German state after $92 million in subsidies, interest from Nokia

Looks as if Nokia's going to be using a portion of that gigantic profit it raked in during Q4 to appease NRW.Bank -- unless a meeting it hopes to establish within the next few days changes matters, that is. Apparently, a German state has "asked" the handset maker to hand back government-issued subsidies (with interest, no less) that it received to build a cellphone factory in Bochum which it now plans to close. In sum, Nokia's looking at a tab of $92 million, as the folks in the industrial Ruhr region are none too pleased about what will likely result in the loss of some 2,300 jobs. Purportedly, the cash is due by March 31st, and if Nokia refuses to comply, the bank has stated that it will "take legal action to secure payment." Them's fightin' words there.

[Karl Hackswell @ Mar 11th 2008 5:45PM]

They should pay it back. That was kind of a messed up thing of them to do.

[Jubei @ Mar 11th 2008 6:00PM]

Yes they should pay it back, if they are legally bound. As it is, it's much wiser to keep the money and run. They will need as much as they can muster to invest in RD to compete with the likes of Apples iPhone and Touch.

[TvL @ Mar 11th 2008 6:08PM]

The only mistake Nokia made was an unfortunate timing. The announcement was made just a week before an election. Every self-respecting politician had no other alternative than to go ballistic. Should the announcement have been made one month later (i.e., after the election), no one would have noticed.

Germans complain that their economy is inflexible. No joking?!

Come'on my European friends. No jobs are eventually lost. They are just shipped to Romania. This *is* the idea of EU. Right?

[adrian @ Mar 11th 2008 5:59PM]

With the unions and high labour costs, One wonders why the hell they set up a German factory, in the first place.

Nokia, pay the subsidies back, and make it easy for yourself, as for interest on top, tell them to step.

[ScooterDe @ Mar 11th 2008 6:59PM]

this week's also includes...German exports at an all-time high. Germany remains the leading economy in Europe and one of the world's largest economies behind the US, Japan and China. It relies not on cheap labour but on very high standards of innovation and engineering: quality rather than quantity.

[ScooterDe @ Mar 11th 2008 6:59PM]

...this week's NEWS...

[sinjinn @ Mar 11th 2008 6:00PM]

thats like a girl wanting to keep engagement ring after you've broken up.

[Davsot @ Mar 11th 2008 6:05PM]

they should pay it back, but unless the government is substantially differen from the way it's in the US, I doubt Nokia may have to pay anything back. In Puerto Rico, if the pharmaceutical companies decide to close down then they have all the right to do so even though they're aware they are damaging the local economy.

[pundit @ Mar 11th 2008 6:42PM]

You're clearly not familiar with the wide number of laws in Germany. They've got something to cover everything, and job protection is huge. They pay big bucks to keep jobs and make it really hard for people to get fired.

[Fuzzball @ Mar 11th 2008 6:07PM]

Good. I hope they either do what they agreed to do or have to pay back with interest. IMHO, the US government should be holding the telecoms to the same standard for all of what they profited off of their reform act that was given to them with the purpose of that money being devoted to building a better telecom infrastructure with fast consumer internet access.

We thought ahead and asked them to bring FTTH. They said "oh we need tax breaks and the ability to collect more money so we can fund this super-expensive project." We said "sure, fibre is expensive and digging up ground is expensive". Then they took that money and gave bonuses to their C*Os and maybe their investors.

DSL, Cable, FDDI/FTTC/FTTH is all BS. Everything should be at least 100Mb today and us looking to have 1Gb+ in a few years.

[tpp @ Mar 11th 2008 6:14PM]

I still haven't seen a good analysis on what kind of obligations Nokia had to the Germans and how they failed to comply with them. These sort of subsidies usually come with pretty specific obligations.

The Yahoo article just says the Germans are claiming that since 2002 Nokia hasn't created the minimum number of permanent employees required by the subsidy agreement. How many is that? And how many jobs did Nokia create? It'd be interesting to know what the difference is...1% or 25%. Or if there are any differences at all, and it's all about interpretation of what "permanent" means. Or something like that.

[Iain @ Mar 11th 2008 6:43PM]

I'm with you, I want to know more details.
Ok, the Germans want the money back but that doesn't mean that Nokia are bound to repay it - Nokia could, for all we know, have kept to every term of the contract, in which case the Germans are moaning about nothing.

Anyway, it's not like they got burned that badly - plenty of local governments shell out huge amounts of money to attract businesses with zero return.
Where I live in Scotland, a huge factory was built for Hyundai as an incentive for them to move into the area and, after it was built, they turned round and said no. As far as I know, the factory has never been used an Hyundai have never contributed a penny.

[branko.milojic @ Mar 11th 2008 11:52PM]

hey Fuzzball,
what happens here is the same in so many countries, and yes , including US.
to attract corporations, and investments (investments that will be done anyway), and in order to create local jobs, many countries in teh world provide grants.
these grants are bound to requirements:
example can be that you get a tax exmption for 10 years, a land rental for free for 10 years, if you invest these and create 1000 jobs, 80% local hireesin the first 2 years and keep these 10 years.
gvts are not inflexible, and market conditions understood to be impacting on these numbers, thus flexibility.
however, at a time when the corporation announces a huge profit,it decides to close the factory, before the terms agred upon. which means the money received (in cash or subsidies, read the tax rebate...) are kind of "stolen" as the other side of the bargain is not kept, and this without economical reasons.
read the green card procedure for new investors in US, and the requirements, or the grants requirements for investing in Alaska. almost all countries do so.

on the legal ground, and I am not a legal expert, even though in this case, there might not have been a written bound, rulings are left to the judges. a part of Nokia's last year benefits might have been a direct result of the fact that they needed not invest the money they got from Germany. they could, I think, feel lucky germany is only asking for the money given, instead of estimating the worldwide investments by nokia, the share Germany financed, and take that percentage of Nokias profits.

more or less, a relation can be made in the marital stauses: even without being married, or married under contract for separation of wealth, one partner can overrule this contract or no-contract with a judgement on the fact that by helping in the personal life (cooking, cleaning...) it participated in the wealth generation and has right to a share of it.

last but not least, the bounding with requirements, even if not wirteen and signed, is the standard for Gvt subsidies to a company's investment throughout the world, nokia cannot default for lack of knowledge on a mainstream and widely common procedure.

PS: not for you fuzzball, why is everybody still comparing economically germany to US, or UK to US, or france.
each EU country should be compared to a US state.or ALL EU to ALL USA.
then the comparison pales: export, population, market capitalisation.... the difference is then really blurred. EU is at least economically a union of countries, as much as USA is a union of states (which is equivalent here)

[Iain @ Mar 12th 2008 6:21AM]

Who are you talking to?

And, no, the US should not be compared to the EU as a whole.
The US is made up of a number of states, the EU is made up of a number of countries, each of whom are made up of a number of states/areas/regions etc.

[Maurik @ Mar 11th 2008 6:17PM]

It was money GIVEN, not lent.

If I give you decide to buy a car and in order to do so, I give you $3000. A week later your car is totalled, I don't ask for my $3000 back.

Same goes here, an investment (subsidy or otherwise) is a risk, a gamble.

[Alex R @ Mar 11th 2008 6:28PM]

hmmm...

[BigD145 @ Mar 11th 2008 6:39PM]

Corporate heads should be held accountable for their actions, especially when it comes to subsidies.

[Iain @ Mar 11th 2008 6:45PM]

The people running the state where it happened should be held accountable - after all, they're the ones throwing the money at the companies.

[pfromg @ Mar 11th 2008 7:04PM]

you have no idea what your talking about.
Germany was once had the laws you speak of , however these days only a select few have any job protection at all.The large majority of workers here get paid a pitance.
1 euro per hour common.A hair dresser for example, takes home 800 euros for 160 hours work.This is a country where it often pays more not to work than it does to work.
Its become a cheep labor , sweat shop , with awful laws working against the worker and for firms.Im sure people outside of germany have a great opinion on what they perceive to be a country that looks after its workers.Unfortunatly this dillusion is about 10 years out of date and the new Germany has no interest at all in protecting anyone that they dont need to.

[pundit @ Mar 12th 2008 2:27AM]

The State of North-Rhine Westphalia is big into job protection, from what I've experienced (even this year). There are many immigrants who do receive a pittance and the people of the former GDR are especially exploited for cheap labour. Anyone who gets their job through a union or through government grants seems to be extremely well protected here. Sure, it's not as great as some other European countries, but Germany remains quite strong, at least in this state.

[sevendegrees @ Mar 11th 2008 7:18PM]

well, there goes the $90 price cut... hopefully you got one for cheap in the past few hours

[Klaus @ Mar 11th 2008 7:20PM]

This has developed into a total PR-Disaster for Nokia. They already lost market-share in Germany and Millions in PROFIT.

Stupid Nokia!

[gdfdfg @ Mar 11th 2008 7:31PM]

This post is totally uninformed and so are the comments. Of course the state of NRW did not just give Nokia that money as a present. There were clear conditions Nokia had to fulfill, including a minimum number of newly created jobs. They did not create these jobs, so now the state wants the money back. The most natural thing in the world.

Nokia tries to argue that they actually DID create that many jobs, but their counting methods are rather strange: They count cheap workers they hired from agencies for temporary work, and they also count newly created jobs in other firms (like outsourced cleaning services). I guess in the end a judge will have to decide whether Nokia's or the state's way of counting is correct, but I strongly expect Nokia to lose.

[giz @ Mar 11th 2008 7:43PM]

for further informations - read Spiegel Online.
http://www.spiegel.de/international/business/0,1518,540699,00.html

[nikster @ Mar 11th 2008 8:08PM]

I wonder why Nokia even bothers... does it seem like a good idea to fight the a German state in court while getting really bad press every single day? Nokia should pay up, write it off, and move on. Damage control, Nokia.

[Iain @ Mar 11th 2008 8:26PM]

Well that really depends on how 'create' is defined in the contract, doesn't it?

Unless it is specifically defined in another manner, then Nokia's case is pretty strong - after all, the cleaning jobs, etc would not have existed had the plant not been built, therefore Nokia's presence created those jobs.
Just because they had to create a certain number of jobs, that doesn't necessarily mean that they had to directly employ that number of people - unless, as I say, that's how it's defined in the contract.


@Nikster: because it's $92 million.
No matter how big a company you are, you don't just let go of that much money without a fight.

[gdfdfg @ Mar 12th 2008 3:44AM]

@Iain: Yes, it depends on the definition. But I guess in Germany "creating a job" is relatively clearly understood as "create a permanent workplace that requires one worker to fill it". That is independent of the individual filling that job (if he leaves, the workplaces remains, and is filled again by a new worker).

Of course there's always the possibility that the state was stupid enough to propose a contract that does not make that clear, so that Nokia might wiggle out.

[Iain @ Mar 12th 2008 6:31AM]

Clearly understood or not, it does hinge on the terms of the contract.
Personally, I can't imagine Nokia would be stupid enough to try and leave before they could pocket the money but we'll see.

[Virtuous @ Mar 11th 2008 7:54PM]

International trade agreements should outlaw all government subsidies to for-profit companies.

[Reader @ Mar 11th 2008 10:46PM]

Why? Companies can't be responsible on their own?

[Richie @ Mar 12th 2008 7:00AM]

Well spoken! That's absolutley right...

[gurzanagi @ Mar 11th 2008 11:59PM]

Ha Ha, take that you friggin Nokia, that's what I felt when I bought that crappy N93, like trashed money

[AoMoe @ Mar 12th 2008 12:07AM]

An earlier report stated that the plant was responsible for 6% of Nokia's global output, but 23% of its global labour cost. 23% in, 6% out. What a great deal.

[Spamslurpee @ Mar 12th 2008 3:54AM]

The plant never lost money, it was always profitable. Sure, Nokia can broaden the margin by moving to the east. They could do even better going to India. It was one of the reasons I liked Nokia, they didn't use get on that cheap labor train. If it turns out they cheated their way out of that contract, they'll have to pay up. That's how it works everywhere..

[Doze @ Mar 12th 2008 10:47AM]

Actually Salo's factory here in Finland is more profitable than this German....so they could at least get there first.

[Richie @ Mar 12th 2008 7:00AM]

YES !!! This is right and good!

And it's getting better:

Nokia's turnover in Germany sunk since their plans to move to Romania.
2 of 3 (!!!) Nokia customers refuse to buy a new Nokia phone.
2 of 3... that's much but imho not much enough!
This removal isn't expensive enough yet!!!

Hey NOKIA: sale your §$%&ing phones in Romania!!!

[pdexter @ Mar 12th 2008 10:48AM]

=D keep dreaming.
Happen to be german?

[lal @ Mar 13th 2008 4:41AM]

you can read more facts here
http://www.spiegel.de/international/business/0,1518,540699,00.html