Guy Norton in Zagreb -

Romania's ambitions to become a major Emerging European hub for hi-tech companies from around the world suffered a major setback when Finnish telecommunications giant Nokia confirmed on September 29 it was to close a mobile phone factory in the north-western Romanian town of Jucu by the end of this year.

The closure will affect roughly 2,200 workers at the plant, which was opened in September 2008 after an initial investment of €60m. At the time, Nokia's decision to relocate to Romania from a previous plant in Bochum, Germany was hailed as classic example of multinational firms shifting their manufacturing facilities from high-cost "Old Europe" to low-cost "New Europe."

Initial speculation that Nokia intended to shift production to even lower cost neighbour Moldova seemed to confirm that that trend was entering a second phase, with the likes of Nokia looking to leave new EU member states like Romania for cheaper destinations in the former Soviet Union. However, Nokia president Stephen Elop dismissed those rumours, announcing that the company was moving production even further east to Asia, where there are an increasing numbers of both component suppliers and end-consumers for its smartphone products. "It is not about costs, but the fact that suppliers and consumers are starting to be in the Asian region. It is not only us, but all mobile phone producers," he said. "The fundamental reason is the change of the phone production market, as people are starting to buy smartphones instead of normal phones. The main suppliers for these products are in Asia, this is where our plans come from to shut down the plant in Romania."

On hold

This is only the latest of blows to Romania's hi-tech ambitions. The closure of the Jucu facility by the Finnish firm follows the April shutdown of a research and development centre in Cluj-Napoca, which saw 120 employees laid off.

Nokia was previously regarded as one of the landmark investors in Romania. Last year, it was the second largest exporter from Romania, behind Renault-backed carmaker Dacia, generating sales of €1.6bn last year, up 56% on 2009. According to finance ministry figures, Nokia Romania reported a net profit of €43m in 2010, up from €38m in 2009.

Nokia's Elop says the Jucu plant will operate until the end of 2011, with workers set to receive compensatory payments and bonuses until March 2012. He said that the company would also work with the local authorities to ensure that the staff receive professional re-training. That announcement failed to mollify workers representatives, with Bogdan Hossu, president of the Cartel Alfa trade union, claiming that Nokia was looking to shut down the Jucu facility on the cheap. He described Nokia's plan to grant Romanian workers just three months redundancy pay as "a poor joke", adding that it was far less generous than the terms offered to German workers when Nokia closed its plant in Bochum in 2007. Hossu claimed that the Bochum worforce received at least 60 months' worth of redundancy pay.

For their part, the Romanian authorities on both a local and national level, remain upbeat about the prospects of replacing a major employer like Nokia in short order.

Alin Tise, president of Cluj county where the Nokia plant is located, told local media that German electronics firm Bosch was looking to hire up to a 1,000 employees for a planned factory in the Tetarom industrial park where Nokia is currently based. Bosch, which has previously established operations in Bucharest, Timisoara and Blaj, last year had a reported turnover of €161m in Romania.

Separately, Communications Minister Valerian Vreme told state news agency Agerpres: "Many other companies have expressed their interest to come to Romania because they want to enlarge their businesses." He said that the likes of Dell, IBM, Oracle from the US and China's Huawei were all interested in setting up operations in Romania, while existing investors such as Ericsson were looking to up their presence in the country. Ericsson is reported to be looking to add a further 500 people to its existing 800-strong workforce in Romania.

Meanwhile, Andreea Paul-Vass, economic advisor to Romanian PM Emil Boc, speaking after an emergency cabinet meeting convened to discuss the closure announcement, claimed that the authorities in Bucharest were in "advanced negotiations" with at least 10 foreign companies, which are looking to set up operations in the country. And Boc is now personally overseeing the efforts of the Romanian Centre for Trade and Foreign Investments, which is said to be holding discussions about over 21 investment projects worth more than €1bn that could lead to the creation of over 8,000 jobs.

On a brighter note, UK information technology firm Endava recently announced it will hire a further 350 people in Romanian by next June, which would give it a 1,000-strong workforce in the country. Endava, which operates from bases in Iasi, Bucharest and Cluj-Napoca offers consultancy, software development and IT support to clients in Europe and the US.