Nokia plumps for plant in Chennai

INVESTMENT PLANS ARE SCALING UP

This will be Nokia's first facility in India and its tenth globally.

Nokia today signed a memorandum of understanding (MoU) with the Tamil Nadu government for investing $150 million in a mobile phone manufacturing facility near Chennai. This will be Nokia's first facility in India and its tenth globally.

At a press conference, Nokia executives said the facility would be located at a 210 acre site in Sriperumbudur, about 40 km from Chennai, on the Bangalore highway.

The site will also house Nokia's suppliers, who are expected to invest $150 million, leading to a total investment of $300 million (around Rs 1,315 crore).

Nokia's decision to invest in a plant came in the wake of the Indian market generating a demand of 23-25 million handsets a year, said Sanjeev Sharma, managing director of Nokia India. Sharma said the company estimated its market share to be over 50 per cent.

Ramio Puntala, senior vice-president (operations and logistics), Nokia, said the new plant would bring down logistics costs of Nokia's Indian operations, which currently relied on imports. Cost benefits would increase once materials were procured locally, he added.

Company executives said usually manpower cost was critical in selecting a country for setting up a manufacturing facility as the equipment cost was similar around the world.

In mobile phone manufacturing, cost advantages came from product design rather than from production process, said Sharma.

Mobile penetration in the Asia-Pacific region was expected to be a major contributor to the global mobile subscriber base surpassing 2 billion in 2006, said a company release, adding that this made India a natural location choice.

Nokia has three plants in America, three in Europe and three in the Asia-Pacific region (two in China and one in Korea).

Jukka Lehtela, Nokia's director of India operations, declined to disclose details of the MoU. However, Tamil Nadu Chief Minister J Jayalalithaa today told the Assembly that the site would be declared a special economic zone.

She added that Nokia's suppliers would invest another $150 million to support the facility, which would have a capacity of 24 million units.

Puntala said production would start in the first half of 2006, and the facility would have the capacity to make the full range of mobile phones. The work force at the facility is expected to be around 2,000. The plant is also expected to eventually cater to surrounding markets.

Lehtela said Tamil Nadu was chosen because of strong support of the state government, availability of the right kind of people and the overall cost level which suited the company.