Introduction
The following presents an overview of a case analysis of Nokia’s relationship and handling of a factory closure in Bochum, Germany. The closure affected many, including the Germans who lost their jobs, suppliers to Nokia’s Bochum factory, trade unions, and local politicians. Nokia did not follow traditional German business culture, but rather announced the decision to close the factory abruptly and not long after Nokia’s profits for the previous year had been released. Coupled with the timing of the announcement, Germans reacted negatively towards Nokia and protests of up to 20,000 people were staged in effort show solidarity against Nokia. Had Nokia respected German negotiations, much of this repercussion could have been avoided.
Case Summary
Nokia, a well-known cell phone manufacturer announced that its plant in Bochum, Germany would be relocating to Romania in early 2008. This announcement was a big surprise to Germans, in that the plant was profitable and Nokia posted an annual profit of 7.2 billion Euros. Because of the surprise of the closure of the plant, there were protests and Nokia was accused of being like the rest of capitalistic businesses, picking up to move to another country where the labor is cheaper. Unions talked of seeking legal action against Nokia. In addition, numerous subsidies were given to Nokia when they opened the plant in Bochum. Questions began to arise after the announcement of whether or not Nokia had fulfilled its obligations to Germany.
Labor costs in Germany where substantially higher than Romanian labor. Nokia no longer felt that they could remain competitive given the higher wage earnings in Germany. Adding fuel to the fire was that Nokia was not the only company to move its factory to another location, which was a more common practice in the post and telecommunications sector with Siemens mobile phones and Motorola relocating or closing German plants (Deresky, 2011).
Analysis
Nokia’s closure of the plant makes sense from a business perspective. However, from a humanistic side, the lack of communication with the unions and their German employees did not make sense. Even Nokia’s President and CEO, Olli-Perka Kallasvuo, stated, “We did not get our message through early enough. Considering that the reaction was so strong, something could have been done better” (Deresky, 2011). For perspective, this factory was the second largest industrial employer in the city, behind motor manufacturer Opel (Henning, 2008). Over 4,300 workers were affected by the Bochum closure. There were other feeder plants that supplied parts or shipped finished products out, like German DHL, that were affected by Nokia’s abrupt departure.
Nokia Germany’s supervisory board president, Veli Sundback, stated that the Bochum plant is not competitive internationally. In Cluj, Romania, labor costs are ten times less than what they were in Germany. The counterargument to labor costs is that labor only makes up five percent of production costs. However, Nokia was already facing pressure from its suppliers in Germany who stated that they were having trouble delivering products at the low costs that Nokia expected, partially tied to the cost of labor (Henning, 2008).
Nokia could have better prepared the German public for its inevitable departure. In order for Nokia to remain competitive with companies like Motorola, in the wake of decreasing cell phone prices, Nokia would have to move to a country with lower production costs. Because Nokia did not clearly explain why they needed to move; perhaps with charts and evidence of what would happen to the company without relocation and high labor costs, the German community would not have reacted so vehemently.
Nokia failed to take the German culture into consideration with a longer approach to closure. In the past, other companies would announce that there were problems within the company or the plant in Germany. Then, different representative groups, i.e. unions, politicians, would meet to discuss what could be done to change the current dynamics (Deresky, 2011). Even if Nokia still intended to close the plant, this small concession of playing the political game in Bochum would have made a significant difference, contrary to what Nokia officials believed.
Germany has a higher uncertainty avoidance index on Hofstede’s cultural dimensions (Hofstede, 2009). Based on this research, it is of no surprise that Germans reacted the way they did to surprise of the Bochum factory closing. Germans found themselves in an uncomfortable situation in which their safety and security was taken away by the impending loss of their job. On the other hand, Finland, where Nokia is located, does not have such a high uncertainty avoidance index. Perhaps the culture of a Scandinavian country is more accepting of risk and changes that may occur because of such risk.
Germany does not have a high power distance so there is not as much respect for the authority that made the decision to close the Bochum factory. With less power distance, Germans felt more empowered to question such a decision than a country with a higher power distance. Moreover, Germany also tends to have more of a short-term orientation, which aligns with “respect for tradition, fulfilling social obligations, and protecting one’s face” (Hofstede, 2009). Based on their short-term orientation, one would expect Germans to react better had Nokia gone through negotiations with the union and tried to save face. These social obligations may not have had an impact on the closure of the plant but would have had an impact on the city’s perception of Nokia.
Prior to the closure, Nokia was well respected in Germany. Nokia even had a rail station named after the company in Bochum. This rail line was partly build with taxpayers’ money and was for commuting Nokia factory workers (Helsingin Sanomat, 2008). Much of Germany was angered at Nokia, even the Chancellor. Germans were especially upset at Nokia’s lack of discussions prior to the closure announcement, because that is seen as “alien to present German culture” (Helsingin Sanomat, 2008).
Recommendations
If I were in charge of Nokia’s plant closure in Germany, I would have handled the situation differently. Before a decision was made to close the factory, or if there was enough time after the decision was made, I would start negotiations. German negotiations often require the “patience of a clockmaker” and you “do not confront the other party immediately” by shutting down their ideas (Schaupp & Graff, 2010). Because Germans do not handle uncertainty well, the negotiator for Nokia should clearly state there is a possibility of the plant closing (Kwintessential, Ltd, n.d.). However, Nokia’s negotiators will need to back up their statement with specific evidence of how they cannot remain globally competitive with the plant in Bochum.
Nokia should allow time for the local politicians and union negotiators to come up with counteractive plans to enable Bochum’s plant to stay open. This process could take several months. In this time period, Nokia should continue to gather evidence of why the plant in Bochum is to close. Once Nokia states that it cannot allow any further arguments, then a press conference should be held, which includes union officials, local politicians and Nokia officials to announce the plant closure. Opportunities should be given to German employees to transfer to the Romanian factory, albeit with a pay cut but with potential for relocation costs to be considered.
With the collaboration and involvement of local Bochum employees, the transition from factory worker to unemployed will be easier. Moreover, there will be less community backlash as the community will have had time to face the reality of the plant closing. This time will allow the citizens a chance to adapt to the idea and plan for the future.
Conclusion
Nokia failed to communicate the plant closure properly and respect German culture. Had they followed traditional German business culture, perhaps the anti-Nokia sentiment could have been avoided. Nokia should have had more time and respect for what the city of Bochum had already faced with other factories leaving. Having this cultural sensitivity does not make a company weak or submissive, but rather adept as a successful multinational company. Nokia officials were apathetic and unapologetic for the way they announced the plant closure and refused to allow concessions. Factories leaving for other locations with a comparative advantage may be inevitable, but the fact remands that there are better ways to handle such a loss than how Nokia acted in Bochum.
References
Deresky, Helen (2011). International Management: Managing Across Borders and Cultures (7th ed.). New Jersey: Prentice Hall
Helsingin Sanomat (2008). Anger at Nokia swells in Germany; top politicians join fray over plant closure. International Edition- Business & Finance. Retrieved on March 31, 2011 from http://www.hs.fi/english/article/Anger+at+Nokia+swells+in+Germany+top+politicians+join+fray+over+plant+closure/1135233441536
Henning, Dietmar (2008). Germany: Nokia announces closure of its Bochum factory. World Socialist Web Site. Retrieved on March 31, 2011 from http://www.wsws.org/articles/2008/jan2008/noki-j21.shtml
Hofstede, Geert (2009). Germany. Retrieved on March 31, 2011 from http://www.geert-hofstede.com/hofstede_germany.shtml
Kwintessential, Ltd. (n.d). Doing Business in Germany. Retrieved on March 31, 2011 from http://www.kwintessential.co.uk/etiquette/doing-business-germany.html
Schaupp, Gretchen & Graff, Joachim (2010). Negotiating Successfully. Retrieved on March 31, 2011 from http://www.german-business-etiquette.com/22-successful-negotiations.html
No comments:
Post a Comment