's competitiveness, Tang said.

Merging joint ventures, especially those across provinces, is not an easy task, as local governments fear they will lose tax revenues.

Nokia filed the necessary applications for the merger last January, and obtained approval from all relevant local governments in June. The central government issued its preliminary approval in August.

Tang said Nokia promised local governments it will increase investments in provinces and/or cities.

"We spent a lot of time communicating with local governments," Tang said.

"The merger is aimed at strengthening the overall competitiveness of both Nokia and our partners in China and the global market, and in better adapting to the fast-growing telcoms market."

China has become a strategic market and important manufacturing base for Nokia, the world's top cellphone maker and a major mobile telecoms equipment manufacturer, Tang said.

As of January, China, including Hong Kong and Taiwan Province, has been ranked as one of Nokia's five key regional strategic markets. China is the firm's only country market.

Nokia's other key markets are North America, South America, Europe/Africa/Middle East and Asia-Pacific.

Nokia's mobile operations in China now report directly to the firm's global headquarters, rather than the Asia-Pacific headquarters in Singapore. That signifies the increasing importance of the Chinese market.

That would ensure Nokia's China operations have closer contacts with, and better access to, its global headquarters, research and development (R&D) and resources.

Nokia has five global R&D facilities in China. The firm by last August had applied for 2,100 patents in the country. The firm has received 500 patents.

About 40 per cent of the global handset shipment of Nokia's Mobile Phones Business Group are developed by its Beijing product development centre.

By 2003, Nokia had invested 1.7 billion euros in China. The firm's exports from the country, in the past four years, has exceeded 8 billion euros.

Nokia has "basically" realized the localization of its manufacturing, outsourcing and R&D in China, Tang said.

Nokia's outsourcing in China last year exceeded 15 billion yuan (US$1.81 billion).

"We are aiming to become the leader in China in our core business areas, to maintain sustained growth, and to be the top partner for the Chinese Government, operators and consumers," he said.

Nokia is the top vendor in China's overall cellphone market, indicate the latest statistics released by GFK Asia and JP Morgan.

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