Nokia’s comeback and the fate of its factory in Vietnam

After Microsoft sold off Nokia to Foxconn (Taiwan) and HMD Global (Finland), Nokia-branded phones will return to the global market. Under the deal, the Nokia - Microsoft factory in Bac Ninh (northern Vietnam) is transferred to Foxconn. The fact that the factory has been under 3 different owners in only 5 years demonstrates mixed feelings about its prospects.

In 2011, Nokia established its own factory in Bac Ninh, which originally specialized in manufacturing feature phones. However, after a brief period of operation, difficulties from the mother company led to the withdrawal of Nokia from Vietnam and the change in ownership of the factory. In April 2014, Microsoft acquired Nokia’s mobile phone business with an ambition to become a sizable mobile phone vendor. As a result of the acquisition, Microsoft took over the Nokia factory in Bac Ninh. With an aim to make the factory its main manufacturing site for its global mobile phone business, Microsoft moved a large number of Nokia smartphone production lines from factories in China, Hungary and Mexico to Vietnam.

Unfortunately, due to continuously disappointing mobile sales, the factory faced further misfortune. Microsoft ceased to use Nokia brand for new products and announced plans to shrink its phone hardware business. As a result, the factory couldn’t reach its designated production capacity and its existence faced huge uncertainty.

Recently, the factory once again underwent an ownership transition. In May 2016, Microsoft sold off its feature phone business to Foxconn, which in return obtained manufacturing, sales and distribution assets of Microsoft’s feature phone business. According to the agreement, Foxconn acquired the factory in Bac Ninh to manufacture Nokia-branded products. Separately, Nokia gave HMD Global an exclusive right to develop Nokia-branded mobile phones and tablets under a brand and intellectual property licensing agreement.

In other words, while HMD Global handles the development of Nokia devices, Foxconn will manufacture them in the factory in Bac Ninh. With HMD Global’s plan to launch two new Nokia-branded feature phones and two smartphones, the Bac Ninh factory will remain in operation to manufacture Nokia devices under the operational control of Foxconn. A question can now be asked: will Nokia’s revival be successful enough to put an end to the Bac Ninh factory’s misfortune?

BDG insights

Ever since its establishment, the Nokia factory in Bac Ninh has always played a critical role in Nokia’s and subsequently Microsoft’s mobile phone ambitions, but also has been facing a lot of uncertainty over its fate due to disappointing mobile phone sales. Should Nokia’s comeback proves to be successful, it will reinforce Vietnam’s position as a hi-tech manufacturing hub as originally expected by the Vietnamese authorities at the time of Nokia’s entry. Nevertheless, another unsuccessful Nokia-related venture will demonstrate the risks that the Vietnamese government incurs when accepting hi-tech FDI projects. In addition to transfer-pricing problem which is intrinsic in high-tech products, Vietnam can face misuse of tax and fee waiver incentives from foreign investors coming from the high-tech sector.

Sources: 1, 2, 3

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